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Audited results for the year ended 31 March 2019 -DIDBS
Development Bank of Southern Africa Limited
Registration number: 1600157FN
JSE alpha code: DIDBS
Audited results for the year ended 31 March 2019
Overview
Development Bank of Southern Africa Limited (hereafter referred as “the
Bank”) is a development finance institution, whose only shareholder is
the Government of the Republic of South Africa. This summary of the
condensed year-end financial results is published on SENS to provide
information to the holders of the Bank’s listed debt instruments. The
condensed year end results are prepared in accordance with the
requirements of the JSE Limited (JSE) Listings Requirements, the
requirements of International Financial Reporting Standards (IFRS) and
its interpretations as adopted by the International Accounting
Standards Board, the presentation requirements of IAS 1 and requirements
of section 27 to 31 of the Companies Act of South Africa (Act No.71 of
2008), The Companies Act being the relevant and corresponding sections
specified in the Development Bank of Southern Africa Act. The detailed
annual results are available on the DBSA website https://www.dbsa.org
Audit of the financial results
The annual financial statements of the Bank for the year ended 31 March
2019 have been audited by the Bank’s auditor, The Auditor-General of
South Africa (hereafter referred to as the AG). The AG in his audit
report, which is available for inspection at the Bank’s Registered
Office, stated that his audit was conducted in accordance with
International Standards on Auditing, and has expressed an unqualified
audit opinion on the annual financial statements for the year ended 31
March 2019.
Context of the annual financial statements
During the year under review, the GDP of South Africa remained subdued
and affected the demand for infrastructure funding. Statistics SA
announced in September 2018 that South Africa was in a technical
recession following two consecutive quarters of GDP contraction,
primarily driven by declining output in agriculture, transport and
trade. Further to this, business confidence and economic growth continue
to be weak and the country GDP growth reduced by 3.2% in Q1 to 31 March
2019. The Bank continues to experience the adverse impact of the subdued
economy, resulting in reduction in disbursements compared to the prior
year. Disbursement levels declined compared to the previous five years.
However, the Bank achieved higher levels of loan approvals and
commitments compared to the prior year. Furthermore, the Bank continued,
in line with its mandate, to pursue the implementation of its growth
strategy designed to augment disbursements by focusing on its catalytic
role to enable sustainable infrastructure development. Through this
strategy, the Bank aims at increasing crowding in third party funding,
de-risking projects through early stage project preparation and
improved innovation.
Preparation of the annual financial statements
The annual financial statements have been prepared under the supervision
of the Chief Financial Officer, Boitumelo Mosako CA (SA). The directors
take full responsibility for the preparation and for correctly
extracting the financial information from the underlying audited annual
financial statements for inclusion in the SENS announcement.
Basis of preparation
The annual financial statements have been prepared in accordance with the
recognition, measurement and disclosure requirements of International
Financial Reporting Standards (“IFRS”), Public Finance Management Act of South
Africa (“PFMA”), Section 27 to 31 of the Companies Act of South Africa and the
Development Bank of Southern Africa Act. The accounting policies applied during
the year ended 31 March 2019 are in all material respects consistent with those
applied in the Annual Financial Statements for the year ended 31 March 2018,
except for the adoption of IFRS 9: Financial Instruments, IFRS 7: Financial
Instruments Disclosures and IFRS 15: Revenue from Contracts with Customers.
IFRS 9 replaced IAS 39 with effect from 1 January 2018. IFRS 9 introduced new
requirements, which included an expected credit losses (ECL) impairment model,
and new requirements for the classification and measurement of financial
assets. IFRS 9 impacted the Bank’s opening balances upon adoption. The impact
to the Bank’s opening retained earnings upon transition to IFRS 9 was material
and relates to IFRS 9 expected credit loss impairment requirements.
The annual financial statements are prepared on the historical cost basis
except for the following assets and liabilities that are stated at their fair
value: derivative financial instruments, financial instruments at fair value
through profit and loss, investment securities, land and buildings, equity
investments and post-retirement medical benefit. The preparation of annual
financial statements requires management to make judgments, estimates and
assumptions that affect the application of accounting policies and reported
amounts of assets and liabilities, income and expenses. Actual results may
differ from these estimates.
Key impressions of the financial results and activities
The Bank achieved net profit for the year amounting to R3.10 billion (31 March
2018: R2.28 billion). Sustainable earnings (net profit excluding foreign
exchange gains or losses and revaluation adjustments on financial instruments)
amounted to R2.32 billion (31 March 2018: R2.76 billion). Net profit was
boosted by foreign exchange gains of R744 million compared to foreign exchange
losses of R302 million in the prior year. The Bank closely monitors its exposure
to foreign exchange risk in order to limit the downside risk emanating from
the Rand appreciation. Return on equity based on sustainable earnings is 6.5%
(31 March 2018: 8.3%).
Net interest income grew by 17% to R4.49 billion (31 March 2018: R3.85 billion)
Impairment charge increased to R1.44 billion compared to R623 million in the
prior year in line with IFRS 9 provisioning requirements and in particular,
the additional expected credit loss impairment provisions in our SADC portfolio
due to changes in the economic conditions. IFRS 9 requires entities to be
proactive and recognise expected credit losses due to current and forecast
economic conditions. Operating costs remain under control, with cost to income
ratio coming in at 23% (31 March 2018: 22%).
Total assets remained relatively flat from the prior year, with a 0.3% increase
year on year. Total disbursements of R9 billion were R3.2 billion down compared
to prior year. This resulted in a muted growth in total assets, as the
disbursements were just sufficient to replace loans that were running off.
Balance sheet provision for expected credit losses increased by 29% to R6.20
billion (31 March 2018: R4.82 billion) on the back of the aforementioned
reasons. The loan book asset quality remains acceptable and within the Bank’s
target of 6% as demonstrated by non-performing loans ratio of 4.8% (31 March
2018: 4.2%).
Total funding liabilities decreased by 5% year on year. During the financial
period, repayments from customers and internally generated profits were
generally used to fund the Bank’s operations. The Bank’s regulatory debt to
equity ratio improved during the financial period. Debt-to-equity ratio
excluding R20 billion callable capital was 138.1% (31 March 2018 156.2%), while
debt-to-equity ratio including R20 billion callable capital was 89.8% (31 March
2018 98.7%). These ratios are within the regulatory debt to equity ratio limit
of 250%. Callable capital is shares authorised but not issued.
Cash generated from operations was R3.80 billion compared to R4.04 billion in
the prior year.
Events after the reporting period
There were no adjusting events that occurred after the reporting date.
Statement of Financial Position as at 31 March 2019
in thousands of rand 2019 2018
Assets
Cash and cash equivalents at amortised cost 2 922 876 3 741 853
Trade receivables and other assets 365 579 399 621
Investment securities 1880 502 1 420 920
Derivative assets held for risk management 713 304 1 240 445
Post-retirement medical benefits investment 43 732 45 446
Equity investments held at fair value through
profit and loss 5 937 578 5 535 351
Development bonds at amortised cost 1 290 179 1 290 361
Development loans at amortised cost 75 816 506 75 047 479
Property and equipment 435 020 398 760
Intangible assets 83 133 91 710
Total assets 89 488 409 89 211 946
Equity and liabilities
Liabilities
Trade, other payables and accrued interest on
debt funding 678 991 1 204 264
Derivative liabilities held for risk management 297 798 59 240
Liability for funeral benefit - 2 152
Post-retirement medical benefit liability - 44 604
Liability for funeral and post-retirement medical
benefits 44 484 -
Debt securities held at through fair value
through profit or loss - 6 473 055
Debt securities held at amortised cost - 33 363 703
Funding: lines of credit - 13 677 213
Debt funding designated at fair value through
profit or loss 6 469 451 -
Debt funding held at amortised cost 44 516 190 -
Provisions 309 010 66 640
Total liabilities 52 315 924 54 890 871
Equity
Share capital 200 000 200 000
Retained earnings 22 717 877 19 472 969
Permanent government funding 11 692 344 11 692 344
Revaluation reserve on land and buildings - 183 809
Cash flow hedge reserve - 151 883
Available-for-sale reserve - 8 094
Other reserves 293 808 -
Reserve for general loan risks 2 268 456 2 611 976
Total equity 37 172 485 34 321 075
Total liabilities and equity 89 488 409 89 211 946
Statement of Comprehensive Income for the year ended 31
March 2019
in thousands of rand 2019 2018
Interest income - 7 750 606
Interest income calculated using the effective interest
rate 8 157 805 -
Other interest income 252 034 -
Interest expense - (3 905 259)
Net interest expense calculated using the effective
interest rate (3 344 288) -
Other interest expense (571 101) -
Net interest income 4 494 450 3 845 347
Net fee income 193 380 190 196
Net foreign exchange gain/(loss) 743 713 (302 057)
Net gain/(loss) from financial assets and liabilities 69 945 (131 605)
Investment and other income 139 773 242 540
Other operating income/(loss) 1 146 811 (926)
Operating income 5 641 261 3 844 421
Project preparation expenditure (1 405) (7 094)
Development expenditure (20 505) (15 154)
Expected credit losses/impairment on financial assets
held at amortised cost (1 441 056) (623 178)
Personnel expenses (751 300) (702 880)
General and administration expenses (292 403) (177 601)
Depreciation and amortisation (19 579) (25 871)
Profit from operations 3 115 013 2 292 643
Grants paid (18 318) (9 766)
Profit for the year 3 096 695 2 282 877
Statement of Other Comprehensive Income for the year ended 31 March 2019
in thousands rand
2019 2018
Profit for the year 3 096 695 2 282 877
Items that will not be reclassified to profit and loss
Gain/(loss)on revaluation of land and buildings 19 947 (14 513)
Movement due to changes in own credit risk on financial
liabilities designated at fair value through profit or loss (12 852) -
Fair value movements in post-retirement benefit liability 2 750 -
9 845 (14 513)
Items that may be reclassified subsequently to profit and loss
Unrealised (loss)/gain on cash flow hedges (143 346) 121 616
Loss/(gain)/loss on cash flow hedges reclassified to
statement of comprehensive income 94 367 (111 413)
Unrealised gain on available-for-sale financial assets - 11 132
(48 979) 21 335
Other comprehensive (loss)/profit (39 134) 6 822
Total comprehensive income for the year 3 057 561 2 289 699
Condensed statement of changes in equity for the year ended 31 March 2019
In thousands of rand
2019 2018
Balance at 1 April 2018 34 321 075 32 031 376
Impact of adoption of IFRS 9 (206 151) -
Restated balance at 1 April 2018 34 114 924 32 031 376
Profit for the year 3 096 695 2 282 877
Unrealised (loss)/gain on cash flow hedges (143 346) 121 616
Loss/(gain)/loss on cash flow hedges reclassified to
statement of comprehensive income 94 367 (111 413)
Gain/(loss)on revaluation of land and buildings 19 947 (14 513)
Movements in changes in own credit risk (12 852) -
Gain on available-for-sale financial assets - 11 132
Fair value movements on post-retirement benefit liability 2 750 -
Balance at 31 March 2019 37 172 485 34 321 075
Summarised Statement of Cash Flows for the year ended 31 March 2018
In thousands of rand
Cash flows generated from operating activities 3 796 777 4 039 466
Cash flows generated from/(utilised in) development
1 216 652 (5 606 062)
activities
Cash flows utilised by investing activities (345 238) (444 179)
Cash flows (utilised by)/generated from financing
(5 516 646) 3 543 653
activities
Effect of exchange rate movement on cash balances 29 478 (90 272)
Net (decrease)/increase in cash and cash equivalents (818 977) 1 442 606
Cash and cash equivalents at the beginning of the
3 741 853 2 299 247
year
2 922 876 3 741 853
Cash and cash equivalents at the end of the year
Outlook
The success in the year ending 31 March 2020 hinges on the Bank’s ability to grow
developmental impact using its own balance sheet and partnering with others. Both
domestic and global economic factors are critical to the achievement of the Bank’s
objectives. Government’s commitment to revive and grow the economy is expected to
improve business confidence and boost economic activity. This will positively impact
the demand for infrastructure funding. The Bank has a healthy pipeline of projects
that form a solid springboard for success in the future, and will continue to focus
on disbursing to infrastructure projects to grow developmental impact in line with
its mandate.
27 September 2019
Debt sponsor: Nedbank CIB, a division of Nedbank Limited
Date: 27/09/2019 09:00:00
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