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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 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
19 September 2014
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 2015.
Financial overview of the six months ending 30 September 2014
The Wealth and Investment division’s results are expected to increase substantially and Asset
Management is expected to report results ahead of the prior year. Both divisions have
benefited from higher levels of average funds under management supported by net inflows of
GBP0.8 billion and GBP2.7 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 expected to
report results slightly behind the prior year. Overall, the global Specialist Banking business is
expected to report results ahead of the prior year.
Overall group results have been negatively impacted by the depreciation of the average
Rand: Pounds Sterling exchange rate of approximately 19% over the period.
Against this backdrop of improved operating results and the depreciation of the Rand,
operating profit (refer to definition in the notes) is expected to be ahead of the prior year in
Pounds Sterling (a substantial increase in Rands).
Salient financial features include:
- Revenue (net of depreciation on operating leased assets) is expected to be marginally
ahead of the prior year
- Recurring income as a percentage of total operating income is expected to be
approximately 74% (2013: 72%)
- Impairments are expected to be approximately 12% lower than the prior year
- Expenses are expected to be marginally higher than the prior year
- For the period 31 March 2014 to 31 August 2014:
o Third party assets under management increased 9% to GBP119.6 billion
o Customer accounts (deposits):
- decreased 3% to GBP21.8 billion however, adjusting for the sale of
Investec Bank (Australia) Limited there was an increase of 4%
o Core loans and advances:
- decreased 3% to GBP16.6 billion however, adjusting for the sale of
Investec Bank (Australia) Limited there was an increase of 7%
Operational and strategic overview
Over the past year the group has focused on simplifying and reshaping its specialist banking
business with a view to improving returns and has successfully restructured and/or sold
certain businesses.
The sale of the group’s Australian Professional Finance and Asset Finance and Leasing
businesses and deposit book to Bank of Queensland Limited at a premium to tangible net
asset value became effective on 31 July 2014.
On 9 September 2014 the group announced the sale of its UK Kensington business to funds
managed by Blackstone Tactical Opportunities Advisors L.L.C and TPG Special Situations
Partners. Furthermore, on 15 September 2014 Investec announced the sale of the Start
mortgage business in Ireland to an affiliate of Lone Star. Both of these transactions are still
subject to regulatory approval.
The expected combined financial effect upon completion of these three transactions is to:
- Bolster the common equity tier 1 capital ratio in Investec plc from 8.8% at 31 March 2014
to approximately 11.1%
- Significantly improve the leverage ratio in Investec plc from 7.4% at 31 March 2014 to
approximately 8.9%
- Reduce legacy assets in the UK by approximately GBP1.5 billion
- Reduce total assets by approximately GBP6 billion.
Investec has now completed the bulk of the restructuring and reshaping of the group. This
significantly simplifies the group’s day to day operational activities and strengthens its
financial capability. Whilst there are still some legacy assets remaining, the actions the group
has taken to simplify its business has allowed the focus to shift to growing and building the
franchise in the group’s core areas of activity and improving returns to shareholders.
On behalf of the board
Fani Titi (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 declined in the group’s UK business and remained relatively stable
in South Africa
- Cash balances remain strong. At 31 August 2014 the group held GBP8.7 billion in cash
and near cash balances (GBP4.6 billion (R81.0 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 2014 was 74.2%
(31 March 2014: 72.0%)
- For the six months to 30 September 2014 for both Investec plc and Investec Limited:
o Capital ratios are expected to be within the group’s target total capital adequacy
range
o The common equity tier 1 ratio is expected to be slightly below the group’s 2016
target of 10%
- The leverage ratio is sound and remains well 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 12%
lower than the prior year
- South Africa has seen a normalisation in impairment trends, whilst impairments on the UK
legacy portfolio remain elevated
- The group expects the credit loss ratio on total average core loans and advances to be
approximately 0.71% (31 March 2014: 0.68%; 30 September 2013: 0.71%)
- Excluding Australia the credit loss ratio is expected to be approximately 0.62% (31 March
2014: 0.62%; 30 September 2013: 0.61%)
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
- Net flows of GBP2.7 billion to the end of August 2014
- Financial performance should be ahead of 1H2014
- Since 31 March 2014 assets under management have increased by 9% to GBP74.0
billion.
Wealth & Investment
- Performing well ahead of the prior year
o Higher average funds under management
o Net inflows of GBP0.8 billion to the end of August 2014
- Operating margins continue to improve
- Expansion of UK business (Glasgow and Edinburgh) and select investment in senior
professionals
- South African business has benefited from integrated offering to private clients - One
Place
- Since 31 March 2014 assets under management have increased 9% to GBP45.2 billion.
Specialist Banking
- The Specialist Bank is performing ahead of the prior year
- In summary key aspects include:
o Net interest margin
- Loan growth of 7%
- Relatively stable lending margins
- Cost of funds has reduced in the UK
- The group remains very liquid
o Net fees and commissions
- Private client transactional and professional finance activities performing
well
- Good performance from the UK corporate finance business
- UK corporate fees are expected to be higher than the prior year and
South Africa is expected to be in line with the prior year
o Investment and trading income
- Sound performance from the South African and UK unlisted investment
portfolios, partially offset by a weaker performance from the Hong Kong
portfolio
- Marginally lower customer flow trading income
o Costs
- South Africa is expected to report an increase in fixed costs in line with
inflation
- Fixed costs in the UK are expected to be slightly higher than the prior
year.
Other information
Additional aspects
- Effective tax rate: expected to be approximately 19% - 20%
- Other non-operational items mainly relating to the sale of Investec Bank (Australia)
Limited and assets held for sale in relation to the pending sales of Kensington and Start
are expected to give rise to:
o Net gain/loss on sale of subsidiaries: Nil
o Goodwill write-offs: £45mn
o Related taxation expense: £33mn
- Net non-controlling interests of approximately GBP11 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 six months to 30 September 2014 is expected
to be approximately 857 million.
- Notes:
1. Key trends set out above, unless stated otherwise, relate to the five months ended
31 August 2014, and compare the first half of the 2015 financial year (1H2015) to the
first half of the 2014 financial year (1H2014).
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 adjusted operating profit, where adjusted
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 adjusted 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. 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
19 September 2014.
6. 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-2014 31-Mar-14 30-Sep-13
Currency Period Average Period Average Period Average
end end end
per GBP1.00
South African Rand 17.67 17.88 17.56 16.12 16.29 15.03
Australian Dollar 1.78 1.81 1.80 1.72 1.73 1.63
Euro 1.26 1.24 1.21 1.19 1.20 1.17
US Dollar 1.66 1.69 1.67 1.59 1.62 1.54
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 end: 30 September 2014
Release of interim results: 20 November 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
Sponsor: Investec Bank Limited
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 7,600 permanent 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 GBP4.9 billion.
Date: 19/09/2014 09:45:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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