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BUFFALO CITY METROPOLITAN MUNICIPALITY AUDITED SEPARATE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 I am responsible for the preparation of these Annual Financial Statements which are set out herewith, in terms of Section126(1) of the Municipal Finance Management Act (56 of 2003) and which I have signed on behalf of the Metropolitan MunicipaliIy. I certify that the salaries, allowances and benefits of Councillors are disclosed within these Annual Financial Statements and are within the upper limits of the framework envisaged in Section 219 of the Constitution, read with the Remuneration of Public Office Bearers Act (20 of 1998) and the Minister for Corporate Governance and Traditional Affairs determination in accordance with this Act except where identified as irregular expenditure in the Annual Financial Statements. Mr. N. Ncunyana Date Acting City Manager BUFFALO CITY METROPOLITAN MUNICIPALITY Audited Separate Annual Financial Statements for the year ended 30 June 2016 General Information Legal form of municipality Municipality Nature of business and principal activities Local Government Grading of local authority Grade 6 Municipality Acting City Manager Mr. N. Ncunyana Chief Financial Officer Mr. V. Pillay Jurisdiction The demarcation board has determined that Buffalo City Metropolitan Municipality (BUF) includes the towns of East London, Bhisho, King Williams Town, Berlin as well as the townships of Mdantsane, Gompo, Zwelitsha, Dimbaza, Phakamisa, Ndevana, Ilitha, Ginsberg and the surrounding rural areas. Business address Trust Centre Oxford Street East London 5201 Postal address PO Box 134 East London 5200 Bankers Absa Bank / Standard Bank Auditors Auditor General of South Africa Members of Audit Committee Mr. V Pangwa (Chairperson) - appointment 01 November 2011 Mr. S Mkebe (Member) - appointment 01 November 2011 Ms. E Ameyaw - Gyarko (Member) - appointment 01 November 2011 Ms. W Dukuza (Member) - appointment 03 March 2014 Mr. H Marsberg (Member) - appointment 03 March 2014 Prof. TM Jordan (Member) - appointment 03 March 2014 Legislation Governing the Municipality The Constitution of the Republic of South Africa,1996 The Local Government: Municipal Structures Act, 1998 (Act 117 of 1998) The Local Government: Municipal Systems Act, 2000 (Act 32 of 2000) The Local Government: Municipal Finance Management Act, 2003 (Act 56 of 2003) Local Government: Municipal Property Rates Act, 2004 (Act 6 of 2004) Municipal Fiscal Powers and Functions Act, 2007 (Act 12 of 2007) Local Government: Municipal Demarcation Act, 1998 (Act 27 of 1998) Intergovernmental Relations Framework Act, 2005 (Act 13 of 2005) 1 BUFFALO CITY METROPOLITAN MUNICIPALITY Audited Separate Annual Financial Statements for the year ended 30 June 2016 Index The statements and notes set out below comprise the audited separate annual financial statements: Index Page Statement of Financial Position 3 Statement of Financial Performance 4 Statement of Changes in Net Assets 5 Cash Flow Statement 6 Statement of Comparison of Budget and Actual Amounts 7 - 10 Accounting Policies 11 - 39 Notes to the Audited Separate Annual Financial Statements 40 - 100 2 BUFFALO CITY METROPOLITAN MUNICIPALITY Audited Separate Annual Financial Statements for the year ended 30 June 2016 Statement of Financial Position as at 30 June 2016 Figures in Rand Note(s) 2016 2015 Restated* Assets Current Assets Inventories 11 36,030,237 44,878,411 Current portion of long-term receivables 8 - 17,552 Current portion of operating leases 9 2,929,996 2,573,198 Receivables from non-exchange transactions 12 695,008,017 372,023,403 VAT receivable 13 96,847,762 83,018,326 Receivables from exchange transations 14 364,776,628 320,652,236 Cash and cash equivalents 15 2,373,900,234 2,198,797,348 3,569,492,874 3,021,960,474 Non-Current Assets Investment property 3 342,030,031 328,302,102 Property, plant and equipment 4 12,836,285,736 12,431,621,776 Intangible assets 5 85,947,744 95,114,799 Heritage assets 6 49,632,925 49,632,925 Investments in associate 7 112,291,660 81,908,295 Long-term receivables 8 - 9,440 Non-current portion of operating leases 9 69,017,614 66,444,415 13,495,205,710 13,053,033,752 Total Assets 17,064,698,584 16,074,994,226 Liabilities Current Liabilities Borrowings 19 50,709,031 46,097,194 Finance lease obligation 17 - 2,738,106 Payables from exchange transactions 23 931,987,629 603,881,156 Consumer deposits 24 53,708,070 48,504,722 Post - retirement medical obligation 10 16,966,927 15,665,595 Unspent conditional grants and receipts 18 211,266,395 191,539,228 Provisions 20 174,862,785 166,234,394 1,439,500,837 1,074,660,395 Non-Current Liabilities Borrowings 19 445,767,675 496,476,706 Finance lease obligation 17 - 767,176 Post - retirement medical obligation 10 488,148,977 487,757,326 Provisions 20 10,222,692 10,433,259 944,139,344 995,434,467 Total Liabilities 2,383,640,181 2,070,094,862 Net Assets 14,681,058,403 14,004,899,364 Reserves: Revaluation reserve 16 4,613,940,840 4,622,680,892 Accumulated surplus 10,067,117,572 9,382,218,465 Total Net Assets 14,681,058,412 14,004,899,357 * See Note 46 3 BUFFALO CITY METROPOLITAN MUNICIPALITY Audited Separate Annual Financial Statements for the year ended 30 June 2016 Statement of Financial Performance Figures in Rand Note(s) 2016 2015 Restated* Revenue Revenue from exchange transactions Service charges 26 2,749,647,841 2,424,752,656 Rental of facilities and equipment 16,583,409 17,430,173 Licences and permits 12,611,825 14,034,279 Other revenue 27 262,224,403 228,470,463 Interest received 28 187,367,781 159,165,416 Total revenue from exchange transactions 3,228,435,259 2,843,852,987 Revenue from non-exchange transactions Taxation revenue Property rates 29 865,234,826 794,518,847 Transfer revenue Government grants & subsidies 31 1,634,064,239 1,564,005,750 Public contributions and donations - PPE - 3,410,514 Fines 5,593,754 5,499,648 Fuel levy 370,461,000 361,639,000 Total revenue from non-exchange transactions 2,875,353,819 2,729,073,759 Total revenue 25 6,103,789,078 5,572,926,746 Expenditure Employee related costs 32 (1,350,271,289) (1,233,305,396) Remuneration of councillors 33 (53,689,005) (47,682,188) Depreciation and amortisation 35 (789,808,551) (684,830,961) Impairments - (504,750) Finance costs 36 (54,873,363) (60,670,766) Debt Impairment 37 (210,111,414) (365,110,172) Repairs and maintenance 34 (350,105,699) (287,392,606) Bulk purchases 38 (1,427,317,753) (1,213,641,773) Grants and subsidies paid 30 (241,686,261) (235,798,043) General Expenses 39 (985,637,501) (992,576,193) Total expenditure (5,463,500,836) (5,121,512,848) Operating surplus 640,288,242 451,413,898 Gain (loss) on disposal of assets and liabilities 4 499,569 (32,772,122) Revaluation realised 16 - (66,573,130) Fair value adjustments 40 13,727,929 (4,909,235) Share of surplus of associate accounted for under the equity method 7 30,383,365 22,359,440 44,610,863 (81,895,047) Surplus for the year 57 684,899,105 369,518,851 * See Note 46 4 BUFFALO CITY METROPOLITAN MUNICIPALITY Audited Separate Annual Financial Statements for the year ended 30 June 2016 Statement of Changes in Net Assets Revaluation Accumulated Total net Figures in Rand reserve surplus assets Opening balance as previously reported 4,185,854,583 9,005,040,385 13,190,894,968 Adjustments: Prior year adjustments (prior to 2014/15) Refer note 46 - 2,910,795 2,910,795 Balance at 01 July 2014 as restated* 4,185,854,583 9,007,951,180 13,193,805,763 Changes in net assets: Write out movable assets - (2,196,770) (2,196,770) Aquarium animals adjustment - 40,181 40,181 Zoo animals adjustment - 328,985 328,985 Take on movable assets - 6,206,798 6,206,798 Revaluation reversal (729,373) 369,240 (360,133) Land revaluation 60,129,906 - 60,129,906 Revaluation reserve realised on derecognition (9,321,617) - (9,321,617) Revaluation - Wastewater network 386,747,393 - 386,747,393 Sub-Total 436,826,309 4,748,434 441,574,743 Surplus for the year (2014/15 restated) Refer note 46 - 369,518,851 369,518,851 Total recognised income and expenses for the year 436,826,309 374,267,285 811,093,594 Total changes 436,826,309 374,267,285 811,093,594 Restated* Balance at 01 July 2015 4,622,680,892 9,382,218,467 14,004,899,359 Changes in net assets: Surplus for the year - 684,899,105 684,899,105 Revaluation reserve realised (3,007,379) - (3,007,379) Disposal of asset (5,732,673) - (5,732,673) Total changes (8,740,052) 684,899,105 676,159,053 Balance at 30 June 2016 4,613,940,840 10,067,117,572 14,681,058,412 Note(s) 16 46 * See Note 46 5 BUFFALO CITY METROPOLITAN MUNICIPALITY Audited Separate Annual Financial Statements for the year ended 30 June 2016 Cash Flow Statement Figures in Rand Note(s) 2016 2015 Restated* Cash flows from operating activities Receipts Sale of goods and services 56 3,687,877,636 3,315,514,687 Government grants & subsidies 56 1,634,064,239 1,564,005,750 Interest received 28 187,367,781 159,165,416 5,509,309,656 5,038,685,853 Payments Employee costs & Councillors remuneration 32&33 (1,403,960,294) (1,280,987,584) Suppliers 56 (2,655,496,679) (2,683,977,312) Finance costs 36 (54,873,363) (60,670,766) (4,114,330,336) (4,025,635,662) Net cash flows from operating activities 42 1,394,979,320 1,013,050,191 Cash flows from investing activities Purchase of property, plant and equipment 4 (1,186,327,342) (930,432,806) Proceeds from sale of property, plant and equipment 4 10,823,062 6,982,897 Proceeds from sale of other intangible assets 5 - 110,943 Net movement in long term receivables 8 26,992 15,920 Net cash flows from investing activities (1,175,477,288) (923,323,046) Cash flows from financing activities Net movement on borrowings 19 (46,097,194) (54,633,002) Net movement on finance leases 17 (3,505,282) (2,703,208) Net movement on consumer deposits 24 5,203,348 3,666,911 Net cash flows from financing activities (44,399,128) (53,669,299) Net increase in cash and cash equivalents 175,102,904 36,057,846 Cash and cash equivalents at the beginning of the year 2,198,797,348 2,162,739,494 Cash and cash equivalents at the end of the year 15 2,373,900,252 2,198,797,340 * See Note 46 6 BUFFALO CITY METROPOLITAN MUNICIPALITY Audited Separate Annual Financial Statements for the year ended 30 June 2016 Statement of Comparison of Budget and Actual Amounts Figures in Rand Original Budget Final Shifting of Virement Final budget Actual Unauthorised Variance Actual Actual budget adjustments adjustments funds (i.t.o. (i.t.o. council outcome expenditure outcome outcome (i.t.o. s28 and budget s31 of the approved as % of as % of s31 of the MFMA) policy) final original MFMA) budget budget 2016 Financial Performance Property rates 903,413,151 19,892,671 923,305,822 - 923,305,822 865,234,826 (58,070,996) 94 % 96 % Service charges 2,686,741,021 113,500,000 2,800,241,021 - 2,800,241,021 2,749,647,841 (50,593,180) 98 % 102 % Investment revenue 133,619,907 20,000,000 153,619,907 - 153,619,907 187,367,781 33,747,874 122 % 140 % Transfers recognised - 1,249,333,299 (171,070,088)1,078,263,211 - 1,078,263,211 963,670,275 (114,592,936) 89 % 77 % operational grants Other own revenue 746,500,113 (12,999,999) 733,500,114 - 733,500,114 681,701,889 (51,798,225) 93 % 91 % Total revenue 5,719,607,491 (30,677,416)5,688,930,075 - 5,688,930,075 5,447,622,612 (241,307,463) 96 % 95 % (excluding capital transfers and contributions) Employee costs (1,387,618,913) (51,453,016)(1,439,071,929) - -(1,439,071,929)(1,350,271,289) - 88,800,640 94 % 97 % Remuneration of (52,910,192) (900,000) (53,810,192) - - (53,810,192) (53,689,005) - 121,187 100 % 101 % councillors Debt impairment (245,009,326) 34,730,000 (210,279,326) (210,279,326) (210,111,414) - 167,912 100 % 86 % Depreciation and asset (712,213,176) (126,316,546) (838,529,722) (838,529,722) (789,808,551) - 48,721,171 94 % 111 % impairment Finance charges (54,313,000) (1,000,000) (55,313,000) - - (55,313,000) (54,873,363) - 439,637 99 % 101 % Materials and bulk (1,377,011,714) (51,100,000)(1,428,111,714) - -(1,428,111,714)(1,427,317,753) - 793,961 100 % 104 % purchases Transfers and grants (258,568,483) 10,000,000 (248,568,483) - - (248,568,483) (241,686,261) - 6,882,222 97 % 93 % Other expenditure (1,631,040,519) 216,716,977(1,414,323,542) - -(1,414,323,542)(1,335,743,200) - 78,580,342 94 % 82 % Total expenditure (5,718,685,323) 30,677,415(5,688,007,908) - -(5,688,007,908)(5,463,500,836) - 224,507,072 96 % 96 % Surplus/(Deficit) 922,168 - 922,168 - 922,167 (15,878,224) (16,800,391) (1,722)% (1,722)% 7 BUFFALO CITY METROPOLITAN MUNICIPALITY Audited Separate Annual Financial Statements for the year ended 30 June 2016 Appropriation Statement Figures in Rand Original Budget Final Shifting of Virement Final budget Actual Unauthorised Variance Actual Actual budget adjustments adjustments funds (i.t.o. (i.t.o. council outcome expenditure outcome outcome (i.t.o. s28 and budget s31 of the approved as % of as % of s31 of the MFMA) policy) final original MFMA) budget budget Transfers recognised - 850,352,600 (70,340,692) 780,011,908 - 780,011,908 670,393,964 (109,617,944) 86 % 79 % capital Surplus (Deficit) after 851,274,768 (70,340,692) 780,934,076 - 780,934,075 654,515,740 (126,418,335) 84 % 77 % capital transfers and contributions Share of (surplus) deficit - - - - - (30,383,365) (30,383,365) DIV/0 % DIV/0 % of associate Surplus/(Deficit) for the 851,274,768 (70,340,692) 780,934,076 - 780,934,075 684,899,105 (96,034,970) 88 % 80 % year Capital expenditure and funds sources Total capital expenditure 1,275,354,230 115,522,930 1,390,877,160 - 1,390,877,160 1,186,327,342 (204,549,818) 85 % 93 % Sources of capital funds Transfers recognised - 850,352,600 (70,340,692) 780,011,908 - 780,011,908 670,393,964 (109,617,944) 86 % 79 % capital Public contributions and - 458,860 458,860 - 458,860 - (458,860) - % DIV/0 % donations Internally generated 425,001,630 175,804,487 600,806,117 - 600,806,117 515,933,378 (84,872,739) 86 % 121 % funds Total sources of capital 1,275,354,230 105,922,655 1,381,276,885 - 1,381,276,885 1,186,327,342 (194,949,543) 86 % 93 % funds 8 BUFFALO CITY METROPOLITAN MUNICIPALITY Audited Separate Annual Financial Statements for the year ended 30 June 2016 Appropriation Statement Figures in Rand Original Budget Final Shifting of Virement Final budget Actual Unauthorised Variance Actual Actual budget adjustments adjustments funds (i.t.o. (i.t.o. council outcome expenditure outcome outcome (i.t.o. s28 and budget s31 of the approved as % of as % of s31 of the MFMA) policy) final original MFMA) budget budget Cash flows Net cash from (used) 1,350,928,670 267,690,940 1,618,619,610 - 1,618,619,610 1,394,979,320 (223,640,290) 86 % 103 % operating Net cash from (used) (1,275,354,230) (105,922,655)(1,381,276,885) - (1,381,276,885)(1,175,477,288) 205,799,597 85 % 92 % investing Net cash from (used) (46,097,194) - (46,097,194) - (46,097,194) (44,399,128) 1,698,066 96 % 96 % financing Net increase/(decrease) 29,477,246 161,768,285 191,245,531 - 191,245,531 175,102,904 (16,142,627) 92 % 594 % in cash and cash equivalents Cash and cash 2,353,956,269 (155,158,921)2,198,797,348 - 2,198,797,348 2,198,797,348 - 100 % 93 % equivalents at the beginning of the year Cash and cash 2,383,433,515 6,609,364 2,390,042,879 - 2,390,042,879 2,373,900,252 16,142,627 99 % 100 % equivalents at year end 9