City of Johannesburg INVESTOR ROADSHOW PRESENTATION 25-27 February - - PowerPoint PPT Presentation

City of Johannesburg

INVESTOR ROADSHOW PRESENTATION 25-27 February 2019 “Corridors of Freedom - Re-stitching our city to create a new future”

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Agenda

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Political Overview Strategic Overview Financial Analysis Treasury Management

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POLITICAL OVERVIEW PRESENTATION TO INVESTORS 25 – 27 February 2019 MMC FINANCE : CLLR FUNZELA NGOBENI “Corridors of Freedom - Re-stitching our city to create a new future”

4 Political Context : Strategic Evolution and Direction

Stabilisation Phase (service with pride) Consolidation Phase Medium Term Sustainability Phase Long Term MAYORAL PRIORITIES TEN POINT PLAN GDS OUTCOMES Where are we as the City of Johannesburg …

The initial “10 Point Plan” – conceived in the early days of the administration – has evolved to be replaced by 5 Growth & Development Outcomes and 9 Mayoral Priorities

Political Context : Strategic Direction

We are still committed to achieving the following by 2040….

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• 1. A growing, diverse

and competitive economy that creates jobs

• 2. An inclusive society with

enhanced quality of life that provides meaningful redress through pro-poor development

• 3. Enhanced, quality

services and sustainable environmental practices

• 4. Caring, safe and

secure communities

• 5. An honest,

transparent and responsive local government that prides itself on service excellence

What we promised and achieved…..

The City conducted a skills audit of top management in order to ensure that our employees possess the right skills for the appropriate positions. The audit was hugely successful and revealed that we are on the right track to creating a professional civil service in Johannesburg.

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Inner-City Revitalisation – The inner-city revitalisation took off and the first batch of 84 properties was approved by Council to be offered to the private sector for development. More buildings will be offered in the coming financial year. Training of the new 1500 JMPD officers who were recruited in 2017 is at completion stage and they are expected to begin patrolling the City’s streets in 2019 We have served with pride ……..

Political Context : “Real Change”

To drive the 2018/19 delivery agenda for the current IDP term, the City’s focus is on delivering transformative change (Diphetogo) and making a real difference for the residents of Johannesburg. The key to accelerating change is narrowing focus to the most critical needs of the City. Diphetogo is the City’s programme to accelerate change aligned to these critical needs. The City has identified key non-negotiables that will form the basis of the interventions and programmes the City will pursue for the remainder of the term.

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Diphetogo demands that the City ensures residents and stakeholders

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Johannesburg experience exceptional service standards.

STRATEGIC OVERVIEW PRESENTATION TO INVESTORS 25 – 27 February 2019 CITY MANAGER DR NDIVHONISWANI LUKHWARENI “Corridors of Freedom - Re-stitching our city to create a new future”

Operating Context : Socio-Economic Indicators

City of Johannesburg remains the biggest metro in South in terms of population, and the size and reach of the economy

2015 2016 2017 2018 2019 2020 World Economy 3.5 3.3 3.8 3.7 3.5 3.6 South Africa 1.3 0.6 1.3 0.7 1.3 1.9 Gauteng 1.3 1.3 1.0 0.9 1.7 2.2 Johannesburg 1.1 1.4 0.9 1.1 1.9 2.4

Recent Economic Performance and Outlook GDP % constant prices

• The City’s population has increased by an annual growth

rate of 3% in the past 10 years. In 2007, there were 3.75 million people living in the city. The number of people in the city increased to 5.04 million in 2017.

• The total number of households have also increased

marginally over the same period. The number of households increased from 1.21million in 2007 to 1.63 million in 2017.

• Increased population size and number of households puts

pressure on the delivery of services by the City as the demand for services increases as well. The city is thus forced to do more with less.

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27.5% 29.2%

South Africa City of Johannesburg

Official Unemployment Rate Q3 2018 – COJ

• Ironically, despite being a “place of gold”, Joburg has some of

the most underdeveloped communities in the country and levels of inequality are very high

Water

98.4%

within 200m

• f dwelling

Electricity

90%

for lighting and other purposes

Sanitation

95.1%

flush toilet or VIP

Refuse

95.9%

weekly collection

Access to basic services

Operating Context : Socio-Economic Indicators

0.66 0.7 0.73 0.62 0.64 0.66 0.68 0.7 0.72 0.74 2001 2011 2017

Human Development Index (HDI)

0.65 0.63 0.62 0.63 0.64 0.65 0.66 2001 2011 2017

Gini Coefficient (Inequality marker)

11 Johannesburg in Context : Strategic Response

We responded to the call to service the citizens of Johannesburg with pride.

Key achievements: Sustainable services 12

Johannesburg Water

• 99.9% compliance with drinking water quality
• Water consumption decreased to 284.92 litres per

person per day from a baseline of 287.70 litres per person per day in 2016/17;

• 100% compliance to sludge breakage
• Replaced 45.4 kilometres of sewer pipes against a

target of 33.5 kilometres, translating to 135.5% over- achievement;

• Water bursts restored within 48 hours of notification was

89.09% against a target of 95%, and for sewer blockages cleared within 24 hours of notification: 94.94% against a target of 96%.

City Power

• Installed 1 374 public lights;
• Electrified 2 167 units (structures) in informal settlements;
• Slovo Park: 1076 informal settlement dwellings have been

electrified after CoJ allocated R41 million for the completion of this project;

• Alexandra: 300 units (structures) in informal settlement have

been connected and 100 public lights installed;

• Elias Motsoaledi: 175 RDP houses connected, and 105 public

lights installed.

Key achievements: Sustainable services 13

Johannesburg Social Housing Company

• Joshco delivered 1 159 units
• Four inner city buildings that were acquired in the past

financial years which are going through pre-construction planning process;

• Five

informal settlements were upgraded during this financial year;

• 2 020 rental accommodation units have been completed in

the Inner City;

• 2 075 housing opportunities were created this financial year

against the annual target of 2 190;

• 218 transitional housing units were constructed this financial

year against the annual target of 200;

• 3 597 title deeds issued to beneficiaries;

Pikitup

• Pikitup successfully implemented the

Community Upliftment Programme (CUP) whereby 37 co-operatives were established, and 1 362 jobs created in the waste industry

• The capital expenditure performance

for the year under review was R60.06 million (99.91%) against the annual plan of R60.11 million.

14 Key achievement : Economic Growth

Johannesburg Roads Agency

• Spent 97.40% of its total capital budget against a target
• f 95.00%, and spent all its allocated grant funds on

providing basic infrastructure;

• 92.27% achievement against the target of 90.00% on

resolving all reported traffic faults on traffic signals;

• Met targets for roads resurfacing (301.12km) and roads

upgrading (31.34km) Economic Development, Johannesburg Property Company and Fresh Produce Market

• 8 978 SMMEs were supported against a target of 8 000
• R8.69 billion value of investment and/or business

transactions facilitated

• 19 449 EPWP opportunities created
• Overall 8.8% of market share acquired by emerging

producers. ReaVaya

• Phace 1C (a) OF Rea Vaya Bus Rapid Transport between

Johannesburg CBD, Alexander and Sandton CBD is currently being implemented.

Key Achievements: Human and social development

Social Development

• Community based Substance Abuse Treatment Sites were established in Tladi, Eldorado Park,

Jourbert Park and River Park

• 64 Clinics with electronic health records since the launch of Ehealth@Joburg
• 1 619 044 individuals were reached through Jozi Ihlomile HIV/AIDS education door to door

programme

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Key Achievements: Good Governance

• Unqualified audit opinion and 4 MEs with clean audit opinion
• 91% capital expenditure
• Attainment of critical ratios: current ratio, remuneration to expenditure, cash coverage
• 91% revenue collection with respect to billing
• Rolled out New Valuation Roll
• Appointment of critical key positions:
• Chief Operations Officer
• Group Chief Financial Officer
• Group Head Treasury Financial Strategy and Planning
• Group Head Revenue Services and Customer …
• Chief of Police

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Coming Soon….. Watch the space

“Johannesburg: Open for Business, Investment Roundtable 2019”

The theme of the conference aligns and leverages on the City of Johannesburg’s Economic Growth Strategy, which is premised on principles that emphasize that:

• A Johannesburg that works, is a South Africa that

works,

• It is through creating enabling economic environment

that Johannesburg can be more responsive and pro- active in the delivery of quality services,

• Utilizing technological advancements and investment

in economic infrastructure can increase competitiveness,

• The City encourages and supports an ecosystem that

harnesses Johannesburg’s businesses, by enhancing the ease of doing business and reducing barriers to market entry.

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Projects that will be showcased:

• Inner-City Rejuvenation
• Energy
• Water & sanitation
• Waste Management
• Health
• Transport
• Housing

In Conclusion

We aim to accelerate delivery of the administration’s mandate to deliver change through its Diphetogo “Real Change” approach. As we continue to emphasis in all of our programmes and projects, we aim to establish an honest and responsive government; that listens to the people and prioritises their needs. 2017/18 has seen significant progress in this regard, and we all remain committed to delivering services to the people of Johannesburg with pride and dignity, and ensuring that we always put the residents of our city first.

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FINANCIAL OVERVIEW PRESENTATION TO INVESTORS 25-27 FEBRUARY 2019 GROUP CHIEF FINANCIAL OFFICER MANENZHE MANENZHE “Corridors of Freedom - Re-stitching our city to create a new future”

Financial Context :2017/18 Highlights

• A strong financial position with a surplus of R2.9 billion from R1.4 billion in 2017
• Healthy liquidity levels albeit lower than the previous year with closing cash balance of

R2.2 billion (2017 R3,1 billion) and successful redemption of bonds and other liabilities

• Spent 91% of capital expenditure albeit that the budget was lower than the prior year

which has decreased from R9,9 billion in 2016/2017 to R7 billion in 2017/2018

• A progressive increase in the City’s total assets by 3.5%
• Increase in total Revenue by 5%
• Revenue collection rate of 91% was achieved for the year under review
• Global credit rating assigned a long term national scale rating of AA ZA, and A1+ short term

with a stable outlook. Moodys’ maintained the City’s long-term issuer and debt ratings of Baa3 (global scale) and Aa1.za (National scale) and short-term issuer ratings of P-3 (Global scale) and P-1.za (National scale) with a negative outlook.

• An unqualified audit opinion for 6 years running

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Analysis of the Annual Financial Statements for the year 2017/18

• Salient Features

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Financial Ratio 2015/16 2016/17 2017/18 Growth in Total Revenue 6% 3% 5% Growth in Expenditure 7% 10% 1% Annual surplus generated 3,521 Billion 1,373 Billion 2,885 Billion Capital Expenditure 8.4 Billion 7.7 Billion 6.4 Billion Debt to revenue 45% 45% 42% Cash balance 4,370 Billion 3,096 Billion 2,240 Billion

• The financial position of the City

has strengthened as compared to the previous year on most of the matrices.

• Austerity

measures have yielded results and this has translated in a 1% increase in total expenditure and a surplus

• f R2.9 billion.
• Cash balances declined due to

lower than expected revenue collections.

Revenue Composition 22

19% 53% 20% 2% 6%

Revenue Composition

Property Rates Service Charges Government Grants and Subsidies Interest Received Other

• Revenue composition has remained

unchanged with property rates and service charges accounting for 72% of the total revenue

• Commercial Property rates increased

by 15% due to amongst

• thers

improvement in the billing system as well as new developments

• Government grants make up 20% of

the total revenue which is also consistant with the prior years.

Expenditure Composition 23

25% 7% 7% 6% 34% 21%

Exependiture Composition

Employee Related Costs Debt Impairment Depreciation and amortisation Finance Costs Bulk Purchases Other

• Employee

related costs increased by 8% when compared to the previous year mostly due to general annual increases.

• Remuneration as a % of Total

expenditure ratio is 26% which is well within the National Treasury requirements

• Debt impairment is over budget

due to lower than expected revenue collection.

Statement of Financial Position 2017/18 24

2018 2017 2016 R '000 R '000 R ‘000 Net Assets 44 648 926 41 762 256 42 041 777 Non-current liabilities 25 951 611 23 334 228 24 050 246 Current liabilities 14 583 409 17 230 871 14 285 756 85 183 946 82 327 358 80 377 779 Assets Non-current asset 73 788 923 70 286 591 68 002 059 Current assets 11 395 023 12 040 767 12 375 720 85 412 740 82 327 358 80 377 779

The Statement of Financial Position presented reflect a solid financial position of the City with total assets increasing by 3% to R85.2 billion driven largely by annual capital expenditure in excess of R6.4 billion.

Consumer Debtors and Liquidity Management 25

• 1,000,000

2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 2016/17 2017/18

Consumer Debtors vs Cash Balance

Consumer Debtors Cash and Cash Equivalent

R’000

Net outstanding consumer debtors amounted to R5.9 billion as at 30 June 2018 [2017: R4.5 billion]. Electricity and water debtors account for 75% of the total net consumers debtors balance. This is in line with the revenue generated from these services. Total consumer debtors increased by 31% from the previous year, driven mostly by the disposable income pressures faced by consumers under the prevailing economic conditions.

The decline in the revenue collection has had a direct negative impact

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the City’s cash balances.

Electricity and Water Losses 26

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% June - 15 June - 16 June - 17 June - 18

Electricity Losses

Technical Loss Non technical Loss Total Losses 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% June - 15 June - 16 June - 17 June - 18

Water Losses

Physical Losses Commercial losses Total Losses

Interventions to reduce Non-Technical losses

• Implement a check and area metering solution

to identify where the main losses occur – area metering, substation and feeder levels.

• Purchase “smart ready” pre-payment meters to

replace all those domestic meters previously tampered, by-passed meters, faulty meters and where no meters were installed. Interventions to reduce commercial losses and unbillied water losses

• Converting all deemed areas into metered areas

(Orange Farm & Soweto)

• Develop a system to determine volumes based on

meter reading Interventions to reduce physical losses

• Pressure Management
• Water Mains Replacement (80km in 2018/19 FY)
• Education and Awareness Campaign

Audit Outcomes

Types of audit opinion Number of entities Unqualified audit opinion with no material audit findings(Clean Audit) 4 Unqualified audit opinion with material audit findings 8 Qualified audit opinion Adverse opinion Disclaimer audit opinion Total 12

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Parent Municipality Unqualified audit opinion with material audit findings COJ - Group Unqualified audit opinion with material audit findings

In conclusion

We remain committed to stabilizing the finances of the City, and instituting fiscal discipline. Through our fiscal management we will ensure:

• Sustainable cash flow is maintained over the medium term to build up sufficient reserves which

can be utilized towards future capital investments.

• Borrowings will be used to augment internally generated reserves while ensuring the debt to

revenue ratio remains within the prescribed limits set by National Treasury Through prudent financial management we will achieve Transformational change – Diphetogo – for the people of Johannesburg

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TREASURY OPERATIONS PRESENTATION TO INVESTORS 25 - 27 FEBRUARY 2019 GROUP HEAD: TREASURY & FINANCIAL STRATEGY AND PLANNING SINOVUYO MPAKAMA “Corridors of Freedom - Re-stitching our city to create a new future”

30 Liquidity Position Liquidity Position 2017/18

5,313,656 4,879,554 4,369,765 3,095,910 2,239,861

• 1,000,000

2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 2013/14 2014/15 2015/16 2016/17 2017/18

Cash Balances

R’0

The City remains committed to prudent management of its finance and to this end, has set out the following key initiatives in order to improve the cash balances:

• Implementation of strict credit control processes
• Reduction of uncollectable debt
• Increase in the use of e-services
• Continuation of city wide verification of electricity and water meters.

The decline in the Cash balances (excluding Sinking Fund Investment) was due to severe economic pressures on the City’s customers.

• 1,000,000

2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 2013/14 2014/15 2015/16 2016/17 2017/18

Consumer Debtors vs Cash Balance

Consumer Debtors Cash and Cash Equivalent

Long Term Funding 31

External Borrowing for 2017/18

• Total liability book for 2017/18

financial year is R19 billion

• The City raised the following in

2017/18

• R1.5 billion from DBSA
• R1.498 billion from Nedbank
• R3.2 billion was redeemed in

2017/18 including R2.7 billion from the sinking fund

30% 14% 56%

Liability Book

Bonds Commercial Banks Development Financing Institutions

Redemption Management

Municipal Bonds and Loans Outstanding against the Sinking Fund

Issue Date Maturity date Nominal R bln

COJ05 5-Jun-08 5-Jun-23 2,268,000 COJ07 23-Mar-11 23-Mar-21 850,000 COJG1 9-Jun-14 9-Jun-24 1,458,000 COJ08 22-Jun-16 22-Jun-26 1,440,000 DBSA LOAN 04-Sept-12 30-Jun-26 250,000 DBSA LOAN 19-Feb-16 30-Apr-36 1,500,000 DBSA LOAN 26-Feb-16 30-Apr-36 1,000,000 Total 8,766,000

• The City has carefully managed the issuance of

bonds such that the debt maturity profile is well spread ensuring the City is not under pressure when redemptions occur

• The City’s sinking fund was established to assist

with the management of the City’s bond redemptions

• As at 30 June 2018 the Fund value was R

2.2billion, following the successful redemption

• f the Nedbank R1 billion Bullet Loan and

COJ04 (R 1billion) in March and June conservatively.

• Short term borrowings redemptions are

managed similarly with grant receipts being ring fenced to facilitate redemptions

Medium Term Budget

Funding Source 2015/16 2016/17 2017/18 2018/19 Adjusted 2019/2020 2020/21 Loan Funding 3,940,000 2,626,777 2,998,386 2,849,726 2,265,939 2,197,261 CRR & Surplus Cash 2,213,072 3,665,553 1,290,986 2,136,422 3,162,005 3,542,821 Grants and Contributions 3,170,485 3,613,240 3,084,498 3,078,749 3,105,920 3,278,393 Total 9,323,557 9,905,570 7,373,870 8,064,897 8,533,864 9,018,475

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42% 27% 41% 35% 27% 24% 24% 37% 18% 26% 37% 39% 34% 36% 42% 38% 36% 36% 0% 20% 40% 60% 80% 100% 120% 2015/16 2016/17 2017/18 2018/19 Adjusted 2019/2020 2020/21

Sources of Funding

Loan Funding CRR & Surplus Cash Grants and Contributions

Credit Rating 34

Credit Strengths

• Improving operating revenue, supported by

a large tax base

• Sophisticated financial management
• Large and diversified economic base

Credit Challenges

• Liquidity pressure due to weak revenue

collections

• Increasing debt stock, although the debt

ratio is expected to remain stable over the next three years

• High capital spending plan

What could change the rating downward

• In the event of a downgrade of the Baa3

sovereign rating

• if the city’s liquidity deteriorates more than

Moody’s expects and the city continues to fund the shortfall with short-term facilities. What could change the rating upward

• Due to the negative outlook, an upgrade is

unlikely at this time. The rating could be stabilised if the city’s liquidity were to improve to the level

• f Baa3-rated issuers. In particular, liquidity could

be improved by improving debtors collections.

City of Johannesburg’s Rating by Moody’s Investors Services October 2018

Global Scale: long-term issuer and debt ratings Baa3 Short-term issuer ratings P-3 National Scale: Long term Aa1.za (Negative outlook) Short term P-1.za

Credit Rating 35

National Scale Rating Long term AA(ZA); Short term A1+(ZA) Credit Strengths

• Unqualified Audit opinion
• Strong access to debt facilities from a wide

range of sources

• Budget reflections that indicate that gearing

will moderate slightly and remain fairly stable over the medium term Credit Challenges

• High Debt levels

City of Johannesburg’s Rating by Global Credit Rating Co October 2018

What could change the rating downward

• Increase in gross debt
• Factors that will lead to higher gearing metrics. This

may include a further contraction in the operating margin and/or cash flows as well as a reduction in cash holdings What could change the rating upward

• Progress in strengthening cash flows through

stronger operating surpluses or improved debtor collections that could enhance operating cash flows and provide the necessary funding to support capex

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“Service with Pride”