interim statement during the second half of 2015 - nine-month results

2015Interim Statement – Nine-Month Results

DVB Bank Group | Interim Management Statement – Nine-Month Results 2015

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recognised as a result of a final arbitration ruling issued by the London Court of International Arbitration with regard to DVB’s consolidated subsidiary Dalian Deepwater Developer Ltd.

• Full-year charges of €14.9 million needed to be recognised in income already in the first half of the year, for the first time – comprising estimated bank levy charges of €10.3 million as well as €4.6 million in expenses for the Deposit Guarantee Scheme of the National Association of German Co-operative Banks (BVR).

The individual items developed as follows:

Net interest income decreased by 6.7%, from €162.5 million to €151.6 million. Thanks to the high volume of new Transport Finance business, as mentioned above, interest income rose by 17.6%, from €654.4 million to €769.6 million. Interest expenses rose by 25.6%, from €491.9 million to €618.0 million. The latter item includes rising funding costs as well as risk costs for ships held by the Bank within the scope of restructuring measures.

Allowance for credit losses amounted to €62.7 million (previous year: €28.5 million). Specifically, new allowance recognised for credit losses totalled €106.3 million, of which €75.7 million was accounted for by Shipping Finance, due to the persistently difficult environment in individual subsegments of international shipping. Conversely, allowance for credit losses of €48.5 million was reversed (of which €31.0 million in Shipping Finance). Net interest income after allowance for credit losses of €88.9 million was lower than the previous year’s figure of €134.0 million.

Total allowance for credit losses (comprising specific allowance for credit losses, portfolio-based allowances for credit losses, and provisions) rose to €244.8 million, up 11.8% from year-end 2014 (€219.0 million).

DVB Bank publishes nine-month results for 2015 and forecasts positive low- to mid-double-digit million euro consolidated net income before taxes 2015

DVB generated consolidated net income before taxes of €59.8 million (previous year: €72.6 million) during the first nine months of 2015, providing financing solutions and advisory services to its clients in the international transport sector.

Against the background of the overall situation on global transport finance markets, and given the macroeconomic and geopolitical environment, DVB assesses Group performance for the first nine months of 2015 overall satisfactory. DVB's nine-month results were largely shaped by the following factors:

• On a positive note, DVB was able to originate new international Transport Finance business at attractive terms, in spite of persistent, intense competition amongst banks on the financ-ing markets. The Bank’s new business in Shipping Finance, Aviation Finance, Offshore Finance and Land Transport Finance during the first nine months of 2015 comprised 137 trans-actions with an aggregate volume of €5.0 billion – compared to 122 transactions with an aggregate volume of €4.0 billion during the first three quarters of 2014.

• However, results were impacted by an increase in allow-ance for credit losses during the period under review, from €28.5 million to €62.7 million; in particular, this was due to the individual shipping market sectors.

• Other operating expenses was already charged by a non- recurring effect in June 2015: a full write-down of a claim for damages in the amount of €36.4 million, which had to be

Key events and transactions

120

100

80

60

40

20

0

106.4

2011

104.3

2012

96.2

2013

72.6

2014

59.8

2015

Consolidated net income before taxes, as at 30 September

€ mn


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figure largely comprised a significant non-recurring operating income from the sale of investment securities – the partial sale of a shareholding in Wizz Air Holdings plc. Accordingly, the result from investment securities was up by €46.1 million, to €46.9 million (previous year: €0.8 million).

Consolidated net income before bank levy, BVR Deposit Guarantee Scheme, and taxes totalled €74.7 million (previous year: €78.7 million). The expected bank levy charges of €10.3 million (2014: actual bank levy of €3.6 million) as well as €4.6 million in expenses for the Deposit Guarantee Scheme of the National Association of German Co-operative Banks (2014: €4.4 million in expenses for the BVR Deposit Guarantee Scheme) needed to be deducted from this figure already for the first half of the year.

Consolidated net income before taxes declined by 17.6% year-on-year, from €72.6 million to €59.8 million, and consolidated net income after taxes of €51.3 million fell short of the previous year’s figure of €58.1 million.

DVB’s consolidated total assets increased to €25.9 billion as at 30 September 2015, up 5.5% from the 2014 year-end (31 December 2014: €24.5 billion), largely due to currency trans-lation effects.

DVB’s nominal volume of customer lending (the aggregate of loans and advances to customers, guarantees and indem-nities, irrevocable loan commitments, and derivatives) rose by 6.9%, reflecting currency translation effects, to €24.9 billion. In US dollar terms, it was down slightly, by 1.4%, to US$27.9 billion.

Net fee and commission income, which primarily includes fees and commissions from new Transport Finance business, and asset management and advisory fees, was up 5.1%, from €73.2 million to €76.9 million. Fee and commission income was up 6.1%, to €83.5 million (previous year: €78.7 million); fee and commission expenses rose to €6.6 million (previous year: €5.5 million).

Results from investments accounting for using the equity method declined from €7.9 million to €3.8 million.

Net other operating income/expenses amounted to €–50.3 million (previous year: €2.2 million). Other operating expenses was charged by a non-recurring effect: an unscheduled write-down of a claim for damages in the amount of €36.4 million which had to be recognised as a result of a final arbitration ruling issued by the London Court of International Arbitration with regard to DVB’s consolidated subsidiary Dalian Deepwater Developer Ltd, St Helier, Jersey, British Channel Islands.

General administrative expenses rose by 1.5%, to €132.4 million (previous year: €130.4 million). Staff expenses decreased by 3.2%, to €78.5 million (previous year: €81.1 million), whilst non-staff expenses (including depreciation, amortisation and write-downs) amounted to €53.9 million (previous year: €49.3 million).

Net income from financial instruments in accordance with IAS 39 (comprising the trading result, the hedge result, the result from the application of the fair value option, the result from derivatives entered into without intention to trade, and the result from investment securities) – which is generally volatile – amounted to €87.8 million (previous year: €–8.2 million). The net


Development of customer lending volume

€ bn US$ bn30 Sep 2015 31 Dec 2014 % 30 Sep 2015 31 Dec 2014 %

Shipping Finance 11.3 10.1 11.9 12.7 12.3 3.3

Aviation Finance 7.6 7.1 7.0 8.5 8.6 –1.2

Offshore Finance 2.4 2.3 4.3 2.7 2.8 –3.6

Land Transport Finance 1.8 2.0 –10.0 2.0 2.4 –16.7

ITF Suisse 1.0 1.0 – 1.1 1.2 –8.3

Investment Management 0.6 0.6 – 0.7 0.7 –

Business no longer in line with DVB’s strategy 0.2 0.2 – 0.2 0.3 –33.3

Total 24.9 23.3 6.9 27.9 28.3 –1.4


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Given this burdensome macroeconomic development and the absence of any discernible recovery on most of the shipping and offshore segments, additional allowance for credit losses for DVB’s Shipping and Offshore Finance portfolio appear com-mercially reasonable.

DVB forecasts consolidated net income before taxes for the fiscal year 2015 in the positive low- to mid-double-digit million euro range, and hence, below the previous year's level.

This decline in consolidated net income before taxes (31 Decem-ber 2014: €104.0 million) will largely be attributable to addi-tional provisioning in the amount of approximately €60 million which DVB expects to recognise in the fourth quarter of 2015 (31 December 2014: €62.4 million). In view of the prevailing difficult situation on the international shipping an offshore markets, DVB considers the additional allowance for credit losses commercially reasonable.

Against this background, DVB assumes that the key financial management indicators – namely, return on equity before taxes, the cost/income ratio, and risk-adjusted Economic Value Added – as forecasted in the Bank’s Annual Report 2014 will not be achieved.

Frankfurt/Main, November 2015

THE BOARD OF MANAGING DIRECTORS

The following chart illustrates the breakdown of customer lending (in euro terms) across the Bank’s business divisions.

DVB’s key financial indicators developed as follows:

The return on equity before taxes stood at 7.6%, unchanged year-on-year, whilst the cost/income ratio was reduced by 5.8 percentage points, to 49.1% (previous year: 54.9%). Risk-adjusted Economic Value Added, which includes operating net income from investment securities, amounted to €–54.9 million (previous year: €15.8 million).

DVB discloses capital ratios determined in accordance with the Basel III framework (Advanced Approach). On this basis, the common equity tier 1 ratio as at 30 September 2015 was 17.1% (31 December 2014: 18.7%), whilst the total capital ratio amounted to 23.6% (31 December 2014: 21.6%).

Summary outlook

With the ad-hoc disclosure published today, 5 November 2015, DVB has adjusted its outlook for the consolidated financial statements 2015:

The unexpectedly weak development in developed economies as well as in the BRIC countries (Brazil, Russia, India and China), the risks inherent in persistently volatile global financial markets, as well as geopolitical risks, have diminished overall demand – leading to a decline in global trade volumes. In contrast, the shipping transport capacity on offer has developed with almost unrestricted momentum.


Shipping Finance 45.4% (+2.1 pp)

Aviation Finance 30.5% (0.0 pp)

Offshore Finance 9.7% (–0.2 pp)

Land Transport Finance 7.2% (–1.4 pp)

ITF Suisse 4.0% (–0.3 pp)

Investment Management 2.4% (–0.2 pp)

Business no longer in line with the Bank’s strategy 0.8% (0.0 pp)

Distribution of customer lending by business division, as at 30 September 2015


5Condensed income statement (IFRS)

€ mn

1 Jan 2015 – 30 Sep 2015

1 Jan 2014 – 30 Sep 2014

%

Net interest income 151.6 162.5 –6.7

Allowance for credit losses –62.7 –28.5 –

Net interest income after allowance for credit losses 88.9 134.0 –33.7

Net fee and commission income 76.9 73.2 5.1

Results from investments in companies accounted for using the equity method 3.8 7.9 –51.9

General administrative expenses –132.4 –130.4 1.5

Net other operating income/expenses –50.3 2.2 –

Consolidated net income before IAS 39, bank levy, BVR1) and taxes –13.1 86.9 –

Net result from financial instruments in accordance with IAS 39 87.8 –8.2 –

Consolidated net income before bank levy, BVR1) and taxes 74.7 78.7 –5.1

Expenses for the bank levy and the BVR1) Deposit Guarantee Scheme –14.9 –6.1 –

Consolidated net income before taxes 59.8 72.6 –17.6

Income taxes –8.5 –14.5 –41.4

Consolidated net income 51.3 58.1 –11.7

thereof: consolidated net income attributable to non-controlling interests 0.0 0.0 –

thereof: consolidated net income attributable to shareholders of DVB Bank SE 51.3 58.1 –11.7

Earnings per share (€)

1 Jan 2015 – 30 Sep 2015

1 Jan 2014 – 30 Sep 2014

%

Basic earnings per share 1.12 1.27 –11.8

Diluted earnings per share 1.12 1.27 –11.8

Key financial indicators (%)

1 Jan 2015 – 30 Sep 2015

1 Jan 2014 – 30 Sep 2014

pp

Cost/income ratio 49.1 54.9 –5.8

Return on equity before taxes 7.6 7.6 –

Economic Value Added (€ mn) –54.9 15.8 –

1) National Association of German Co-operative Banks (Bundesverband der Deutschen Volksbanken und Raiffeisenbanken – BVR)


6Statement of financial position (IFRS)

Assets (€ mn) 30 Sep 2015 31 Dec 2014 %

Cash and balances with the central bank 575.3 175.5 –

Loans and advances to banks 1,000.9 1,491.6 –32.9

Loans and advances to customers 22,763.5 20,633.0 10.3

Allowance for credit losses –244.7 –218.9 11.8

Positive fair values of derivative hedging instruments 319.9 416.7 –23.2

Trading assets 147.5 88.2 67.2

Investment securities 375.6 328.6 14.3

Investments in companies accounted for using the equity method 233.8 193.4 20.9

Intangible assets 101.4 100.5 0.9

Property and equipment 391.6 1,087.7 –64.0

Income tax assets 95.8 99.8 –4.0

Other assets 101.9 114.7 –11.2

Total 25,862.5 24,510.8 5.5

Liabilities and equity (€ mn) 30 Sep 2015 31 Dec 2014 %

Deposits from other banks 2,508.8 3,058.5 –18.0

Liabilities to customers 7,236.6 7,097.0 2.0

Securitised liabilities 12,698.8 11,305.8 12.3

Negative fair values of derivative hedging instruments 189.5 192.6 –1.6

Trading liabilities 772.4 604.5 27.8

Provisions 61.6 65.1 –5.4

Income tax liabilities 63.3 75.6 –16.3

Other liabilities 93.9 187.1 –49.8

Subordinated liabilities 743.0 487.2 52.5

Equity 1,494.6 1,437.4 4.0

Issued share capital 116.8 116.6 0.2

Capital reserve 322.6 320.6 0.6

Retained earnings 975.7 974.6 0.1

thereof: fund for general banking risks 82.4 82.4 –

Revaluation reserve 36.1 7.2 –

Reserve from cashflow hedges –8.0 –15.9 –49.7

Reserve from net investment hedges 21.3 –8.2 –

Currency translation reserve –21.4 14.4 –

Distributable profit 51.3 27.9 83.9

Non-controlling interests 0.2 0.2 –

Total 25,862.5 24,510.8 5.5

Customer lending volume (€ bn) 30 Sep 2015 31 Dec 2014 %

Nominal customer lending volume 24.9 23.3 6.9

Capital ratios – Basel III (%) 30 Sep 2015 31 Dec 2014 pp

Common equity tier 1 ratio 17.1 18.7 –1.6

Additional tier 1 ratio 17.1 18.7 –1.6

Total capital ratio 23.6 21.6 2.0

Imprint

DVB Bank SEPlatz der Republik 660325 Frankfurt/Main, Germanywww.dvbbank.com, [email protected]

Elisabeth WinterHead of Group Corporate CommunicationsManaging DirectorPhone: +49 69 9750 4329

Lisa Boose-KirwelGroup Corporate CommunicationsManager Investor RelationsPhone: +49 69 9750 4435

Design and realisationStudio Oberländer GmbH, Frankfurt/Main, Germany

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Cover page photosShipping FinanceOdfjell SE, Bergen, Norway

Aviation FinanceBert van Leeuwen, DVB Bank SE, Amsterdam, The Netherlands Offshore FinanceHarald M. Valderhaug, Skjongholmen, Norway Land Transport FinanceWouter Radstake, DVB Bank SE, Frankfurt/Main, Germany

The Interim Management Statement during the second half of 2015 is published in English and German. It is available as PDF file, on our webpage: www.dvbbank.com > Investors > Publications > Financial reports