Wrap Text
Reviewed preliminary condensed consolidated
financial results for the year ended 31 March 2017
Investec Bank Limited
Incorporated in the Republic of South Africa
Registration number: 1969/004763/06
Share code: INLP
ISIN: ZAE000048393
Reviewed preliminary
condensed consolidated
financial results for the year
ended 31 March 2017
Consolidated income statement
For the year to 31 March Reviewed Audited
R'million 2017 2016
Interest income 29 716 23 515
Interest expense (22 297) (16 803)
Net interest income 7 419 6 712
Fee and commission income 2 235 1 945
Fee and commission expense (236) (207)
Investment income 472 1 356
Share of post taxation operating profit/(loss) of associates 306 (11)*
Trading income arising from
- customer flow 486 293
- balance sheet management and other trading activities 70 298
Other operating income 2 2*
Total operating income before impairment losses on loans and advances 10 754 10 388
Impairment losses on loans and advances (657) (517)
Operating income 10 097 9 871
Operating costs (5 887) (5 537)
Operating profit before acquired intangibles 4 210 4 334
Amortisation of acquired intangibles (51) (39)
Profit before taxation 4 159 4 295
Taxation on operating profit before acquired intangibles (944) (831)
Taxation on acquired intangibles 14 11
Profit after taxation 3 229 3 475
* Share of post taxation operating profit/(loss) of associates has been disclosed separately from other operating income in the prior year.
Calculation of headline earnings
For the year to 31 March Reviewed Audited
R'million 2017 2016
Profit after taxation 3 229 3 475
Preference dividends paid (131) (120)
Earnings attributable to ordinary shareholders 3 098 3 355
Headline adjustments, net of taxation* (29) 94
Gain on realisation of available-for-sale assets recycled through the income statement (61) (13)
Loss on non-current assets held for sale 32 107
Headline earnings attributable to ordinary shareholders 3 069 3 449
* These amounts are net of taxation of R14.6 million [2016: (R19.3 million)].
Consolidated statement of comprehensive income
For the year to 31 March Reviewed Audited
R'million 2017 2016
Profit after taxation 3 229 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** 943 (699)
Fair value movements on available-for-sale assets taken directly to other comprehensive income** 701 (717)
Gain on realisation of available-for-sale assets recycled through the income statement** (61) (13)
Foreign currency adjustments on translating foreign operations (479) 1 040
Total comprehensive income 4 333 3 086
Total comprehensive income attributable to ordinary shareholders 4 202 2 966
Total comprehensive income attributable to perpetual preference shareholders 131 120
Total comprehensive income 4 333 3 086
** These amounts are net of taxation of (R381.8 million) (2016: R515.3 million).
Condensed consolidated statement of changes in equity
For the year to 31 March Reviewed Audited
R'million 2017 2016
Balance at the beginning of the year 31 865 28 899
Total comprehensive income 4 333 3 086
Dividends paid to ordinary shareholders (900) -
Dividends paid to perpetual preference shareholders (131) (120)
Other equity movements (2) -
Balance at the end of the year 35 165 31 865
Condensed consolidated cash flow statement
For the year to 31 March Reviewed Audited
R'million 2017 2016
Cash inflows from operations 4 210 3 190
Increase in operating assets (10 324) (66 888)
Increase in operating liabilities 9 335 66 167
Net cash inflow from operating activities 3 221 2 469
Net cash outflow from investing activities (244) (499)
Net cash inflow/(outflow) from financing activities*** 1 320 (43)
Effects of exchange rate changes on cash and cash equivalents (756) 773
Net increase in cash and cash equivalents 3 541 2 700
Cash and cash equivalents at the beginning of the year 26 483 23 783
Cash and cash equivalents at the end of the year 30 024 26 483
*** The net cash inflow from financing activities of R1.3 billion was as a result of a net inflow of subdebt of R2.3 billion and dividends paid of R1.0 billion.
Cash and cash equivalents is 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
At 31 March Reviewed Audited
R'million 2017 2016
Assets
Cash and balances at central banks 8 353 7 801
Loans and advances to banks 31 937 26 779
Non-sovereign and non-bank cash placements 8 993 9 858
Reverse repurchase agreements and cash collateral on securities borrowed 26 627 38 912
Sovereign debt securities 47 822 41 325
Bank debt securities 7 758 13 968
Other debt securities 11 945 12 761
Derivative financial instruments 9 856 15 843
Securities arising from trading activities 653 992
Investment portfolio 7 204 6 360
Loans and advances to customers 225 669 207 272
Own originated loans and advances to customers securitised 7 776 7 967
Other loans and advances 310 367
Other securitised assets 100 115
Interests in associated undertakings 5 514 5 145
Deferred taxation assets 388 116
Other assets 5 266 3 656
Property and equipment 274 236
Investment properties 1 1
Goodwill 171 171
Intangible assets 508 524
Loans to group companies 18 106 11 811^
Non-current assets held for sale 456 -
425 687 411 980
Liabilities
Deposits by banks 32 378 37 242
Derivative financial instruments 12 556 13 424
Other trading liabilities 1 667 1 405
Repurchase agreements and cash collateral on securities lent 7 825 16 916
Customer accounts (deposits) 303 397 279 736
Debt securities in issue 5 823 7 665
Liabilities arising on securitisation of own originated loans and advances 673 809
Current taxation liabilities 977 671
Deferred taxation liabilities 109 122
Other liabilities 5 995 5 042
Loans from group companies 5 942 6 351^
377 342 369 383
Subordinated liabilities 13 180 10 732
390 522 380 115
Equity
Ordinary share capital 32 32
Share premium 14 885 14 885
Other reserves 1 662 566
Retained income 18 586 16 382
Total equity 35 165 31 865
Total liabilities and equity 425 687 411 980
^ Restated, refer to 'Restatements' in the commentary below.
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 LCR was phased in at 60% on 1 January 2015, and will increase
by 10% each year to 100% on 1 January 2019.
In accordance with the provisions of section 6(6) of the 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.
The following table sets out the LCR for the group and bank:
Investec Bank Limited Investec Bank Limited
Solo - Consolidated Group -
R'millions Total weighted value Total weighted value
High quality liquid assets (HQLA) 70 015 70 083
Net cash outflows 54 481 49 128
Actual LCR (%) 130.0 144.0
Required LCR (%) 80.0 80.0
The values in the table are calculated as the simple average of daily observations over the period 01 January 2017 to 31 March 2017 for Investec Bank Limited
(IBL) bank solo. 63 business day observations were used. Investec Bank Limited consolidated group use daily values for IBL bank solo, while those for other
group entities use the average of January, February, March 2017 month-end values.
Commentary
These reviewed year-end 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 a decrease
in headline earnings attributable to ordinary shareholders of 11.0% to
R3,069 million (2016: R3,449 million). Operating fundamentals were
supported by sound levels of corporate and private client activity. Results
were impacted by the change in accounting treatment from fair value to
equity accounting for the assets transferred to Investec Equity Partners in
the prior year (refer to additional information). Excluding the impact of this
transaction operating profit was considerably ahead of the prior period.
The balance sheet remains sound with a capital adequacy ratio of 15.4%
(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 https://protect-za.mimecast.com/s/2eamB8IbEYmaH3.
Financial review
Unless the context indicates otherwise, all comparatives referred to in the
financial review relate to the year ended 31 March 2016.
Salient operational features for the year under review include:
Total operating income before impairment losses on loans and advances
increased by 3.5% to R10,754 million (2016: R10,388 million). The
components of operating income are analysed further below:
- Net interest income increased 10.5% to R7,419 million (2016: R6,712 million)
driven by sound levels of lending activity.
- Net fee and commission income increased 15.0% to R1,999 million
(2016: R1,738 million) as a result of a sound performance from the private
banking, corporate lending, corporate treasury and import solutions
businesses.
- Investment income decreased significantly to R472 million
(2016: R1,356 million) impacted by the change in accounting treatment from
fair value to equity accounting for the assets transferred to Investec
Equity Partners.
- Share of post-taxation operating profit of associates of R306 million
in the current period largely reflects earnings in relation to the group's
investment in Investec Equity Partners.
- Total trading income decreased 5.9% to R556 million (2016: R591 million)
largely due to foreign currency translation impacts, while corporate
customer flow trading income increased supported by client activity levels
and market volatility.
Impairments on loans and advances increased from R517 million to R657 million,
with the credit loss ratio on average core loans and advances amounting to
0.29% (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 amounts to 1.03%
(2016: 1.06%). The ratio of collateral to default loans (net of impairments)
remains satisfactory at 1.81 times (2016: 1.61 times).
The ratio of total operating costs to total operating income amounts to
54.7% (2016: 53.3%). Total operating expenses at R5,887 million were 6.3%
higher than the prior year (2016: R5,537 million) reflecting higher headcount
and IT infrastructure costs across the business to support increased activity
and growth initiatives; partially offset by costs incurred with respect to the
Investec Equity Partners transaction not repeated in the current year.
As a result of the foregoing factors operating profit before acquired
intangibles decreased by 2.9% to R4,210 million (2016: R4,334 million).
Additional information - Investec Equity Partners
In South Africa an investment vehicle, Investec Equity Partners, 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
R5.8 billion to Investec Equity Partners. In exchange Investec received
R0.7 billion in cash and 45% of the shares in Investec Equity Partners
(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
These condensed consolidated financial statements have been prepared
in accordance with International Financial Reporting Standard, IAS 34,
Interim Financial Reporting, the SAICA Financial Reporting Guide as issued
by the Accounting Practices Committee, Financial Pronouncements as
issued by Financial Reporting Standards Council, the Companies Act and
JSE Listing Requirements.
The accounting policies applied in the preparation of the results for the year
ended 31 March 2017 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 year ended 31 March 2017 will be posted to stakeholders
on 30 June 2017. These annual financial statements will be available on the
group's website at the same date.
Restatements
The group had erroneously offset an amount of loans payable to group
companies against loans receivable from group companies in the line item
"Loans to group companies" included in assets. The presentation has been
amended in the current reporting period. To assist comparability, comparative
financial information has been restated. In the prior years' annual financial
statements, disclosure of loans to and from group companies was provided
in the "Loans to group companies" note of the annual financial statements.
The restatement to balance sheet line items are noted below:
At 31 March
R'millions 2016 2015
Restated
Loans to group companies 11 811 10 754
Loans from group companies 6 351 7 486
Total assets 411 980 340 192
Total liabilities 380 115 311 293
As previously reported
Loans to group companies 5 460 3 268
Loans from group companies n/a n/a
Total assets 405 629 332 706
Total liabilities 373 764 303 807
Change to previously reported
Loans to group companies 6 351 7 486
Loans from group companies 6 351 7 486
Total assets 6 351 7 486
Total liabilities 6 351 7 486
The above changes had no impact on the income statement, net assets or
the net cash flows.
On behalf of the Board of Investec Bank Limited
Fani Titi Richard Wainwright
Chairman Chief Executive Officer
17 May 2017
Review conclusion
These preliminary condensed consolidated financial statements for the year
ended 31 March 2017 have been reviewed by KPMG Inc. and Ernst & Young
Inc., who expressed an unmodified review conclusion. A copy of the auditor's
review report is available for inspection at the company's registered office.
Analysis of assets and liabilities by measurement basis
Total
Total instruments
At 31 March 2017 instruments at amortised Non-financial
R'million at fair value cost instruments Total
Group
2017
Assets
Cash and balances at central banks - 8 353 - 8 353
Loans and advances to banks - 31 937 - 31 937
Non-sovereign and non-bank cash placements - 8 993 - 8 993
Reverse repurchase agreements and cash collateral on securities borrowed 15 429 11 198 - 26 627
Sovereign debt securities 44 491 3 331 - 47 822
Bank debt securities 5 498 2 260 - 7 758
Other debt securities 9 901 2 044 - 11 945
Derivative financial instruments 9 856 - - 9 856
Securities arising from trading activities 653 - - 653
Investment portfolio 7 204 - - 7 204
Loans and advances to customers 14 011 211 658 - 225 669
Own originated loans and advances to customers securitised - 7 776 - 7 776
Other loans and advances - 310 - 310
Other securitised assets - 100 - 100
Interests in associated undertakings - - 5 514 5 514
Deferred taxation assets - - 388 388
Other assets 730 2 793 1 743 5 266
Property and equipment - - 274 274
Investment properties - - 1 1
Goodwill - - 171 171
Intangible assets - - 508 508
Loans to group companies 78 18 028 - 18 106
Non-current assets held for sale 456 - - 456
108 307 308 781 8 599 425 687
Liabilities
Deposits by banks - 32 378 - 32 378
Derivative financial instruments 12 556 - - 12 556
Other trading liabilities 1 667 - - 1 667
Repurchase agreements and cash collateral on securities lent 1 018 6 807 - 7 825
Customer accounts (deposits) 34 316 269 081 - 303 397
Debt securities in issue 3 707 2 116 - 5 823
Liabilities arising on securitisation of own originated loans and advances - 673 - 673
Current taxation liabilities - - 977 977
Deferred taxation liabilities - - 109 109
Other liabilities 735 1 998 3 262 5 995
Loans from group companies - 5 942 - 5 942
53 999 318 995 4 348 377 342
Subordinated liabilities - 13 180 - 13 180
53 999 332 175 4 348 390 522
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 (i.e. as prices) or indirectly
(i.e. derived from prices)
Level 3 - inputs for the asset or liability that are not based on observable market data (unobservable inputs)
Fair value category
Total
At 31 March 2017 instruments
R'million at fair value Level 1 Level 2 Level 3
Assets
Reverse repurchase agreements and cash collateral on securities borrowed 15 429 - 15 429 -
Sovereign debt securities 44 491 44 491 - -
Bank debt securities 5 498 4 108 1 390 -
Other debt securities 9 901 6 436 3 465 -
Derivative financial instruments 9 856 - 9 846 10
Securities arising from trading activities 653 578 75 -
Investment portfolio 7 204 3 876 499 2 829
Loans and advances to customers 14 011 - 14 011 -
Loans to group companies 78 - 78 -
Other assets 730 730 - -
Non-current assets held for sale 456 - - 456
108 307 60 219 44 793 3 295
Liabilities
Derivative financial instruments 12 556 - 12 556 -
Other trading liabilities 1 667 350 1 317 -
Repurchase agreements and cash collateral on securities lent 1 018 - 1 018 -
Customer accounts (deposits) 34 316 - 34 316 -
Debt securities in issue 3 707 - 3 707 -
Other liabilities 735 - 735 -
53 999 350 53 649 -
Net financial assets/(liabilities) at fair value 54 308 59 869 (8 856) 3 295
Transfers between level 1 and level 2
There were no transfers between level 1 and level 2 in the current year.
Level 3 instruments
The following table shows a reconciliation of the opening balances to the closing balances for level 3 financial instruments. All instruments are at fair value
through profit or loss.
R'million 2017
Balance at 1 April 2016 2 580
Total losses recognised in the income statement (65)
Purchases 1 226
Sales (144)
Transfers into level 3 4
Transfers out of level 3 (298)
Foreign exchange adjustments (8)
Balance at 31 March 2017 3 295
During the year a level 3 investment of R298 million has been transferred to level 2 due to the nature of the asset changing, resulting in a change in valuation
method.
The following table quantifies the gains/(losses) included in the income statement recognised on level 3 financial instruments:
For the year to 31 March 2017
R'million Total Realised Unrealised
Total gains/(losses) recognised in the income statement for the year
Investment (loss)/income (65) 9 (74)
(65) 9 (74)
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
statement
Range which
Significant unobservable
Level 3 unobservable input Favourable Unfavourable
balance Valuation input has been changes changes
At 31 March 2017 sheet value method changed changed R'million R'million
Assets
Comparable
Derivative financial instruments 10 sales Property value (10)%/10% 1 (1)
Investment portfolio 2 829 623 (608)
Price
earnings EBITDA * 335 (279)
Precious and
Discounted industrial
cash flow metals prices (10)%/10% 231 (264)
Other Various ** 57 (65)
Price earnings
Non-current assets held for sale 456 Price earnings multiple (10)%/10% 65 (58)
Total 3 295 689 (667)
* The EBITDA has been stressed on an investment-by-investment basis in order to obtain favourable and unfavourable valuations.
** The valuation sensitivity for certain equity investments has been assessed by adjusting various inputs such as expected cash flows,
discount rates, earnings multiples rather than a single input. It is deemed appropriate to reflect the outcome on a portfolio basis
for the purpose 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 is a principal input 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.
EBITDA
The company's earnings before interest, taxes, depreciation and amortisation. This is the main input into a price earnings multiple valuation method.
Precious and industrial metals
The price of precious and industrial metals is a key driver of future cash flows on these 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 year in measuring financial instruments categorised as
level 2 in the fair value hierarchy:
Valuation basis/techniques Main assumptions
Assets
Discounted cash flow model Yield curve
Reverse repurchase agreements and cash collateral on securities borrowed Black-Scholes Volatilities
Bank debt securities Discounted cash flow model Yield curve
Other debt securities Discounted cash flow model Yield curve
Discounted cash flow model Yield curve
Derivative financial instruments Black-Scholes Volatilities
Securities arising from trading activities Adjusted quoted price Liquidity adjustment
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
Discounted cash flow model Yield curve
Derivative financial instruments 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 31 March 2017 Carrying
R'million amount Fair value
2017
Assets
Cash and balances at central banks 8 353 8 353
Loans and advances to banks 31 937 31 937
Non-sovereign and non-bank cash placements 8 993 8 993
Reverse repurchase agreements and cash collateral on securities borrowed 11 198 11 199
Sovereign debt securities 3 331 3 248
Bank debt securities 2 260 2 301
Other debt securities 2 044 2 054
Loans and advances to customers 211 658 211 777
Own originated loans and advances to customers securitised 7 776 7 776
Other loans and advances 310 310
Other securitised assets 100 100
Other assets 2 793 2 793
Loans to group companies 18 028 18 028
308 781 308 869
Liabilities
Deposits by banks 32 378 32 736
Repurchase agreements and cash collateral on securities lent 6 807 6 843
Customer accounts (deposits) 269 081 269 901
Debt securities in issue 2 116 2 119
Liabilities arising on securitisation of own originated loans and advances 673 673
Other liabilities 1 998 2 001
Loans from group companies 5 942 5 942
Subordinated liabilities 13 180 13 917
332 175 334 132
Investec Bank Limited
Incorporated in the Republic of South Africa
Registration number: 1969/004763/06
Share code: INLP
ISIN: ZAE000048393
Preference share dividend announcement
Non-redeemable non-cumulative non-participating preference shares
("preference shares")
Declaration of dividend number 28
Notice is hereby given that preference dividend number 28 has been
declared by the Board from income reserves for the period 01 October 2016
to 31 March 2017 amounting to a gross preference dividend of 436.28392
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, 09 June 2017.
The relevant dates for the payment of dividend number 28 are as follows:
Last day to trade cum-dividend Tuesday, 06 June 2017
Shares commence trading ex-dividend Wednesday, 07 June 2017
Record date Friday, 09 June 2017
Payment date Monday, 19 June 2017
Share certificates may not be dematerialised or rematerialised between
Wednesday, 07 June 2017 and Friday, 09 June 2017, 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 20% (subject to any available exemptions
as legislated)
- The net dividend amounts to 349.02714 cents per preference share for
shareholders liable to pay the Dividend Tax and 436.28392 cents per
preference share for preference shareholders exempt from paying the
Dividend Tax.
By order of the board
N van Wyk
Company Secretary
17 May 2017
Investec Bank Limited
(Registration number 1969/004763/06)
Share code: INLP ISIN: ZAE000048393
Directors:
F Titi (Chairman)
DM Lawrence (Deputy Chairman)
S Koseff^ (Group Chief Executive)
B Kantor^ (Group Managing Director)
RJ Wainwright^ (Chief Executive Officer)
GR Burger^, NA Samujh^*
SE Abrahams, ZBM Bassa
D Friedland, KL Shuenyane
B Tapnack^, PRS Thomas
^ Executive
* Appointed on 10 August 2016
Registered office
100 Grayston Drive
Sandown, Sandton, 2196
Transfer secretaries
Computershare Investor Services (Pty) Ltd
Rosebank Towers, 15 Biermann Avenue,
Rosebank, 2196
Company Secretary:
N van Wyk
Sponsor: Investec Bank Limited
Date: 18/05/2017 07:55:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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