Water is Our Passion - Financial and Non-Financial Performance Report 2017/18

1. 12 MARCH 2019 “Water is our passion”

2. ANNUAL REPORT 2017/18 •Part 1: Overview of financial performance •Part 2: Overview of non-financial performance “Water is our Passion”

4. FINANCIAL FINANCIAL PERFORMANCE as at 31 June 2018 PERFORMANCE as at 31 June 2018 Audited outcome 2017/18 Audited outcome 2017/18 Audited outcome 2016/17 Audited outcome 2016/17 % variance % variance Revenue from exchange transactions R626 537 R548 953 14% Cost of sales (R325 250) (R265 286) -23% Gross Gross profit profit R301 287 R301 287 R283 667 R283 667 6 % 6 % Other income R66 706 R106 498 -37% Operating expenses Operating expenses (R 398 006) (R 398 006) (R415 363) (R415 363) 4 % 4 % Net operating deficit (R30 013) (R 25 198) -19 % Interest Revenue R4 804 R6 609 -27% Fair value adjustments R6 451 R 623 935% Finance cost (R6 780) (R6 066) -12% Deficit for the year Deficit for the year (R27 (R27 241) 241) (R17 197) (R17 197) - -58 % 58 % “Water is our Passion”

5. 2018 R936 362 2018 R936 362 2017 R1 031 629 2017 R1 031 629 % Variance % Variance Current Assets Current Assets - -9% 9% Inventories R8 886 R 6 097 46 % Receivables from exchange transactions R 845 033 R 833 148 1% VAT receivable R45 353 R40 065 13 % Cash and cash equivalents R37 090 R152 319 -76% Non Non – –current assets current assets R 2 577 075 R 2 577 075 R 2 605 212 R 2 605 212 - -1% 1% PPE R 2 498 599 R 2 533 069 -1 % Other financial assets R78 476 R 72 143 9% TOTAL ASSETS TOTAL ASSETS 3 513 437 3 513 437 3 636 841 3 636 841 - -3.39% 3.39% Current Liabilities Current Liabilities R 561 151 R 561 151 R667 168 R667 168 - -19 % 19 % Payables R542 812 R647 044 - -16% 16% Provisions R18 339 R20 124 - -10% 10% Non current Liabilities Non current Liabilities R77 382 R77 382 R 67 528 R 67 528 13 % 13 % Accumulated Accumulated surplus surplus R 2 874 904 R 2 874 904 R 2 902 145 R 2 902 145 - -1 % 1 % “Water is our Passion”

6. 2018 48% 1.7 18% 6.06 492 0.1 2018 2017 52% 1.5 15% 5.52 554 0.2 2017 The Gross profit margin decrease to 48% during the year under review. Collection remain payments of account by WSA and DWS The cash flow projection made until June 2019 reflects a cash balance of R80m. These is achievable as a results of the organisation appetite to reduce cost and collect all outstanding debt. Implementation of strategies that are geared safety margin of 1.2 liquidity status on a month to month basis • Gross Profit Margin Current ratio Assets turnover Average water tariff Debtors days Cash ratio of challenge outstanding debt to still non- • a due • towards safeguarding of the 6

7. Programme Programme Budget Budget Expenditure Expenditure % % var var Administration R 695 723 R 727 438 -2% Expenditure Expenditure Compensation of employees - -2% 2% 0% 0% 0% 0% 0% 0% Budget Goods & services on operating expenses 48% 48% Actual 50% 50% Variance Over expenditure of 2% due to increase in cost of sales which is mainly attributed from the electricity cost 35% of the cost attributed to employee cost 7

8. DESCRIPTION 2016/17 2017/18 Variance % Variance R'000 R'000 R'000 Unauthorised expenditure 0.00 0.00 0 0% 0% not within purpose of vote 0% overspend Irregular expenditure R21 175 R 31 213 R10 038 47% “Water is our Passion” 8

9. Extension of expired contract Non-compliance with panel selection criteria Deviations not in line with treasury guidelines Non-compliance with local content treasury procurement guideline “Water is our Passion”

10. 2017/18 2016/17 R'000 R'000 Opening balance 383 36 Fruitless and wasteful expenditure – relating to current year Fruitless and wasteful expenditure awaiting resolution 2 071 347 0.00 0.00 Recovery 0.00 0.00 Closing Balance 2 454 383 “Water is our Passion”

11. Late payments to suppliers mainly SARS resulted in Interest and penalties. This is a results of cash flow constraints because of significant portion of debtors not settling their accounts timely as well as pre funding of projects implemented on behalf of DWS. “Water is our Passion”

12. Infrastructure commitment Infrastructure commitment 160,000 151,227 140,000 120,000 122,739 100,000 80,000 60,000 40,000 20,000 - 2018 2017 “Water is our Passion”

13. 30 days 30 days 30 days + 30 days + Total Total Goods and services 445 0.00 445 Capital Assets 121 382 0.00 121 382 “Water is our Passion”

14. A claim of R500 000.00 was received for alleged damages to the claimant`s house flooded due to underground pipe burst A service provider was ordered to pay R100 000.00 due to loss of assets A claim of R2.5m from land claim commissioner on a farm subjected to land claim A claim of R2.8 from service provider resulting from contractual obligation Contingent Liabilities Contingent assets

15. 2013/14 Unqualified 2014/15 Unqualified 2015/16 Unqualified 2016/17 Qualified 2017/18 Qualified The accounting authority did not take effective steps to collect all money due to the Lepelle Northern Water, as required in terms of section 51(1)(b)(i) of the PFMA, as 80% of total accounts receivable was provided as doubtful debt. The accounting authority did not take effective steps to collect all money due to the Lepelle Northern Water, as required in terms of section 51(1)(b)(i) of the PFMA, as 80% of total accounts receivable was provided as doubtful debt. The accounting authority did not take effective steps to collect all money due to the Lepelle Northern Water, as required in terms of section 51(1)(b)(i) of the PFMA, as 80% of total accounts receivable was provided as doubtful debt. The accounting authority did not take effective steps to ensure infrastructure assets are unbundled in order to depreciate them separately The accounting authority did not take effective steps to ensure infrastructure assets are unbundled in order to depreciate them separately 15 “Water is our Passion”

16. “Water is our Passion”

17. Findings per component Findings per component 2013/14 2013/14 2014/15 2014/15 2015/16 2015/16 2016/17 2016/17 2017/18 2017/18 Financial accounting SCM HR Governance IT 4 2 1 3 0 6 0 5 3 2 16 20 19 1 3 1 7 0 5 2 17 15 59 15 10 51 14 35 10 10 16 16 35 59 51 “Water is our Passion”

18. Major Finding Root Cause Action The exercise already started , however, could not be finalized within a year A service provider has been appointed to assist with the exercise Assets register was not unbundled as per standards The entity didn`t have a guiding tool that clearly defined its objectives and measurements A guiding tool has been developed Performance information did not meet the SMART criteria for certain objectives Non Payment of outstanding debt by WSA and DWS Continuous engagement are happening with respective municipalities in an attempt to improve collection The board is improving on SCM processes and has conducted SCM training through National Treasury Poor Payment history of debtors Lack of understanding on SCM processes with respect to Deviation procedure No processes to avoid or detect irregular , wasteful and fruitless expenditure 18 “Water is our Passion”

19. 2016/17 2017/18 16% 21% 23% 55% 61% 24% Achieved Partially Achieved Not Achieved Achieved Not Achieved Partially Achieved

20. MILESTONES THAT WERE NOT ACHIEVED PPI NO COMMENTS ON DEVIATIONS 1 Tolerable Risk organisational Residual Certain risks identified during the review required budget and was not available at the point in time but allocated for next financial year. Financial constraints negatively rollout of the capital projects. Directives that were not funded • 2 Capital Directives) projects (Internal & affected the • • 3 Debtors day (492) Mopani’s and DWS old debt still a challenge • 4 Water Quality Changes in the chemical composition of raw water – working with Technology (TUT) to resolve the challenges. All the infrastructure has reached design capacity & the municipality concerned continually engaged to approve the budget for upgrading the treatment plants. • Tshwane University 5 Wastewater Quality • 20 “Water is our Passion”

21. Project Summary scope Design Progress Construction progress Completion date 14% (Civil works Phase 3 contractor is progressing well.) Upgrading of the Flag Boshileo WTP from 8Ml/day to 16Ml/day and refurbishment of the existing plant. UPGRADING OF FLAG BOSHIELO WATER SCHEMES 100% Electro-Mech Works Phase 2 (89% completed) June 2020 High lift Phase 1(100% completed 95% (Olifantspoort 10Ml/day packaged plant) UPGRADE OF OLIFANTSPOORT AND EBENEZER SCHEMES Upgrade and refurbishment of the schemes 100% June 2019 53% (Olifantspoort Specon Pipeline Replacement Phase 1) 100% (Package plant) 5% (Phase 2 - raw water pipeline (Terminated) POLITSI WATER SCHEME UPGRADE – POLITSI ELECTRICAL AND MECHAICAL WORKS 0% (Phase 3 - rising main pipeline (Suspended) Upgrade of the Pump Station at Politsi Plant Await resolution on the license dispute. 100% Phase 4 - HLPS: mechanical, electrical, control and instrumentation “Water is our Passion”

22. Construction progress Construction progress Project Project Summary scope Summary scope Design Design Progress Progress Completion date Completion date October 2019 (subject to funding availability) Construction of the pipeline from Nandoni to Nsami 23% (12.35km pipeline laid to date) PIPELINE (NANDONI- NSAMI PROJECT) 100% GIYANI INTERVENTION “Water is our Passion”

23. Increase in raw water costs by the Department of Water and sanitation of 14.4% Consultation with all WSA were held during the month of November 2018 Inputs and comments on the tariffs were receive from SALGA , National Treasury and WSA response on comments were made to all respective stakeholders mentioned above The 2019/20 tariff proposal documents was submitted to DWS for finalization of the process Concerns on increased water tariff were raised by all WSA during consultation • • Increase in purification costs relating to contractual annual increase by 5.3% • • Increase in electricity costs as proposed by Eskom to the national energy regulator (Electricity not solely from Eskom, also Municipalities by 15% • • • Fixed costs anticipated to increase by 6.5% In consideration for affordability and ability of the consumer to pay, the proposed increase will maintain sustainability of the water board •  • Consultation process Factors considered in the proposed tariff increase

24. (R/Kl) (R/Kl) (R/Kl) (R/Kl) (R/Kl) TARIFF SUMMARY 2017/18 Audited outcome 2018/19 Current tariff 2019/20 Proposed tariff 2020/21 proposed tariff 2020/22 proposed tariff Scheme Percentage Increase 8.5% 8% 8.5% 8.5% 8.5% Capricorn & Polokwane Muicipality - Olifantspoort 6.86 7.42 8.05 8.74 9.48 Polokwane Municipality - Ebenezer scheme 6.86 7.42 8.05 8.74 9.48 Mogalakwena Municipality - Doorndraai 6.75 7.29 7.91 8.58 9.31 Mopani DM - Politsi 6.93 7.49 8.12 8.77 9.48 Mopani DM - Phalaborwa 4.25 4.58 4.97 5.40 5.86 Mopani DM - Modjadji 5.82 6.29 6.82 7.37 7.96 Mopani DM - Nkowankowa 4.40 4.75 5.16 5.59 6.07 Sekhukhune DM - Flag Boshielo 7.46 8.06 8.75 9.49 10.30 Sekhukhune DM - Burgersfort 6.48 7.00 7.59 8.20 8.85 Sekhukhune DM - Marble Hall 7.45 8.05 8.73 9.43 10.19 Sekhukhune DM - Steelpoort WTW 6.48 7.00 7.59 8.24 8.94 Sekhukhune DM - Malekane 5.34 5.77 6.26 6.76 7.30 Sekhukhune DM - Nkadimeng 5.34 5.77 6.26 6.76 7.30 Vhembe - Nandoni 7.31 7.90 5.10 5.51 5.95 “Water is our Passion”

25. “Water is our Passion”