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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
17 September 2013
Investec is today hosting an investor pre-close briefing at 9:00 (BST time) (10:00 South
African time) which will focus on developments within the group’s core business areas in the
first half of the financial year ending 31 March 2014.
Operational and financial overview of the six months ending 30 September 2013
The Asset Management and Wealth and Investment businesses have continued to see net
inflows and have benefited from higher average funds under management, both divisions are
expected to record results ahead of the prior year. The South African Specialist Banking
business is expected to report results substantially ahead of the prior year in Rands, whilst
the UK Specialist Banking business has been impacted by low levels of activity and the
Australian business has been impacted by significant strategic restructuring. As a result, the
global Specialist Banking business is expected to report results behind the prior year.
The period under review was again characterised by volatility in the macro and geopolitical
environment all of which will have an impact on the group’s expected results. As a
consequence of this volatility the average Rand: Pound exchange rate depreciated by 16%.
Against this backdrop, operating profit (refer to definition in the notes) is expected to be
marginally behind the prior year; an increase of approximately 8% in Rands.
Salient financial features include:
- Revenue (net of depreciation on operating leased assets) is expected to be in line
with the prior year.
- Recurring income as a percentage of total operating income is expected to be
approximately 70% (2012: 69%).
- Impairments are expected to be approximately 25% lower than the prior year.
- Expenses are expected to increase moderately.
- Adjusted EPS (refer to definition in the notes) in Pounds is expected to be 0% to 10%
lower than the prior year and adjusted EPS in Rands is expected to be 4% to 16%
higher than the prior year.
- For the period 31 March 2013 to 31 August 2013:
o Third party assets under management decreased 4% to GBP106.2 billion –
an increase of 1% on a currency neutral basis
o Customer accounts (deposits) decreased 5% to GBP23.4 billion - an increase
of 3% on a currency neutral basis
o Core loans and advances decreased 6% to GBP17.4 billion - an increase of
3% on a currency neutral basis.
Markets and economic conditions around the world remain mixed and it’s difficult to predict
the direction in which they are moving. The developed world economies seem to be improving
but the air of optimism will only sustain if the broader geopolitical issues are resolved and the
US and Chinese economic outlook continues to show improvement.
The challenge for the Investec group remains right sizing its Specialist Banking businesses
and realigning these business models to generate the appropriate shareholder returns. The
group is comfortable with the progress made in its South African banking operations and has
recently made significant adjustments in Australia, with the process in the UK banking
operations ongoing.
Overall, prospects still depend on an increase in levels of activity and the sustainability of
economic recovery. Whilst the group feels more positive about the trend and news flow it
remains cautiously optimistic given the “stop start” nature of the recovery thus far.
On behalf of the board
Fani Titi (Joint Chairman), Sir David Prosser (Joint Chairman), Stephen Koseff (Chief
Executive Officer) and Bernard Kantor (Managing Director)
Liquidity management
- The group has continued to diversify its funding sources.
- The cost of funds has started to improve, notably in the group’s UK and Australian
operations.
- Cash balances remain strong. The group currently holds GBP8.7 billion in cash and near
cash balances (GBP4.6 billion in Investec Limited and GBP4.1 billion in Investec plc)
which amounts to 31% of its liability base.
- Advances as a percentage of customer deposits at 31 August 2013 is at 70.7% (31
March 2013: 71.3%).
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. We await the outcome of the PRA’s consultation (CP5/13: Strengthening capital
standards: implementing CRD IV) on the implementation of CRD IV in the UK, to confirm
the impact on the UK capital ratios.
- 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 25%
lower than the prior year.
- The group expects the credit loss ratio on total average core loans and advances to be
between 0.60% to 0.70% (31 March 2013: 0.84%; 30 September 2012: 0.85%).
- Impairments in Kensington are expected to be lower than the prior year.
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
- Investment performance remains solid but financial markets are volatile
- Positive net inflows to end of August 2013 of GBP1.2 billion
- Financial performance should be marginally ahead of 1H2013
- Sale of 15% stake to management which was completed on 31 July 2013
- Since 31 March 2013 assets under management have decreased by 5% to GBP66.4
billion – flat on a currency neutral basis.
Wealth & Investment
- Performing well ahead of the prior year
- Higher average funds under management
- Net inflows of GBP0.3 billion to end of August 2013
- Margins are beginning to improve
- Since 31 March 2013 assets under management have decreased by 2% to GBP39.4
billion – an increase of 3% on a currency neutral basis.
Specialist Banking
- The Specialist Bank is performing behind the prior year
- In summary:
o The South African Specialist Bank has performed well ahead of the prior year
o The UK Specialist Bank is performing behind the prior year
- The group continues to concentrate on realigning costs with revenue and
certain businesses have been rationalised
- Results remain negatively impacted by low yields earned on legacy
assets and weak activity levels, as the recent good news regarding the
UK economy has not yet filtered through to day to day operations
o The Australian Specialist Bank is expected to make a loss due to further
restructuring of the business and an increase in impairments
- A review has been conducted to determine the appropriate positioning of
the operations as well as to ensure realignment with the broader Investec
group
- The group has scaled back and/or withdrawn from its Securities, Equity
Capital Markets and Structured Financial Products offerings
- The group continues to focus on building its core business capabilities
such as private banking, professional finance, corporate advisory,
specialist lending and property funds.
- Specialist Banking other key aspects include:
- Net interest margin
o Loan growth of 3% in neutral currencies
o Stable lending margins
o Cost of funds reducing in the UK and Australia
o Lower reinvestment rate on surplus cash held in South Africa
o Less income earned from certain higher yielding investments that are running off
o The group remains very liquid
- Net fees and commissions
o Private client transactional and professional finance activities performing well
o Good performance from project, resource and structured finance teams in South
Africa
o Other corporate fees are expected to be lower than the prior year
- Investment and trading income
o Strong performance from the South African 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 Improved customer flow activity
- Costs
o The South African bank is expected to report an increase in costs above inflation
due to additional IT related expenditure and higher variable remuneration given
improved profitability
o Costs in the UK and Australian businesses are expected to increase moderately
due to integration and rationalisation costs.
Other information
Additional aspects
- Effective tax rate: expected to be approximately 17% - 18%.
- Weighted number of shares in issue for the six months to 30 September 2013 expected
to be approximately 859 million.
- Notes:
1. Key trends set out above, unless stated otherwise, relate to the five months ended 31
August 2013, and compare the first half of the 2014 financial year (1H2014) to the
first half of the 2013 financial year (1H2013).
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 31 August 2013 when compared to 31 March 2013. The neutral currency
calculation for operating profit assumes the Rand:Pound and Australian Dollar:Pound
average exchange rates for the 6 month period to 30 September 2013 remain the
same as when compared to the 6 month period to 30 September 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 17
September 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:
Five months to Year to Six months to
31-Aug-13 31-Mar-13 30-Sep-12
Currency Period Average Period Period Period Average
end end end end
per GBP1.00
South African Rand 15.86 14.87 13.93 13.44 13.39 12.96
Australian Dollar 1.74 1.61 1.45 1.53 1.55 1.54
Euro 1.17 1.16 1.18 1.22 1.26 1.24
US Dollar 1.55 1.53 1.52 1.58 1.61 1.58
Presentation details
The briefing starts at 9:00 (BST time) (10:00 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:
Interim period: 30 September 2013
Release of interim results: 21 November 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 8 100 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 GBP3.9 billion.
5
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