Investec Regulatory News (INVP)

About Investec

Investec is an international specialist bank and asset manager that provides a diverse range of financial products and services to a select client base in three principal markets - the UK and Europe, South Africa and Asia/Australia as well as certain other countries. The group was established in 1974 and currently has approximately 10 500 employees.

Investec focuses on delivering distinctive profitable solutions for its clients in three core areas of activity namely, Asset Management, Wealth & Investment and Specialist Banking.

·; Asset Management: A leading global asset manager with GBP121 billion in assets under management (as at 30 September 2019), well diversified by asset class and region.

·; Wealth & Investment Business: One of the leading UK and South African private client investment managers with over GBP56 billion in assets under management as at 30 September 2019.

·; Specialist Banking Business: Market-leading specialist corporate and institutional banking, investment and private banking activities in South Africa and the UK with GBP25 billion in core loans and advances and GBP32 billion in customer deposits as at 30 September 2019.

In July 2002 the Investec group implemented a dual listed company structure with listings on the London and Johannesburg Stock Exchanges. In September 2018, the board of directors of the Investec group announced the proposed demerger and separate listing of the Investec Asset Management business which remains subject to Investec shareholder and other customary approvals. The combined group's current market capitalisation is approximately GBP4.4 billion.

Investec plc and Investec Limited (combined results)

Reviewed combined consolidated financial results for the six months ended 30 September 2019

Business unit review

Asset Management

Totals and variance determined in £'000.

Asset Management adjusted operating profit increased by 6.3% to GBP97.3 million (2018: GBP91.5 million). Substantial net inflows of GBP3.2 billion, together with supportive markets, generated growth in total assets under management to GBP120.8 billion (31 March 2019: GBP111.4 billion). Flows were well spread across client regions and investment strategies. Net inflows and market and currency movements supported an increase in revenue. Operating costs increased above inflation primarily due to double rent costs relating to the move to the new London premises. This has resulted in the business maintaining its operating margin at 31.5% (2018: 31.4%).

The business continues to generate competitive long-term investment performance. The business strategy is unchanged, with the focus being on scaling existing strategies, continuing to grow our Advisor and Institutional client base and continuing to invest in growth initiatives.

Bank and Wealth - Specialist Banking

Totals and variance determined in £'000.

Southern Africa Specialist Banking

The South African business reported an increase in adjusted operating profit in Rands of 8.5%. Earnings were supported by growth in private client interest and fee income, low impairments and well-contained costs. This was partially offset by large translation gains on foreign currency equity investments in the prior period and lower associate income in the period under review. The cost to income ratio of 49.5% (2018: 50.5%) is within the medium-term target range of 49%-52%.

Net core loans increased 0.9% in the first half to R273.7 billion (31 March 2019: R271.2 billion), with growth in private client lending offset by net repayments in the corporate book. The annualised credit loss ratio amounted to 0.18% (2018: 0.30%), below its long-term average, reflecting resilient asset quality as well as recoveries in the current period.

The business continues to focus on capital optimisation and growth initiatives to improve its ROE from 12.6% (2018: 12.8%) to within its medium-term target range of 14%-16%. We have made good progress in implementing a number of our growth initiatives in the period, including the launch of our transactional business banking offering, expansion of our private client base through our Young Professionals strategy, and the further build-out of our digital private client investment management platform. In addition, we are seeing client traction in our Investec Life and Investec for Business propositions. Strategies to reduce the equity investment portfolio are underway and will be evolved, monitored and executed to ensure timing is optimal and value is maximised.

UK & Other Specialist Banking

The UK & Other business reported a decrease in adjusted operating profit of 18.9%. Earnings have been primarily impacted by lower trading income following gains in the prior period, mainly as a result of the restructure of subordinated debt. Net core loans grew 2.7% in the first half to GBP10.8 billion (31 March 2019: GBP10.5 billion). Our lending franchises have performed well, considering the prevailing macroeconomic environment. The Corporate Banking and Specialist International Lending franchises saw reasonable levels of origination and sell-down activity with good fee generation. This offset the slowdown in Investment Banking fees from persistent market uncertainty. The Private Banking business had good traction in target client acquisition, retail funding and mortgage book growth (up 12.1% since 31 March 2019). The annualised credit loss ratio amounted to 0.28% (2018: 0.41%), reflecting resilient credit performance across our diversified lending portfolios.

Operating costs reduced by GBP25.3 million (a 9.1% decrease), reflecting normalised premises charges and an increased focus on cost discipline in line with our strategic objectives. The cost to income ratio of 72.4% (2018: 71.9%) was impacted by lower revenues. We remain committed to bringing it below 65% by the 2022 financial year. We expect the continued growth of the Private Banking business together with growth initiatives in the Corporate and Investment Bank and further cost efficiencies to improve the ROE from 8.1% (2018: 9.3%) to within its medium-term target of 10%-13%.

Bank and Wealth - Wealth & Investment 

Totals and variance determined in £'000.

Overall assets under management in the first half increased by 2.3% to GBP56.4 billion (31 March 2019: GBP55.1 billion).

The South African business performed well against a tough backdrop, with adjusted operating profit up 6.6% in Rands. Revenue was supported by our offshore offering as clients continued to seek international investment opportunities. Costs were maintained at inflationary levels, with the cost to income ratio of 67.7% (2018: 68.2%) in line with our medium-term target of less than 70%.

The UK & Other business achieved positive net organic growth in assets under management, particularly in our core discretionary managed services, supporting an increase in operating income of 1.4%. This is despite challenging industry trading conditions in the UK, where clients have continued to exercise caution resulting in lower rates of growth in net new funds across the industry. We are making some discretionary technology investment and have absorbed higher regulatory levies, resulting in an increase in operating costs of 6.6%. Overall, the UK & Other businesses reported a 16.2% decrease in adjusted operating profit. In light of the operating environment, the need to continue to balance effective management of costs alongside investing for the future, is key. The business is committed to maintaining this balance and has put programmes in place to deliver on both objectives, thus ensuring a focus on improving the cost to income ratio of 81.2% (2018: 77.3%) to within its medium-term target of 73%-77%.

Group costs

Group costs decreased by 3.2% to GBP23.3 million (2018: GBP24.0 million). Management is committed to bringing these costs down further over time, with reductions of approximately GBP10 million expected by the end of the 2021 financial year.

Bank and Wealth - combined

Taken together, the adjusted operating profit of the combined Bank and Wealth business (including Group costs) decreased by 4.2% to GBP276.3 million (2018: GBP288.4 million). The businesses have performed well in challenging market conditions, with revenue predominantly impacted by the base effects of prior period gains relating to the restructure of subordinated debt in the UK and translation gains in South Africa. Costs have been well contained reducing 3.1% on the prior period. Growth remains a priority. We have grown the loan book and client base in the Private Banking business in both the UK and South Africa and have made good progress in implementing our business banking offerings. Collaborative initiatives across the business, including our digital private client investment management platform in South Africa and our newly launched intermediary offerings in both geographies, should further extend the client base. The Bank and Wealth business generated an ROE of 10.7% (2018: 11.7%), and a cost to income ratio of 66.9% (2018: 66.8%). As outlined in the preceding business unit reviews, the Bank and Wealth business remains fully committed to delivering its 2022 financial year targets of a 12%-16% ROE and a cost to income ratio of less than 63%.

Further information on key developments within each of the business units is provided in the Group Interim Report published on the group's website: http://www.investec.com.

Financial statement analysis

Total operating income

Total operating income before expected credit loss impairment charges decreased by 1.8% to GBP1,267.9 million (2018: GBP1,290.8 million).

Net interest income increased by 4.5% to GBP426.6 million (2018: GBP408.3 million), supported by private client activity and loan book growth.

Net fee and commission income increased by 1.3% to GBP695.1 million (2018: GBP686.3 million). Growth in annuity fees from the Asset Management and Wealth Management businesses were partly offset by lower Specialist Banking fees impacted by a challenging macroeconomic environment in both South Africa and the UK.

Investment income amounted to GBP56.9 million (2018: GBP64.7 million) reflecting lower gains from the investment portfolio.

Share of post taxation profit of associates of GBP17.8 million (2018: GBP20.7 million) reflects earnings in relation to the group's investment in the IEP Group.

Trading income arising from customer flow amounted to GBP62.8 million (2018: GBP65.1 million) reflecting reasonable activity levels given the macroeconomic backdrop.

Trading income from balance sheet management and other trading activities decreased significantly to GBP1.6 million (2018: GBP39.4 million). The decrease is largely as a result of translation gains on foreign currency equity investments in South Africa in the prior period as well as the prior period gain on the restructure of subordinated debt in the UK.

Expected credit loss (ECL) impairment charges

The total ECL impairment charges amounted to GBP31.0 million, in line with the prior period. The group's annualised credit loss ratio was 0.23% (2018: 0.34%), below its long-term average range. Since 31 March 2019 gross core loan Stage 3 assets have reduced by GBP18 million to GBP503.0 million. Net Stage 3 exposures as a percentage of net core loans subject to ECL was 1.4% (31 March 2019: 1.3%).

Operating costs

Operating costs decreased 1.0% to GBP833.5 million (2018: GBP841.8 million) driven by cost containment across the business and normalised premises costs. The cost to income ratio (net of non-controlling interests) was in line with the prior period at 67.3% (2018: 67.2%).

Taxation

The tax charge on adjusted operating profit was GBP62.4 million (2018: GBP62.6 million), resulting in an effective tax rate of 16.2% (2018: 15.8%).

Financial impact of group restructures and closure and rundown of the Hong Kong direct investments business

In pursuit of the group's objective to simplify, focus and grow the business, a number of strategic actions have been effected, namely; closure of the Click & Invest operations, sale of the Irish Wealth & Investment business, restructure of the Irish branch, sale of the UK Property Fund, and the closure and rundown of the Hong Kong direct investments business. These strategic actions, as well as costs incurred in relation to the proposed demerger of the Asset Management business, negatively impacted profit before taxation by GBP45.3 million (2018: GBP20.7 million). See Notes for detailed breakdown.

Profit attributable to non-controlling interests

Profit attributable to non-controlling interests mainly comprises:

·; GBP15.2 million (2018: GBP12.8 million) profit attributable to non-controlling interests in the Asset Management business.

·; GBP28.9 million (2018: GBP36.4 million) profit attributable to non-controlling interests in the Investec Property Fund.

Balance sheet analysis

Since 31 March 2019:

·; Shareholders equity increased by 2.4% to GBP4.4 billion mainly due to an increase in retained earnings.

·; Net asset value per share increased 3.3% to 448.3 pence and net tangible asset value per share (which excludes goodwill and intangible assets) increased 4.0% to 401.5 pence, primarily as a result of an increase in retained earnings.

·; The ROE decreased from 14.2% to 13.1%.

Liquidity and funding

As at 30 September 2019 the group held GBP13.0 billion in cash and near cash balances (GBP6.6 billion in Investec plc and R120.0 billion in Investec Limited) which amounted to 40.7% of customer deposits. Average cash balances increased in the UK largely driven by prefunding in relation to the restructure of the Irish branch. As a result of Brexit, deposit raising in our Irish business is no longer being undertaken and existing deposits are being unwound. The group continues to maintain a conservative liquidity and funding profile. Loans and advances to customers as a percentage of customer deposits amounted to 78.2% (31 March 2019: 78.4%). The group comfortably exceeds Basel liquidity requirements for the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR). Investec Bank Limited (solo basis) ended the period to 30 September 2019 with the three-month average of its LCR at 132.4% and an NSFR of 114.6%. Further detail with respect to the bank's LCR and NSFR in South Africa is provided on the website. For Investec plc and Investec Bank plc (solo basis) the LCR and NSFR are calculated using the relevant EU regulation, applying our own interpretations where required. The LCR reported to the PRA at 30 September 2019 was 309% for Investec plc and 329% for Investec Bank plc (solo basis). The internally calculated NSFR was 126% for Investec plc and 126% for Investec Bank plc (solo basis) at 30 September 2019. The reported NSFR and LCR may change over time with regulatory developments and guidance.

Capital adequacy and leverage ratios

The group maintained a sound capital position with a CET1 ratio of 10.7% for Investec plc (standardised approach) and 11.6% for Investec Limited (FIRB approach). Investec Limited adopted the FIRB approach effective 1 April 2019. Leverage ratios are robust and remain comfortably ahead of the group's target of 6%.

1The capital adequacy disclosures follow Investec's normal basis of presentation so as to show a consistent basis of calculation across the jurisdictions in which the group operates. For Investec plc this does not include the deduction of foreseeable charges and dividends when calculating CET1 capital as required under the Capital Requirements Regulation and European Banking Authority technical standards. The impact of this deduction totalling GBP37 million for Investec plc (31 March 2019: GBP63 million) would lower the CET1 ratio by 24bps (31 March 2019: 41bps).

2Investec Limited's capital information includes unappropriated profits. If unappropriated profits are excluded from the capital information, Investec Limited's CET1 ratio would be 49bps (31 March 2019: 27bps) lower.

3The CET 1 fully loaded ratio and the fully loaded leverage ratio assume full adoption of IFRS 9 and full adoption of all CRD IV rules or South African Prudential Authority regulations, as applicable in the relevant jurisdictions. As a result of the adoption of IFRS 9 Investec plc elected to designate its subordinated fixed rate medium-term notes due in 2022 at fair value. By the time of full adoption of IFRS 9 in 2023, these subordinated liabilities will have reached final maturity and will have been redeemed at par value. The remaining interest rate portion of the fair value adjustment at 30 September 2019 of GBP16 million (31 March 2019: GBP18 million) (post-taxation), has therefore been excluded from the fully loaded ratios as it will be released into profit and loss over the remaining life of the instrument.

On behalf of the boards of Investec plc and Investec Limited

20 November 2019

Notes to the commentary section above

·; Presentation of financial information

Investec operates under a Dual Listed Companies (DLC) structure with primary listings of Investec plc on the London Stock Exchange and Investec Limited on the JSE Limited.

In terms of the contracts constituting the DLC structure, Investec plc and Investec Limited effectively form a single economic enterprise in which the economic and voting rights of ordinary shareholders of the companies are maintained in equilibrium relative to each other. The directors of the two companies consider that for financial reporting purposes, the fairest presentation is achieved by combining the results and financial position of both companies.

Accordingly, the year-end results for Investec plc and Investec Limited present the results and financial position of the combined DLC group under International Financial Reporting Standards (IFRS), denominated in Pounds Sterling. In the commentary above, all references to Investec or the group relate to the combined DLC group comprising Investec plc and Investec Limited.

Unless the context indicates otherwise, all comparatives included in the commentary above relate to the six months ended 30 September 2018.

Amounts represented on a neutral currency basis for income statement items assume that the relevant average exchange rates for the six months to 30 September 2019 remain the same as those in the prior period. Amounts represented on a neutral currency basis for balance sheet items assume that the relevant closing exchange rates at 30 September 2019 remain the same as those at 31 March 2019.

·; Foreign currency impact

The group's reporting currency is Pounds Sterling. Certain of the group's operations are conducted by entities outside the UK. The results of operations and the financial position of the individual companies are reported in the local currencies in which they are domiciled, including Rands, Australian Dollars, Euros and US Dollars. These results are then translated into Pounds Sterling at the applicable foreign currency exchange rates for inclusion in the group's combined consolidated financial statements. In the case of the income statement, the weighted average rate for the relevant period is applied and, in the case of the balance sheet, the relevant closing rate is used.

The following table sets out the movements in certain relevant exchange rates against Pounds Sterling over the period:

Exchange rates between local currencies and Pounds Sterling have fluctuated over the year. The most significant impact arises from the volatility of the Rand. The average exchange rate over the period has depreciated by 2.9% compared to the six months ended 30 September 2018 and the closing rate has appreciated by 0.6% since 31 March 2019.

·; Accounting policies, significant judgements and disclosures

These reviewed condensed combined consolidated financial results have been prepared in terms of the recognition and measurement criteria of International Financial Reporting Standards, and the presentation and disclosure requirements of IAS 34, 'Interim Financial Reporting'.

The accounting policies applied in the preparation of the results for the for the period to 30 September 2019 are consistent with those adopted in the financial statements for the year ended 31 March 2019 except as noted below.

On 1 April 2019 the group adopted IFRS 16 'Leases' which replaced IAS 17 'Leases'. The group's accounting as a lessor under IFRS 16 is substantially unchanged from its approach under IAS 17, apart from certain subleases which are now classified as finance lease receivables. For lessees, IFRS 16 removes the distinction between finance and operating leases and introduces a single lease accounting model that will, with some limited exemptions, apply to all leases and result in bringing them on balance sheet. The impact on adoption was the recognition of Right of Use assets of GBP233 million, finance lease receivables of GBP330 million relating to certain subleases, and lease liabilities of GBP597 million, with no impact on retained income.

The group remains committed to its objective to simplify and focus the business in pursuit of disciplined growth over the long term. In this regard the following strategic actions have been effected: Proposed demerger of the asset management business, closure of the Click & Invest operations which formed part of the UK wealth management business, sale of the Irish Wealth & Investment business, restructure of the Irish branch, sale of the UK Property Fund, closure and rundown of the Hong Kong direct investments business.

The group has elected to separately disclose the financial impact of these strategic actions as the financial impact from group restructures and the rundown of portfolios where operations have ceased. Due to the significant change in the nature of the entity's operations, we consider it appropriate to present the information on a like-for-like basis, resulting in reclassifications for related items which were previously included in operating income and operating costs in the income statement.

In addition, from 1 April 2019, as a result of amendments to IAS 12 Income Taxes, tax relief on payments in relation to Other Additional Tier 1 securities has been recognised as a reduction in taxation on operating profit before goodwill, acquired intangibles and strategic actions, whereas it was previously recorded directly in retained income. Prior period comparatives have been restated, increasing the profit after taxation for the six months to 30 September 2018 by £1.6 million and for the year to 31 March 2019 by £3.2 million.

These reclassifications in the income statement for the prior reported periods and the consequential restated comparatives have been shown in the Restatements table in this announcement. The net effect on restated earnings attributable to shareholders relates solely to the tax previously included directly in equity which is now being reported in the income statement. The net effect on restated adjusted earnings per share relates to:

·; the inclusion of the tax relief previously recorded directly in equity which is now being recognised in the income statement; and

·; the exclusion of the financial impact of the strategic actions, which were included in adjusted operating profit in prior periods.

There has been no impact to Earnings per share or Headline earnings per share.

The group's planned demerger of Investec Asset Management from the Investec group leads to significant judgement on the presentation and disclosure implications for the current period. The main consideration is whether the current progress on the demerger requires the Investec Asset Management business to be classified as a disposal group and discontinued operation. The group has considered the requirements of IFRS 5 'Non-current Assets Held For Sale and Discontinued Operations', where the key tests for this classification are that a business must be available for immediate sale in its present condition and that the transaction should be highly probable. The group considers that the former test is met as the Investec Asset Management business functions in a relatively standalone way with only those shared services which would be normal in a demerger or similar transaction. However, given that the transaction is still subject to shareholder and other customary approvals, and that at the reporting date there was not sufficient certainty of the outcome of these approval processes, we were unable to conclude that this transaction is highly probable. The group's conclusion is therefore that the demerger cannot be classified as a disposal group and discontinued operation at 30 September 2019.

The financial results have been prepared under the supervision of Nishlan Samujh, the Group Finance Director. The financial statements for the six months to 30 September 2019 are available on the group's website: http://www.investec.com.

·; Proviso

§ Please note that matters discussed in this announcement may contain forward looking statements which are subject to various risks and uncertainties and other factors, including, but not limited to:

- changes in the political and/or economic environment that would materially affect the Investec group

- changes in legislation or regulation impacting the Investec group's operations or its accounting policies

- changes in business conditions that will have a significant impact on the Investec group's operations

- changes in exchange rates and/or tax rates from the prevailing rates outlined in this announcement

- changes in the structure of the markets, client demand or the competitive environment.

§ A number of these factors are beyond the group's control.

§ These factors may cause the group's actual future results, performance or achievements in the markets in which it operates to differ from those expressed or implied.

§ Any forward looking statements made are based on the knowledge of the group at 20 November 2019.

§ The information in the announcement for the six months ended 30 September 2019, which was approved by the board of directors on 20 November 2019, does not constitute statutory accounts as defined in Section 435 of the UK Companies Act 2006. The 31 March 2019 financial statements were filed with the registrar and were unqualified with the audit report containing no statements in respect of sections 498(2) or 498(3) of the UK Companies Act.

§ This announcement is available on the group's website: http://www.investec.com.

·; Definitions

§ Adjusted operating profit refers to operating profit before goodwill, acquired intangibles and strategic actions and after adjusting for earnings attributable to other non-controlling interests. Trends within the divisional sections relate to adjusted operating profit before group costs. Adjusted operating profit is considered an important measure by Investec of the profit realised by the group in the ordinary course of operations. In addition, it forms the basis of the dividend pay-out policy. Non-IFRS measures such as adjusted operating profit are considered as pro forma financial information as per the JSE Listing Requirements. The pro forma financial information is the responsibility of the group's Board of Directors.

§ Adjusted earnings attributable to shareholders is defined as earnings attributable to shareholders before goodwill, acquired intangibles and strategic actions and after the deduction of earnings attributable to perpetual preference shareholders and Other Additional Tier 1 security holders.

§ Adjusted basic earnings per share is calculated as adjusted earnings attributable to shareholders divided by the weighted average number of ordinary shares in issue during the year.

§ Dividend cover is calculated as adjusted earnings per share divided by the dividend per share.

§ Annuity income is defined as net interest income plus net annuity fees and commissions expressed as a percentage of total operating income.

§ The annualised credit loss ratio is calculated as expected credit loss (ECL) impairment charges on gross core loans and advances as a percentage of average gross core loans and advances subject to ECL.

§ The cost to income ratio is calculated as: operating costs divided by operating income (net of depreciation on operating leased assets and net of operating profits or losses attributable to other non-controlling interests).

§ Annualised return on average ordinary shareholders' equity (ROE) is calculated as annualised adjusted earnings attributable to ordinary shareholders divided by average ordinary shareholders' equity.

§ Core loans and advances is defined as net loans and advances to customers plus net own originated securitised assets.

§ NCI is non-controlling interests.

Financial assistance

Shareholders are referred to Special Resolution number 3, which was approved at the annual general meeting held on 8 August 2019, relating to the provision of direct or indirect financial assistance in terms of Section 45 of the South African Companies Act, No 71 of 2008 to related or inter-related companies. Shareholders are hereby notified that in terms of S45(5)(a) of the South African Companies Act, the boards of directors of Investec Limited and Investec Bank Limited provided such financial assistance during the period 1 April 2019 to 30 September 2019 to various group subsidiaries.

Johannesburg and London

Sponsor: Investec Bank Limited

Condensed combined consolidated income statement

Combined consolidated statement of total comprehensive income

Combined consolidated balance sheet

Condensed consolidated statement of changes in equity

Condensed combined consolidated cash flow statement

Cash and cash equivalents is defined as including; cash and balances at central banks, on demand loans and advances to banks and cash equivalent loans and advances to customers (all of which have a maturity profile of less than three months).

Combined consolidated segmental analysis

Net fee and commission income

Included in Specialist Banking corporate and institutional and advisory services is net fee income of £36.2 million (2018: £37.5 million) for operating lease income which is out of the scope of IFRS 15 - Revenue from contracts with customers.

RESTATEMENTS

The group remains committed to its objective to simplify and focus the business in pursuit of disciplined growth over the long-term.

In this regard the following strategic actions have been effected:

- Proposed demerger of the asset management business

- Closure of Click & Invest which formed part of the UK wealth management business

- Sale of the Irish Wealth & Investment business

- Restructure of the Irish branch

- Sale of UK Property Fund

- Closure and rundown of the Hong Kong direct investments business.

We have elected to separately disclose the financial impact of these strategic actions as the financial impact from group restructures and the rundown of portfolios where operations have ceased. Due to the significant change in the nature of the entity's operations, we consider it appropriate to present the information on a like-for-like basis, resulting in reclassifications for related items which were previously included in operating income and operating costs in the income statement.

In addition, from 1 April 2019, as a result of amendments to IAS 12 Income Taxes, tax relief on payments in relation to Other Additional Tier 1 securities has been recognised as a reduction in taxation on operating profit before goodwill, acquired intangibles and strategic actions, whereas it was previously recorded directly in retained income. Prior period comparatives have been restated, increasing the profit after taxation for the six months to 30 September 2018 by £1.6 million and for the year to 31 March 2019 by £3.2 million.

These reclassifications in the income statement for the prior reported periods and the consequential restated comparatives have been shown in the Restatements table.

The net effect on restated earnings attributable to shareholders relates solely to the tax previously included directly in equity which is now being reported in the income statement.

The net effect on restated adjusted earnings per share relates to:

- the inclusion of the tax relief previously recorded directly in equity which is now being recognised in the income statement; and

- the exclusion of the financial impact of the strategic actions which were included in adjusted operating profit in prior periods.

There has been no impact to Earnings per share or Headline earnings per share.

Restatements table

Financial impact of strategic actions

Analysis of financial assets and liabilities by category of financial instruments

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)

Transfers between level 1 and level 2

During the current period, there were no transfers between level 1 and level 2.

Level 2 financial assets and financial liabilities

The following table sets out the group's principal valuation techniques as at 30 September 2019 used in determining the fair value of its financial assets and financial liabilities that are classified within level 2 of the fair value hierarchy.

The following table is a reconciliation of the opening balances to the closing balances for fair value measurements in level 3 of the fair value hierarchy:

The group transfers between levels within the fair value hierarchy when the observability of inputs change or if the valuation methods change. For the six months to 30 September 2019, there were transfers of £3.8 million from level 3 assets into level 1 where an equity position became listed in the period. There were transfers from level 2 into level 3 of £1.8 million assets due to inputs to the model becoming unobservable in the market.

The following table is a reconciliation of the opening balances to the closing balances for fair value measurements in level 3 of the fair value hierarchy:

The following table quantifies the gains or (losses) included in the income statement and other comprehensive income recognised on level 3 financial instruments: