Audited results for the year ended 31 March 2015 DEVELOPMENT BANK OF SOUTHERN AFRICA LIMITED Audited results for the year ended 31 March 2015 Preparation of the financial statements The following individual was responsible for the oversight and preparation of the financial statements for the year ended 31 March 2015: Kameshni Naidoo CA (SA), Chief Financial Officer Basis of preparation Accounting policies adopted and methods of computation are consistent with those applied to the Annual Financial Statements at 31 March 2014. The financial statements are prepared on the historical cost basis except for the following assets and liabilities which are stated at their fair value: derivative financial instruments, financial instruments at fair value through profit and loss, available-for-sale financial assets, land and buildings, post-retirement medical benefit and funeral benefit obligations measured at actuarial values. 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, 1997. 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. Audit of results The financial results of DBSA for the year ended 31 March 2015 have been audited by the Bank’s auditor, Nkonki Inc. In their audit report, which is available for inspection at the Company's Registered Office, Nkonki Inc. stated that their audit was conducted in accordance with International Standards on Auditing, and have expressed an unmodified audit report on the year-end financial statements. Key Highlights - Record disbursement of R13bn (31 March 2014: R12.7bn) main contributors were to development bonds and loan book net growth of 14% from 31 March 2014. - Increased in profitability for the year R1.2bn (31 March 2014: R787m). - Included in profit is an unrealised foreign exchange gain amounting to R490 million (31 March 2014: R280m). - Cost to income ratio including IDD 34.4% (31 March 2014: 28.4%). Core banking business (excluding IDD) cost to income ratio of 31% (31 March 2014: 27.3%). - Cash flow from operations R2.7bn (31 March 2014: R1.9bn). - Capital injection received from National Treasury of R2.5bn in support of the growth strategy (31 March 2014: R2.4bn). - 116% increase in sustainable earnings (net profit adjusted for: foreign exchange adjustment, revaluation of financial instruments and grants, but includes revaluation on equity investment). Overview of the financial results and activities The Bank continues to implement its new business strategy and the key financial indicators for the year under review are: - Operating income increased by 25% to R2.9bn (2013/14: R2.3bn) on the back of an increase in net interest income to R2.3bn (2013/14: R2.1bn), increase in foreign exchange gain to R490m (2013/14: R280m) and a decrease in losses on financial assets and liabilities to R300m (2013/14: R629m). - Cost-to-income ratio increased marginally to 34.4% (2013/14: 28.4%). - DBSA profitability increased to a net profit of R1.2bn compared to R787m in 2013/14. - Development loans, bonds and equity investments disbursements of R13bn, an increase of 3% compared to the R12.7bn disbursed during 2013/14. A new record level of disbursements. - Impairment charge for the year amounting to R743m (2014: R735m) is 1.2% above the prior comparative period. Provision for loan impairment increased by: 23% R2.9bn (2013/14: R2.4bn) although the provision for loan impairment increased, the quality of the loan book remains within acceptable parameters with non-performing loans at 5.08% of the total loan book (2014: 5.8%). A 0.7% improvement from prior year. - Debt-to-equity ratio improved to 195.6% (2013/14: 216.3%). - The National Treasury in support of the strategy and growth prospects provided a capital injection of R2.5bn during the period under review (2013/14: R2.4bn), being the second tranche of the R7.9bn capital injection commitment. A further R3bn is expected in the 2015/16 financial year. - Appropriate measures to improve the long-term financial sustainability of the Bank are currently in implementation. Outlook The financial position of the DBSA remains strong. The Bank continues to implement its strategy in delivery of developmental impact in a financially sustainable manner. Statement of Financial Position as at 31 March 2015 2015 2014 in thousands of rand Assets Cash and cash equivalents 3 901 663 4 135 667 Trade and other receivables 227 880 145 296 Investment securities 2 009 916 2 161 341 Derivative assets held for risk management 1 036 624 1 308 325 Post-retirement medical benefits investment 59 536 63 209 Home ownership scheme loans 5 462 7 544 Equity investments 5 092 061 4 610 448 Development bonds 1 290 390 772 743 Development loans 56 740 219 50 076 235 Property and equipment 502 976 461 873 Intangible assets 77 412 82 860 Total assets 70 944 139 63 825 541 Liabilities Other payables 811 755 813 665 Provisions 122 711 55 998 Liability for funeral benefits 3 100 3 100 Liability for post-retirement medical benefits 160 412 165 051 Funding: debt securities 33 353 036 29 216 814 Funding: lines of credit 12 565 895 13 606 441 Derivative liabilities held for risk management 244 545 63 899 Total liabilities 47 261 454 43 924 968 Equity Share capital 200 000 200 000 Retained earnings 12 260 565 11 296 416 Permanent government funding 8 692 344 6 192 344 Revaluation reserve on land and buildings 269 256 253 487 Hedging reserve 116 288 61 958 Reserve for general loan risks 2 143 975 1 893 983 Fair value reserve 257 2 385 Total equity 23 682 685 19 900 573 Total liabilities and equity 70 944 139 63 825 541 Statement of Comprehensive Income for the year ended 31 March 2015 in thousands of rand 2015 2014 Interest income 5 327 312 4 576 209 Interest expense (3 002 929) (2 487 759) Net interest income 2 324 383 2 088 450 Net fee income 232 928 334 630 Net foreign exchange gain 489 673 279 945 Net loss from financial assets and financial liabilities (299 832) (629 496) Other operating income 139 971 244 074 Other income 562 740 229 153 Operating income 2 887 123 2 317 603 Project preparation (6 138) (20 867) Development expenditure (35 015) (1 579) Net impairment loss on financial assets (743 361) (734 871) Personnel expenses (607 271) (561 597) Other expenses (253 175) (177 597) Depreciation and amortisation (25 108) (18 627) Profit from operations 1 217 055 802 465 Grants (2 914) (15 423) Profit for the year 1 214 141 787 042 Statement of Other Comprehensive Income for the year ended 31 March 2015 in thousands of rand 2015 2014 Profit for the year 1 214 141 787 042 Items that will not be reclassified to profit and loss Gain on revaluation of land and buildings 15 769 - Items that may be reclassified subsequently to profit and loss Unrealised gain/(loss) on cash flow hedges (88 253) 109 108 Gain/(loss) on cash flow hedges reclassified to statement of comprehensive income 142 583 (87 767) Fair value adjustment of available-for-sale financial assets (2 128) (13 535) 52 202 7 806 Other comprehensive income 67 971 7 806 Total comprehensive income for the year 1 282 112 794 848 Condensed statement of changes in equity 2015 2014 in thousands of rand Balance at beginning of the year 19 900 573 16 705 725 Government recapitalisation 2 500 000 2 400 000 Profit for the year 1 214 141 787 042 Unrealised gain/(loss) on cash flow hedges (88 253) 109 108 Gain/(loss) on cash flow hedges reclassified to statement of comprehensive income 142 583 (87 767) Fair value adjustment of available for sale financial assets (2 128) (13 535) Gain on revaluation of land and buildings 15 769 - Total equity at end of the period 23 682 685 19 900 573 Summarised Statement of Cash Flows for the year ended 31 March 2015 Cash flows generated from operating activities 2 660 756 1 955 167 Cash flows used in development activities (6 397 688) (7 820 810) Cash flows generated from investing activities (730 188) 319 679 Cash flows generated from financing activities 4 199 575 8 475 037 Effect of exchange rate movement on cash balances 33 541 (45 548) Net increase/(decrease) in cash and cash equivalents (234 004) 2 883 525 Cash and cash equivalents at the beginning of the 4 135 667 1 252 142 period Cash and cash equivalents at the end of the period 3 901 663 4 135 667 The 2014/2015 Integrated Annual Report is available on the DBSA website www.dbsa.org Issued by the Development Bank of Southern Africa Dated: 18 September 2015 The Standard Bank of South Africa Limited, Natalie Di-Sante 011 721 6125 6 Date: 18/09/2015 07:05:00 Produced by the JSE SENS Department. 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