PRESENTATION OF 2011/2012 ANNUAL REPORT TO PCWEA

PRESENTATION OF 2011/2012 ANNUAL REPORT TO PCWEA

Presented by

Mr A.S. Makhanya (Acting Chief Executive)17/18 April 2013

MHLATHUZE WATEREnvironmental sustainability – we are committed to making a difference

Content Graphical area of supply Overview of MW MW Performance 2011/12

KPI’s Audit Report Financial Performance Capital Expenditure

Strategic Objectives 2012/13 Tariff Increase 2013/14 Mid-year Performance 2012/13 Strategic Objectives 2013/14 Strategic Outcomes 2013/14 Top 10 Risks PAIA & PAJA Implementation

17/18 April 2013

2

GRAPHICAL AREA OF SUPPLY

17/18 April 2013 ILEMBE

uMkhanyakudeZULULAND

uTHUNGULU

3

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◊ North of ILembe District Municipality

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

17/18 April 2013

4

ANNUAL REPORT 2011/2012Performance on Key Strategic Objectives:

17/18 April 2013

Item Performance Objective

Target 2011/12 Achievement Comments

1. Water quality compliance

99% - microbiological parameters95% - chemical parameters

100%

99.9%

Target met

2. Reliability of supply

1% interruptions 0% interruptions (>8 hours)

Target met

3. Water losses 5% 2% Target met

4. Financial reporting compliance

Unqualified audit report

Unqualified audit report

Target met

5

ANNUAL REPORT 2011/2012Performance on Key Strategic Objectives:

17/18 April 2013

Item Performance Objective

Target 2011/12 Achievement Comments

5. Staff turnover 5% 8% Target not met

6. Bulk supply agreements with customers

100% 100% Target met

7. Financial ratio’s Current ratio – 2.5Debtors days – 30 daysAsset turnover – 6%

2.6242 days (Against 45 days)

6.75%

Target metAcceptable

Target met

8. Increase BBBEE spend

Maintain above 51% Achieved 83%

Target exceeded by 32%

6

ANNUAL REPORT 2011/2012 (Cont.)◊ Audit Report:

◊ Deloitte and Touché in partnership with Nkonki Incorporated were appointed for the 2011/2012 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 Unqualified Audit Opinion for the 2011/2012 year.

◊ There were no significant deficiencies in internal controls.

17/18 April 2013

7

ANNUAL REPORT 2011/2012 (Cont.)Annual Financial Statements:

◊ Revenue increased by 12% for 2011/2012YE (mainly due to tariff increases).

◊ Staff cost increased by 6% from the previous year mainly due to annual salary increase of 8%.

◊ Energy cost increased by 20% due to electricity price increase (Eskom & City of Mhlathuze).

◊ Maintenance costs increased by 166% mainly due to maintenance done to the A Line for loss arising out of storm damage and to correct and maintain the offshore pipeline system in an acceptable and reliable operating condition.

◊ Depreciation charges increased by 48% due to the commissioning of Nsezi upgrade and the Empangeni Phase 2 project.

◊ Net finance cost increased due to projects which were commissioned during the year.

◊ Saving on chemicals of 24% was due to better quality of raw water abstracted from the river, lesser chemicals used in the purification process.

17/18 April 2013

8

ANNUAL REPORT 2011/2012 (Cont.)Key Financial Ratios:

17/18 April 2013

Ratio Standard Actual 2010/11

Actual 2011/12

Notes

Working Ratio <1 0.58 0.68 Adequate

Operating Ratio >0.75 0.69 0.80 Adequate

Average Debt Collection Period 40.46 41.95 Adequate

Return on Asset 8.9% 6.75% Adequate

Current Ratio >1.1 2.60 2.86 Adequate

Quick Ratio >1.1 2.55 2.82 Adequate

EBITDA >1.5 16.30 4.11 Adequate

Debt Coverage Ratio >1.35 11.11 4.11 Adequate

Debt Equity Ratio >1.1 1.51 1.20 Adequate

Personnel Ratio <0.60 0.31 0.27 Adequate

9

CAPITAL EXPENDITURE 2011/2012

Cost centre

Project Name Budget

Spent /Committed

YTD

Variance/Savings

% Project Completion

Comments

    R'000 R'000 R'000    

001 Weir Pumps Upgrade(Total Budget R27 million)

5,570

2,577

2,993 100% Complete

002 Nsezi WTP Expansion(Total Budget R177 million)

21,050 17,030 4,020 100%Complete

002 Nsezi Refurbishment 20,891 14,066 6,825 67% Completed 12/13

011Empangeni Connection(Total Budget R43 million)

4,1931,427 2,766 100% Complete

Other small Capital Items 9,558 11,505 (1,947) 100%

Total revised budget 61,262 46,605 14,657 76%17/18 April 2013

10

STRATEGIC OBJECTIVES 2012/2013Perspective Objective Outcome

Customer Meet customer requirements i.t.o. quantity, quality, reliability, timeframe and affordability

Quantity supply meets quantity demand

    Quality-Meeting SANS241 level and waste water permit requirement

    Reliability and timeframes –meet contractual obligation

    Affordability – Shareholder approves tariff

  Implement a plan to solve dense effluent pipelines operation

Plan submitted

Finance • Optimize financial resources, financial structure, financial risk and financial cost

• Benchmark Financial Status• Develop Financial Plan• Implement Financial Plan

• Sustainable Financial Entity• Financial risk within parameters• Unqualified Audit Opinion

Process • Optimize processes and systems to deliver outputs with minimal possible resources

• Overall efficiency study

  • Effective Asset Management • Develop optimization plan

17/18 April 2013

11

STRATEGIC OBJECTIVES 2012/2013Perspective Objective Outcome

People Optimize contribution of Human Resources to deliver Corporate Objectives

• Design optimal Structure

• HR Plan

    • Benchmark Productivity

    • Fully Implementation

    • Develop Culture Diversity program

Stakeholder Provide affordable water services delivery and address water services backlog, within constraint of sustainability 

Shareholder acceptance as reflected in signed Shareholder compact

  Supporting expansion, meeting future demand and meeting water services backlog

Obtain buy-in from WSA’s to bulk infrastructure plan Delivery of required Other Activities

  Quality, continuous, affordable water supply

CSI plan with appropriate impact

  Job creation Job Creation plan

  Economic growth/poverty alleviation Leverage resources into infrastructure

  Manage water resources effectively Water conservation/water demand management plan 17/18 April 2013

12

STRATEGIC OBJECTIVES 2012/2013Perspective Objective Outcome

Manage water resources effectively

Water conservation/water demand management plan

  BBBEE Contribution BBBEE Certification level Set target for BBBEE 51% of Procurement from qualifying BBBEE suppliers

Environment Conserve environment Overall Environmental Plan

  Minimize the impact of pollution  

  Minimize carbon footprint  

  Manage water resources effectively

  Monitoring current and future pollution

17/18 April 2013

13

MID-YEAR PERFORMANCE 2012/2013 ◊ All quarterly reports submitted to all stakeholders.◊ Surplus of R37,1 million comparing to budgeted surplus of R20,7

million, positive variance of R16,4 million.◊ Complied with water quality standards. ◊ 100% reliability of supply, no unplanned interruptions.◊ Staff turnover 2%, target of 5%, positive variance of 3%◊ Return on assets 9.1% against 5.7%. ◊ BEE of 69% against 51% target.◊ Outstanding debtors days 44 days against budget of 30 days

(contributors are the City of uMhlathuze and DWA on the Tugela/Goedetrouw TG scheme).

17/18 April 2013

14

MID-YEAR PERFORMANCE 2012/2013

◊ Capital expenditure at 45% of budget (incl. Committed)

◊ No fruitless and wasteful expenditures or unauthorised expenditure incurred during the period.

◊ Internal audit conducted as per annual plan.◊ Enterprise Risk management activities are in progress.

  Budget R’000Actuals &

Committed R’000 Variance R’000 %

Internal Projects 139 511 62 398 77 113 45%

External projects 410 718 354 667 56 051 86%

17/18 April 2013

15

BULK WATER TARIFF INCREASE 2013/2014Raw Water Purified/

Potable WaterA-Line

(Buoyant Effluent)

B-Line

Approved Tariffs 8.4% 8.6% 8.6% 8.6%

Energy increase(Still waiting final increase from Local Municipality)

8% (Eskom)

12% (City of uMhlathuze)

Estimate %

12% (City of uMhlathuze)

Estimate %

12% (City of uMhlathuze)

Estimate %

R/m³ (2012/13) 1.31 3.07 1.01 3.35

R/m³ (2013/14) 1.42 3.33 1.10 3.64

R/m³ (2014/15) 1.55 3.63 1.20 3.97

17/18 April 2013

16

BULK WATER TARIFF INCREASE 2013/2014 (Cont.)

◊ A General tariff consultation meeting was held on the

30 November 2012 with City of uMhlathuze. ◊ Thereafter consultation with individual consumers was

undertaken.◊ The tariff increase proposal was submitted on 03

December 2012 to National Treasury and SALGA and recommendation was received during January 2013.

◊ The consumers noted the proposed increase as indicated above.

◊ Tariffs will be tabled in Parliament by Minister.

17/18 April 2013

17

KEY STRATEGIC FOCUS AREA FOR 2013/2014

Perspective Objective Outcome

Customer Meet customer requirements i.t.o. quantity, quality, reliability, timeframe and affordability

Quantity supply meets quantity demand

    Quality-Meeting SANS241 level and waste water permit requirement

    Reliability and timeframes –meet contractual obligation

    Affordability – Shareholder approves tariff

Implement a plan to solve dense effluent pipelines operation

Viable plan Implemented

Finance • Optimize financial resources, financial structure, financial risk and financial cost

• Benchmark Financial Status• Develop Financial Plan• Implement Financial Plan

• Sustainable Financial Entity• Financial risk within parameters• Unqualified Audit Opinion

17/18 April 2013

18

KEY STRATEGIC FOCUS AREA FOR 2013/2014Perspective Objective Outcome

Process Effective Asset Management Develop Asset Management Plan

People Optimize contribution of Human Resources to deliver Corporate Objectives

Design optimal Structure

Implement HR Plan

Implement Productivity Study recommendations

PMS - Identify gaps and address accordingly

Implement Culture Diversity program

Environment Develop and Implement Climate Change Adaptability Plan

Reliable water supply in the face of climate change

Implement Environmental Plan

Stakeholder • Provide affordable water services delivery and address water services backlog, within constraint of sustainability

• Supporting expansion, meeting future demand and meeting water services backlog

• Quality, continuous, affordable water supply• Economic growth/poverty alleviation• Job Creation• Manage water resources effectively

• Shareholder acceptance as reflected in signed Shareholder compact

• Obtain buy-in from WSA’s to bulk infrastructure plan• Delivery of required Other Activities

• CSI plan with appropriate impact • Leverage resources into infrastructure• Job Creation plan • Water conservation/water demand management plan

17/18 April 2013

19

ALIGNMENT TO DWA OUTCOMES

17/18 April 2013

DWA Strategic Outcome(2013/2014) MW Strategic Outcome (2013/2014)

1 Contribute to economic growth, rural development, food security and land reform.

Contribute to economic growth and poverty alleviation. B-BBEE contribution and job creation. Corporate social responsibility.

2 To promote sustainable and equitable water resources management.

Provide and extend bulk water and related services and manage water resources effectively.

3 Strengthening the regulation of the water sector.

Conserve the environment. Minimise impact of pollution. Minimise carbon footprint. Monitor pollution.

4 Support local government to deliver water services.

Provide affordable water services delivery and address backlog within constraint of sustainability. Support expansion and meet future demands.

5 Contribute to improved International Relations.

Develop and implement climate change adaptability plan.

6 Build capacity to deliver quality services. Optimise contribution of human resources to deliver corporate objectives.

20

Top 10 RisksRisk no.

Risk name Risk no.

Risk name

1 Infrastructure failure 6Damage Increasing input cost (electricity, raw water, fuel, staff, chemicals)

2 Current BBBEE rating (Level 6) 7Skills Shortage in the water environment 

3 Increased Competition 8Fraud and corruption  

4 Effective and Efficient Procurement 9Funding constraint 

5 Environmental Damage 10 Availability of water in terms of quality and quantity

17/18 April 2013

21

PAIA & PAJA PAIA – Fully Implemented PAJA – Still in progress

17/18 April 2013

22

THANK YOU

17/18 April 2013

23