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Investec (comprising Investec plc and Investec Limited) – pre-close briefing statement
Investec Limited Investec plc
Incorporated in the Republic of South Africa Incorporated in England and Wales
Registration number 1925/002833/06 Registration number 3633621
JSE share code: INL JSE share code: INP
ISIN: ZAE000081949 ISIN: GB00B17BBQ50
Investec (comprising Investec plc and Investec Limited) – pre-close briefing statement
14 March 2013
Investec is today hosting an investor pre-close briefing at 9:00 (BST time) (11:00 South
African time) which will focus on developments within the group’s core business areas in the
second half of the financial year ending 31 March 2013.
Operational and financial overview of year ending 31 March 2013
Operating profit (refer to definition in the notes) is expected to be approximately 20% to 23%
ahead of the prior year.
The asset management and wealth management businesses have experienced strong net
inflows in excess of GBP4 billion and are expected to report results ahead of the prior year.
The South African Specialist Banking business is expected to report a sound increase in
operating profit in Rand terms benefiting from growth in revenue and cost containment. The
Australian Specialist Banking business has performed significantly ahead of the prior year
mainly as a result of a substantial decrease in impairments. The UK Specialist Banking
business is expected to report results marginally ahead of the prior year.
Overall results have been impacted by the depreciation of the average Rand: Pound
exchange rate of approximately 13%.
Salient financial features include:
- Revenue (net of depreciation on operating leased assets) is expected to be 3% to 4%
higher than the prior year.
- Recurring income as a percentage of total operating income is expected to be
approximately 67% (2012: 68%).
- Expenses are expected to increase by 3% to 4% largely driven by recently acquired
businesses which are in the process of being fully integrated.
- The cost to income ratio is expected to remain in line with the group’s target.
- Adjusted EPS (refer to definition in the notes) in Pounds is expected to be 14% to
17% higher than the prior year.
- Adjusted EPS (refer to definition in the notes) in Rands is expected to be 30% to 34%
higher than the prior year.
- For the period 31 March 2012 to 28 February 2013:
o Third party assets under management increased 13% to GBP110.0 billion –
an increase of 18% on a currency neutral basis.
o Customer accounts (deposits) decreased 2% to GBP25.0 billion - an increase
of 4% on a currency neutral basis.
o Core loans and advances increased 3% to GBP18.8 billion - an increase of
9% on a currency neutral basis.
The group has continued to record positive net inflows into its asset management and wealth
and investment businesses. Loan growth in the professional finance, asset finance, structured
and project finance businesses, together with an expected improvement in the cost of funds,
should support the group’s net interest earnings going forward. Whilst impairments are
expected to decrease by approximately 22% they have remained elevated due to weak
economic conditions in the group’s core geographies. Global markets have rallied strongly in
recent months, although this confidence in equities is not yet reflected in levels of economic
activity, as economic growth remains muted. The group’s operating profit is underpinned by a
solid recurring income base and strong business franchise in the geographies in which it
operates.
On behalf of the board
Fani Titi (Joint Chairman), Sir David Prosser (Joint Chairman), Stephen Koseff (Chief
Executive Officer) and Bernard Kantor (Managing Director)
Funding and liquidity
- The group has continued to diversify its funding sources.
- The cost of funds remained elevated throughout the period.
- Recently the group has however, seen an improvement in the marginal cost of funds,
notably in its UK and Australian businesses.
- Cash balances remain strong. The group currently holds GBP9.9 billion in cash and near
cash balances (GBP5.5 billion in Investec Limited and GBP4.4 billion in Investec plc)
which amounts to 33% of its liability base.
- Advances as a percentage of customer deposits at 28 February 2013 is at 71.6% (31
March 2012: 67.8%).
Capital
- The group has implemented Basel 3 in its South African and Australian businesses, with
moderate impact on its ratios.
- The group’s UK business is reporting in terms of Basel 2.5 and capital ratios remain
stable.
- All ratios are expected to be within the group’s target capital range.
Asset quality and impairment trends
- The total income statement impairment charge is expected to be approximately 22%
lower than the prior year.
- The group expects the credit loss ratio (excluding Kensington) on total average loans and
advances to be between 0.83% to 0.88% (31 March 2012: 1.12%; 30 September 2012:
0.85%).
- Impairments in Kensington are expected to be lower than the prior year, but higher than
1H13.
Business commentary
Salient features of the operating performance of the group’s core business areas are listed
below and further details will be provided in the briefing presentation which can be viewed on
the group’s website.
Asset Management
- Competitive long term performance across investment capabilities.
- Positive net inflows of GBP3.2 billion.
- Financial performance should be marginally ahead of the prior year and 1H13.
- Since 31 March 2012 assets under management have increased by 12% to GBP69.2
billion – an increase of 18% on a currency neutral basis.
Wealth & Investment
- Performing well ahead of the prior year:
o Higher average funds under management
o Net inflows of GBP0.9 billion
o Inclusion of Williams de Broë and NCB (in Ireland).
- Integration of acquisitions progressing well - excess costs will however, still reflect in our
2013 results.
- Since 31 March 2012 assets under management have increased by 15% to GBP40.1
billion – an increase of 20% on a currency neutral basis
Specialist Banking
- The Specialist Bank is performing well ahead of the prior year but behind 1H13. Key
aspects include:
- Net interest margin
o Loan growth of 9% in neutral currencies
o Improved margins in South Africa
o Elevated cost of funds in the UK and Australia
o The group remains very liquid.
- Net fees and commissions
o Private client transactional and professional finance activities performing well
o Good performance from agency and advisory
o Fees earned in the corporate banking business are expected to be lower than the
prior year.
- Investment and trading income
o Strong performance from the South African property division and unlisted
investment portfolio
o Lower earnings from the fixed income portfolio in the UK, partially offset by a solid
performance in the investment portfolio
o Lower customer flow activity.
- Costs
o Moderate increase in costs – acquisition in Australia.
Other information
Additional aspects
- Effective tax rate: expected to be approximately 18% to 19%.
- Weighted number of shares in issue for the year ending 31 March 2013 expected to be
approximately 856 million.
- Notes:
1. Key trends set out above, unless stated otherwise, relate to the eleven months ended
28 February 2013, and compare the first half of the 2013 financial year (1H13) to the
second half of the 2013 financial year (2H13).
2. The financial information on which this statement is based has not been reviewed and
reported on by the group’s auditors.
3. References to operating profit relate to normalised operating profit, where normalised
operating profit refers to net profit before tax, goodwill, acquired intangibles and non-
operating items but after adjusting for earnings attributable to non-controlling
interests.Trends within the divisional sections relate to normalised operating profit.
4. Adjusted EPS is before goodwill, acquired intangibles and non-operating items but
after tax and after adjusting for earnings attributable to non-controlling interests.
5. The neutral currency calculation for the core earnings drivers assumes the
Rand:Pound and Australian Dollar:Pound closing exchange rates remain the same as
at 28 February 2013 when compared to 31 March 2012.
6. Please note that matters discussed in the briefing and highlighted above may contain
forward looking statements which are subject to various risks and uncertainties and
other factors, including, but not limited to:
– the further development of standards and interpretations under International
Financial Reporting Standards (IFRS) applicable to past, current and future
periods, evolving practices with regard to the interpretation and application of
standards under IFRS.
– domestic and global economic and business conditions.
– market related risks.
• 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 13
March 2013.
7. 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
condition of these individual companies are reported in the local currencies in which
they are domiciled, including Rands, Australian Dollars and Euros. 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:
Year to date 28-Feb-13 30-Sep-12 31-Mar-12
Currency per Close Ave Close Ave Close Ave
GBP1.00
South African Rand 13.62 13.40 13.39 12.96 12.27 11.85
Australian Dollar 1.48 1.54 1.55 1.54 1.54 1.52
Euro 1.16 1.23 1.26 1.24 1.20 1.16
US Dollar 1.52 1.59 1.61 1.58 1.60 1.60
Presentation details
The briefing starts at 9:00 (BST time) (11:00 South African time) and will be broadcast live via
video conference from the group’s offices in Johannesburg to London. The briefing will also
be available via a live and recorded telephone conference call, a live and delayed video
webcast, a delayed podcast and a delayed Mp3. Further details in this regard can be found
on the website at: www.investec.com
Timetable:
Year-end: 31 March 2013
Release of year-end results: 23 May 2013
For further information please contact:
Investec Investor Relations
UK: +44 (0) 207 597 5546
South Africa: +27 (0) 11 286 7070
investorrelations@investec.com
About Investec
Investec is an international specialist bank and asset manager that provides a diverse range
of financial products and services to a niche client base in three principal markets, the United
Kingdom, South Africa and Australia as well as certain other countries. The group was
established in 1974 and currently has approximately 8 000 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.
In July 2002 the Investec group implemented a dual listed company structure with listings on
the London and Johannesburg Stock Exchanges. The combined group’s current market
capitalisation is approximately GBP4.3 billion.
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