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City of JohannesburgANNUAL FINANCIAL STATEMENTS

PRESENTATION TO INVESTORS FOR THE YEAR ENDED 30 JUNE 2015

“Corridors of Freedom - Re-stitching our city to create a new future”

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Agenda

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2

3

4

5

Strategic Overview

Financial Analysis

Treasury Management

Political Overview

Questions

POLITICAL OVERVIEWPRESENTATION TO INVESTORS

MMC FINANCE : GEOFFREY MAKHUBO


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GDS 2040

Eradicate poverty

Building Sustainable

human settlements

Good Governance

Building and growing an inclusive

economy

Social inclusion through

support and enablement

Ensuring resource

security and environmental sustainability

Our Promise this Term of Office and Beyond …….

During this term of office we have outlined the policy that was translated into GDS 2040

5

Reflection on the past year

Over the political term, and in 2014/15 the City has done well in;

Clean Governance – in 2014/15 and through-out the political term we haveimproved the quality of governance in the City, signified by improved auditopinions for the City and its entities

Financial Prudence – through-out the political term we have demonstrated goodfinancial management and can pronounce Johannesburg financially stable

Infrastructure development – Backed by strong financial performance, wecontinued to lay-out much needed infrastructure

Job Creation – We have sought to create work opportunities for our people,implemented a number of job creation interventions. Through-out the term wehave sustained attainment of EPWP targets

Delivery of Basic Service Delivery – The City continues to lead in the provision ofbasic services among metros

Health – The City over the term has also improved access to health services inour facilities. We have reduced prevalence of communicable and noncommunicable diseases and 99% of HIV exposed babies are born negative as aresult of our interventions

6Mindful of the Operating Environment

Global factors: For the world as a whole, growth declined from 3.4 per cent in 2014 to anestimated3.1 per cent last year. In sub-Saharan Africa, the decline was from 5 per cent to 3½ per cent. Amoderate recovery is expected over the next two years.

Weak global environment and slowdown in Europe, growth deceleration in China and Emerging Marketeconomies with negative impact on exports and commodity prices. Oil market dynamics and pricedecline. Risks of capital outflows from Emerging Markets.

UN data illustrates rising urbanisation is a global phenomena. Resource appetites will rise andenvironmental protection become increasingly critical.

Domestic factors: Electricity supply constraints; labour market disruptions, skills shortages, publicsector administrative shortcomings, inadequate SMME development, twin deficit problem brings risksand constrains policy options

The urban management challenge to South Africa cities will escalate over the next 20 years as urbanpopulation is set to grow. Johannesburg will carry a significant share of the burden.

SA economic outlook - Features:

Some consumer consolidation but spending growth limited by high debt levels and weak employmentgrowth. Some support from fuel price

Fixed investment supported by public sector infrastructure investment but private sector capexremains weak – confidence, electricity supply.

Export growth constrained by soft global demand and low commodity prices.

The Rand shows nearer term resilience but vulnerable on the downside in the longer and medium term.

Growth rate of 0.9 per cent this year, after 1.3 per cent in 2015.

7Political Outlook…

2016 Local Government Elections

We are a City at Work – Today is better than Yesterday and tomorrow will be better than today.

We said we will put the City in a healthy financial position and we did! As we reach the end of the term of office, we say, we have indeed established a solid financial foundation.

The City is in good hands. The positive feedback from rating agencies, investors and the Joburg residents is that the City is delivering.

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“Turning Challenges into Opportunities ”

STRATEGIC OVERVIEWPRESENTATION TO INVESTORS 30 JUNE 2015

CITY MANAGER TREVOR FOWLER


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Vision, key outcomes and priorities

To be “a World Class African City of the Future – a vibrant, equitable African city, strengthened through its diversity; a city that provides real quality of life; a city that provides sustainability for all its citizens; a resilient and adaptive society” (Joburg 2040).

Improved quality of life and development-driven resilience for all.

A sustainable city which protects its resources for future generations and a city that is built to last and offers a healthy, clean and safe environment.

An inclusive, job-intensive, resilient and competitive economy that harnesses the potential of citizens’.

A high-performing metropolitan government that proactively contributes to and builds a sustainable, socially inclusive, locally integrated and globally competitive Gauteng City Region (GCR)’

Priority 1: Financial sustainability and resilience

Priority 2: Agriculture and food security

Priority 3: Sustainable Human Settlements

Priorities 4, 8 and 9: Economic Growth – as constituted of:

SMME and entrepreneurial support

Investment attraction, retention and expansion

The green economy

Priority 5: Engaged and active citizenry

Priority 6: Resource sustainability

Priority 7: Smart City

Priority 10: Safer City

Vision

Outcomes

Decade 1: Priorities

11Economic Outlook Johannesburg City Region

12Economic Outlook Gauteng Region

8 000

7 000

6 000

5 000

4 000

3 000

2 000

1 000

Source: SACN database (2014)

Non-Metro eKhurhuleni Johannesburg Tshwane Gauteng

Employed 598848 1114785 2021637 1112941 4848211

Unemployed 260869 486788 657732 264813 1670201

Discouraged 76624 77955 65634 91169 311383

0

1000000

2000000

3000000

4000000

5000000

6000000

NU

MB

ER

OF

EM

PL

OY

ED

, U

NE

MP

LO

YE

D A

ND

DIS

CO

UR

AG

ED

EMPLOYMENT AND UNEMPLOYMENT IN GAUTENG

13Economic Outlook Johannesburg City Region

0 500000 1000000 1500000 2000000 2500000

2011

2015

2016

2017

2018

2019

2020

2021

2011 2015 2016 2017 2018 2019 2020 2021

Projected average household size 3 2.7 2.7 2.7 2.6 2.6 2.5 2.5

Projected annual % growth rate 3.9 3.9 3.6 3.6 3.5 3.5 3.5

Projected number of households 1485321 1738073 1807609 1872987 1940685 2010785 2083370 2158528

PROJECTED HOUSEHOLD SIZE AND GROWTH RATES IN THE CITY OF JOHANNESBURG

14

Our Good Stories Sustained Over the Years

Despite harsh economic climate there has been;

Positive financial performance as reflected in maintenance of positive andrespectable credit ratings with Fitch Ratings and Moody’s Investor Services during adifficult economic climate.

Unqualified audit opinion, three consecutive years

High access levels to and satisfaction with basic services illustrated above

Drinking water quality remains of highest possible standard at 99.8% of approvedstandards

Positive EPWP programme performance i.e. 51 977 opportunities created in2014/15 against a target of 50 000

4 681 SMMEs supported by the City

R3,26 billion value of business transactions and/ or business transactions facilitated

Increased passenger numbers on Rea Vaya to an annual average of 37 579 perworking day

Investment in Capital Budget: City spent 94% of an increased CAPEX budget (fromR7,7 billion in 2013/14 financial year to R10,8 billion) in the year under review.Actual spend increased from R7,3 billion in 2013/14 financial year to R10,2 billion.

15Energy Management

Total number of households with access toFree Basic Electricity was 469 073

The Load limiting initiative has improved theservice delivery and reduced impact of LoadShedding during the winter period and waspositively accepted.

Energy projects included:

Smart meter rollout (61 871 electricity smartmeters installed).

New Projects include:

Electrification

ripple relays control

Sola Water Heaters

The City is acquiring part of its energy supplyfrom Kelvin Power Station

16Water Management

Percentage of households with accessto basic water and sanitation was isnow at 99.41% and 94.54%respectively.

Johannesburg water rolled out capitalprojects in such a manner that it alsoaddressed the three societal illsnamely unemployment, poverty andinequality.

Water projects include:

Jozi@work (1 471 jobs created)

EPWP (16 533 job opportunitieswere created.)

New projects include:

Rainwater Harvesting

17Refuse and Waste Management

Pikitup provides waste collection service to 831 352 houses

Waste management projects include : Separation at source (21%

participation rate was achieved) Reduction of waste to landfill

projects (5% reduction in waste to landfill)

Jozi@work (35 Cooperatives established and 1003 Jobs created)

New Pojects include: Waste diversion projects

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Joburg is a City of achievements and firsts

Johannesburg was ranked the second-most inspiringcity in the world in a 2014 Good City Index studyconducted by the global Good magazine.

Joburg is a first City in the C40 Cities Climate LeadershipGroup to issue the Green Bond.

The City received Green Bond C40 Cities award.

Joburg's greening drive got the national thumbs-upwhen the City was named the winner of the 2015Arbour City Award .

Joburg Mayor was nominated an African candidate for UCLG Co-Presidency.

MMC for Finance is a Co-President of FMDV.

MMC for Health and Social Development was elected Vice President of the Network for Locally Elected Women of Africa (REFELA),

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“ ”“Turning Challenges into Opportunities ”

ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 June 2015

GROUP CHIEF FINANCIAL OFFICER REGGIE BOQO


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Financial Review

The City of Johannesburg has achieved the following in the year 2014/2015:

A strong financial position with a surplus of R3,9 billion from R3,8 billion in 2014

Healthy liquidity levels with closing cash balance of R4,9 billion (2014 R5,3 billion) and

successful redemption of bonds and other liabilities

Spent 94% of capital expenditure budget which has increased from R7,3 billion in

2013/2014 to R10,2 billion in 2014/2015

A progressive increase in the City’s total assets by 17%

Increase in total income by 8%

Revenue collection rate of 92% was achieved for the year under review

Received an upgraded by Fitch from AA-zaf (/F1+.ZAF) with a stable outlook to AA zaf

(F1+.ZAF) with a Stable outlook

An unqualified audit opinion for 3 years running

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Overall 2014/2015 Annual Financial Performance

Revenue Surplus Assets Capital

Expenditure

• Revenue has increased from R38 billion to R42 billion

• Surplus has increased from R3,8 billion to R3,9 billion

• Assets have increased from R67 billion to R78 billion

• Capital expenditure has increased from R7,3 billion to R10,2 billion

23Main Revenue streams for the year ended 30 June 2015

The revenue composition has remained relatively unchanged from previous financial year with service charges and property rates accounting for 70% of the total revenue generated.

Government grants for the current year contributes to 21% of total revenue which is consistent with the prior years.

18%

52%

21%

2%7%

Revenue Composition

Property Rates

Service Charges

Government Grants andsubsidies

Interest Received

Other

Total Revenue

R42 billion

8%

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Expenditure Composition for the year ended 30 June 2015

23%

7%

4%

10%33%

7%

16%

Expenditure Composition

Employee Related Costs

Depreciation and amortisation

Finance costs

Allowance for Impairment ofcurrent receivables

Bulk Purchases

Contracted services

Other

Total

Expenditure

R38 billion

12%

25Financial Performance year ended 30 June 2015

• The City was still able to generate a healthy surplus of R3,9 billion

• The increase is due to cost containment measures put in place as well as

prudent spending of approved budget whilst optimising revenues.

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

5,000,000

Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Forcast

Surplus 4,614,681 3,487,000 3,768,891 3,894,298 4,354,833

R’000Surpluses Generated

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Group Balance Sheet as at 30 June 2015

2015 2014 2013

R '000 R ‘000 R ‘000

Net Assets and Liabilities

Net Assets 39 284 442 35 371 993 30 971 662

Non-current liabilities 24 175 824 17 698 880 16 455 549

Current liabilities 14 907 045 13 853 612 13 704 515

78 367 311 66 924 485 61 131 726

Assets

Non-current asset 62 237 229 52 001 972 47 404 063

Current assets 16 130 082 14 922 513 13 727 663

78 367 311 66 924 485 61 131 726

27Financial Performance year ended 30 June 2015

The increase of assets over the years was mainly due to the growth in PPE and increase in cash and cash equivalents over the past years.

PPE increased from R36 billion in 2011 to R55 billion in 2015 and Cash balances have increased from R695 million in 2011 to R4,9 billion in 2015

Over the past 5 years the City has intentionally worked towards building up cash resources through the implementation of more stringent cash management practices including weekly and monthly cash projections which are proactively monitored. The high cash balance has remained well maintained in 2014/2015 financial year.

-

20,000

40,000

60,000

80,000

R’0

00,0

00

Jun-11 Jun-12 Jun-13 Jun-14 Jun-15

Total Assets 47,440 56,374 60,191 66,924 78,367

Total Assets

-

1,000

2,000

3,000

4,000

5,000

6,000

R’0

00,0

00

Jun-11 Jun-12 Jun-13 Jun-14 Jun-15

Cash 695 2,220 5,401 5,314 4,880

Cash and cash equivalents

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Infrastructure spending and Grants

Following implementation of the “R100 billion over 10 years” capex initiative supported by the Financial Development Plan, capital investment began to accelerate from 2012/13

Despite the City’s significant growth in Capital budget over the term of office the grants allocated to Johannesburg have not increased concomitantly.

-

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

Jun-12 Jun-13 Jun-14 Jun-15

Budget 3,749,203 4,547,859 7,700,262 10,828,626

Actual 3,238,292 4,229,509 7,286,767 10,237,870

Grant Funding 2,233,450 2,813,752 2,762,196 2,989,033

Capex/Grant allocation Analysis

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Infrastructure funding mix

53%

1%

10%

35%

2009/10 Sources of Funding

Loans

Cash

Grants - National

Grants -Provincial

31%

39%

17%

14%

2014/15 Sources of Funding

Loans

Cash

Grants - National

Grants - Provincial

As the City intensified Capex, the Funding mix has shifted towards more “own” funding in the form of Loans and Cash

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Infrastructure spending

The City Capex Spending % has been able to keep up with the increasing quantum of the budget ensuring service delivery was not negatively impacted

JUNE 2012 JUNE 2013 JUNE 2014 JUNE 2015

% Capex Spend

86% 93% 95% 94%

% Grant Funding Spent 62% 84% 83% 96%

31Prudential ratios

0.00

1.00

2.00

Target Jun-15 Jun-14

Current Ratio 1.00 1.00 1.08

Current Ratio

0.00

1.00

2.00

3.00


Solvency Ratio 2.00 2.00 2.13

Solvency Ratio

0%

10%

20%

30%

40%

50%


Debt-to-RevenueRatio

45% 38% 38%

Debt-to-Revenue Ratio

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30 June 2011/12 30 June 2012/13 30 June 2013/14 30 June 2014/2015

AG AuditOpinion

• Qualified Audit Opinion – Group

• Qualified Audit Opinion – 2MEs

• Unqualified Audit Opinion – 11 MEs

• Clean Audit Opinion 2 MEs

• Unqualified Audit Opinion – Group

• Unqualified Audit Opinion – All MEs








Auditor General audit opinion

33In Conclusion

• We said we will be prudent in managing the City’s finances and improvethem, we did!

• The City remains committed to prudent management of its finances.

• The City’s efforts and dedication towards achieving clean administrationcontinue to bear fruits with the achievement of an unqualified AuditOpinion once again.

• Corrective measures and action plans have been put to ensure thatmatters reported on by the Auditor General are remedied going forward.

• The Financial Development plan will ensure continued financialsustainability and effective financial planning through prudent borrowing,generation of annual operating surplus and the creation of cash reservesto increase the level of infrastructural spending.

TREASURY OPERATIONSPRESENTATION TO INVESTORS

GROUP HEAD: TREASURY & FINANCIAL STRATEGY AND PLANNINGKHOMOTSO LETSATSI


35Liquidity : Year- end Cash position

Liquidity Position

• The City’s cash and cash equivalents held at balance sheet date were as

follows over the last six years

• General Banking Facilities and Commercial Paper have not been issued for

the past 3 years due to positive cash balances in those financial years .

-

1,000

2,000

3,000

4,000

5,000

6,000

R’000,000

June 2009 June 2010 June 2011 June 2012 June 2013 June 2014 June 2015

AMOUNT 179 306 690 2,220 5,401 5,314 4,880

CASH AND CASH EQUIVALENT

36Medium Term Capital Funding

• The City increased its capital budget from

R7,7 billion in 2013/14 financial year to

R10,8 billion in the year under review.

• The City spent 94% of the R10,8 billion.

• Total Conditional Grant funding amounts

to R2,989 billion of which 96% was spent

Funding Source

Budget 2012/2013

R’000

Budget 2013/14

R 000

Budget 2014/15

R 000

Adjusted Budget 2015/16

R 000

Total Budget

Loan Funding 1 311 200 1 458 631 3 276 000 3 940 000 9 985 831

CRR & Surplus Cash 368 408 3 147 604 4 530 718 2 213 072 10 259 802

Grants and Contributions 2 868 251 3 094 028 3 021 231 3 170 485 12 153 995

Total 4 547 859 7 700 263 10 827 949 9 323 557 32 399 628

-

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

June2013

June2014

June2015

Projection June

2016

Actual Capex Spend 4,229,509 7,286,767 10,237,870 8,857,379

Actual Capex Spend

37Long Term Debt

• Total liability book for 2014/15 financial year is R16 billion

• A total of R3.3 billion funding was

raised in the 2014/15 financial

year namely

R1,555 billion from AFD 15 year

amortizing loan with a 2 year grace

period

R1,720 billion from DBSA over 20

years with a 2 year grace period

• Liability redemption R 971 m

BANKS31%

DFI19%

BONDS48%

Finance Leases

2%

Funding Sources

R16 billion

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Moody’s Key Rating Drivers City of Johannesburg

A2.za/P-1.za Negative Outlook

Strong revenue growth supported by broad tax base

Improving liquidity level, but some pressure going

forward

Sophisticated financial management

Large and diversified economic base

Credit Challenges

Increasing debt stock, but debt ratio to remain in

line with other rated peers

High capital expenditure requirements

City of Johannesburg Credit Rating Agencies view

Fitch’s Key Rating Drivers for City of Johannesburg

AA.zaf/F1+.zaf Stable Outlook

Fiscal Performance: Operating Margin close to 15% of

revenue, in line with the rating agencies expectation and

City’s policy of tariffs for service to remain cost reflective.

Debt Strength - The City debt to revenue around 40%,

which is below 45% mark.

Management - Cash balances of around R4 to 5bn is well

in excess of annual debt service requirements, collection

rates hovering 93%

Economy – Johannesburg’s estimated GDP per capita of

about 50% above the national average

What Could Change the Rating downward

A weakening of the South African sovereign

credit profile

Additionally, financial difficulties resulting in cash

flow tensions and consistently high or growing

debt level

What Could Change the rating downward

Deterioration of budgetary performance

Operating Margin falling below 10%

Collection rates falling below 90%

Substantial rise in trade payables and receivables

might lead to a negative rating

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In conclusion …..

Our finances are healthy and will continue to be healthy going forward.

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Questions

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