GISTEXT USER GROUPS
D) PROCESSES
5. KPA 4: MUNICIPAL FINANCIAL VIABILITY AND MANAGEMENT
5.1 Financials
Partnerships with institutions involved in Investment recruitment was explored with East London Industrial Development Zone (ELIDZ), Eastern Cape Development Corporation and the Border Kei Chamber on the Invest Buffalo City initiative.
Table B7: Balance Sheets as at 30 June 2011
2010/11 2009/10 2008/9
R m R m R m
ASSETS Current Assets
Cash and cash equivalents 737 559 695
Inventories 142 97 64
Trade and other receivables from exchange transactions
220 283 145
Trade and other receivables from non-exchange transactions
95 124 146
VAT receivable 39 51 38
Operating lease asset 60 56 52
Long term receivables 0 0 0
1 293 1 170 1 140
Non-Current Assets
Intangible assets 15 12 11
Investment properties 221 201 201
Long term receivables 0 0 0
Non-current investments 1 5 4
Property, plant and equipment 11 348 11 375 12 582
Investments in associate 12 32 4
11 597 11 625 12 802
TOTAL ASSETS 12 890 12 795 13 942
LIABILITIES Current Liabilities
Borrowings 45 30 41
Consumer deposits 34 31 28
Finance lease obligations 1 1 1
Provisions 117 119 101
Trade and other payables 376 340 298
Unspent conditional grants and receipts 346 267 282
918 788 751
Non-Current Liabilities
Borrowings 646 507 537
Finance lease obligations 1 1 1
Provisions 49 33 72
Retirement benefit obligation 281 261 234
977 802 844
TOTAL LIABILITIES 1 895 1 590 1 595
NET ASSETS 10 995 11 205 12 347
NETT ASSETS
Revaluation reserve 16 17 17
2010/11 2009/10 2008/9
R m R m R m
Accumulated surplus 10 979 11 188 12 330
TOTAL NETT ASSETS 10 995 11 205 12 347
(Source: 2010/11 Unaudited Financial Statements)
(a) Financial Analysis – Selected Financial Indicators
The selected trends and financial ratios relating to Buffalo City for the period under review are listed below.
These provide a platform to analyze the current financial situation of the City. The trends and ratios have been divided into the following categories:
o Income and Expenditure
o Revenue management / liquidity o Borrowing management
o Assets (PPE)
Table B8: Income & Expenditure
2010/11 2009/10 2008/09
R m R m R m
Total income 3 040 2 803 2 263
% Increase over previous year 8% 24% 12%
Total expenditure 3 254 2 769 2 475
% Increase over previous year 18% 12% 35%
Surplus / (Deficit) (214) 34 (212)
Budgeted expenditure 3 301 2 910 2 453
% Increase / (Decrease) over
previous year 13% 19% 31%
Salaries 858 783 670
% Of income 28% 28% 30%
% Of expenditure 26% 28% 27%
% Increase over previous year 10% 17% 14%
Number of employees 4 619 4 625 4 576
% Increase / (Decrease) over
previous year 0% 1% 8%
Repairs and maintenance 193 175 117
% Of expenditure 6% 6% 5%
% Increase / (Decrease) over
previous year 10% 49% 46%
Depreciation 503 479 412
% Of expenditure 15% 17% 16%
(b) Total Income versus Total Expenditure
The net deficit for the period under review amounted to R214 million. The revenue growth was lower than the expenditure grown in the past year (Revenue: 8%, Expenditure: 18%). The main contributing factors to the net deficit are the high capital charges that were the results of asset revaluation and an increase in the provision for doubtful debt.
(c) Revenue
In the 2010/11 financial year 30% of our total revenue was Government Grants (2009/10: 29%; 2008/09:
25%). Increasing tariffs to improve own revenue is still a challenge as this seems to result into a higher debtors’ book due to the non affordability of consumers. This is a threat to the municipality as this means it continues to rely on grant funding in order to address service delivery backlogs.
(d) Expenditure
Although repairs and maintenance only increased by 10% in the 2010/11 financial year, it was increased drastically in the previous two years (2009/10: 49%, 2008/09: 46%). This is a positive outlook as it means that more emphasis is being placed on maintaining the infrastructure and or assets. However repairs and maintenance as the percentage of total expenditure is steadily sitting between 6% and 4% for the past three years. This means still more resources and attention need to be allocated in maintaining our assets.
Depreciation has increased drastically over the past years (2010/11: 5%; 2009/10: 69%; 2008/09: 68%) due to the revaluation of municipal assets that is required to be in compliance with GRAP. This is the main reason for reflecting a net deficit.
The focus on human resource costs as a proportion of operating income has led to a drop from 30% to 28%
over the past 2 financial years. More precise budgeting has contributed to this.
(e) Capital Expenditure and Funding
The following table compares Buffalo City’s actual capital expenditure, spanning the three years 2008/09 to 2010/11.
The amount for housing excludes the amount that was spent on Operational Projects funded from Local Government and Housing.
Capital spending has decreased to 53% of budgeted funding when compared to the previous year (2009/10:
58%, 2008/09: 53%). This might be due to the fact that the capital budget has drastically increased in the past years and the municipality is still to increase its capacity to spend the increased allocations.
previous year
Finance Costs 87 92 112
% Of expenditure 3% 3% 4%
% Increase / (Decrease) over
previous year (5%) (18%) 4%
Grant Income 902 803 577
% Of total income 30% 29% 25%
% Increase / (Decrease) over
previous year 12% 39% 3%
Table B9: Capital Expenditure
Capital 2010/11 2010/11 2009/10 2009/10 2008/09 2008/09
Expenditure Per Service (Rm) Budget Actual Budget Actual Budget Actual
R m R m R m R m R m R m
Housing 23.5 6.3 36.3 25.9 27.9 0.2
Electricity 69.4 57.6 63.2 68.5 101 78
Market 8.3 4.4 5.8 2.0 3.1 0.6
Water 108.1 75.3 51.7 71.1 76.4 47.6
Waste Management 80.3 68.9 49.7 86.7 95 53
Roads 97.8 79.2 108.6 126.9 121 72
Other 367.1 106 421.1 48.8 260 115
Total Capital Expenditure 754.5 397.7 736.4 429.9 684.9 366.8
Table B10: Capital Expenditure per Funding Source
Capital 2010/11 2010/11 2009/10 2009/10 2008/09 2008/09
Expenditure Funding Source (Rm) Budget Actual Budget Actual Budget Actual
R m R m R m R m R m R m
Grant Funding 434.4 228.6 365.3 237.5 301.4 164.2
Loan Funding 72.3 53.7 162.7 97.2 206 126.8
Own Funding 247.8 115.4 208.4 95.2 177.3 75.8
Total Capital Expenditure 754.5 397.7 736.4 429.9 684.9 366.8
The table above reflects that the capital budget is currently mainly depending on grant funding. In 2010/11 financial year 58% of the capital budget was funded through grant funding (2009/10: 50%; 2008/09: 44%) followed by own funding of 33% (2009/10: 28%; 2008/09: 26%) and loan funding of 9% (2009/10: 22%;
2008/09: 30%).
(f) Financial Profile
BCMM’s cash generation remains stable. While own funds invested have increased slightly, there is an increase in debtors both current and long-term. The effects of the global economic crisis are also a cause of real concern to the City. Operations have settled and tight cash controls have ensured that cash optimization in spending occurs rather than a focus on cash generation. An area needing close monitoring will be that of revenue collection so that it can be improved. This is critical to the financial sustainability of the City.
Net assets remain strong and the slight decrease is mainly attributable to utilisation of the long-term borrowing facility available to the City. The ability to meet short-term commitments, has remained, the key strength of the balance sheet, whilst debtors have increased significantly from 2008/09 to 2010/11. Cash and cash investments increased from the 2009/10 financial period to the 2010/11 financial year due to prudent budgeting; cash-vetting before project spending takes place, increase in consumer debtors and current economic environment. Tight controls have been placed on monitoring projects funded externally.
This means project spend only occurs when Buffalo City’s is certain that cash is available and bridging finance for external public sector institutions is minimized.
Table B11: Revenue Management and Liquidity REVENUE
MANAGEMENT 2010/11 2009/10 2008/09 Annual debtors
collection rate 93.58%
93.80%
Net debtors to annual
income 14.70%
13.10%
outstanding
LIQUIDITY Jun-11 Jun-10 Jun-09
Current ratio 1.41 1.45 1.67
Liquid ratio 0.80 0.70 1.02