Economic Performance

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Economic Performance

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MARKET CONTEXT

The economic activity in developed countries showed signs of improvement in the second half of 2016, with better indicators, such as unemployment rate and growth of GDP in the United States and the Euro zone. The perspective of growth in emerging countries continues to be favorable, with the prices of metal and energy commodities rising in the last quarter of the year.

In the domestic scenario, GDP closed the year down 3.6%, and unemployment increased to 12.0% in the last quarter of 2016, from 9.0% in the same period of the previous year, as measured by the Continuous Pnad (Continuous National Household Sample Survey). Inflation measured by IPCA closed 2016 at 6.3%, below the 10.7% recorded in 2015 and within the tolerance range for the inflation target determined by the Central Bank of Brazil. This clearer downward trend for inflation and the economic activity below expectations have allowed a more flexible monetary policy, with reduction of the basic interest rate by 75 basis points in January 2017.

Industry showed signs of stability in the last months, with the industrial production in December 2016 down a mere 0.1% from that recorded in the same month of the previous year. The cyclical turnover adjustment is expected to boost the modest recovery of the industry in the time ahead. In 2016, the change in the financial system credit balance was negative by 9.2% in actual terms, as compared to a 3.6% reduction recorded in 2015. Loans in 2016 fell 15.6% in actual terms from the previous year.

Default rate for loans to individuals reached 4.0% (down 20 basis points), and 3.5% for loans to companies (up 90 basis points).

RESULTS FOR THE YEAR

As a holding company, Itaúsa’s results are basically derived from its share of income, determined based on the results of its subsidiaries. Over the year, the financial services and industrial segments still suffered the impacts of the challenging scenario.

Recurring individual net income totaled R$8.6 billion, up 2.7% from that recorded in 2015, with recurring return on average equity (ROE) of 18.6%. Net income closed the year at R$8.2 billion, compared to R$8.9 billion recorded in the previous period.

General and administrative expenses totaled R$43 million in the year, up 7.5% from 2015, and remained equivalent to 0.5% of net income.

Net financial result was positive and totaled R$67 million, as compared to R$98 million recorded in the previous year.

Tax expenses totaled R$288 million, and were mainly comprised of PIS and COFINS levied on financial income and revenues from interest on capital received from investees.

Itaúsa maintained its sound liquidity position. Total cash, cash equivalents and held-for-trading financial assets reached R$976 million at the end of the period. Calculated based on the ratio of current and non-current liabilities to total assets in the balance sheet, the Company’s indebtedness level was at 6.2%, with total liabilities of R$3.1 billion, of which R$2.0 billion refers to dividends and interest on capital to be paid.

 

VALUE ADDED

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Itaúsa’s consolidated value added amounted to R$10.2 billion, down 8.1% from that recorded in 2015. Regarding the distribution of value generated, the highlight goes to return on own assets, which totaled R$8.2 billion, including dividends and interest on capital paid/provided for and retained earnings.

For further information on the main results of the subsidiaries, read the section Itaúsa’s companies.

DISTRIBUTION OF VALUE ADDED(R$ MILLION)


RETURN TO STOCKHOLDERS

Based on the result obtained in 2016, return to stockholders totaled R$3.7 billion in dividends and interest on capital, net of taxes, up 37.4% from the previous year. Payout was 48%, up 1,600 basis points from 2015. In February 2017, the Board of Directors approved a capital call in the amount of R$740 million, by way of the issue of new shares for private subscription. Including the effects of this capital call, in 2016 total dividends and interest on capital increased 10.2% from the net amount for 2015. It should be emphasized that there was no capital call in 2016 related to the previous year. G4-13

PERFORMANCE OF SHARES

Itaúsa preferred shares traded on BM&FBOVESPA (ITSA4 ticker symbol) were quoted at R$8.28 at the end of 2016, a 32.4% appreciation from the end of the previous year. For comparison purposes, in the same period, Ibovespa appreciated 38.9%.

In 2016, the average daily financial volume traded was R$171.3 million, with 7,264 thousand transactions. In the previous year, the amount reached R$167.8 million, with 7,325 thousand transactions.

Market capitalization totaled R$60.8 billion at the end of the year, up 30.8% from the previous period. Total market value of the sum of interests in subsidiaries was R$84.3 billion, with a 27.8% discount as compared to 23.7% recorded at the end of 2015.

In February 2017, Itaúsa resolved on the cancellation of 26,819,000 book-entry common shares of own issue held in treasury, by absorbing R$204.1 million recorded in the revenue reserve, and renewed the authorization for acquiring, in a 18-month period and at market price, up to 80,000,000 common shares and the same number of preferred shares of own issue to be held in treasury.