City's financial management for 2011/2012 continues an ongoing trend of excellent results

The City of Cape Town's financial management and spend for the 2011/2012 financial year illustrates that the City is in a sound financial position and is able to ensure sustainable service delivery, at an unequalled level across South Africa.

We are grateful to the ratepayers of Cape Town who have, through their regular and full municipal payments, assisted this administration in ensuring that Cape Town remains the gold standard for service delivery across the country.

Some key 2011/12 results include:

• Operating revenue was R21,490 billion which was 99,75% of the budget amount
• Operating expenditure was R21,186 billion which was 97,78% of budget
• Capital expenditure was R4,233 billion which was 92,81% of budget
• Total debtors to the City at the year-end was R4,225 billion - an increase of R368 million from the previous year
•  Total cash and investment was R6,161 billion - an increase from the previous year's R5,213 billion
• Total borrowings decreased slightly to R5,470 billion
• Moody's credit rating of the City remained at Aa2

As part of our commitment to building a Well-run and Caring City, this government understands that better financial management translates into better service delivery for all of our residents.

Redressing past imbalances and delivering services, particularly to those who were previously denied them, remains a central focus of this government. We are committed to ensuring maximum delivery with the resources at our disposal on the ground, in our communities.

By prioritising efficient collection and careful management of revenue, we are able to deliver services sustainably. Unlike so many other financially insolvent municipalities across South Africa where wasteful expenditure and widespread corruption are rampant, the City of Cape Town is focused on spending its money to benefit all residents of the city.

Our efficient revenue collection rate, unprecedented across South Africa, means that we are able to fund a large portion of our capital projects and our operational activities from our own coffers.

This means that we have the resources to expand the current infrastructure of the city to provide for improvement in living circumstances and support economic growth.

By spending more than 97% of our operational budget, we are able to ensure that residents of Cape Town enjoy a city with better roads, working street and traffic lights, reliable supplies of water and electricity, and regular collection of refuse.

Where there is a need to borrow money for sustainable capital projects, our Double-A credit rating, as determined by Moody's International, means that we are able to source the debt finance we need. A strong rating allows for a lower interest rate from banks and other financial institutions, which places the City in an even stronger financial position.

Of course, we recognise that presentation of numbers alone says little. We only find meaning in these numbers when we set them in a context. We must compare them with other numbers or with outcomes to derive meaning. We test to see whether income is more than expenditure, whether the actuals are close to budgets, and how the numbers compare with previous years. You will see that in all these cases, the City of Cape Town's results for the 2011/12 Financial Year are excellent.

In order to fully appreciate the annual results, it is critical to examine the data of the previous five years, to show contexts and trends.

Capital spend

• Total capital spend over five years has been R20 billion. This can be divided into grant-funded capex of R9,56 billion and own funding of R10,44 billion.
• Borrowings over this period was R4,2 billion, all through bond issues.
• This means that the City has been able to fund R6,24 billion of capex out of cash flow over this five-year period.

Financial performance

Income has grown annually higher than real expenditure growth over the five-year period, with both income and expenditure above 95% in all years.

Ratio analysis

• Repairs and maintenance spend has constantly increased as a percentage of income.
• Bulk services spend has dramatically increased over this period, mainly due to the Eskom increases.
• Employee costs have remained fairly constant as a percentage of income, but the skewed increase that arises due to the bulk services growth needs to be noted.
• Cash from operations has remained strong over the full period.

Debtor's payment ratios

• Debtor ratios can be defined in different ways. We have the City's payment ratios for the past five years using two different definitions. One is as defined by the National Treasury. The other, as declared in our Annual Financial Statements, excludes prepayments and debt write-offs.
• In both case it is clear that the City has achieved a progressive improvement in payments. In the first, by 2% and the second, by 5% over the five-year period.
• The 5% growth in payments over the five years indicates an approximate R1 billion per year additional cash available for expenditure.

Financial stability index

• This index is a measurement of the City's financial position, operating performance, and liability and liquidity management. According to Ratings Afrika, Cape Town's liquidity and cash flow management surpasses those of all other metros across South Africa for the 2011 financial year.
• Using Ratings Afrika's formula, it has been calculated that from 2008 to 2012 Cape Town increased significantly from 52 to 67 points.

In addition to the above, it is important to note that the residential property rates in Cape Town are the lowest for properties valued at under R1,5 million, i.e. the properties of the poor and the middle classes. Cape Town's rates are also only marginally higher than Johannesburg's for higher value residential properties. We also know from our own analysis that Cape Town's commercial and industrial property rates are the lowest amongst the metros.

Cape Town has been able to achieve competitive property rates while delivering a high level of service. The affordability of rates and services and high standard of service delivery has meant that a high percentage of residents are satisfied enough to pay their rates as they are getting fair value for money.

Affordable rates lead to high payment ratios, which leads to the ability to provide not only operational delivery (like keeping the lights on) and improved repairs and maintenance, but also significant improvement in the infrastructure which underlies the economic growth of the city.

In addition, the growing stability of the City's finances has meant we have been able to borrow funds at affordable rates to further accelerate infrastructure provision, while keeping financial options open for dealing with future shocks.

Statement issued by Acting Mayor and Mayoral Committee Member for Finance - Alderman Ian Neilson, City of Cape Town, September 20 2012

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