Media Statement on some key outcomes of financial performance July December 2018 and successful engagement between Board of Umgeni Water and Portfolio Committee on Water and Sanitation

KwaZulu-Natal’s largest water board has posted positive results in its half-year reviewed interim statements, underlining its position as a high-performing and financially stable entity.
Customer confidence, volume sales growth and prudent cost containment are among the key factors that contributed to Umgeni Water’s strong outcomes in the period July – December 2018.

The reviewed interim financial statements will be published mid-week on the Stock Exchange News Service (SENS), and indications are that response will be overwhelmingly positive because the results again underscore both financial resilience and sustainability of Umgeni Water - at a time when other State-owned entities are facing massive financial and governance challenges, some of crisis proportions.

Umgeni Water is a National Government Business Enterprise that has firmly positioned itself as a leader in the water sector and as a strong adherent to good corporate governance. The organisation is financially self-sufficient and has considerable financial resources at its disposal to execute its mandate to both expand and secure water supply.

Some of the key outcomes in the six-month period under review (July – December 2018) were an increase of 19, 32% in profit/surplus to R741 million (December 2017: R621 million) and revenue growth of 19, 9% year on year, mainly as a result of bulk water revenue increase of 21, 9%. The latter was due, in part, to 13, 7% bulk water tariff increase that became effective from 1st July 2018, together with bulk water sales growth of 7, 2%.

Other key outcomes reported in the reviewed interim results were: 55, 7% reduction in revenue that is derived from commercial/Section 30 activities, partly due to completion of various projects; 7, 6% increase in cost, mainly as a result of higher depreciation and overall 9, 1% increase in cost drivers (among them energy and raw water). Administration cost increased by 41, 7% year on year as a result of reversal of impairment of R70 million on the Maphumulo bulk water scheme in the prior year.

Excluding this, administration cost increased by 15, 6% year on year primarily as a result of implementation of software maintenance contract. Net finance income increased by 22, 5% as finance cost continued to be capitalised on qualifying assets, while finance income increased year on year due to grant funding.

Net cash from operating activities was R856 million (December 2017: R539 million) – an increase due largely to higher operating profits.

Capital expenditure in the six month-review period amounted to R527 million (December 2017: R478 million) against a target of R854 million. Expenditure in the reporting period included implementation of vitally needed water treatment and wastewater infrastructure.
The interim statements partly mirror Umgeni Water’s strong financial performance in the previous financial year, 2017/18, when the entity recorded significant achievements and results that included:

  • Attainment of excellence in drinking water quality, in terms of standards set by South African National Standards 241: 2015. This reflects that public health is assured through consumption of safe drinking water
  • A surplus/profit of R1, 2 billion. This will be used, in part, for implementation of critical infrastructure required to enhance security of water supply, reduce water backlogs in under-served or un-served communities and also keep tariffs at affordable levels
  • Confirmation of a budget of R1, 58 billion to be spent in the current financial year (2018/19) on infrastructure. Approximately one-third of this amount will be spent on infrastructure to assist rural development and the rest on infrastructure that will expand and augment water resources, and on upgrades, maintenance and rehabilitation of infrastructure
  • Reaffirmation by Fitch of Umgeni Water’s long-term rating and senior secured at AA+ and short-term at F1+. These ratings reflect stability in Umgeni Water’s stand-alone profile

The Chief Executive of Umgeni Water, Mr Thami Hlongwa, said it is imperative that Umgeni Water continues to post positive results because this enables it to deliver on its mandate to make access to safe drinking water possible and easier, to secure future water supply and to also make drinking water affordable through maintaining tariffs at levels that are affordable. This can only occur through construction and on-going maintenance, rehabilitation and upgrading of infrastructure, all of which require significant investment.

Identification of new water resources and supply also has to occur in order to ensure adequate water is available for future use. Therefore, a key future focus area will be continued financial resilience and building of financial resources in order to meet infrastructure implementation targets and commitments in the next five years.

The going concern basis has been adopted in preparing the interim financial statements and the Board of Directors believe that the entity has adequate resources to continue as a going concern in the foreseeable future.

The Board of Directors have reiterated an assurance that Umgeni Water remains stable, resilient, properly governed and that continuous improvement in internal processes is conducted in order to ensure strict adherence to legislation and all tenets of corporate governance, including King codes on governance.

The good news contained in Umgeni Water’s half-year financial performance comes in the wake of a successful engagement between the leadership of Umgeni Water, led by the Chairperson of the Board Ms Ziphozethu Mathenjwa and the Chief Executive Mr Thami Hlongwa, and the Parliamentary Portfolio Committee on Water and Sanitation.

On Wednesday, 6th March 2019, the leadership of Umgeni Water presented the organisation’s annual performance for financial year 2017/18 to the Portfolio Committee.
In presenting an overview of Umgeni Water’s financial performance, Ms Mathenjwa said the outlook for Umgeni Water appears positive and its financial resiliency is illustrated by its strong performance.

She said that in the reporting year group revenue totalled R2.90 billion and a surplus of
R1, 2 billion was achieved, partly as a result of cost containment measures through optimisation of water production processes and recovery from the drought in the second half of the financial year.

The Chief Executive said at the presentation to the Portfolio Committee that, as at 30th June 2018, the Umgeni Water group had 1 231 employees, and a balance-sheet with an asset value of R11.54 billion, of which reserves totalled R8.09 billion. He also said a partnership with Umgeni Water’s new and seventh customer, uThukela District Municipality, now means the organisation’s focus area will cover 44% of KwaZulu-Natal and 73% of households.
Members of the Portfolio Committee complimented Umgeni Water for a detailed report and for receiving an unqualified audit from the Auditor General (AG). The Whip of the Portfolio Committee, Mr Derrick Mnguni, however, warned against complacency and urged Umgeni Water to work towards obtaining clean audits.

Among clarity questions members of the Portfolio Committee raised related to climate change resilience, temporary jobs created during construction of projects, contribution towards development of Black industrialists and capacity to manufacture construction material and chemicals.

Umgeni Water’s representatives responded to all of the questions through detailing work done in managing or averting the impacts of climate change; provision of information relating job creation, skills transfer, training and development, and provision of details and achievements on Contract Participation Goals. Contract Participation Goals has been implemented to assist and encourage development of Black entrepreneurs and creation of work opportunities for them in the construction sector and allied fields.

Issued by the Corporate Stakeholder Management Unit, Head Office, Umgeni Water