Challenging Economic environment impacts IDC performance

Capital gains no longer recycled back to profits as a result of IFRS9 adoption says IDC CFO Nonkululeko Dlamini.

On Tuesday 13 August, the Industrial Development Corporation (IDC) released a financial statement for the year to end 31 March 2019. 

The statement read that the past five years of low economic growth, averaging just over 1 percent per annum, has resulted in a constrained business environment. According to the statement, this has particularly impacted on start-up, expansion of businesses and the initiation of industrial projects. “The need for finance is derived demand, and a low growth economy absorbs less financial capital,” the statement said. 

IDC CEO Tshokolo Nchocho said that while the IDC has maintained its counter-cyclical role, the impact of this environment is evident in IDC’s financing activity, where, in the period under review, it approved R13.1 billion to 192 clients (average of R14.2 billion over the last five years). While this is slightly lower than the prior-year approvals, it remains within the five-year trend. 

He added that, notwithstanding the depressed climate, the IDC’s financing and investment contribution to the South African economy has been sustained at meaningful levels over the years. In the year under review to end 31 March, the Corporation disbursed a total of R11.8 billion. 

The adoption of a new accounting standard, IFRS9, has also had a major impact on the financials of the Corporation. 

IDC CFO and Public Sector CFO of the Year Award winner Nonkululeko Dlamini said:

“Operating profits included capital gains in prior years in line with our business model, whereby we exit mature investments for new funding requirements and thereby realising capital gains.” 

She added that the IFRS9 adoption has resulted in capital gains no longer being recycled back to profits based on the election to revalue equity investments through other comprehensive income.

“All fundraising during the period was on the strength of the IDC balance sheet and no guaranteed debt, indicating continued investor confidence in IDC,” she concluded. 

Notwithstanding the impact of IFRS9, the IDC continued to post solid financial results: 

  • Normalised revenue grew by two percent to R17.2 billion
  • Total assets grew six percent to R144.6 billion 
  • Reserves grew three percent to R95.5 billion
  • Normalised profits dropped 14 percent to R720 million

These results demonstrate that the IDC retains a strong and well-managed capital base, despite news of it being yet another SOE to face bankruptcy. 

The statement said that the Corporation continues to be prudent in managing its costs, with the cost to income ratio remaining flat at 24 percent. 

“We are mindful of both the domestic and global economic outlook, however, the IDC remains a strong institution which is well capitalised, with deep skills and sound governance structures and we will focus on the levers that are within our control as we continue to deliver on our mandate,” Nchocho said.