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RMB CIS MANCO (PTY) LIMITED - Abridged Audited Results for the year ended 30 June 2014 - RMBINF

Release Date: 18/12/2014 11:15
Code(s): RMBINF     PDF:  
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Abridged Audited Results for the year ended 30 June 2014 - RMBINF

RMB Government Inflation Linked Bond Exchange Traded Fund
A portfolio in the RMB Collective Investment Scheme (“the portfolio”) registered in terms of the Collective
Investment Schemes Control Act, 45 of 2002
(Incorporated in the Republic of South Africa)
(Date of incorporation: 20 May 2009)
Share Code: RMBINF
ISIN: ZAE000164513

ABRIDGED AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 2014

The RMB Collective Investment Scheme (“the Scheme”) was established in accordance with the provisions of the
Collective Investment Schemes Control Act (CISCA) with effect from 12 April 2008. The RMB Government Inflation
Linked Bond Exchange Traded Fund (“the Fund”) was established as a portfolio of the Scheme in accordance with
paragraph A of the deed of the scheme on 5 March 2009.

The Fund is a passive investment Fund with the aim of providing returns linked to the performance of the
Government Inflation Linked Bond Index (“GILBx”) in terms of both price performance, as well as income from the
component securities in the index. The portfolio will aim to track the performance of the index.

STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2014

                                                                               2014                   2013
                                                                              Rand                    Rand
 Assets
 Non-current assets
 Listed investments held at fair value through profit or
                                                                            418 812 235            1 079 798 452
 loss

 Current assets
 Trade and other receivables                                                      11 794                       -
 Cash and cash equivalents                                                     3 938 132              11 191 054


 Total assets                                                               422 762 161            1 090 989 506


 Equity and liabilities
 Equity
 Net assets attributable to i participatory interest
                                                                            418 831 771            1 079 315 399
 holders

 Current liabilities
 Trade and other payables                                                      3 930 390              11 674 107


 Total equity and liabilities                                               422 762 161            1 090 989 506



INCOME STATEMENT
FOR THE YEAR ENDED 30 JUNE 2014

                                          2014          2013
                                          Rand          Rand

Interest income                           15 322 001    30 643 566

Other income                              42 717 652    69 182 164

Expenses
Management and administrative expenses    (2 783 601)   (5 001 086)


Profit before taxation                    55 256 052    94 824 644


Taxation                                            -             -


Profit for the year                       55 256 052    94 824 644



STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2014

                                           2014         2013
                                           Rand         Rand

Profit for the year                       55 256 052    94 824 644

Other comprehensive income for the year             -             -


Total comprehensive income for the year   55 256 052    94 824 644





STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO INVESTORS
FOR THE YEAR ENDED 30 JUNE 2014

                                                                 Net assets
                                                               attributable to
                                                                participatory
                                                                   interest
                                                                   holders
                                                                   Rand

Balance as at 1 July 2012                                        957 687 932

Creation of Fund participatory interests                           90 532 790

Cancellation of Fund participatory
                                                                 (38 087 481)
interests

Comprehensive income for the year                                  94 824 644

Distributions to participatory interest
                                                                 (25 642 486)
holders


Balance as at 30 June 2013                                      1 079 315 399


Creation of Fund participatory interests                           25 712 540

Cancellation of Fund participatory
                                                                (728 608 400)
interests

Comprehensive income for the year                                  55 256 052

Distributions to participatory interest
                                                                 (12 843 820)
holders


Balance as at 30 June 2014                                       418 831 771



STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2014

                                                      2014           2013
                                                      Rand           Rand

Cash flow from operating activities                   708 486 758    (26 311 087)
Cash utilised in operations                           (10 537 320)    (4 119 319)
Interest received on bank account                           91 816        131 968
Interest received on assets measured at fair
value through profit or loss                           15 230 185     30 511 598
Net sales / (purchases) of listed investments held
at fair value through profit or loss                  703 702 077    (52 835 334)

Cash flow from financing activities                  (715 739 680)    26 802 823
Creation of Fund participatory interests                25 712 540     90 440 155
Cancellation of Fund participatory interests         (728 608 400)   (37 994 846)
Distributions to participatory interest holders       (12 843 820)   (25 642 486)

Net (decrease) / increase in cash and cash
                                                       (7 252 922)       491 736
equivalents

Cash and cash equivalents at the beginning of
                                                       11 191 054     10 699 318
the year

Cash and cash equivalents at the end of the
                                                        3 938 132     11 191 054
year



SUMMARISED ACCOUNTING POLICIES
FOR THE YEAR ENDED 30 JUNE 2014

The preparation of the audited financial results for the year ended 30 June 2014 was supervised by Richard
Pampel CA (SA), a chief financial officer of Ashburton Investments Holdings Limited.

The financial statements incorporate the principal policies set out below, which have been consistently applied to
all years presented, unless otherwise stated.

Statement of compliance

The financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”)
issued by the International Accounting Standards Board (“the IASB”), and in accordance with the requirements of
the trust deed of the Fund (“the Trust Deed”), the JSE Listing Requirements for Exchange Traded Funds and the
Collective Investment Schemes Control Act, No 45 of 2002.

Financial Instruments

Measurement
Financial instruments are recognised when, and only when, the Fund becomes a party to the contractual provisions
of that particular instrument. Financial instruments are initially measured at fair value, and for instruments not at
fair value through profit or loss, any directly attributable transaction costs. Subsequent to initial recognition these
instruments are measured as set out below.

Investments
Listed investments are measured at fair value through profit or loss. Fair value is determined with reference to
quoted market prices at the end of the reporting period.

Trade and other receivables
Trade and other receivables originated by the Fund are measured at amortised cost, using the effective interest
rate method, less impairment losses. Trade and other receivables are short-term in nature and are not discounted.

Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, demand deposits and other short-term highly liquid
investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of
changes in value. All balances included in cash and cash equivalents have a maturity date of less than three
months from the date of acquisition.

Financial liabilities
Financial liabilities, other than those held at fair value through profit or loss, are measured at amortised cost, using
the effective interest rate method.

Trade and other payables
Trade payables are initially measured at fair value, and are subsequently measured at amortised cost. Net assets
attributable to participatory interest holders evidences a residual interest in the assets of an entity after deducting
all of its liabilities. Other payables are initially measured at fair value, and are subsequently measured at amortised
cost.

Fair value gains and losses on subsequent measurement
Gains and losses arising from a change in the fair value on financial instruments are included in net profit or loss in
the year in which the change arises.
Creations and redemptions
Creations and redemptions are recorded on trade date being the previous day closing index price. using the
proceeds less any transaction costs.

Offset
Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position
when the Fund has a legally enforceable right to set off the recognised amounts, and intends either to settle on a
net basis, or to realise the asset and settle the liability simultaneously.

Derecognition of financial instruments
The Fund derecognises financial assets when and only when -
-    The contractual right to the cash flows arising from the financial assets have expired or have been forfeited
     by the Fund; or
-    It transfers the financial assets, including substantially all the risks and rewards of ownership of the assets;
     or
-    It transfers the financial assets, neither retaining nor transferring substantially all the risks and reward of
     ownership of the asset, but no longer retains control of the assets.

A financial liability is derecognised when and only when the liability is extinguished. This is, when the obligation
specified in the contract is discharged, cancelled or has expired. The difference between the carrying amount of a
financial liability (or part thereof) extinguished or transferred to another party and consideration paid, including any
non-cash assets transferred or liabilities assumed, is recognised in profit or loss.

Impairment
At each reporting date the Fund assesses all financial assets, other than those at fair value through profit or loss, to
determine whether there is objective evidence that a financial asset or group of financial assets has been impaired.
For amounts due to the Fund, significant financial difficulties of the debtor, probability that the debtor will enter
bankruptcy and default of payments are all considered indicators of impairment. Impairment losses are calculated
as the difference between the assets' carrying amount and the present value of estimated future cash flows
discounted at the financial assets' original effective interest rate. Impairment losses are recognised in profit or loss.
Impairment losses are reversed when an increase in the financial asset's recoverable amount can be related
objectively to an event occurring after the impairment was recognised, subject to the restriction that the carrying
amount of the financial asset at the date that the impairment is reversed shall not exceed what the carrying amount
would have been had the impairment not been recognised.

Securities lending

The Fund is authorised to engage in securities lending activities up to 50% of the assets under management.
Collateral is held by the relevant lending units.

Other income

Other income comprises income from securities lending activities.

Securities lending fee income
The fees earned for the administration of securities lending activities are accounted for on an accrual basis in the
year in which the services are rendered.
Interest income

Interest income on financial instruments is recognised in profit or loss, using the effective interest rate method,
taking into account the expected timing and amount of cash flows. The effective interest rate method is a method of
calculating the amortised cost of a financial asset or financial liability and of allocating the interest income or
interest expense over the average expected life of the financial instruments or portfolios of financial instruments.

Taxation

Under the current system of taxation in South Africa, the Fund is exempt from paying taxation on income or capital
gains. Both income and capital gains are taxed in the hands of the participatory interest holders.

Distributions

In accordance with the Fund’s Trust Deed, the Fund distributes its distributable income and any other amounts
determined by the Manager of the Fund to participatory interest holders in cash.

Distributions payable on redeemable participatory interests are recognised in the statement of changes in assets
attributable to participatory interest holders as distributions to participatory interest holders.

Redeemable securities

The Fund issues a single class of redeemable security, which is the most subordinated class of instruments. There
are no other instruments that substantially restrict or fix the returns earned by the participatory interest holders, and
have cash flows based substantially on profit or loss; the change in recognised net assets; or the change in the fair
value of the entity over the instrument's life. All redeemable securities issued by the Fund provide participatory
interest holders with the right to require redemption for the cash or in specie at the value proportionate to the
participatory interest holder's share. Such instruments give rise to equity instruments for the net asset value of the
redemption amount in the statement of financial position. In accordance with the Trust Deed of the Fund and the
Collective Investment Schemes Control Act, the Fund is contractually obliged to redeem securities at the net asset
value.

Critical accounting estimates and judgements in applying accounting policies

Assumptions and estimates form an integral part of financial reporting and have an impact on the amounts
reported. Assumptions are based on historical experience and expectations of future outcomes and anticipated
changes in the environment. No significant accounting estimates and judgements have been applied in the
financial statements of the Fund.


New standards and interpretations adopted in the current financial period

The following standard was adopted by the Fund in the current financial period:
   - IFRS 10 Consolidated Financial Statements establishes one approach for determining consolidation of all
         entities based on concepts of power, variability of returns and their linkage. The application of control will
         be applied irrespective of the nature of the investee. The Fund has control over an investee when the
         Group is exposed, or has rights, to variable returns from its involvement with the investee and has the
         ability to affect those returns through its power over the investee. The consolidation principles have
         remained unchanged and are now incorporated as part of IFRS10. IFRS 10 supersedes a portion of IAS 27
         and SIC 12 Consolidation – Special Purpose Entities. The implementation of IFRS 10 will impact the
         Fund’s future assessments of which entities it controls. The requirements of IFRS 10 will not be applicable
         to the Fund.
    -   IFRS 12 Disclosure of Interests in Other Entities aims to provide consistent disclosure requirements for all
        forms of interests in other entities, including joint arrangements, associates, and consolidated or
        unconsolidated structured entities. IFRS 12 requires disclosure of information that will enable users to
        evaluate the nature of the risks associated with the interest and the effect of the interest on the financial
        position, performance and cash flows of the reporting entity. The requirements of IFRS 12 will not be
        applicable to the Fund.
    -   IFRS 13 Fair Value Measurement was issued in order to eliminate inconsistencies in the guidance on how
        to measure fair value and disclosure requirements that exist under the different IFRSs that require or
        permit fair value measurement. The revised measurement requirements did not have a significant impact
        on the net asset value of the Fund for the current financial year. The revised disclosure requirements of
        IFRS 13 have been incorporated in the notes to the annual financial statements for the year ended 30 June
        2014. The requirements of IFRS 13 are applicable on a prospective basis and in terms of the transitional
        provisions no comparatives are required for the new disclosures. As such no prior year amounts have been
        restated as a result of the adoption of IFRS 13 and comparative information has not been provided for
        certain disclosures.
    -   IFRS 7 Amendments Financial Instruments: Disclosures The amendments to IFRS 7 Financial Instruments:
        Disclosure require entities to provide additional disclosures relating to recognised financial assets and
        financial liabilities that are set-off in accordance with paragraph 42 of IAS 32 Financial Instruments:
        Presentation. The additional disclosures include information about the gross amounts subject to rights of
        set-off, amounts set-off in accordance with the accounting standards, and the related net credit exposure
        as well as information about the rights under enforceable master netting and similar arrangements. This
        amendment addresses disclosure in the annual financial statements only and does not affect the amount of
        any offsetting applied to financial assets and financial liabilities in the company’s statement of financial
        position, where applicable. The above requirements of IFRS 7 will not be applicable to the Fund.


SUMMARISED NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2014

Listed investments held at fair-value-through-profit-or-loss

The following principle methods and assumptions are used to determine the fair value of the financial instruments
that are carried at fair value:

Listed government stock
The fair value of listed government stock is determined using unadjusted quoted prices. The Fund therefore
classifies the fair value measurement of the listed government bonds in the Level 1 category, on the basis that the
fair value of the listed government bonds is determined using unadjusted quoted prices.

IFRS 7 Fair value hierarchy

                                         30 June 2014                               30 June 2013

               Type              Level 1        Level 2    Level 3       Level 1         Level 2       Level 3


        Listed investments
        held at fair-value-
        through-profit-or-
        loss                   418 812 235         -          -       1 079 798 452          -             -



Trade and other receivables, cash and cash equivalents and trade and other payables
No hierarchy disclosure is made for financial assets and liabilities measured at amortised cost where their carrying
value approximates fair value.
Creation of Government Inflation Linked Bond participatory interests

A total of 1 400 000 (2013: 4 728 030) Fund participatory interests were issued during the year at a value of
R25 712 540 (2013: R90 532 790). A total of 40 000 000 (2013: 2 128 030) Fund participatory interests were
cancelled during the year at a value of R728 608 400 (2013: R38 087 481). As at 30 June 2014, an aggregate of
21 400 000 (2013: 60 000 000) Fund participatory interests were issued by the Fund, with net assets attributable to
the participatory interest holders in an amount of R418 831 771 (2013: R1 079 315 405).

Management and administration expenses

The Manager is entitled to a service charge for the administration of the Scheme, as determined by the Manager
from time to time, of the market value of the investments of the Fund. During the period a service fee of 36 (thirty
six) basis points of the market value of the investments of the Fund has been applied.

Distributions

                                                                              2014                    2013
                                                                              Rand                    Rand
 6.17 cents per security (2013: 5.74 cents per security)
 Declared 27 Sep 2013 and paid 07 Oct 2013
 (2013: Declared 28 Sep 2012 and paid 09 Oct 2012)
                                                                               3 479 880              3 172 611

 15.93 cents per security (2013: 16.50 cents per security)
 Declared 03 Jan 2014 and paid 13 Jan 2014
 (2013: Declared 19 Dec 2012 and paid 07 Jan 2013)                             4 205 520              9 119 875

 7.31 cents per security (2013: 6.00 cents per security)
 Declared 28 Mar 2014 and paid 08 Apr 2014
 (2013: Declared 27 Mar 2013 and paid 09 Apr 2013)
                                                                               1 783 640              3 444 000

 15.77 cents per security (2013: 16.51 cents per security)
 Declared 27 Jun 2014 and paid 07 Jul 2014
                                                                               3 374 780              9 906 000
 (2013: Declared 21 Jun 2013 and paid 02 Jul 2013)

                                                                              12 843 820             25 642 486



Taxation

Any taxable income realised during the year, has been distributed to the participatory interest holders of the Fund
participatory interests. As a result, both income and capital gains are taxed in the hands of the participatory
interest holders.

Risk management

The Fund is a passive investor in inflation linked bonds issued by the government of the Republic of South Africa in
percentages to which each bond contributes to the Government Inflation Linked Bond Index (“the Index”). The risk
that management must control is that the Fund does not track the Index.

Exposure to investment, credit, market and operational risks arise in the normal course of investment activities in
government bonds. The Fund’s acceptance of risk is directly attributable to the risks associated with any
investment in government bonds.
The objectives for managing the risks associated with financial instruments held for investment purposes, as well
as a brief description of the relevant risks and methods adopted to mitigate these risks, are outlined in more detail
below. The Fund is regulated in terms of the Collective Investment Schemes Control Act (“CISCA”/”the Act”).
In terms of the Act, the Manager must appoint a Trustee. The assets of the portfolio are held under the control of
the Trustee.
Management monitors compliance in terms of the CISCA requirements and reports are submitted to the Financial
Services Board (“FSB”) on a quarterly basis. Daily pricing of the Fund is publicly available.

The Manager’s Audit Committee oversees management’s compliance with the Fund’s risk management framework
in relation to the risks faced by the Fund.

The Fund has exposure to the following risks from its use of financial instruments:
- Credit risk;
- Investment risk;
- Tracking risk;
- Operational risk;
- Liquidity risk; and
- Market risk.
The abovementioned risks are addressed below in more detail.

Credit risk

Credit risk is the risk of loss due to non-performance of a counterparty in respect of any financial or performance
obligation. For fair value portfolios, the definition of credit risk is expanded to include the risk of losses through fair
value changes arising from changes in credit spreads. The Fund’s exposure to credit risk could be as a result of a
counterparty to a transaction failing to meet its contractual obligations. This could arise primarily from the Fund’s
investment and securities lending activities.

Credit risk is considered to be low, as assets of the Fund are government inflation linked bonds rated AAA by
Standard & Poor. The bank balance is held at Standard Chartered, which is rated AAA by Standard & Poor.

In terms of CISCA, the Manager may, subject to the requirements of section 95, lend or offer to lend assets
included in the Fund’s portfolio within the limits or on the conditions determined by the Trust Deed. The trustee of
the Fund gives authority to the Manager to lend or offer to lend securities with a value not exceeding 50% of the
market value of all securities included in the Fund’s portfolio. The Manager has proceeded to engage in securities
lending in respect of the securities held by the Fund on this basis.
In terms of the Trust Deed, the Manager may engage in securities lending under section 85 of CISCA, subject to
the following limits and conditions:
-      The securities lending must be beneficial to all participatory interest holders;
-      The Manager may lend or offer to lend securities with a value not exceeding 50 per cent of the market value
        of all securities included in the Fund’s portfolio;
-      The securities that may be lent to one borrower are limited in accordance with the limits determined by the
        Registrar for the inclusion of the money market instruments in a portfolio;
-       Collateral security for the securities loaned must have an aggregate value that exceeds the market value of
        the securities loaned by not less than five per cent at all times and may only consist of –
        -     Cash; or
        -     Other securities; or
        -     A combination of cash and other securities
              -    Securities may not be lent for a period longer than 12 months; and
              -    Securities may not be lent unless subject to a right of recall.
In terms of the securities lending agreements, it is the duty of the agent to take delivery of the collateral assets, any
appropriate instruments of transfer or instrument of title in respect of a service level agreement. Collateral assets
and instruments of transfer of title are held on behalf of, and for the benefit of, the principal as represented by the
Fund.

The portfolio could be exposed to credit risk to the extent that inadequate collateral is held on the underlying
assets. If a borrower fails to perform its obligations, the Fund may be unable to recover the loaned securities.
However, the Manager only engages in securities lending with A-rated financial institutions.
Credit risk is only applicable to the financial assets of the Fund. The credit risk is considered to be low. The
carrying amounts of financial assets represent the maximum credit exposure. None of the Fund’s financial assets
are considered past due or impaired.

The maximum exposure to credit risk at the reporting date was as follows:
                                                                              2014                       2013
                                                                              Rand                       Rand

       Cash and cash equivalents                                                3 938 132               11 191 054
       Trade and other receivables                                                 11 794                           -
       Listed investments held at fair-value-through-profit-or-loss           418 812 235            1 079 798 452

Investment risk

There can be no assurance that the Fund will achieve its investment objectives.

Tracking risk

The Fund portfolio is reweighted monthly and rebalanced quarterly in line with the nominal amount in issue of the
current eight inflation linked bonds issued by National Treasury.

Operational risk

The Manager purely executes and administers trades. The asset management function relies on the Asset Liability
Matching system that the Manager uses for its own internal risk management. Assets are held in custody at
Standard Chartered Bank Johannesburg Branch custody and Trustee. Trades are all in listed government bonds,
which settle through STRATE and are held in immobilised form at STRATE.

Liquidity risk

Liquidity risk is the risk that the Fund will not be able to meet its financial obligations towards investors when they
fall due. The approach to managing liquidity risk is to ensure that the Fund would be able to pay suitable
distributions to investors on a quarterly basis. All dividend distributions are calculated and approved by the
Manager. In the primary market, Fund participatory interests are created and extinguished through the delivery of
the underlying bonds. There is no obligation to accept or deliver cash to participatory interest holders who wish to
create or extinguish participatory interests. Market makers will attempt to maintain a high degree of liquidity through
continuously offering to buy and sell the Fund participatory interests at prices around the net asset value (“NAV”) of
the Fund participatory interests, thereby ensuring tight buy and sell spreads. Under normal circumstances and
conditions, the participatory interest holders will be able to buy or sell the Fund participatory interests from the
market makers.
Market risk

The Fund is an index tracking fund. It aims to match the performance of the Index. Market risk exists where the
significant changes in government bond prices will affect the value of the Fund’s financial instruments. The
investment mandates indicates that the Fund is passively managed and as a result the management of market risk
is not possible. The value of Fund securities and distributions payable by the Fund will rise and fall as the capital
values of the underlying securities housed in the Fund’s portfolio and the income flowing there from fluctuates.
Prospective participatory interest holders should be prepared for the possibility that they may sustain a loss.


Sensitivity analysis

All the Fund’s underlying investments are listed on the JSE Interest Rate Market, now administered and owned by
the JSE Limited. The price of the Fund participatory interests is closely correlated to the movements in the
underlying Government Inflation-Linked Bond Index. Any movement or adjustment in the Index, or the underlying
constituents of the Index, will have an impact on the price of the participatory interests.

                                                                                                   th
At any point in time, the NAV of the Fund participatory interests is expected to approximate 1/10 of the Index level,
plus an amount which reflects a pro-rata portion of any accrued distribution amount within the Fund’s portfolio, net
of accrued expenses. Therefore, a 10 point movement in the Index would result in a R1.00 movement in the NAV
per participatory interest of the Fund. Actual market values may be affected by supply and demand and other
market factors, but the ability of a participatory interest holder to switch out of the Fund’s participatory interest by
redeeming them in specie for one or more baskets of constituent securities, subject to a minimum of 200 000 Fund
participatory interests being delivered, should operate to substantially avoid or minimise any differential which may
otherwise arise between the relevant basket and/or Index level and the value at which the Fund participatory
interests trade from time to time.

These financial statements have been audited by the independent auditors, PricewaterhouseCoopers Incorporated,
and their unqualified audit opinion is available for inspection at the company’s registered head office.

A full copy of the financial statements is available on the RMB website http://www.rmb.co.za/ourFundsETFs.asp


18 December 2014

Sponsor
Bridge Capital Advisors Proprietary Limited

Trustee
Standard Chartered Bank, Johannesburg Branch

Managers
RMB CIS Manco Proprietary Limited

Auditors
PricewaterhouseCoopers Incorporated

Date: 18/12/2014 11:15:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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