PRESENTATION TITLE

Presented by:Name SurnameDirectorate

Date

PORTFOLIO COMMITTEE OF WATER AND SANITATION ON

WATER BOARDS (2013/14 FINANCIAL YEAR)

25 FEBRUARY 2015

Presented by:

Ms Margaret-Ann DiedricksDirector-General

Date:25 February 2015

Contents

• Part 1: Overview by the Director-General

• Part 2: Water Boards

2

Part 1

• Overview by the Director-General

3

The purpose of this presentation is to provide an overview on the performance of the 12 Water Boards for the 2013-2014 financial year, based on an analysis of their Annual Reports for 2013/14.

PURPOSE

4

The Water Boards listed during 2013/14 were :

Rand Water Bloem WaterMhlathuze Water Magalies Water

Lepelle Northern Water Overberg Water Amatola Water Umgeni Water

Bushbuckridge Water Sedibeng Water , Botshelo and

Pelladrift

Bushbuckridge and Botshelo Water were disestablished on 01 April 2014 and Pelladrift in October 2014. Figures for these water boards are included up to that date.

WATER BOARDS

5

Overview of water boards• Water Boards are public entities and they conduct their

primary business in accordance with a mandate derived from legislation and government/sector policies and protocols.

• They are established in terms of Water Services Act , Act No 108 0f 1997 and are listed as Schedule 3 b under the PFMA

• Water boards are key strategic entities as all socio-economic development within their designated area of supply is linked to the delivery of reliable, healthy and cost effective bulk services.

• There were a total of 12 water boards in South Africa during 12/13 financial year and this was reduced to 9 in 13/14 .

6

.

7

The key role of Water Sector Institutions is to support South Africa as a developmental state to deliver on Government Developmental

Objectives through :

Relevant Advantages of

Water Institutions

1. Using water for promoting socio-economic developmental agenda .

2. Reducing inequality through access to water and job creation .

3. Leveraging additional investments for infrastructure development

4. Enabling rural communities to use water for rural livelihoods.

5. Promoting greater citizen participation in decision making

6. Allowing for innovation and knowledge generation.

Water & Sanitation sector institutions

Trans Caledon Tunnel Authority

(Schedule 2 of PFMA)

Komati Basin Water Authority (Schedule 3A of

PFMA)

Water Research Commission

(Schedule 3A of PFMA)

Water Boards (Schedule 3B of

the PFMA)

Amatola Water

Lepelle Water

Bloem Water

Magalies Water

Mhlathuze Water

Rand Water

Overberg Water

Sedibeng Water

Umgeni Water

MinisterCatchment Management Agencies (Schedule 3A

of the PFMA

Breede-Gouritz

Limpopo

Inkomati-Usutu

Pongola-Mzimkhulu

Berg-Olifants Doorn

Olifants

OrangeTsitsikamma-

Mzimvubu

Vaal

Komati Basin Water Authority (Schedule 3A of

PFMA)

Komati Basin Water Authority (Schedule 3A of

PFMA)

Financial year : 1 April to 31 March

Financial year : 1 Jul to 30 Jun

8

Sedibeng

Lepelle Northern

Amatola

Umgeni

Umhlathuze

Magalies

Bloem

Rand

Overberg (not regional) 9

CONSOLIDATED PERFORMANCEConsolidated review of the financial performance of the Water Boards based on the Annual Reports for the 2013/14 financial year. Consolidated water sales, revenue and expenditure

Budget vs Actual Income Statement June 2014 (R000's)

Actual Budget Variance Variance %

Volume sold 2 606 962 666 26 33 475 900 (26 513 234) (1.0)

 Sales 13 128 083 14 722 609 ( 1 594 526) (10.8)Cost of sales 4 333 789 6 079 022 17 452 33 28.7Gross profit 8 794 294 8 643 587 150 707 1.7Other income 1 626 378 181 280 1 432 343 797.2Operating cost 8 80 313 7 309 201 (1 171 112) (16.0)Direct labour 2 547 656 2292 078 (255 578) (11.2)Energy 20 21 955 2 31 992 9 997 0.5Maintenance material 282 895 293 611 10 716 3.6Chemical/purification 395 786 477 286 81 500 17.1Depreciation 657 326 685 924 28 598 4.2General expenses 1 794 729 1 412 869 (381 860) (27.0)Other expenses 779 926 115 441 (664 485) (575.6)

 Operating surplus (deficit) 1 940 359 1 515 666 424 693 28.0Net interest 252 399 140 326 112 073 79.9

Other comprehensive income (cost) 144 478 (17 755) 162 233 (913.7)Net surplus (deficit) for period 2 337 236 1 638 237 698 999 42.7

10

OVERVIEW OF ENTITIES

Amatola

Bloem

Botshelo

Bushbuckr

idge

Lepell

e North

ern

Magali

es

Mhlathuze

Overb

erg

Pellad

rift Rand

Sediben

g

Umgeni

0

200000

400000

600000

800000

1000000

1200000

1400000

1600000

Variability in Size Volumes supplied kl 000

11

CONSOLIDATED PERFORMANCE (Cont)Consolidated Revenue: % Spread

2% 3%1%1%

3%2%

2%0%

0%

66%

5%

14%

% x total RevenuesAmatola

Bloem

Botshelo

Bushbuckridge

Lepelle North

Magalies

Mhlathuze

Overberg

Pelladrift

Rand

Sedibeng

Umgeni

12

CONSOLIDATED PERFORMANCE (Cont)Consolidated CAPEX Spend

WATER BOARD ACTUALS 2013/14

BUDGET 2013/14

R OVER (UNDER) SPEND

% OVER (UNDER) SPEND

BUDGET 2014/15

Amatola 10 404 43 363 (32 959) (76.0) 71 440Bloem 102 444 137 100 (34 656) (25.3) 49 701Botshelo 336 336 100.0Bushbuckridge 1 596 1 596 100.0Lepelle Northern 73 264 235 893 (162 629) (68.9) 105 433Magalies 27 943 442 991 (415 048) (93.7) 933 284Mhlathuze 125 197 120 542 4 655 3.9 145 816Overberg 2 037 705 1 332 188.9 2 668Pelladrift 424 424 100.0

Rand 2 244 027 2 892 670 (648 643) (22.4) 2 750 000Sedibeng 71 255 118 342 (47 087) (39.8) 157 721Umgeni 779 001 880 745 (101 744) (11.6) 1 683 599

TOTALS 3 437 928 4 872 351 (1 434 423) (29.4) 5 899 662

Note: Figures are based on the figures from the Water Board AR cash flow statements relating to Acquisition of PPand E and intangible assets.

13

CONSOLIDATED PERFORMANCE (Cont)

WATER BOARDSURPLUS

2013/14 R'000% OF TOTAL

Amatola 29 159 1.2Bloem 65 635 2.8Botshelo 24 407 1.0Bushbuckridge 6 071 0.3Lepelle Northern 17 799 0.8Magalies 34 142 1.5Mhlathuze 79 198 3.4Overberg 1 273 0.1Pelladrift (1 040)Rand 1 180 351 50.4Sedibeng 97 929 4.2Umgeni 802 312 34.3

Water Board Surplus/(Deficit) in 2013/14

14

CONSOLIDATED PERFORMANCE (Cont)Municipal Debtors (July 2014)

Water BoardDAYS 30 DAYS 60 DAYS 90 DAYS 120+ ARREARS

Amatola 31 869 352 5 185 030 1 290 525 29 762 040 68 106 947

Bloem54 745 392 2 735 105 2 466 648 54 127 155 114 074 300

Bushbuckridge16 806 660 16 806 660 14 903 991 305 459 171 353 976 482

Lepelle N14 805 584 7 158 714 7 450 892 278 855 148 308 270 338

Magalies 8 813 164 4 205 161 3 246 262 15 218 952 31 483 539

Mhlathuze3 474 888 136 9 0 3 475 033

Overberg286 100 53 584 0 0 339 684

Pelladrift221 798 230 662 251 492 0 703 952

Sedibeng 52 951 537 58 801 145 51 875 861 859 130 709 1 022 759 252

Rand 14 948 489 7 672 0 0 14 956 161

Umgeni 12 575 115 1 675 970 2 5002 40 925 14 317 012

TOTAL191 947 628 89 723 417 81 510 066 1 451 591 662 1 904 772 773

Source: DWS figures as at July 2014

15

Executive Management Bonuses for 2013-14

Name 2 014 R'000Amatola water 626Bloem Water 2 235Botshelo Water 0Bushbuckridge Water 0Lepelle water # 2 964Umgeni water 1 378Mhlathuze water 354Magalies Water 1 015Sedibeng Water 751Overberg Water * 276Rand Water 8 229Pelladrift Water 0WBs Total R17 828*Performance bonus plus other cash benefits# Other cash benefits 16

CONSOLIDATED PERFORMANCE (Cont)

Audit Reports

11 of the 12 Water Boards received Unqualified Audit Reports on their financial statements for the 2013/14 financial year. Botshelo Water received a Qualified Audit Report (Reported to Parliament)

17

Viability of some water boards

 

STRATEGIC CHALLENGES

Amatola Water continues to face challenges due to limited growth in its bulk water business, its low tariff structure and exposure to secondary activities in support of local government. While there has been an improvement over the past two years from a turnaround strategy implemented by the Board, the profitability is low (R29 million in 2013/14) and this has an impact on the ongoing sustainability of the organisation.

The levels of municipal debt remain a serious concern for Bloem, Botshelo, Bushbuckridge, Lepelle Northern and Sedibeng Water where the levels are substantial and viability and sustainability of the entities is potentially threatened as the overall debt levels are increasing. This critical issue needs to be fully addressed on an ongoing basis by all stakeholders.

18

 

SUMMARY AND CONCLUSION

 

While there are a number of areas for concern and specific institutional challenges that are being addressed, the overall performance of Water Boards during the 2013/14 reporting period has been generally satisfactory. Overall Water Boards have delivered on their mandate and provided appropriate levels of assurance of supply and quality of water and services delivered to municipalities and other key customers. In doing so, these important and strategic entities contributed positively to governments broad social economic development agenda.

Levels of compliance by Water Boards are on an improving trend and ongoing steps initiatives/interventions are being implemented by DWS to ensure a more rigorous and proactive monitoring of water board performance by the DWS.

19

Part 2WATER BOARDS• Rand Water (including Bushbuckridge Water);• Mhlathuze Water;• Lepelle Water; and• Amatola Water

20

Rand WaterPresented by:

Chairperson: Adv HashatseChief Executive: Mr P Sechemane

21

On 15th April 2013, the then Honourable Minister for Water and Environmental Affairs, Ednah Molewa announced to the Portfolio Committee on Water and Environmental Affairs that she had approved the Institutional Reform and Realignment process. The important conclusions are • The number of water boards were reduced from twelve to nine• Bushbuckridge Water Board (BBR) and Botshelo were disestablished• Rand Water took over the BBR area of service• Magalies Water Board and Sedibeng Water Board took over the Botshelo Water Board area of service

Institutional Reform and Realignment Process

The intention of the Directive has been translated by Department of Water and Sanitation (DWS) into the following: Phase 1: Take over of BBRPhase 2: Water service schemes – Regional bulk infrastructure (Abstraction, purification an

distribution). Taking over responsibility for the Western Highveld Scheme which is defined as a regional scheme and serves the municipalities of JS Moroka and Thembisile in Mpumalanga as well as small pieces of the Elias Motsoaledi and Ephraim Mogale LMs in Limpopo Province. This includes the following municipal areas: Nketoana, Phumelela, Mafube and Maluti a Phofung (all in the north east of the Free State); Pixley Ka Seme, Lekwa and Dipaleseng (in the south of Mpumalanga).

Phase 3: Water resource schemes, Upper Vaal Management Area • Takeover, Management and Operating water resources, that is, dams, tunnels, and related pipe

network of a regional nature)• Taking transfer of water resources infrastructure in the northern part of Mpumalanga (primarily

the Olifants WMA) which includes the following municipalities: Emakhazeni, Thaba Chweu and the North of Mbombela.

• Taking transfer of local water resources schemes in the Upper Vaal WMA, and supporting water management institutions functioning there (DWA and future Vaal CMA).

22

Institutional Reform and Realignment Process

Rand Water’s previous and extended area of operationsRand Water’s Extended Area of Operations includes- 27 new local

councils- Gauteng- Limpopo (Greater

Groblersdal and Great Mable Hall

- North West (Rustenberg and Madibeng areas)

- Mpumalanga- Northern Free State

(Boundary of the Upper Vaal WMA) – Maluti-a-Phofung, Dihlabeng, Nketoana, etc

Current New TotalPopulation 12 million 4 – 7 million 16 – 19 millionEconomy (% of GDP) 34% 7 – 16% 41 – 50%The exact numbers are difficult to calculate because the extended area incorporates portions of Limpopo, North West and Free State. Only Mpumalanga and Gauteng are included in total. 23

Rural Development Strategy - The Department has identified 24 district municipalities for rural water development. Rand Water is assisting at least 7 of these rural municipalities by increasing access to water services.

Ministerial Directives

Molopo Eye to Mahikeng Ministerial Directive

Msukaligwa (Ermelo) Local

Municipality

Bushbuckridge Municipality – Intervention

Emalahleni Intervention

Sedibeng Regional Bulk

Sanitation Scheme

Extended area of Operations (BBR, Upper Vaal WMA)

Botshelo Water Board

Rand Water has been a proud partner to the Honourable Minister in providing water services on an emergency basis

24

• Rand Water supplies an average of 4183 Ml per day, 2.7% growth in volumes yoy. • The highest recorded peak daily demand is 4923 Ml per day.• We stepped up our investment in infrastructure by 18% to R1.75 billion.• Revenue grew up by 12% to R8.665 billion.• New revenue streams growth by 73% to R652 million• Increase in net income by 18.6% to R1.18 billion• Continued to assist municipalities to improve the blue drop and green drop status.

Operational Performance Snapshot

Greater Jo-hannesburg

Metro37%

Ekurhuleni Metro23%

Tshwane Metro16%

Emfuleni 6%

Other munic-ipalities

13%

Mines4%

Industries1%

2010 2011 2012 2013 2014 3,600

3,700

3,800

3,900

4,000

4,100

4,200

4,300

4,400

4,500

0%

1%

2%

3%

4%

5%

3,925

4,095

4,205 4,309

4,413

4%

4%3%

2% 2%

Total volumes per day incr in Volume Sold %

Ml/d

ay

25

Triple Bottom line•Social: Continuous Water supply, Sanitation solutions, RWA, RWF & CSR initiatives as well as job creation and capacity building.

•Environmental: Blue & Green drop standards achieved, Environmental conservation programs; Water Catchments, Wetland rehabilitation

•Economic: YOY increases; Revenue 12%, Gross income 15%, Net income 19%, Cash from operations 22%and Capital expenditure 40%

Presidential Outcomes•A long and healthy life for all South Africans- Undisrupted, continuous supply of quality water•Skilled and capable workforce: Rand Water Academy, Capacity building and Job creation•Efficient local government system: Rand Water Mpumalanga•Implementing Agent on behalf of Municipalities or Government Departments

Shareholder Compact•Institutional Realignment•Enhanced quality and quantity of water resources; Water demand management •R2.45 bn spent on ensuring the maintenance and supply availability of our bulk water infrastructure•R652m in growth projects to Strengthen and implement strategies for water management in the country:

Performance Snapshot Against

26

Performance Snapshot No: Performance objective Key perfomance indicator Target Perfomance result

1 Water quality compliance Compliance SANS 241 Class 1 >= 95% Achieved 99.65% (1)Compliance SANS 241 Class 2 >= 99% Achieved 99.98% (1)

2 Non revenue w ater Water lost as a percentage of total w ater produced

<= 3.9% Achieved 3.5% (2)

3 Reliability of service Number of days supply disrupted divided by total number of possible supply days

0 days Achieved 0 days

4 Financial reporting compliance Unqualif ied external audit report 100% Achieved 100%Qualif ied external audit report 0% Achieved 0%

5 Financial reporting compliance Unqualif ied external audit report 100% Achieved 100%Qualif ied external audit report 0% Achieved 0%

6 Staff turnover Percentage of staff leaving <= 5% Achieved 2.45% (3)

7 Board member attendance Annual attendance >= 80% Achieved 80%

8 Effective internal controls and risk management

No repeat on unresolved internal audit f indings 0 f indings Achieved 0 f indings

9 Bulk supply agreements concluded w ith municipalities/other customers

Municipalities/other customers w ith bulk supply agreements

100% Achieved 100%

10 Improve f inancial perfomance Net income margin (primary activities) >=12.8% Achieved 16.5% (4)Net income margin (secondary activities) >= 0.5% Achieved 1.5% (5)

Gross margin (primary activities) >= 25.9% Achieved 27.3% (6)

Gross margin (secondary activities) >= 5% Achieved 5.58% (7)

Debt equity <= 37% Achieved 28.6% (8)

Return on assets >= 7.1% Achieved 8.98% (9)

Debtors days <= 33 days Not achieved 34 days

27

Performance Snapshot No: Performance objective Key perfomance indicator Target Perfomance result

11 Increase BBBEE spend Percentage of spend increased and increased new entrants

>= 85% Achieved 92.66% (10)

12 Manage costs w ithin the approved budget

No over expenditure/losses <= 15% Achieved 1.2%

13 Capital expenditure Percentage variance of overall projects expenditure against target

<= 5% Not achieved 8% (11)

Percentage variance of overall project completion dates against target

<= 5% Achieved -1%

14 Increased access to services Capital expenditure spend of number of expansion projects

>= 26% Not applicable (12)

15 Engagement in secondary activities

Total turnover (Rm) >=R 372m Achieved R 652 (13)

16 Achieve statutory reporting compliance

Statutory submissions made on time 100% Achieved 100%

17 Jobs created Number of permanent and contract staff (direct)

>= 3 268 Not achieved 3 229

Number of temporary (indirect) RWF and RW Contractors

>= 1 900 Achieved 4 816 (14)

18 Corporate social responsibility initiatives

Percentage spent on corporate social responsibility initiatives

>= 95% Achieved 100%

19 Training and skills development Total number of graduates enrolled by the Rand Water Academy

>= 30 Not achieved 19 (15)

20 Good Governance Breaches of materiality and signif icance framew ork

<= RNil Achieved RNil

21 Corporate social responsibility initiatives

Number of identif ied Rural District Municipalities supported by Rand Water

>= 4 Achieved 7

28

• Water and Sanitation Programmes

• Environment Conservation Programme

• Enterprise Development Programme

• NGO Support Programme

• Health, including HIV and AIDS Programme

• Educational & Training Programme

Rand Water Foundation – 2013/14: R31 million

Outcome No. 10: Environmental assets & natural resources that are well protected and enhanced.

Contribution to government and Minister’s performance agreement (cont.)

Rand Water Foundation – External funding 2013/14 R35 million• Water and Sanitation Programmes

• Environment Conservation Programme

• Enterprise Development Programme

• Providers of external funding include : GDARD, GDE, SAB , SANBI Fezile Dabi District • Municipality, and DWS

29

12% 15% 19% 22% 40%

RevenueR8.7 bn

Gross IncomeR2.4 bn

Net IncomeR1.2 bn

Net cash from operations

R1.5 bn

Capital expenditure

*R2.2 bn

Financial performance overview

2011 2012 2013 20140

400

800

1200

1600

0.0%

4.0%

8.0%

12.0%

16.0%

20.0%

753 9411,201

1,395

EBITDA

EB

ITD

A (

Rm

)

EB

ITD

A m

arg

in

*Excluding Capitalised Borrowing Costs

Return on Capital Employed (%)

30

Ploughing Back Our Net Income

2010 2011 2012 2013 20140

100

200

300

400

2,500.0

3,000.0

3,500.0

4,000.0

3,029.0 3,030.03,153.0 3,214.0

3,504.0100

177247

309

337.273153764202Profitability and Productivity

Number of employees Profitability per employee

Th

ou

san

ds

R'kl

• Made good progress with our Capital

Investment Programme.

• Work closely with our Stakeholder on

the development of the new National

Water Pricing Strategy.

• Remain focused on improving our

processes.

• Limiting expenses and containing

cost.

• Maintaining stable cash generation

from operation.

• Advancing our Capital Expenditure

Programme.

2012 2013 2014 -

1,000

2,000

3,000

20.0%

22.0%

24.0%

26.0%

28.0%

1,589

2,073 2,392

Gross Income

Gross Income Gross Income %

R’m

31

• Revenue growth primarily driven by tariff

increases of 9.82% effective from 1 July 2014.

• Total Volume increases of 2.4% primarily from

the municipal customers. (1.9% on average ml/d)

• Municipal customer contribution to revenues

contributes 90% of total sales.

Revenue Mix Analysis

2010 2011 2012 2013 2014 3,600 3,700 3,800 3,900 4,000 4,100 4,200 4,300 4,400 4,500

-

1.00

2.00

3.00

4.00

5.00

6.00

3,925

4,095

4,205

4,3094,413

3.50 3.99

4.51 5.02

5.51 Volume of water sold and potable water bulk tariff

Total volumes per day Potable water bulk tariff

R/kl

32

For the year ended30 June 2014

R million2013

R million%

change

Revenue 8 665 7 751 11.7%

Net operating expenses 7 270 6 550 10.9%

EBITDA 1 395 1 201 16.1%

Depreciation and amortisation 283 247 14.5%

Income from operations before net finance costs

1 112 954 16.5%

Net investment income

(70) (43) 62.7%

Taxation - - 0%

Net income for the year

1 182 997 18.5%

Consolidated Income Statement

49%

19%

3%4%

21%

4%Cost of raw water

Energy

Chemicals

Other costs

Labour

Dep&Amort

2014

2013

33

Asset Base Analysis And Cost Breakdown

The application of the replacement value method has a direct impact on tariffs

R’000,000

June 2013historical cost

June 2013 replacement value

June 2014historical cost

June 2014replacement

value

Net income/loss for the period 997 997 1,182 1,182

Adjustments: Depreciation and amortisation (1,470) (1,543)

Adjusted profit after revaluation for the year 997 (423) 1,182 (361)

Equity cumulative impact: Closing Equity 8,512 4,088 9,750 3,727

Adjustments: Revaluation of PPE - 74,094 - 75,402

Adjusted closing Equity balance 8,512 78,182 9,750 79,129

Statement of financial position : PPE 10,397 84,000 12,798 88,200

RATIOS

Return on assets 7.6% NONE 9.2% NONE

Debt/Equity ratio 24% 2% 32% 4%

34

Delivering On Growth Strategy

For the year ended30 June

2014R

million

2013R

million

Revenue 652 377

Cost of sales(616) (342)

Gross profit 36 35

GP%5.6% 9.2%

35

Rural Development Strategy - The Department has identified 24 district municipalities for rural water development. Rand Water is assisting at least 7 of these rural municipalities by increasing access to water services.

Molopo Eye to

Mahikeng Ministerial Directive

Msukaligwa (Ermelo)

Local Municipalit

y

Bushbuckridge

Municipality –

Intervention

Emalahleni Interventio

n

Sedibeng Regional

Bulk Sanitation Scheme

Extended area of

Operations (BBR,

Upper Vaal WMA)

Botshelo Water Board

Rand Water has been a proud partner to the Honourable Minister in providing water services on an emergency basis

For the year ended 30 June2014

R million2013

R million

ASSETS

Non-current assets 12 798 10 397

Current assets 2 531 2 211

Assets of disposal groups 2 2

TOTAL ASSETS 15 331 12 610

Statement of financial position

Return on average total assets (%)

Consolidated Financial Results 2014

36

For the year ended 30 June 2014R million

2013R million

EQUITY AND LIABILITIES

Capital and Reserves 9 750 8 511

LIABILITIES 5 581 4 099

Non-current liabilities 3 114 2 073

Current liabilities 2 464 2 024

Assets of disposal groups 3 2

TOTAL EQUITY AND LIABILITIES 15 331 12 610

Statement of financial position Return on equity (%)

Consolidated Financial Results 2014

Gearing (%)

Strong financial position due to growth in net worth by 15%

37

For the year ended 30 June 2014R million

2013R million

Cash flow from operating activities 1 429 1 180

Cash generated from operations 1 560 1 230

Other (131) (50)

Cash flows from investing activities (2 420) (1 962)

Capex spend* (2 244) (1 644)

Proceeds from disposal of assets 1 1

Other investment activities (177) (319)

Cash flow from financing activities 999 318

(Decrease)/Increase in bank and cash (8) (464)

Abridged Statement Of Cash Flows

Cash generated from operations (R million)

*Capex spend excludes borrowing costs and rehabilitation provisions

Credit ratings:

Standard & Poors Fitch RatingsShort term A+ F1+ (zaf)

Long term BBB AA+ (zaf)

38

for the

9 months ended 31 Mar

2014R million

12 months ended 30 Jun

2013R million

ASSETS

Non-current assets 61 61

Current assets 99 90

TOTAL ASSETS 160 150

Statement of Financial Position

Financial Results 2014 – BBR Provisional Take –On Accounts

EQUITY AND LIABILITIES

Capital and Reserves 58 52

LIABILITIES 102 98

Non-current liabilities 2 3

Current liabilities 100 95

TOTAL EQUITY AND LIABILITIES 160 150

BBR Performance Snapshot - 9

months up to 30 March 2014

• Revenue : R130.5 million (R154.9

million ~ 2013)

• Net income : R6.1 million (-R7.9

million ~ 2013)

• Cash flow from operating activities :

R6.2 million (R9.2 million ~ 2013)

Performance Snapshot post

disestablishment – 3 months up

to June 2014

• Recognition of a surplus of R58m at

incorporation of BBR into RW on 1

April 2014.

• Revenue streams for 2014 is R43m

• Net Income for 2014 is R15.5m

39

Projected Peak Day Demands To 2035

Station Design capacity

New capacity

Come on line by (first

phase) 2017

Projected peak day demandsMega litre

2020 2025 2030 2035

Primary Systems

Zuikerbosch 3900 1200 600 4300 4800 5300 5800

Vereeniging 1400 Nil Nil 1300 1300 1300 1300

Booster Systems

Eikenhof 2000 Nil Nil 1470 1610 1750 1980

Zwartkopjes 800 200 Nil 760 780 840 880

Palmiet 1870 600 600 2000 2190 2380 2570

Mapleton 960 300 300 990 1080 1180 1270

40

Capital expenditure performance excluding moveable assets

Capital Expenditure Performance

41

System Augmentation (Rm)

Renewal(Rm)

Total (Rm)

Eikenhof

492 694 1,186

Mapleton

956 734

1,690

Palmiet

2,106 929

3,035

Primary

3,641 2,096

5,737

Zwartkopjes

453 954

1,407

Mpumalanga 253 168 421

Total (60%) 7,900 (40%) 5,576

(100%) 13,476

5-year Capital Expenditure (2015/19) R13,5 Billion For Continuing Business

Five Year Capital Expenditure Plan 2015-2019 (R13.5 Billion)

Project Planned spend R(m) System

2015 - 2019

2015 Annual

1Zuikerbosch scheme (System 5)

2,770 58Primary

2O6 Palmiet - Klipfontein augmentation 972 350

Palmiet

3 Hydro power422 142

All

4 Mpumalanga -Bushbuckridge

253 63Mpumalanga

5B17 Zuikerbosch - Palmiet pipeline

223 223Palmiet

Total 4,640 836

Proportion of total augmentation spend

61%

Top 5 Augmentation projects over the 5-year period

42

Source Of Funding & Bond Issuances To Date

RW21

RW23

RW28

Facility amount

Utilisation Available

Cash 872 0 872

RSA Investment 483 0 483

General banking facilities

500 0 500

DFI 1 000 0 1 000

DMTN 5 000 2 474 2 253

Total 7 855 2 474 5 108

The organisation is currently working on increasing the size of the DMTN programme to R10 billion in order to cater for all future funding requirements

Optimal Funding Mix, And UsageFUNDING PLAN (R MILLIONS) 2015 2016 2017 2018 2019 TOTALCORE BUSINESS FUNDING PLAN

Debt capital markets 1 659 1 308 1 078 1 080 0 5 125

Bank/ project funding

34

27

22

22 0

105

  1 950 1 100 1 360 1 066 0 5 230

Funding Plan Assumptions:  The yield curve will be flat in the next

three years; Primary activities to be funded as

follows: Capital market – 78% Money Market - 20% General bank/Project funding - 2%; For secondary activities Grant

Funding and Project Financing will be used to fund the Growth Investments where possible.

Page 44

PROCESS AND IMPORTANT TIMELINES

DWS / TCTA raw water pricing 9th October 2014

Customer consultation and information sharing 14th October 2014

Submission to Treasury and SALGA for input 14th October 2014

Customer notification 8th December 2014

Submission to DWS for Parliamentary approval 25th January 2015

Parliamentary approval 15th March 2015

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RAW WATER TARIFF INCREMENT

2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20

TCTA Vaal River tariffCapital Unit Charge (CUC)

LHWP1 tariff 1.98 2.09 1.69 LHWP2 tariff 0.10 0.11 0.11Combined CUC (incl LHWP1 & 2, AMD) 2.08 2.20 1.80 1.69 1.82 1.65 1.61 1.79

Bulk Operating and Royalties (BO&R) charge - - 0.5176 0.6000 0.68 0.67 0.70 0.74 Total Augmentation (TCTA) Vaal River tariff 2.08 2.20 2.32 2.29 2.50 2.33 2.31 2.53

State SchemesAMD O&M tariff 0.23 0.28 0.65 0.92 0.98State schemes O&M 0.46 0.50 0.54 0.58 0.61 0.64 0.67

DWS 0.46 0.50 0.77 0.86 1.26 1.56 1.65Total raw water tarif 2.67 2.81 3.06 3.36 3.59 3.87 4.18

TCTA Vaal River tariff 5.91% 5.21% -1.01% 8.89% -6.92% -0.48% 9.29%DWS 6.85% 54.93% 12.06% 46.71% 23.58% 5.90%Total raw water tarif 5.49% 8.84% 9.68% 6.81% 7.98% 7.93%

Actual R/m3 Proposed R/m3

Rand Water received an effective raw water tariff increment of 8.77 per cent. This is an increment from R2.8182 cents per kilolitre to R3.0654 cents per kilolitre for the financial year beginning 1st April 2015. This is composed of the TCTA component which is decreasing by 1% from R2.32 to R2.29. The DWS component introduces a new element, i.e. AMD. Therefore this is an increase from R0.5 cents per kilolitre to R0.77 cents per kilolitre, an effective 55% increment. The raw water charge is 23 cents as shown in the table below.

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Tariff Versus Input Cost Inflation

2010 2011 2012 2013 2014 2015Tariff 14.10% 12.90% 11.30% 9.82% 8.10%Energy - Eskom 35.0% 25.2% 16.7% 15.0% 10.1% 17.1%Energy - Municipalities 35.0% 37.7% 29.2% 15.0% 10.1% 18.5%Raw Water 9.2% 7.4% 8.5% 8.7% 6.2% 11.1%Chemicals 11.6% 10.0% 12.5% 8.9% 9.4% 13.0%Labour 8.1% 10.7% 8.2% 8.0% 8.5% 8.7%Other 10.0% 5.9% 5.7% 5.9% 5.6% 5.7%CPI 10.0% 5.9% 5.7% 5.9% 5.6% 5.7%

5%

10%

15%

20%

25%

30%

35%

40%Tariff Versus Input Cost Inflation

Tariff

Energy - Eskom

Energy - Municipalities

Raw Water

Chemicals

Labour

Other

CPI

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Proposed Tariff2016

Price Forecast Percent WeightedYear-End ~ 30 June increase 2016 of total

% R m % %

DWA 43.7% 1122 12.0% 5.2%TCTA 3.2% 3306 35.2% 1.1%Raw Water 11.1% 4428 47.2% 6.3%Energy - Eskom 17.1% 1057 11.3% 1.9%Energy - Municipalities 18.5% 936 10.0% 1.8%Chemicals 13.0% 347 3.7% 0.5%Multi-Partnered Uncontrollable Costs 13.1% 6768 72.1% 10.6%Labour 8.7% 1647 17.6% 1.5%Depreciation 25.5% 353 3.8% 1.0%Other 5.7% 615 6.6% 0.4%Total 9383 100.0% 13.5%

Target bulk tariff increase 13.5%

Bond Raised (R m) 1340

Rand Water Tariff = Rand Water Internal Inflation for Financial Year Ending 30th June

The proposed 2015/16 potable water tariff will thus be as follows:

Municipalities Current Tariff

(1 July 2014 – 30 June 2015)

New Tariff

(1 July 2015 – 30 June 2016)

C/kl C/kl

Tariff 595.520224

Excluding VAT at 14 per cent

675.915454

Excluding VAT at 14 per cent

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Municipalities Current Tariff

(1 July 2014 – 30 June 2015)

New Tariff

(1 July 2015 – 30 June 2016)

C/kl C/kl

Tariff 595.520224

Excluding VAT at 14 per cent

681.870656

Excluding VAT at 14 per cent

 In line with a well-established approach, Rand Water’s internal inflation is 13.5 per cent. Rand Water therefore proposes a 13.5 per cent tariff increment for the 2015 / 16 financial year with another 1 per cent allocated to the establishment of a Water Demand Management Fund. In total Rand Water proposes a 14.5 per cent tariff increment.

THE WATER DEMAND MANAGEMENT FUND

Non revenue water among Rand Water’s municipal customers has continued to worsen rather than improve. In 2005, the national average stood at approximately 27%. In Gauteng, the challenge was to improve these water losses to 15%. However, the national average now stands at 36.8%. The table below shows that non revenue water in Gauteng has worsened from 21.8% in 2005 to 35.9% in the 2011.

Name 2005 2011

Joburg Metro 20.6% 38.2%

Ekurhuleni Metro 23.8% 39.8%

Tshwane Metro 14.0% 26.5%

Emfuleni 47.6% 44.4%

Mogale 18.2% 26.0%

Metsimaholo 35.2% 17.2%

Rustenburg 32.3% 39.0%

Midvaal 23.0% 26.2%

Merafong 25.9% 26.0%

Randfontein 12.5% 21.9%

Westonaria 10.3% 29.7%

Lesedi 14.9% 8.2%

Ngwathe 1.2% 24.9%

Kungwini 28.7% 43.0%

Gauteng 21.80% 35.90% 49

In Conclusion

RW is committed to:• Maintain strong link with the Shareholder.• A strategic priority is to work together with our stakeholders to empower them to reach their

potential. Our ability to build effective and mutually beneficial partnerships with provincial and local governments and communities is of particular importance for us and is a pre-requisite for investment

• We are streamlining our organisation to become more agile and effective which will also sustainably improve efficiency

• Focusing on critical value adding activities.

• Eliminating duplication across organisation layers.

• Streamlining key processes.

• Sharing and adopting best practices.

• Embedding a cost conscious and performance driven culture.

• Meet key water quality standards and provide a continuous and reliable supply of world-class water.

• Roll out and meet Capex target.• Investigate and implement innovative solutions to contribute to more effective and efficient

water management.

• Advocating sustainable multi year tariffs

Thank You

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52

Mhlathuze WaterPresented by:

Chairperson: Ms Dudu MyeniChief Executive: Mr A.S. Makhanya

Content Graphical area of supply Overview of MW MW Performance 2013/14

Key Strategic Objectives Audit Report Financial Performance Capital Expenditure Borrowing Limits

Mid-year Performance 2014/15 Possible new Capital projects External Projects Compliance 2013/2014 Master Plan – uMkhanyakude DM Tariff Increase 2015/16

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GRAPHICAL AREA OF SUPPLY

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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 Northern of ILembe District Municipality

Supply Bulk Water and Sanitation services to Industries & Water Services Authorities in its area of operation

55

ANNUAL REPORT 2013/2014

Performance on Key Strategic Objectives:

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Item Performance Objective

Target 2013/14 Achievement Comments

1. Water quality compliance

97% - microbiological parameters97% - chemical parameters

100%

100%

Target exceeded

2. Water losses <5% 1% Target exceeded

3. Reliability of supply

<1% interruptions 0% interruptions

Target exceeded

4. Financial reporting compliance

Unqualified audit report

Unqualified (clean) audit report

Target met

ANNUAL REPORT 2013/2014Performance on Key Strategic Objectives

cont.

57

Item Performance Objective

Target 2013/14 Achievement Comments

5. Staff turnover 5% 4.64% Within target

6. Board member attendance

80% 80% Target met

6. Bulk supply agreements with customers

100% 100% Target met

7. Financial ratio’s Current ratio – 2.13Debt equity – 0.64% Return on assets – 6.5%Debtors days – 37.2 days

1.690.59%8.6%34.28 days

Target not met Target metTarget exceededTarget exceeded

ANNUAL REPORT 2013/2014Performance on Key Strategic Objectives cont.

58

Item Performance Objective

Target 2013/14 Achievement Comments

8. Increase BBBEE spend

Maintain above 51%

Achieved 65.8% Target exceeded

9. BBBEE rating Level 3 or lower Achieved level 2

Target exceeded

10. Increase access to services – no. of new projects

DOE & DBE - 245

DWS - 16DEA - 3

174

163

Target not met due to delay in getting necessary approvalsTarget metTarget met

11. Engagement in secondary activities

56% 62% Target exceeded

ANNUAL REPORT 2013/2014

Performance on Key Strategic Objectives cont.

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Item Performance Objective

Target 2013/14 Achievement Comments

12. Jobs created External - 500Internal - 176

673182

Target exceededTarget exceeded

13. Corporate social responsibility initiatives

At least 6 initiativesTotal budget R1.4 million

8 projects total spent CSI R1.9 million

Target exceeded

14. Training and skills development - Total number of training, leaderships and bursaries

155 118 Target not metDue to the training budget being exhausted

ANNUAL REPORT 2013/2014 (Cont.)

◊ Audit Report:◊ KPMG Inc. were appointed for the 2013/2014

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 a Unqualified (Clean) Audit Opinion for the 2013/2014 year.

◊ All internal controls were considered as relevant.

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ANNUAL REPORT 2013/2014 (Cont.)Annual Financial Statements:

Mhlathuze Water has maintained strong operating surpluses. Overall the profit for the year of R79.1 (2013: R68,1) million reflects an increase of 16% from the previous year.

Bulk water volumes increased by 8% mainly due to the increase in raw water volumes. (Tronox and RBM consumed more water)

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ANNUAL REPORT 2013/2014 (Cont.)Annual Financial Statements:

The graphs on tariffs for the 2 major Water schemes shows a downward trend for the past five years.

62

ANNUAL REPORT 2013/2014 (Cont.)Annual Financial Statements:

The graphs on tariffs for the two Waste water schemes shows a downward trend for the past five years.

63

ANNUAL REPORT 2013/2014 (Cont.)Annual Financial Statements:

Revenue increased by 10% for 2013/2014YE (mainly due to the 42% increase in IA fees under other activities (external projects).

64

ANNUAL REPORT 2013/2014 (Cont.)Annual Financial Statements:

Energy cost only increased by 3% due to savings. Mhlathuze Water are operating on an Enerflex tariff option from the City of uMhlathuze (CoU) for the Nsezi WTP, and for the Transfer Scheme the Night Saver rural option from Eskom, where the charges are for three months’ high season and nine months’ low season.

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ANNUAL REPORT 2013/2014 (Cont.)

Annual Financial Statements: Maintenance costs decreased by 8% from the prior year. In the prior year a

once-off ad hoc maintenance on plant breakdowns was done. For the current year Mhlathuze Water had implemented preventative maintenance, which improved on the breakdowns experienced in the prior year. For the current year the emphasis was mainly on the recovery of the offshore pipeline on the A and C-Line and due to the unfavourable weather conditions the work could not be completed by the end of June 2014 and will be carried forward to the 2014/2015 year.

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ANNUAL REPORT 2013/2014 (Cont.)

Annual Financial Statements: Chemicals costs decreased by 17% mainly due to minimum chemicals

being used because of lower raw water turbidity from the Mhlathuze River, and purification process optimisation initiatives to reduce purification costs/chemical dosages.

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