PIXLEY-KA-SEME DISTRICT MUNICIPALITY ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 PIXLEY-KA-SEME DISTRICT MUNICIPALITY ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2019 INDEX Description Page No. General Information 3 Approval 4 Accounting Officer's Report 5 Statement of Financial Position 13 Statement of Financial Performance 14 Statement of Changes in Net Assets 15 Cash Flow Statement 16 Statement of Comparison of Budget and Actual Amounts 17 Accounting Policies 24 Notes to the Financial Statements 40 The following appendices do not form part of the Annual Financial Statements and are unaudited: Appendix A 72 Appendix B 73 Appendix C 75 Appendix D 76 Appendix E 77 Appendix F 82 Appendix G 83 PIXLEY-KA-SEME DISTRICT MUNICIPALITY ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2019 GENERAL INFORMATION Members of the Council: MT Kibi Mayor (resigned) NL Hermans Speaker UR Itumeleng Mayorial Committee GL Nkumbi Mayorial Committee TA Sintu Mayorial Committee NJ Batties Member ME Bitterbos Member SL Billie Member (resigned) J Hoffman Member JEJ Hoorne Member SE Humphries Member CC Jantjies Member H Marais Member AM Matebus Member PJ McKlein Member (resigned) PP Mhlawuli Member A Oliphant Member DV Smous Member SS Swartling Member LC van Niekerk Member (resigned) VT Yawa Member Municipal Manager: RE Pieterse Chief Financial Officer: BF James Grading of Local Authority: Grade 3 Auditors: Auditor-General of South Africa Bankers: Standard Bank of South Africa Limited Registered Office: Culvert Road De Aar 7000 Physical Address: Culvert Road De Aar 7000 Postal Address: Private Bag X1012 De Aar 7000 Telephone Number: (053) 632 0891 Fax Number: (053) 631 2529 3 PIXLEY-KA-SEME DISTRICT MUNICIPALITY ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2019 APPROVAL OF THE ANNUAL FINANCIAL STATEMENTS Iamresponsibleforthepreparationoftheseannualfinancialstatements,whicharesetouton pages13to71,interms of Section 126(1) of the Municipal Finance Management Act and which I have signed on behalf of the Municipality. Icertifythatthesalaries,allowancesandbenefitsofCouncillors,loansmadetoCouncillors,ifany,andpaymentsmade to Councillors for loss of office, if any, as disclosed in note 22 of theseannual financialstatements arewithin theupper limits of the framework envisaged in Section 219 of the Constitution, read with the Remuneration of Public Officer Bearers Act and the Minister of Provincial and Local Government’s determination in accordance with this Act. Municipal Manager: RE Pieterse 30 August 2019 PIXLEY-KA-SEME DISTRICT MUNICIPALITY ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2019 REPORT OF THE CHIEF FINANCIAL OFFICER 1. INTRODUCTION It gives me great pleasure to present the Annual Financial Statements of Pixley-ka-Seme District Municipality at 30 June 2019. TheseAnnual Financial Statements have been prepared in accordance with Generally RecognisedAccounting Practice (GRAP), issued by the AccountingStandardsBoard(ASB)inaccordancewithSection122(3)oftheMunicipalFinanceManagementAct,2003(ActNo.56of2003).The standardsandpronouncementsthatformtheGRAPReportingFrameworkforthe2018/19financialperiodissetoutinDirective5issuedbytheASB on 11 March 2009. TheStatementofFinancialPositionat30June2019indicatesaincreaseinNetAssets,anincreaseinNon-currentLiabilitiesandaincreasein Current Liabilities. The increase in NetAssets is ascribed primarily to the increase inAccumulated Surplus as a result of the surplus generated on the operating account.TheincreaseinNon-currentLiabilitiesisprimarilyasaresultoftheincreasesinLong-termLiabilities. TheincreaseinCurrentLiabilitiesis primarily as a result of the increase in Unspent Conditional Grants. 2. KEY FINANCIAL INDICATORS The following indicators are self-explanatory. The percentages of expenditure categories are well within acceptable norms and indicate good governance of the funds of the Municipality. 2.1 Financial Statement Ratios: INDICATOR 2019 2018 Surplus / (Deficit) before Appropriations (5,139,719) (9,142,734) Surplus / (Deficit) at the end of the Year 4 ,003,016 (604,866) Expenditure Categories as a percentage of Total Expenses: Employee Related Costs 55.30% 60.24% Remuneration of Councillors 6.69% 7.32% Depreciation and Amortisation 3.22% 3.19% Impairment Losses -0.04% 3.33% Repairs and Maintenance 2.21% 1.74% Interest Paid 2.12% 2.92% Contracted Services 2.78% 4.94% Grants and Subsidies Paid 6.19% 0.00% General Expenses 21.24% 16.33% Loss on Disposal of Property, Plant and Equipment 0.00% 0.00% Current Ratio: Trade Creditors Days (excluding arrangements) 7 .05 2 8.25 Trade Creditors Days (arrangements) 3 54.35 1 46.86 Debtors from Exchange Transactions Days 3 55 1 32 TheratioforDebtorsDays,calculatedonnetDebtors,weakenedsignificantlyduethefactthatthemajorityoutstandingdebtorsrepresentShared Service debtors, which was billed at yearend. 2.2 Performance Indicators: INDICATOR 2019 2018 Financial Position Debtors Management: Outstanding Debtors to Revenue 22.77% 39.79% Outstanding Service Debtors to Revenue 22.77% 39.79% 5 PIXLEY-KA-SEME DISTRICT MUNICIPALITY ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2019 REPORT OF THE CHIEF FINANCIAL OFFICER 2. KEY FINANCIAL INDICATORS (continued) INDICATOR 2019 2018 Liquidity Management: Liquidity Ratio 0 .79 0 .39 Liability Management: Capital Cost as percentage of Own Revenue (5.52)% (5.67)% Borrowed Funding as percentage of Own Capital Expenditure 14.59% 92.45% Borrowing as percentage of Total Capital Assets (117.48)% (151.87)% Safety of Capital: Gearing (117.48)% (151.87)% Financial Viability: Debt Coverage 58.94% 59.74% Cost Coverage 0 .45 0.11 Financial Performance Expenditure Management: Creditors to Cash and Investments 100.00% 100.00% A detailed ratio analysis, together with explanations, is included in Appendix H. 3. OPERATING RESULTS Details ofthe operatingresultsper segmentalclassificationof expenditureareincludedinAppendixD, whilstoperationalresultsareincludedin Appendices E(1), E(2) and E(3). The services offered by Pixley-ka-Seme District Municipality can generally be classified as General, Economic and Trading Services and are discussed in more detail below. The overall operating results for the year ended 30 June 2019 are as follows: Actual Actual Percentage Budgeted Variance Actual/ DETAILS 2019 2018 Variance 2019 Budgeted R R % R % Income: Opening surplus / (deficit) (9,142,734) (10,341,657) (11.59)% 2 ,019,100 (552.81)% Operating income for the year 6 8,640,681 5 6,892,918 20.65% 7 4,857,644 (8.31)% Appropriation for the year - 1 ,803,789 5 9,497,947 4 8,355,049 7 6,876,744 Expenditure: Operating expenditure for the year 6 4,637,666 5 7,497,784 12.42% 7 4,021,326 (12.68)% Closing surplus / (deficit) (5,139,719) (9,142,734) (43.78)% 2 ,855,418 (280.00)% 5 9,497,947 4 8,355,049 7 6,876,744 - - - 6 PIXLEY-KA-SEME DISTRICT MUNICIPALITY ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2019 REPORT OF THE CHIEF FINANCIAL OFFICER 3. OPERATING RESULTS (continued) 3.1 General Services: Rates andGeneralServices areall typesof services rendered bythe Municipality,excluding thoselisted below. The main income sources are Sundry Fees levied. Actual Actual Percentage Budgeted Variance Actual/ DETAILS 2019 2018 Variance 2019 Budgeted R R % R % Income 6 7,407,158 5 4,610,073 23.43% 7 4,137,644 (9.08)% Expenditure (62,330,607) (55,454,331) 12.40% (71,408,616) (12.71)% Surplus / (Deficit) 5 ,076,551 (844,258) 2 ,729,028 Surplus / (Deficit) as % of total income 7.53% (1.55)% 3.68% Variance from 2018 actual: The significant increase is due to the increase in qualifying expenditure incurred, result in the Government Grants and Subsidies increasing significantly. Variance from 2019 budget: No material fluctutaion exists. 3.2 Housing Services: Housing Services are services rendered by the Municipality to supply housing to the community and includes the rental of units owned by the Municipality to public and staff. The main income source is the levying of Housing Rentals. Actual Actual Percentage Budgeted Variance Actual/ DETAILS 2019 2018 Variance 2019 Budgeted R R % R % Income 1 ,045,889 2 ,282,845 (54.18)% 7 20,000 45.26% Expenditure ( 2,119,423) (2,043,453) 3.72% (2,612,710) (18.88)% Surplus / (Deficit) (1,073,534) 2 39,392 (1,892,710) Surplus / (Deficit) as % of total income (102.64)% 10.49% (262.88)% Variance from 2018 actual: In the previous financial year, the Municipality received significantly higher Housing Accreditation Grants than in the current year. Variance from 2019 budget: The Municipality received from Housing Accreditation Grant funds that budgeted for. 7 PIXLEY-KA-SEME DISTRICT MUNICIPALITY ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2019 REPORT OF THE CHIEF FINANCIAL OFFICER 3. OPERATING RESULTS (continued) 3.3 Shared Services: SharedServicesareservicesrenderedbytheMunicipalitytoothermunicipalitiesintheformofInternalAuditServices.Incomeismainlygenerated from the levying of fees and tariffs determined by the council. Actual Actual Percentage Budgeted Variance Actual/ DETAILS 2019 2018 Variance 2019 Budgeted R R % R % Income - - - - - Expenditure - - - - - Surplus / (Deficit) - - - Surplus / (Deficit) as % of total income - - - Variance from 2018 actual: This department was incorporated into the Budget and Treasury Department during the year. Variance from 2019 budget: This department was incorporated into the Budget and Treasury Department during the year. 4. FINANCING OF CAPITAL EXPENDITURE TheexpenditureonAssetsduringtheyearamountedtoR3888238(2018:R3392383).FulldetailsofAssetsaredisclosedinNotes6,7,8and Appendices B, C and E(4) to the Annual Financial Statements. The capital expenditure of R3 888 238 was financed as follows: Actual Actual Percentage Budgeted Variance Actual/ DETAILS 2019 2018 Variance 2019 Budgeted R R % R % External Loans 3 ,398,177 3 ,136,350 8.35% 2 ,500,000 35.93% Grants and Subsidies - - - - - Own Funds (Accumulated Surplus) 4 90,061 2 56,033 91.41% 1 ,382,000 (64.54)% 3 ,888,238 3 ,392,383 3 ,882,000 Source of funding as a percentage of Total Capital Expenditure: DETAILS 2019 2018 Capital Replacement Reserve - - External Loans 87.40% 92.45% Grants and Subsidies - - Own Funds (Accumulated Surplus) 12.60% 7.55% 100.00% 100.00% CapitalAssetsarefundedtoagreatextentfromExternalLoansastheMunicipalitydoesnothavethefinancialresourcestofinancecertainrequired capital expenditure from its own funds. 8 PIXLEY-KA-SEME DISTRICT MUNICIPALITY ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2019 REPORT OF THE CHIEF FINANCIAL OFFICER 5. RECONCILIATION OF BUDGET TO ACTUAL 5.1 Operating Budget: DETAILS 2019 2018 Variance per Category: Budgeted surplus before appropriations 8 36,318 (1,948,286) Revenue variances (6,216,963) 5 ,021,586 Expenditure variances: Employee Related Costs 7 21,765 (4,807,230) Remuneration of Councillors 1 23,815 1 ,704 Depreciation and Amortisation (79,378) (3,831,414) Impairment Losses 27,911 (1,916,038) Repairs and Maintenance 7 05,570 1 ,221,313 Finance Costs (1,371,371) (1,557,535) Contracted Services 11,068,056 (1,043,767) Grants and Subsidies Paid (3,500,000) - General Expenses 1 ,874,926 8 ,254,802 Loss on Disposal of Property, Plant and Equipment (187,634) - Actual surplus before appropriations 4 ,003,016 (604,866) - 0 DETAILS 2019 2018 Variance per Service Segment: Budgeted surplus before appropriations 8 36,318 (1,948,286) Administration 2 5,007 3 ,138 Finance 5 64,444 3 ,450,359 Development and Infrastructure 6 ,828 (3,983,505) Environmental Health (197,164) 3 3,583 Housing 8 19,176 1,911,946 Internal Audit 2 27,244 2 77,965 Council Expenses 3 74,806 6 1,594 Municipal Manager 1 74,062 (8,659) I D P 1 ,615,377 ( 119,072) Protection Services (443,083) (283,928) Shared Services - - Actual surplus before appropriations 4 ,003,017 (604,866) Details ofthe operatingresultsper segmentalclassificationof expenditureareincludedinAppendixD, whilstoperationalresultsareincludedin Appendices E(1), E(2) and E(3). 9 PIXLEY-KA-SEME DISTRICT MUNICIPALITY ANNUAL FINANCIAL STATEMENTS for the year ended 30 June 2019 REPORT OF THE CHIEF FINANCIAL OFFICER 5. RECONCILIATION OF BUDGET TO ACTUAL (continued) 5.2 Capital Budget: Actual Actual Percentage Budgeted Variance Actual/ DETAILS 2019 2018 Variance 2019 Budgeted R R % R % Finance and Administration 3 ,888,238 3 ,392,383 14.62% - 100.00% 3 ,888,238 3 ,392,383 - Details of the results per segmental classification of capital expenditure are included in Appendix C and in Appendix E(4). 6. ACCUMULATED SURPLUS The balance of the Accumulated Surplus as at 30 June 2019 amounted to R(5 139 719) (2018: R(9 142 734)) and is made up as follows: Accumulated Surplus (5,139,719) (5,139,719) The Capital Replacement Reserve replaces the previous statutory funds, like the Capital Development Fund, and is a cash-backed reserve established to enable the Municipality to finance future capital expenditure. Cash contributions, depending on the availability of cash, is made annually to the reserve. The Municipality, in conjunction with its own capital requirements and external funds (external loans and grants) is able to finance its annual infrastructure capital programme. Refer to Note 23 and the Statement of Change in Net Assets for more detail. 7. LONG-TERM LIABILITIES The outstanding amount of Long-term Liabilities as at 30 June 2019 was R4 553 906 (2018: R3 525 539). LoansamountingtoR3398177(2018:R3136350)weretakenupduringthefinancialyeartoenabletheMunicipalitytofinancepartofitscapital requirements for the year. Refer to Note 12 and Appendix A for more detail. 8. EMPLOYEE BENEFIT LIABILITIES Emplyee Benefit Liabilities amounted R11 569 903 as at 30 June 2019 (2018: R12 303 733) and is made up as follows: Ex-Gratia Benefit Liability 6 3,186 Post-retirement Health Care Benefits Liability 11,506,717 11,569,903 ThePost-retirementHealthCareBenefitsLiabilityisinrespectofcontinuedHealthCareBenefitsforemployeesoftheMunicipalityafterretirement being members of schemes providing for such benefits. This liability is unfunded. Refer to Note 13 for more detail. 10