Sedibeng Water TITLE PRESENTATION Presented Annual by report

Sedibeng Water TITLE PRESENTATION Presented Annual by: report Name Surname Directorate for the 2014/15 financial year Presented by: RT Takalani – Sedibeng Water Chief Executive Date

Contents Page 1. 2. 3. 4. Introduction……………………………. 3 Area of Operation………………………. . 6 Ministerial Directives……………………. . 10 Achievements………………………. . . … 12 5. PART 1: OVERVIEW OF FINANCIAL PERFORMANCE……………. . 16 6. Overview of Audit Report…………………… 24 7. PART 2: OVERVIEW OF NON-FINANCIAL PERFORMANCE…………………. 29

Sedibeng Water Annual report for the 2014/15 financial year CONTENTS 1. INTRODUCTION 3

1. Introduction § Sedibeng Water (SW) is a Water Board established as an organ of state in terms of the Water Services Act No. 108 of 1997. The Minister of Water and Sanitation is the executive authority, and as an organ of state the organisation is categorised as a public entity, subject to regulations by the Minister of Finance in terms of the Public Finance Management (PFMA) (Act No. 129 of 1999). § Sedibeng Water is a Schedule 3 B public entity and its core function is to provide water services to its clients, mainly in the form of bulk water, waste water treatment, retail water services, operate and maintenance of water infrastructure; and as an implementing agent in respect of capital infrastructure projects. 4

1. Introduction (cont…) Sedibeng Water was established as a Water Board in terms of the Water Services Act (Act 108 of 1997). § Section 29 of Water Services Act: – The primary activity of a water board is to provide water services to other water services institutions within its area of operation. § Section 30 (2) of the Water Services Act: - Other activities of a water board may include, but are not limited to(a) providing management services, training and other support • services to water services institutions, in order to promote cooperation in the provision of water services; § Section 32 of the Water Services Act: Duties of water boards o Every water board – must enter into written contracts when performing its primary and other activities.

Sedibeng Water Annual report for the 2014/15 financial year CONTENTS 2. AREA OF OPERATION 6

2. Area of Supply and Operation • Sedibeng Water is a Schedule 3 B public entity and its core function is to provide water services to its clients, mainly in the form of bulk water, waste water treatment, retail water services, operate and maintenance of water infrastructure; and as an implementing agent in respect of capital infrastructure projects. The service area was extended from 86 000 km 2 to 100 000 km 2 (square kilometers) across three provinces i. e – Free State; – North West; and – Northern Cape. 7

2. Area of Supply and Operation (cont…) Total Population 2 970, 71 M

2. Area of Supply and Operation (cont…) No Province Customer Name 1. 1 Nala Local Municipality Free State 1. 2 Matjhabeng Local Municipality 2. North West 2. 1 Dr Ruth Mompati District Municipality No Province Customer Name 3. 1 Tsantsabane Local Municipality Northern Cape 3. 2 Gamagara Local Municipality 2. 2 Maquassi-Hills Local Municipality 3. 3 Dikgatlong Local Municipality 2. 3 Ngaka Modiri Molema District Municipality 3. 4 Nama-Khoi Local Municipality 2. 4 Mahikeng Local Municipality 3. 5 Phokwane Local Municipality 2. 5 Ditsobotla Local Municipality 3. 6 Joe Morolong Local Municipality 2. 6 Tswaing Local Municipality 2. 7 Ramotshere Moiloa Local Municipality 2. 8 Ratlou Local Municipality 3. 7 Khai Ma Local Municipality 3. 8 Ga-Sekgonyane Local Municipality 9

Sedibeng Water Annual report for the 2014/15 financial year CONTENTS 3. MINISTERIAL DIRECTIVES 10

3. DIRECTIVES & GAZETTE ISSUED TO SUPPORT THE WATER SERVICES IN THE WATER SERVICES AUTHORITIES. The Minister of Water and Sanitation issued the following directives to Sedibeng Water to support the local government sphere.

Sedibeng Water Annual report for the 2014/15 financial year CONTENTS 4. ACHIEVEMENTS 12

4. Achievements 2014/2015 financial year FINANCIAL VIABILITY AND SUSTAINABILITY • Costs were prudently managed • Organisation is financially sound and viable at consolidated level • Revenue and surplus targets were exceeded • The organisation received an unqualified audit opinion OPERATIONAL PROCESS EFFICIENCY • • • Total production and distribution water losses of 2. 58% in the Free State and 7. 81% in the Northern Cape Regions Water quality met Class 1 and or 2 requirements Average expenditure on BBBEE of over 94% HIV/AIDS PROGRAMME • Awareness campaigns were undertook throughout the whole organisation. • Voluntary counseling and testing was made available to employees 13

4. Achievements 2014/2015 financial year (cont…) RECRUITMENT AND DEVELOPMENT OF EMPLOYEES § § § § Financial assistance to employees, 44 bursary holders (15 Male and 29 Female). Water and Wastewater Process Operation Learnership NQF 2 and 4 with the ESETA, 53 beneficiaries (31 Male and 22 Female). Apprenticeship, 20 Beneficiaries (16 Male and 4 Female) Experiential training, 10 students (7 Male and 3 Female). Training was conducted according to the Works Skills Development Plan. Retention of technical staff was kept at 2. 58%. WSP/ATR approved by EWSETA. The organisation created 70 new permanent and contract jobs and 395 temporary jobs during the 2014/2015 financial year. 14

4. Achievements 2014/2015 financial year (cont…) QUALITY CONTROL LABORATORY § The laboratory maintained its accredited status after being audited by SANAS (South African National Accreditation Standards) and an international auditor from ILAC (International Laboratory Accreditation Co- operation) § The lab conducted over 170, 000 chemistry microbiology analyses in the financial year. and 60, 000 HEALTH AND SAFETY § The regions Disabling Injury Frequency Rates were all below the 2. 0 target. CORPORATE SOCIAL INVESTMENT PROGRAM • Various water conservation awareness campaigns were embarked on in partnership with municipalities and the Department of Water and Sanitation. • 10 Schools, special needs and child support centers benefited from the organization’s CSI program. 15

5. PART 1: OVERVIEW OF FINANCIAL PERFORMANCE • FINANCIAL STATEMENTS • ANALYSIS OF EXPENDITURE • OVERVIEW OF THE AUDIT REPORT 16

FINANCIAL PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2015 Audited Outcome 2014/2015 2013/2014 (R’ 000) Revenue 958, 613 4 Cost of Sales 265, 929 4 Gross Profit 84 692, 6 0 Other Income 374, 021 4 Operating Costs 903, 620 4 Net operating profit Net Finance Income (Charges) Net Surplus Before Grants Government Grants Net Surplus After Government Grants 85 87 72 163, 0 27, 8 190, 9 72 40 89 29 - 190, 9 29 Variance % 761, 61 26% 271, 87 -2% 489, 74 41% 142, 09 163% 562, 09 61% 69, 7 134% 28, 1 -1% 97, 9 95% 0% 97, 9 95% 17

FINANCIAL POSITION AS AT 30 JUNE 2015 Audited Outcome 2014/2015 (R’ 000) Audited Outcome 2013/2014 (R’ 000) Variance % ASSETS Non-current assets Current assets Total assets 10 84 94 2, 252, 7 1, 878, 2 2, 064, 08 2 9% 1, 200, 18 5 56% 4, 130, 9 3, 264, 26 7 27% 2, 674, 6 2, 361, 89 1 13% EQUITY AND LIABILITIES Funds and reserves Non-current liabilities Current liabilities Total equity and liabilities 70 23 01 94 191, 265, 1 4, 130, 9 122, 85 7 56% 779, 51 9 62% 3, 264, 26 7 27% 18

Financial Ratios performance against targets Actual 2015 Target 2015 Comment Gross Profit % Net Profit % Current Ratio Return on Assets Debtors days Debt Equity Ratio 67. 52% 19. 9% 1. 46 9. 08% 471 0. 059 Target achieved, due to improved 64. 20 purification processes. Target achieved due to other income from secondary activities and 9. 41% savings on raw water purchases. Target not achieved. The organisation is working with National Treasury 1. 56 and DWS to recover outstanding debts from municipalities. 0. 3% Target achieved. Surplus increased due to profit on disposal of pipeline. Target is not achieved. The organisation is working with the DWS in an effort to engage the National Treasury and WSA’s to improve the 413 payment rates of WSA’s. Target achieved. Increase in reserves through 0. 044 comprehensive income. 19

Expenditure outcome: 30 June 2015 Programme (R'000) Budget Expenditure Variance % Spent Total Expenditure Raw Water Costs 298 009 265 929 32 080 89% Electricity Costs 142 475 124 241 18 234 87% Purification costs 35 382 32 031 3 351 91% Administration cost 114 380 105 734 8 646 92% Depreciation 116 033 114 496 1 537 99% Repairs and Maintenance 41 305 38 156 3 149 92% Staff costs 260 486 259 165 1 321 99% Provision for Bad Debts 209 585 229 797 -20 212 110% 1 217 655 1 169 549 48 106 96% Total 4% 96% Expenditure Variance 20

Analysis of current payments STAFF DEBT 160000 140000 120000 % 36 Compensation of employees 100000 80000 60000 % 64 40000 Goods & services 20000 0 Staff Debt Overpayments Study Loans 2015 Other Staff 2014 21

Accruals 2014/15 2013/14 R’ 000 Total 26, 077 14, 727 Transfers and subsidies - - - Capital assets - - - 26, 077 14, 727 Listed by economic classification 30 Days Goods and services Total 26, 077 30+ Days - 22

Contingent liabilities and assets 2014/15 2013/14 Variance % Variance R'000 6, 815 500 6, 315 1263% 0 0% Contingent liabilities Total Contingent assets Total Notes Contingent liabilities are mostly due to legal action instituted against Sedibeng Water by Suppliers and Employees. R 1. 5 Million is due to termination of a supplier's procurement contract due to poor performance and the rest relates to legal cases by employees. The increase from 2014 to 2015 is due to the above mentioned R 1. 5 Million procurement suit as well as cases taken over from the former Botshelo Water Board. Botshelo Water was disestablished in 2014/2015 financial year and its assets and liabilities transferred to Sedibeng Water. 23

6. OVERVIEW OF AUDIT REPORT 24

6. 1 OVERVIEW OF AUDIT REPORT NO DETAILS OPINION 2010/11 2011/12 2012/13 2013/14 2014/15 1. Annual Financial Statements Unqualified Unqualified 2. Predetermined No material findings objectives on the predetermined objectives No material findings on the predetermin ed objectives No material findings on the predetermined objectives 3. Compliance with laws and regulations No non-compliance was identified No noncompliance was identified No material findings on the predetermi ned objectives No noncompliance was identified 4. Internal controls No deficiencies identified in the internal control environment No deficiencies identified in the internal control environme nt No deficiencies identified in the internal control environment 25

6. 2 Irregular expenditure Analysis: Irregular Expenditure in the current financial year amounted to R 7. 9 Million. The irregular expenditure occurred from a. Procurement of goods to an amount of R 4. 5 M whereby a specific brand of vehicles was requested due to the terrain i. e. roads where the operations of Sedibeng Water are. b. Procurement of outsourced internal audit services for a period of two (2) years for an amount of R 3. 4 M whilst in a process of building capacity for an in-house internal audit function. Both classes of irregular expenditure were investigated and condoned by the Accounting Authority. 26

6. 3 Fruitless and Wasteful Expenditure 2014/15 2013/14 R'000 Opening balance 289 Fruitless and wasteful expenditure – relating to current year 395 - Fruitless and wasteful expenditure – Condoned by the board (395) - 289 Fruitless and resolution wasteful expenditure awaiting The expenditure had its origin due to the late payment of ESKOM accounts. The matter was investigated and presented to the Accounting Authority for Noting. The 2013/14 fruitless and wasteful expenditure was investigated and will be Noted by the Accounting Authority and condoned at the next Board Meeting. 27

6. 4 Commitment analysis Capital Commitments (R'000) 18 000 16 000 14 000 12 000 10 000 8 000 6 000 4 000 2 000 - 2013/2014/2015 The commitments relate to capital infrastructure project expenditure contracted but not yet spent at the end of the financial year 28

7. PART 2: OVERVIEW OF NONFINANCIAL PERFORMANCE 29

Alignment of Strategic Objectives Sedibeng Water’s strategic plan is informed by the twelve (12) outcomes that are set out in the National Government MTSF (Medium Term Strategic Framework (2009 -2014). The six (6) MTSF outcomes that are specifically relevant to the Minister of Water and Sanitation. The five (5) Strategic Performance Outcomes that constitute the Performance Agreement between the Minister and the President of South Africa. The five (5) specific Ministerial Outcomes are set out below: Ø Enhanced Quality and Quantity of water resources; Ø Improve access to basic services; Ø Maintenance and supply of bulk water infrastructure (to ensure water security); Ø Effective institutions to address government outcomes; and Ø Co-operative governance mechanisms designed to achieve government outcomes. 30

Alignment of Strategic Objectives Sedibeng Water Strategic Objectives and priorities are as follows: Ø Appropriate treatment of waste water and supply of potable water; Ø Ensure viability and sustainability; Ø Create an environment that is conducive to the growth and retention of skills; Ø Effective and efficient communications; and Ø Ensure compliance to all legislations, policies, standards and norms. 31

Alignment of Strategic Objectives 32

Analysis: achievement of performance objectives 20 18 16 14 12 10 8 6 4 2 2013/2014/2015 Achieved Partially Achieved Not Achieved 2013/2014 18 2 - 2014/2015 17 3 - Achieved (100%) Partially achieved (50 – 99%) Not achieved (<50%) 33

Analysis of annual performance 2014/2015 2013/2014 Achieved Partially Achieved Not Achieved (100%) Partially achieved (50 – 99%) Not achieved (<50%) Partially Achieved Not Achieved 34

Explanatory notes – Partial Achievement API no Milestones that were not achieved (Partially Achieved) Comments on deviations 7 Effective Internal Controls and Risk Management (No repeat or Unresolved Findings) There were no repeat findings but two new findings were not resolved at year end. Both findings relate to collection of debts from consumers. The organisation solicited assistance from National Treasury and the DWS. Sedibeng Water continues to engage WSA’s in an effort to improve debt recovery and has signed payment agreements with all defaulting municipalities. 8 Bulk Supply Agreements Concluded with Municipalities/ Other Customers 3 of 11 agreements with municipal consumers have expired and are in the process of being renewed. The contracts have already been handed over to the respective municipalities for their input and signature. 9 Improve Financial Ratios 3 of the 8 ratios were not achieved. Liquidity Ratio, Debtors Days and Net profit from primary activities targets were not achieved largely due to non payment of accounts from consumers and the higher provision for doubtful debts. 35

STRATEGIC OBJECTIVES AND OUTCOMES AGAINST ACTUAL PERFORMANCE RESULTS FOR JULY 2014 – JUNE 2015 Performance Results Performance Objective Outcomes/ Impact Indicators 1. Water Quality Compliance Water quality standards met Measure Target (%) Annual Test results, SANS 241 % compliance 96% Comments Actual (%) Free State: - Bacteriological : 99. 9 % - Chemical : 99. 9% Vaal Gamagara: - Bacteriological : 99. 9% - Chemical : 99. 9% Namakwa: - Bacteriological : 99. 9 % - Chemical : 99. 9% Target achieved, SANS 241 prescribes a minimum target of 96%. The water quality tests conducted reflect an achievement of 97% to 99. 9%. North West: - Bacteriological : 99. 9% - Chemical : 97. 7 % 2. Non-Revenue Water 3. Reliability of supply Reduced levels of unaccounted for water (UAW) Water lost as a % of total water produced No unplanned interruptions to supply exceeding 24 hours % number of days’ supply disrupted divided by total number of possible supply days % 8% Free State : 2. 82% Northern Cape : 7. 81% % 0 Free State : None North West : None Vaal Gamagara : None Namakwa 36 : None Target achieved for both regions, The non-revenue water target was achieved following efficiencies achieved in the water purification processes. Target achieved. No water disruptions were recorded in the various areas of operation from the bulk water reservoirs.

STRATEGIC OBJECTIVES AND OUTCOMES AGAINST ACTUAL PERFORMANCE RESULTS FOR JULY 2014 – JUNE 2015 Outcomes /Impact Indicators 4. Financial Reporting Compliance Unqualified audit report Annual external audit 5. Staff Turnover Optimal staff retention % of technical staff leaving % 4% 2. 58% Left 6. Board Member Attendance Improved performance of fiduciary duties/governance Annual attendance % 80% 95% of Board members attended the meeting 7. Effective Internal Controls And Risk Management No repeat or unresolved findings Internal audit reports Number repeats 0 0 Number unresolved 0 2 8. Bulk Supply Agreements Concluded With Municipalities/ Other Customers Statutory and service Municipalities/other level agreements in customers with bulk place supply agreements 100% 73. 3% of service level agreements are active 9. Improve Financial Ratios Improved viability and sustainability Liquidity 1. 566 times 1. 46 times Gross profit margin % (primary activity) 64. 2% 67. 52% 37 Financial ratios Measure Performance Results Target (%) Actual (%) Annual Unqualified Annual only Audit Opinion Performance Objective Qualified / Unqualified % Comments Target achieved. The organisation has obtained an unqualified audit opinion. Target achieved. The organisation employs effective recruitment and retention strategy policies. Target achieved. Board members are committed to organisation. Target not achieved. 1. The debtors’ collection days remain a challenge due to non-payment by the customers. However, the National Treasury and the Department of Water and Sanitation are intervening. 2. The Debt Management Policy is under review, however, the organisation utilised the Water Services Act and the Public Finance and Management Act. . Target not achieved. Four (4) out of eleven (11) contracts with municipalities are not in place. Negotiations with these municipalities are at advanced stages. Target not achieved, due to the higher provision for doubtful debts at year end. Target achieved, due to improved purification processes.

STRATEGIC OBJECTIVES AND OUTCOMES AGAINST ACTUAL PERFORMANCE RESULTS FOR JULY 2014 – JUNE 2015 Performance Results Target (%) Performance Objective Outcomes /Impact Indicators Measure 9. Improve Financial Ratios (continued) Improved viability and sustainability Financial ratios Gross profit margin % (secondary activity) 62. 70% 95. 25% Target achieved. Additional implementation fee was received. Net profit margin % (primary activity) 9. 89% 9. 41% Target not achieved, due to the provision for doubtful debts made at year end. Net profit margin % (secondary activity) 5. 31% 12. 82% Target exceeded, due to project management fees and DWS Grant. Debt/ Equity ratio 0. 044 times 0. 059 Target achieved. Increase in reserves through comprehensive income. Return on assets % 0. 3% 9. 08% Target achieved. Surplus increased due to profit on disposal of pipeline. 413 days 471 days Target not achieved. The debtors’ days are improving after the intervention by the National Treasury and the Department 85% 94% 12 51 new entrants Target achieved. The organisation called for a supplier database registration in August 2014, resulting in increased new BBBEE suppliers being utilised for procurement purposes Annual Debtors days # 10. Increase BBBEE Spend 38 Spend increased and increased new entrants % of spend increased and # of increased new entrants % increase # new entrants Actual (%) Comments

STRATEGIC OBJECTIVES AND OUTCOMES AGAINST ACTUAL PERFORMANCE RESULTS FOR JULY 2014 – JUNE 2015 Performance Objective Outcomes /Impact Indicators Measure 11. Manage Costs Within The Approved Budget No over expenditure/losses Financial reports % variance 12. Capital Expenditure Infrastructure available Overall project to meet demands expenditure within R target % variance 13. Increased Access to Contribution to national CAPEX spend /projects CAPEX spend or Services objectives number of expansion projects Performance Results Target (%) Actual (%) Annual 5% 9. 26% Comments Target achieved. Cost savings were achieved through the implementation of the cost containment measures. 95% 164% of the Capital budget is spent at the end of the year. Target achieved. VGG SWEP bypass pipeline was augmented to ensure efficient supply to consumers. R 159, 7 Mil R 262 Million of the Capital budget is spent at the end of the year. Target achieved. This includes the RBIG project for the Namakwa pipeline. 14. Engagement in Secondary Activities Extent of involvement Financial reports % of total turnover 15% 12% Target achieved. Involvement in secondary The organisation must achieve less than 15% activities involvement in secondary activities to ensure that the focus is on the core business i. e. Section 29 activities as defined by the Water Services Act. 15. Achieve Statutory Reporting Compliance Reporting compliance achieved Statutory submissions made on time Submission dates met/missed 100% Target achieved. All the submissions to DWA and NT were done on time 16. Jobs Created Permanent and contract Total Number (direct) Number 25 70 Target achieved. The extension of the area of operation of Sedibeng Water resulted in new recruitment. Temporary (indirect) Number 40 395 Target achieved, The DWS appointed Sedibeng Water as implementing agents for capital projects on its behalf. The appointment resulted in SW appointing 395 indirect workers through the contractors appointed. 39 Total Number

STRATEGIC OBJECTIVES AND OUTCOMES AGAINST ACTUAL PERFORMANCE RESULTS FOR JULY 2014 – JUNE 2015 Performance Results Performance Objective Outcomes /Impact Indicators Measure Target (%) Annual Actual (%) Comments 17. Corporate Social Responsibility Initiatives Good corporate citizenship Number of initiatives Number 10 11 Organisations are funded through social responsibility program 18. Training And Skills Development Skills and capacity building Training courses, learner-ships, bursaries Total Number 220 896 Employees attended training, 19. Good Governance Improved controls and risk mitigation Breaches of materiality and significance framework Number 0 0 No breaches to materiality and significant framework has been identified Target achieved. No breaches to materiality and significant framework has been identified 20. Involvement in DWS IWSS projects Assist and support Number of initiatives Number water sector initiatives 16 27 Projects are conducted by Sedibeng Water on behalf of DWS Target achieved. The Department of Water and Sanitation appointed Sedibeng Water as an Implementing Agent for additional projects during the year. 40 Target achieved. The organisation has a defined Corporate Social Investment Programme which is aimed at improving the lives of the people in its areas of operation. Target achieved. Training was provided to employees from the newly acquired areas of operations (Mahikeng and Pelladrift).

Corporate Social Investment The following schools and organisations were beneficiaries from Sedibeng Water’s Corporate Social Investment Programme: J. L. V. Echoes Providers § The institution was approved as part of Sedibeng Water’s Corporate Social Investment/ Responsibility programme. The centre is located in Longlands in the Dikgatlong Local Municipal area. The centre caters for senior citizens, people living with HIV/AIDS as well as disabled people. Leboneng Special School § The school is located in the Matjhabeng Local Municipality area under Lejweleputswa District Municipality. The school caters for learners with special educational needs and the main focus of the school’s curriculum is to empower learners with knowledge and life skills that will improve their social functioning. Learners attend school from the age of 7 years till the age of 21 years. The school is based in Welkom. Lesedi Day Care Centre § Sedibeng Water has sponsored a feeding scheme that caters for unemployed families and orphans from Saaiplaas in Virginia.

Corporate Social Investment (cont…) Letlotlo Naledi Public School • Sedibeng Water established a feeding scheme and a trust fund to benefit previously disadvantaged learners from Kgotsong in Bothaville. • Lokgabeng Centre for the Disabled Sedibeng Water has provided sponsorship towards a feeding scheme and other projects at this centre. The organisation’s involvement is aimed at improving the social, emotional, physical and psychological well-being of disabled and vulnerable people housed at the centre. Learamele School for the Mentally Disabled • This school caters for mentally disabled learners from Mothibistad in Kuruman. Sedibeng Water is sponsoring a project aimed at developing the technical skills and arts talent of these learners. • Emang Disability Care Centre Sedibeng Water made a sponsorship available to this centre that caters for disabled people in the Wolmaransstad area. Tlhomamo Child Care Centre • Sedibeng Water has likewise provided a sponsorship to this centre that provides for orphans and vulnerable children in the Greater Taung area. M. M. Sebitloane Special School for the Disabled • A sponsorship was granted to this school that caters for learners with special needs in the Greater Taung area.

END 43