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3 North West Province Limpopo Province Gauteng Province km² in three provinces AREA OF SUPPLY AND OPERATIONS
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1
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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FINANCIAL OVERVIEWFINANCIAL OVERVIEW
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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FINANCIAL OVERVIEWFINANCIAL OVERVIEW
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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FINANCIAL OVERVIEWFINANCIAL OVERVIEW
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%
Operating Expenses 36,475 20,811 75.26%
Surplus for the year 1,217 1,086 12.06%
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FINANCIAL OVERVIEWFINANCIAL OVERVIEW
Magalies Water - Retail (Bojanala) – Income Statement
Description 2006 2005 Variance (%)
(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%
Operating Expenses 26,823 24,683 8.67%
Surplus / (Deficit) for the year
1,970 (1,675)
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FINANCIAL OVERVIEWFINANCIAL OVERVIEWMagalies Water – Roodeplaat Temba Water Services Trust – Income Statement
Description 2006 2005 Variance (%)
(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%
Operating Expenses 6,301 3,982 58.24%
Surplus for the year 12,169 2,946 310.56%
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FINANCIAL OVERVIEWFINANCIAL OVERVIEWMagalies Water – Rustenburg Water Services Trust – Income Statement
Description 2006 2005 Variance (%)
(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%
Surplus for the year 9,835 2,878 241.73%
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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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Description 2006 2005
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
Description 2006 2005
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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CONSOLIDATED MAGALIES WATER
Description 2006 2005
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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CONSOLIDATED MAGALIES WATER
Description 2006 2005
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
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