INVESTEC PLC - Investec (comprising Investec plc and Investec Limited) pre-close briefing statement

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                                                  LSE share code: INVP
NSX share code: IVD                                                  JSE share code: INP
BSE share code: INVESTEC                                             ISIN: GB00B17BBQ50
ISIN: ZAE000081949                                           


Investec (comprising Investec plc and Investec Limited) – pre-close briefing statement

20 March 2014

Investec is today hosting an investor pre-close briefing at 11:00 (BST time) (13:00 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 2014.

Financial overview of the year ending 31 March 2014

Wealth & Investment’s results are expected to increase substantially and Asset Management
is expected to report results moderately ahead of the prior year. Both divisions have benefited
from higher levels of average funds under management supported by net inflows of GBP1.1
billion and GBP2.5 billion, respectively.

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 is also expected
to report results well ahead of the prior year as a result of a significant decline in impairments.
As reported previously, the Australian business has been impacted by strategic restructuring.
Consequently, the global Specialist Banking business is expected to report results marginally
ahead of the prior year.

Overall group results have been negatively impacted by the depreciation of the Rand: Pounds
Sterling exchange rate of approximately 20% over the period.

Against the backdrop of improved operating results and the depreciation of the Rand,
operating profit (refer to definition in the notes) is expected to be marginally ahead of the prior
year - an increase of approximately 28% in Rands.

Salient financial features include:
    - Revenue (net of depreciation on operating leased assets) is expected to be
      marginally behind the prior year - an increase of approximately 15% in Rands.
    - Recurring income as a percentage of total operating income is expected to be
      approximately 72% (2013: 69%).
    - Impairments are expected to be approximately 35% lower than the prior year.
    - Expenses are expected to decrease moderately - an increase of approximately 17%
      in Rands.
    - Adjusted EPS (refer to definition in the notes) in Pounds is expected to be 0% to 7%
      higher than the prior year and adjusted EPS in Rands is expected to be 22% to 27%
      higher than the prior year.
    - For the period 31 March 2013 to 28 February 2014:
             o Third party assets under management decreased 3% to GBP107.7 billion –
               an increase of 8% on a currency neutral basis
             o Customer accounts (deposits) decreased 10% to GBP22.2 billion - an
               increase of 6% on a currency neutral basis
             o Core loans and advances decreased 10% to GBP16.6 billion - an increase of
               7% on a currency neutral basis.

Operational and strategic overview

Over the past year the group has focused on reshaping its business with a view to improving
returns and has successfully restructured and/or sold certain businesses. As previously                                                
announced, the group is in the process of selling part of its Australian business and
Kensington, the group's intermediary mortgage business in the UK.

The process to identify alternatives for the Australian Professional Finance and Asset Finance
and Leasing divisions is ongoing and progressing well. Consistent with the quality of the
platforms these businesses have built, they have attracted strong interest from a range of
parties with whom confidential discussions are ongoing. The group will provide a further
update on the outcome of those discussions as soon as it is able to do so.

The potential sale of Kensington is at an early stage in the process and the group expects to
provide further information in this regard in the second quarter of this calendar year.
Kensington clients continued to be serviced on a business as usual basis.

The group has clarity on its strategic direction and the focus over the next period will be to
execute its key strategic initiatives, including the sales referred to above, resulting in a
streamlined and focused client driven organisation.

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 and capital management
- The group has continued to diversify and lengthen its funding sources.
- The cost of funds has reduced, notably in the group’s UK and Australian operations.
- Cash balances remain strong. The group currently holds GBP9.1 billion in cash and near
  cash balances (GBP4.8 billion (R85.3 billion)) in Investec Limited and GBP4.3 billion in
  Investec plc) which amounts to 33% of its liability base.
- Advances as a percentage of customer deposits at 28 February 2014 is at 71.2% (31
  March 2013: 71.3%).
- Capital ratios are expected to be within the group’s target total capital adequacy range
  and exceed Basel 3/CRDIV requirements.
- The group’s leverage ratios are sound and remain above 6% on an estimated Basel 3
  fully loaded basis.

Asset quality and impairment trends
- The total income statement impairment charge is expected to be approximately 35%
  lower than the prior year.
- The group expects the credit loss ratio on total average core loans and advances to be
  approximately 0.70% (Mar 2013: 0.84%; Sep 2013: 0.71%).
- Impairments in Kensington are expected to be substantially 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
- Competitive long-term investment performance
- The business has been impacted by tapering and repricing of emerging market assets
- Positive net inflows to end of February 2014 of GBP2.5 billion
- Operating profit should be moderately ahead of financial year 2013 (as reported before
  non-controlling interests)
- Since 31 March 2013 assets under management have decreased by 4% to GBP66.8
  billion – up 6% on a currency neutral basis.
                                              
Wealth & Investment
- Performing well ahead of the prior year
- Higher average funds under management
- Net inflows of GBP1.1 billion to end of February 2014
- Improving operating margins
- Selectively recruiting investment professionals - focus on capturing flows
- Enhancing and evolving online platform
- Continue to internationalise the offering
- Since 31 March 2013 assets under management have increased by 1% to GBP40.6
  billion – an increase of 10% on a currency neutral basis.

Specialist Banking
- The Specialist Bank is performing marginally ahead of the prior year
- In summary key aspects include:
- Net interest margin
       o Loan growth of 7% in neutral currencies
       o Stable lending margins
       o Cost of funds has reduced in the UK and Australia
       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 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 in line with
         inflation
       o Costs in the UK are expected to be in line with the prior year
       o Costs in Australia are expected to be lower due to a reduction in headcount.

Other information

Additional aspects
- Effective tax rate: expected to be approximately 17%- 18%.
- Net non-operational costs of approximately GBP6 million (restructuring and other costs
  relating to Australia and the sale of the trust business, partially offset by profit on sale of
  Lease Direct Finance in the UK).
- Net non-controlling interests of approximately GBP16 million (profits attributable) relating
  to the Asset Management business, FX hedge accounting and the consolidation of the
  Property Fund.
- Weighted number of shares in issue for the year ending is expected to be approximately
  863 million.
- Notes:
    1. Key trends set out above, unless stated otherwise, relate to the eleven months ended
       28 February 2014, and compare the first half of the 2014 financial year (1H14) to the
       second half of the 2014 financial year (2H14).
    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 other non-controlling
       interests and before non-controlling interests relating to Asset Management.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 all 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 2014 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 forecast period to 31 March 2014 remain the same as
       when compared to the year ended 31 March 2013.
    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 20
               March 2014.
    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:


                           Eleven months to           Six months to               Year to
                             28-Feb-2014               30-Sep-13                 31-Mar-13

 Currency                 Period    Average       Period      Average        Period    Average
                           end                     end                        end
 per GBP1.00

 South African Rand         18.00       15.94         16.29      15.03       13.96       13.44


 Australian Dollar           1.87          1.71        1.73       1.63        1.45        1.53

 Euro                        1.21          1.18        1.20       1.17        1.18        1.22

 US Dollar                   1.68          1.58        1.62       1.54        1.52        1.58




Presentation details
The briefing starts at 11:00 (BST time) (13:00 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 2014
Release of year end results: 22 May 2014


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 8 200 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 GBP3.5 billion.


Johannesburg and London
20 March 2014

Sponsor:
Investec Bank Limited

                                                
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