Wrap Text
Reviewed interim condensed consolidated financial results for the six months ended 30 September 2016
Investec Bank Limited
Incorporated in the Republic of South Africa
Registration number: 1969/004763/06
Share code: INLP
ISIN: ZAE000048393
2016
INVESTEC BANK
LIMITED
Reviewed interim
condensed consolidated
financial results for the
six months ended
30 September 2016
Consolidated income statement
Reviewed Reviewed Audited
Six months to Six months to Year to
30 September 30 September 31 March
R'million 2016 2015 2016
Interest income 14 973 10 908 23 515
Interest expense (11 214) (7 847) (16 803)
Net interest income 3 759 3 061 6 712
Fee and commission income 1 023 950 1 945
Fee and commission expense (129) (71) (207)
Investment income 170 1 002 1 356
Share of post taxation operating profit/(loss) of associates 172 (11)* (11)*
Trading income arising from
- customer flow 167 166 293
- balance sheet management and other trading activities 41 100 298
Other operating income 1 2* 2*
Total operating income before impairment losses on loans and
advances 5 204 5 199 10 388
Impairment losses on loans and advances (322) (287) (517)
Operating income 4 882 4 912 9 871
Operating costs (2 894) (2 811) (5 537)
Operating profit before acquired intangibles 1 988 2 101 4 334
Amortisation of acquired intangibles (26) (13) (39)
Profit before taxation 1 962 2 088 4 295
Taxation on operating profit before acquired intangibles (358) (307) (831)
Taxation on acquired intangibles 7 4 11
Profit after taxation 1 611 1 785 3 475
* Share of post taxation operating profit/(loss) of associates has been shown separately from other operating income in the current period.
Calculation of headline earnings
Reviewed Reviewed Audited
Six months to Six months to Year to
30 September 30 September 31 March
R'million 2016 2015 2016
Profit after taxation 1 611 1 785 3 475
Preference dividends paid (65) (59) (120)
Earnings attributable to ordinary shareholders 1 546 1 726 3 355
Headline adjustments, net of taxation (60) 81 94
Gain on realisation of available-for-sale assets recycled through
the income statement^ (60) (13) (13)
Write down of non-current assets classified as held for sale^ - 94 107
Headline earnings attributable to ordinary shareholders 1 486 1 807 3 449
^Net of taxation of R23.4 million [Six months to 30 September 2015: (R31.5 million);
year to 31 March 2016: (R19.3 million)].
Consolidated statement of total comprehensive income
Reviewed Reviewed Audited
Six months to Six months to Year to
30 September 30 September 31 March
R'million 2016 2015 2016
Profit after taxation 1 611 1 785 3 475
Other comprehensive income:
Items that may be reclassified to the income statement
Fair value movements on cash flow hedges taken directly to
other comprehensive income* 373 (343) (699)
Fair value movements on available-for-sale assets taken directly
to other comprehensive income* 661 (348) (717)
Gain on realisation of available-for-sale assets recycled through the
income statement* (60) (13) (13)
Foreign currency adjustments on translating foreign operations (339) 694 1 040
Total comprehensive income 2 246 1 775 3 086
Total comprehensive income attributable to ordinary shareholders 2 181 1 716 2 966
Total comprehensive income attributable to perpetual preference
shareholders 65 59 120
Total comprehensive income 2 246 1 775 3 086
* Net of taxation of (R167.3 million) [Six months to 30 September 2015: R312.2 million;
year to 31 March 2016: R515.3 million].
Condensed consolidated statement of changes in equity
Reviewed Reviewed Audited
Six months to Six months to Year to
30 September 30 September 31 March
R'million 2016 2015 2016
Balance at the beginning of the period 31 865 28 899 28 899
Total comprehensive income 2 246 1 775 3 086
Dividends paid to ordinary shareholders (900) - -
Dividends paid to perpetual preference shareholders (65) (59) (120)
Balance at the end of the period 33 146 30 615 31 865
Condensed consolidated cash flow statement
Reviewed Reviewed Audited
Six months to Six months to Year to
30 September 30 September 31 March
R'million 2016 2015 2016
Net cash inflow from operating activities 1 896 32 2 469
Net cash outflow from investing activities (102) (418) (499)
Net cash inflow/(outflow) from financing activities 717 (100) (43)
Effects of exchange rate changes on cash and cash equivalents (501) 482 773
Net increase/(decrease) in cash and cash equivalents 2 010 (4) 2 700
Cash and cash equivalents at the beginning of the period 26 483 23 783 23 783
Cash and cash equivalents at the end of the period 28 493 23 779 26 483
Cash and cash equivalents are defined as including cash and balances at central banks, on demand loans and advances to banks and
non-sovereign and non-bank cash placements (all of which have a maturity profile of less than three months).
Consolidated balance sheet
Reviewed Audited Reviewed
At 30 September 31 March 30 September
R'million 2016 2016 2015
Assets
Cash and balances at central banks 8 101 7 801 6 698
Loans and advances to banks 32 571 26 779 24 913
Non-sovereign and non-bank cash placements 10 218 9 858 11 435
Reverse repurchase agreements and cash collateral on securities
borrowed 31 068 38 912 23 267
Sovereign debt securities 47 800 41 325 34 850
Bank debt securities 8 294 13 968 15 829
Other debt securities 11 396 12 761 14 024
Derivative financial instruments 11 821 15 843 14 491
Securities arising from trading activities 824 992 3 354
Investment portfolio 7 073 6 360 10 625
Loans and advances to customers 214 452 207 272 188 532
Own originated loans and advances to customers securitised 8 323 7 967 7 310
Other loans and advances 336 367 403
Other securitised assets 106 115 503
Interest in associated undertakings 5 382 5 145 53
Deferred taxation assets 118 116 98
Other assets 4 351 3 656 4 879
Property and equipment 236 236 236
Investment properties 1 1 1
Goodwill 171 171 172
Intangible assets 521 524 557
Loans to group companies 7 748 5 460 2 806
Non-current assets classified as held for sale 497 - 601
411 408 405 629 365 637
Liabilities
Deposits by banks 32 934 37 242 32 539
Derivative financial instruments 11 897 13 424 13 088
Other trading liabilities 1 529 1 405 1 949
Repurchase agreements and cash collateral on securities lent 16 721 16 916 14 368
Customer accounts (deposits) 290 903 279 736 250 099
Debt securities in issue 5 418 7 665 6 452
Liabilities arising on securitisation of own originated loans and advances 728 809 957
Current taxation liabilities 692 671 746
Deferred taxation liabilities 159 122 221
Other liabilities 4 874 5 042 4 195
365 855 363 032 324 614
Subordinated liabilities 12 407 10 732 10 408
378 262 373 764 335 022
Equity
Ordinary share capital 32 32 32
Share premium 14 885 14 885 14 885
Other reserves 1 128 566 848
Retained income 17 101 16 382 14 850
Total equity 33 146 31 865 30 615
Total liabilities and equity 411 408 405 629 365 637
Liquidity coverage ratio disclosure
The objective of the Liquidity Coverage Ratio (LCR) is to promote the short-term resilience of the liquidity risk profile of banks by
ensuring that they have sufficient high quality liquid assets to survive a significant stress scenario lasting 30 calendar days.
The minimum LCR requirement is 70% throughout 2016 and will increase by 10% each year to 100% on 1 January 2019.
In accordance with the provisions of section 6(6) of the South African Banks Act 1990 (Act No. 94 of 1990), banks are directed to
comply with the relevant LCR disclosure requirements, as set out in Directive 6/2014 and Directive 11/2014. This disclosure is in
accordance with Pillar 3 of the Basel III liquidity accord.
Investec Bank Limited Investec Bank Limited
Solo - Consolidated Group -
R'million Total weighted value Total weighted value
Total high quality liquid assets 75 716 75 803
Total net cash outflows 54 853 49 725
Actual LCR (%) 138.4 153.1
Required LCR (%) 70.0 70.0
Commentary
These reviewed interim condensed consolidated financial results are published to provide information to holders of Investec
Bank Limited's listed non-redeemable, non-cumulative, non-participating preference shares.
Overview of results
Investec Bank Limited, a subsidiary of Investec Limited, posted headline earnings attributable to ordinary shareholders of
R1 486 million (2015: R1 807 million). Operating fundamentals were supported by sound levels of corporate and private
client activity. Operating income excluding investment income increased by 19.8%. The balance sheet remains sound with a
capital adequacy ratio of 14.9% (31 March 2016: 14.6%). For full information on the Investec Group results, refer to the
combined results of Investec plc and Investec Limited or the group's website www.investec.com.
Financial review
Unless the context indicates otherwise, all comparatives referred to in the financial review relate to the six months ended
30 September 2015.
Salient operational features for the period under review include:
Total operating income before impairment losses on loans and advances remained in line with the prior year amounting
to R5 204 million (2015: R5 199 million). The components of operating income are analysed further below:
- Net interest income increased 22.8% to R3 759 million (2015: R3 061 million) driven by strong book growth in the
2016 financial year as well as sound levels of lending activity in the current period.
- Net fee and commission income increased 1.7% to R894 million (2015: R879 million) as a result of a sound
performance from the corporate lending and treasury teams as well as the acquisition of Blue Strata
(rebranded Investec Import Solutions) in the prior period.
- Investment income decreased 83.0% to R170 million (2015: R1 002 million) impacted by a change in accounting treatment
from fair value to equity accounting (refer to additional information).
- Share of post taxation operating profit of associates of R172 million in the current period largely reflects earnings in
relation to the group's investment in Investec Equity Partners.
- Total trading income decreased 21.8% to R208 million (2015: R266 million) largely due to foreign currency translation impacts,
while corporate customer flow trading income remained in line with the prior period.
Impairments on loans and advances increased from R287 million to R322 million, with the credit loss ratio on average core loans
and advances amounting to 0.30% (31 March 2016: 0.26%), remaining at the lower end of its long term average trend. The
percentage of default loans (net of impairments but before taking collateral into account) to core loans and advances amounted to
1.25% (31 March 2016: 1.06%). The ratio of collateral to default loans (net of impairments) remains satisfactory at 1.66 times
(31 March 2016: 1.61 times).
The ratio of total operating costs to total operating income amounted to 55.6% (2015: 54.1%). Total operating expenses at
R2 894 million were 3.0% higher than the prior year (2015: R2 811 million) reflecting higher headcount and IT infrastructure
costs across the business to support increased activity and growth initiatives.
As a result of the foregoing factors profit before taxation and acquired intangibles decreased by 5.4% to R1 988 million
(2015: R2 101 million).
Additional Information - Investec Equity Partners
A new investment vehicle, Investec Equity Partners (IEP), was created on 11 January 2016 in which Investec holds a 45%
stake alongside other strategic investors who hold the remaining 55%. Investec Principal Investments transferred certain portfolio
investments to the value of R5.1 billion to IEP. In exchange Investec received R0.7 billion in cash and 45% of the shares
in IEP (R5.1 billion), reflected as an associate on the balance sheet. Since the date of the transaction Investec has applied
the equity accounting method to account for its investment in the new vehicle as opposed to the fair value accounting method
previously applied to the underlying investments held.
Accounting policies and disclosures
The condensed consolidated interim financial statements are prepared in accordance with International Financial Reporting
Standard, (IAS) 34 Interim Financial Reporting, the SAICA Financial Reporting Guides as issued by the Accounting Practices
Committee and Financial Pronouncements as issued by Financial Reporting Standards Council and the requirements of the Companies
Act of South Africa.
The accounting policies applied in the preparation of the results for the six months ended 30 September 2016 are consistent
with those adopted in the financial statements for the year ended 31 March 2016.
The financial results have been prepared under the supervision of Nishlan Samujh, the Group Chief Financial Officer.
The annual financial statements for the six months ended 30 September 2016 will be posted to stakeholders on 30 November 2016.
These annual financial statements will be available on the group's website at the same date.
On behalf of the Board of Investec Bank Limited
Fani Titi Richard Wainwright
Chairman Chief Executive Officer
16 November 2016
Review conclusion
These condensed consolidated interim financial statements for the period ended 30 September 2016 have been reviewed
by KPMG Inc. and Ernst & Young Inc., who expressed an unmodified review conclusion. A copy of the auditors' review
report is available for inspection at the company's registered office together with the financial statements identified in
the auditor's report.
Analysis of assets and liabilities by measurement basis
Total
instruments
Total at Non-
At 30 September 2016 instruments amortised financial
R'million at fair value cost instruments Total
Assets
Cash and balances at central banks - 8 101 - 8 101
Loans and advances to banks - 32 571 - 32 571
Non-sovereign and non-bank cash placements 38 10 180 - 10 218
Reverse repurchase agreements and cash collateral on securities borrowed 15 931 15 137 - 31 068
Sovereign debt securities 43 953 3 847 - 47 800
Bank debt securities 4 998 3 296 - 8 294
Other debt securities 9 436 1 960 - 11 396
Derivative financial instruments 11 821 - - 11 821
Securities arising from trading activities 824 - - 824
Investment portfolio 7 073 - - 7 073
Loans and advances to customers 14 345 200 107 - 214 452
Own originated loans and advances to customers securitised - 8 323 - 8 323
Other loans and advances - 336 - 336
Other securitised assets - 106 - 106
Interests in associated undertakings - - 5 382 5 382
Deferred taxation assets - - 118 118
Other assets 462 2 521 1 368 4 351
Property and equipment - - 236 236
Investment properties - - 1 1
Goodwill - - 171 171
Intangible assets - - 521 521
Loans to group companies 30 7 718 - 7 748
Non-current assets classified as held for sale - - 497 497
108 911 294 203 8 294 411 408
Liabilities
Deposits by banks - 32 934 - 32 934
Derivative financial instruments 11 897 - - 11 897
Other trading liabilities 1 529 - - 1 529
Repurchase agreements and cash collateral on securities lent 78 16 643 - 16 721
Customer accounts (deposits) 9 160 281 743 - 290 903
Debt securities in issue 3 941 1 477 - 5 418
Liabilities arising on securitisation of own originated loans and advances - 728 - 728
Current taxation liabilities - - 692 692
Deferred taxation liabilities - - 159 159
Other liabilities 731 1 325 2 818 4 874
Subordinated liabilities - 12 407 - 12 407
27 336 347 257 3 669 378 262
Financial instruments carried at fair value
The table below analyses recurring fair value measurements for financial assets and financial liabilities.
These fair value measurements are categorised into different levels in the fair value hierarchy based on the inputs to the
valuation technique used. The different levels are identified as follows:
Level 1 - quoted (unadjusted) prices in active markets for identical assets or liabilities
Level 2 - inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly
(ie as prices) or indirectly (ie derived from prices)
Level 3 - inputs for the asset or liability that are not based on observable market data (unobservable inputs)
Financial
At 30 September 2016 instruments Fair value category
R'million at fair value Level 1 Level 2 Level 3
Assets
Non-sovereign and non-bank cash placements 38 - 38 -
Reverse repurchase agreements and cash collateral on securities borrowed 15 931 - 15 931 -
Sovereign debt securities 43 953 43 953 - -
Bank debt securities 4 998 2 833 2 165 -
Other debt securities 9 436 9 436 - -
Derivative financial instruments 11 821 - 11 811 10
Securities arising from trading activities 824 824 - -
Investment portfolio 7 073 3 646 187 3 240
Loans and advances to customers 14 345 - 14 345 -
Loans to group companies 30 - 30 -
Other assets 462 462 - -
108 911 61 154 44 507 3 250
Liabilities
Derivative financial instruments 11 897 - 11 897 -
Other trading liabilities 1 529 430 1 099 -
Repurchase agreements and cash collateral on securities lent 78 - 78 -
Customer accounts (deposits) 9 160 - 9 160 -
Debt securities in issue 3 941 - 3 941 -
Other liabilities 731 - 731 -
27 336 430 26 906 -
Net financial assets at fair value 81 575 60 724 17 601 3 250
Transfers between level 1 and level 2
There were no transfers between level 1 and level 2 in the current period.
Level 3 instruments
The following table shows a reconciliation of the opening balances to the closing balances for financial instruments in level 3 at fair
value category. All instruments are at fair value through profit and loss.
R'million 2016
Balance as at 1 April 2016 2 580
Total losses in the income statement (27)
Purchases 874
Sales (127)
Transfers into level 3 4
Foreign exchange adjustments (54)
Balance at 30 September 2016 3 250
For the period ended 30 September 2016, R4.4 million has been transferred into level 3 from level 2 as a result of the inputs to the valuation
methods becoming unobservable in the market.
The following table quantifies the gains or (losses) included in the income statement recognised on level 3 financial instruments:
For the six months to 30 September 2016
R'million Total Realised Unrealised
Total gains or (losses) included in the income statement
for the period
Net interest expense (6) (6) -
Investment income 10 39 (29)
Trading income arising from customer flow (31) (27) (4)
(27) 6 (33)
Sensitivity of fair values to reasonably possible alternative assumptions by level 3 instrument type
The fair value of financial instruments in level 3 are measured using valuation techniques that incorporate assumptions that are not
evidenced by prices from observable market data. The following table shows the sensitivity of these fair values to reasonably possible
alternative assumptions, determined at a transactional level:
Reflected in the income
Balance Range which statement
sheet Significant unobservable Favourable Unfavourable
value Valuation unobservable input has been changes changes
At 30 September 2016 R'million method input changed stressed R'million R'million
Assets
Derivative financial instruments 10 1 (1)
Price multiple Net asset value (10%) - 10% 1 (1)
Investment portfolio 3 240 705 (457)
Price earnings Change in * 373 (80)
PE multiple
Other^ Various *** 332 (377)
Total 3 250 706 (458)
* The price-earnings multiple has been stressed on an investment-by-investment basis in order to obtain aggressive and conservative valuations.
** These valuation sensitivities have been determined individually using varying scenario-based techniques to obtain the favourable and unfavourable
valuations.
^ Other - The valuation sensitivity for the private equity and embedded derivatives (profit share portfolios) has been assessed by adjusting various
inputs such as expected cash flows, discount rates and earnings multiples. It is deemed appropriate to reflect the outcome on a portfolio basis for
the purposes of this analysis as the sensitivity of the investments cannot be determined through the adjustment of a single input.
In determining the value of level 3 financial instruments, the following are the principal inputs that can require judgement:
Price-earnings multiple
The price-to-earnings ratio is an equity valuation multiple. It is a key driver in the valuation of unlisted investments.
Measurement of financial assets and liabilities at level 2
The table below sets out information about the valuation techniques used at the end of the reporting period in measuring financial
instruments categorised as level 2 in the fair value hierarchy:
Valuation basis/techniques Main inputs
Assets
Non-sovereign and non-bank cash placements Discounted cash flow model Yield curve
Reverse repurchase agreements and cash collateral on securities Discounted cash flow model Yield curve
borrowed Black-Scholes Volatilities
Bank debt securities Discounted cash flow model Yield curve
Derivative financial instruments Discounted cash flow model Yield curve
Black-Scholes Volatilities
Investment portfolio Adjusted quoted price Liquidity adjustment
Loans and advances to customers Discounted cash flow model Yield curve
Loans to group companies Discounted cash flow model Yield curve
Liabilities
Derivative financial instruments Discounted cash flow model Yield curve
Black-Scholes Volatilities
Other trading liabilities Discounted cash flow model Yield curve
Repurchase agreements and cash collateral on securities lent Discounted cash flow model Yield curve
Customer accounts (deposits) Discounted cash flow model Yield curve
Debt securities in issue Discounted cash flow model Yield curve
Other liabilities Discounted cash flow model Yield curve
Fair value of financial assets and liabilities at amortised cost
At 30 September 2016 Carrying Fair
R'million value value
Assets
Cash and balances at central banks 8 101 8 101
Loans and advances to banks 32 571 32 571
Non-sovereign and non-bank cash placements 10 180 10 180
Reverse repurchase agreements and cash collateral on securities borrowed 15 137 15 137
Sovereign debt securities 3 847 3 897
Bank debt securities 3 296 4 413
Other debt securities 1 960 1 974
Loans and advances to customers 200 107 200 267
Own originated loans and advances to customers securitised 8 323 8 323
Other loans and advances 336 336
Other securitised assets 106 106
Other assets 2 521 2 521
Loan to group companies 7 718 7 718
294 203 295 544
Liabilities
Deposits by banks 32 934 33 314
Repurchase agreements and cash collateral on securities lent 16 643 16 638
Customer accounts (deposits) 281 743 281 760
Debt securities in issue 1 477 1 545
Liabilities arising on securitisation of own originated loans and advances 728 728
Other liabilities 1 325 1 325
Subordinated liabilities 12 407 13 498
347 257 348 808
Preference share dividend announcement
Non-redeemable non-cumulative non-participating preference shares ("preference shares")
Declaration of dividend number 27
Notice is hereby given that preference dividend number 27 has been declared by the Board from income reserves for the period
01 April 2016 to 30 September 2016 amounting to a gross preference dividend of 438.68108 cents per share payable to
holders of the non-redeemable non-cumulative non-participating preference shares as recorded in the books of the company at the close of
business on Friday, 02 December 2016.
The relevant dates for the payment of dividend number 27 are as follows:
Last day to trade cum-dividend Tuesday, 29 November 2016
Shares commence trading ex-dividend Wednesday, 30 November 2016
Record date Friday, 02 December 2016
Payment date Monday, 12 December 2016
Share certificates may not be dematerialised or rematerialised between Wednesday, 30 November 2016 and Friday, 02 December 2016,
both dates inclusive.
Additional information to take note of:
- Investec Bank Limited tax reference number: 9675/053/71/5
- The issued preference share capital of Investec Bank Limited is 15 447 630 preference shares in this specific class
- The dividend paid by Investec Bank Limited is subject to South African Dividend Tax (Dividend Tax) of 15% (subject to any
available exemptions as legislated)
- The net dividend amounts to 372.87892 cents per preference share for shareholders liable to pay the Dividend Tax and
438.68108 cents per preference share for preference shareholders exempt from paying the dividend tax.
By order of the board
N van Wyk
Company Secretary
16 November 2016
Registered office Transfer secretaries
100 Grayston Drive Computershare Investor
Sandown Services (Pty) Ltd
Sandton 70 Marshall Street
2196 Johannesburg, 2001
Investec Bank Limited
(Registration number: 1969/004763/06)
Share code: INLP
ISIN: ZAE000048393
Directors Company secretary
F Titi (Chairman) N van Wyk
D M Lawrence^ (Deputy Chairman)
S Koseff^ (Group Chief Executive) Sponsor
B Kantor^ (Managing Director) Investec Bank Limited
R J Wainwright^* (Chief Executive)
S E Abrahams, Z B M Bassa
G R Burger^, D Friedland,
N A Samujh^**, K L Shuenyane,
B Tapnack^, P R S Thomas
^ Executive
* Appointed on 01 February 2016
** Appointed on 10 August 2016
www.investec.com
Date: 17/11/2016 09:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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