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Investec (comprising Investec plc and Investec Limited) – Pre-close trading update
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 trading update
20 March 2020
Investec today announces its scheduled pre-close trading update ahead of its full-year results
for the 12 months ending 31 March 2020 (FY2020), which are due for release on 21 May
2020. A conference call will be held today at 8:30 UK time / 10:30 South African time; dial-in
details are in the Notes section of this announcement.
Key points:
• The Group has navigated challenging market conditions, exacerbated recently by the
ongoing public health and economic effects of COVID-19.
• Further progress was made in the Group’s strategy to simplify and focus the
business. This includes the completion of the demerger and listing of Ninety One (the
asset management business) which increased capital levels; as well as the
restructuring, closure and sale of non-core and subscale businesses resulting in a
reduction in risk.
• Group adjusted operating profit is expected to be 7% to 14% behind FY2019
(FY2019: £732 million) and adjusted earnings per share is expected to be 16% to
23% behind FY2019 (FY2019: 60.9p), primarily due to the challenging market
conditions mentioned above and effective tax rate normalisation.
• The Group’s cash and near cash at 18 March 2020 was £12.4 billion (representing
40% of customer deposits). Capital and leverage ratios remain sound, ahead of
internal targets and regulatory requirements.
• Net asset value is expected to be between 425p–450p (FY2019: 434.1p) and tangible
net asset value is expected to be between 385p-405p (FY2019: 386.0p) at 31 March
2020. Net asset value has been positively impacted by profitability and the demerger
and negatively by the depreciation of the Rand.
Fani Titi, CEO of Investec, said: “Investec has delivered a resilient performance in
challenging market conditions. We have also made notable progress in the simplification of
the business and have continued to invest in our platforms to achieve sustainable growth for
the long term. In these current difficult times, we are resolutely focused on the safety of our
people, the integrity of our balance sheet and supporting our clients. We remain optimistic
about our longer-term potential.”
Strategic, operational and financial overview
The Group has continued to progress with the execution of its previously stated strategic
objectives, in particular simplifying and focusing the business to create value over the long-
term.
Investec successfully completed the demerger of Ninety One (formerly known as Investec
Asset Management), which became separately listed on 16 March 2020. Investec decided not
to proceed with the sell down of a 10% stake in Ninety One given market volatility and our
already comfortable capital position.
In the UK Specialist Bank, we expect costs to have reduced by approximately £25m in
FY2020. Previously identified Group cost savings of approximately £10m and technology
platform efficiency savings of circa £7.5m remain executable in FY2021. Cost efficiency
remains an important area of focus for the Group. We have made good traction in our UK
Private Bank proposition with client acquisition and advances growth in line with expectations.
In South Africa, we remain committed to rationalising and optimising the value of the
investment portfolio as previously communicated.
The operating environment in the second half of the financial year (2H2020) was difficult in
both South Africa and the UK. The effects of COVID-19 on global markets are expected to
negatively impact Investec’s fourth-quarter operating performance.
The commentary and trends that follow, unless stated otherwise, relate to the 11 months
ended 29 February 2020, and compare forecast FY2020 to restated FY2019 as provided in
the Group’s 1H2020 disclosures (refer to Note 1).
The Group
• The Group (including the Asset Management business) is expected to report adjusted
operating profit 7% to 14% behind the prior year (FY2019: £732 million) and adjusted
earnings per share 16% to 23% behind the prior year (FY2019: 60.9p) driven by
lower operating performance and effective tax rate normalisation in South Africa.
o Operating income is expected to be behind the prior year (FY2019: £2,527
million). Both net interest income and net fee and commission income are
expected to be ahead of the prior year, while other income (refer to Note 2) is
expected to be behind the prior year.
o Operating costs are expected to reduce from the prior year (FY2019: £1,668
million).
o While impairments are expected to increase, the credit loss ratio is expected
to be between 0.31% to 0.37%.
o The effective tax rate is expected to be approximately 16% (FY2019: 12%).
Bank and Wealth (continuing operations)
• Bank and Wealth adjusted operating profit is expected to be 16% to 22% behind the
prior year (FY2019: £552m).
o Adjusted operating profit in the South African Specialist Bank is expected to
be behind the prior year (FY2019: £310 million) with growth in net interest
income partially offset by lower associate and trading income.
o The UK Specialist Bank adjusted operating profit is expected to be down on
the prior year (FY2019: £192 million). The marginal growth in net interest and
fee income was offset by a reduction in other income (refer to Note 2) year-
on-year as a result of recent market volatility, tough trading conditions and a
higher base from balance sheet management in the prior year.
o The South African Wealth & Investment business adjusted operating profit is
expected to be ahead of the prior year (FY2019: £26 million) supported by
growth in discretionary assets under management (AUM).
o The UK Wealth & Investment business is expected to be behind the prior
year (FY2019: £71 million) impacted by an increase in technology spend to
support growth over the long term, higher regulatory levies incurred in
1H2020 and the negative impact from recent global market volatility on
revenues in the fourth quarter.
• Net interest margins are expected to be broadly in line with 1H2020.
• Following the progress reported at the interim results, costs are expected to reduce
year-on-year, particularly in the UK Specialist Bank.
• Over the 11 months to 29 February 2020, Bank and Wealth core loans and advances
grew 3.4% to £25.8 billion and AUM decreased by 7.7% to £51.5 billion. Net inflows
were positive at £0.5 billion.
Taking into consideration the financial impact of the strategic actions expected to complete
during FY2020 as well as the c.£837 million net gain on the demerger and listing of Ninety
One (post taxation and transaction costs), Group basic earnings per share is expected to be
between 135% and 148% (122p and 129p) above the prior year (FY2019: 52p), while Group
headline earnings per share (HEPS) is expected to be between 41% and 46% (31p and
28.4p) behind the prior year (FY2019: 52.6p). HEPS as defined by the JSE (refer to Note 2)
excludes gains on business disposals but includes related costs.
Liquidity and capital management
• The Group has maintained strong liquidity levels, including strong USD liquidity.
• Cash balances remain strong. As at 18 March 2020 cash and near cash balances
amounted to £12.4 billion (£7.1 billion (R141.9 billion) in Investec Limited and £5.3 billion
in Investec plc) amounting to 40% of customer deposits.
• The loan to customer deposit ratio at 29 February 2020 was 81%.
• For the year to 31 March 2020 for both Investec plc and Investec Limited:
o The common equity tier 1 ratio is expected to remain ahead of internal targets
and regulatory requirements.
o Leverage ratios are sound and remain comfortably ahead of the Group’s 6%
target.
Other information
• The results of Ninety One (which will be reflected as a discontinued operation in the
FY2020 results) are consolidated for the period to 13 March 2020 (effective date of
demerger) and equity accounted thereafter.
• Group results have been negatively impacted by the depreciation of the average and
closing Rand against Sterling exchange rate of approximately 3.4% and 6.8%
respectively over the year.
• Net non-controlling interests are expected to amount to approximately £111 million
(profits attributable) (FY2019: £84 million) relating to the Asset Management business
and the consolidation of the Investec Property Fund.
• The weighted number of shares in issue for FY2020 is expected to be approximately 947
million (FY2019: 942 million).
On behalf of the board
Perry Crosthwaite (Chairman), Fani Titi (Group Chief Executive)
Key income drivers
Core loans
Neutral
£'m 29- Feb-20 31- Mar-19 % change currency
% change
UK and Other 11,727 10,514 11.5% 11.5%
South Africa 14,062 14,427 (2.5%) 4.1%
Total core loans 25,789 24,941 3.4% 7.2%
Customer deposits
Neutral
£'m 29- Feb-20 31- Mar-19 % change currency
% change
UK and Other 13,505 13,137 2.8% 2.8%
South Africa 17,722 18,170 (2.5%) 4.2%
Total customer
31,227 31,307 (0.3%) 3.6%
deposits
Bank and Wealth AUM
Neutral
£'m 29-Feb-20 31-Mar-19 % change currency
% change
Total Wealth & Investment AUM 50,758 55,121 (7.9%) (6.2%)
UK and Other (excluding Ireland) 36,805 36,671 0.4% 0.4%
Discretionary 30,465 29,966 1.7% 1.7%
Non-discretionary 6,340 6,705 (5.4%) (5.4%)
Southern Africa 13,953 16,003 (12.8%) (6.9%)
Discretionary - South Africa 7,095 6,999 1.4% 8.3%
Non-discretionary - South Africa 6,858 9,004 (23.8%) (18.7%)
Ireland* - 2,447 (100.0%) (100.0%)
Specialist Bank AUM 699 633 10.4% 18.2%
Total third party AUM 51,457 55,754 (7.7%) (5.9%)
*The Irish Wealth & Investment business was sold during FY2020.
Notes
1. FY2019 restated adjusted operating profit
£'m UK & Other Southern Africa Total
Specialist Bank 192 310 502
Wealth & Investment 71 26 97
Group costs (32) (15) (47)
Bank and Wealth 231 321 552
Investec Asset Management
108 72 180
(discontinued operation)
Group adjusted operating profit 339 393 732
Profit attributable to other non-
58
controlling interests
Group adjusted operating profit before non-controlling interests 790
2. Definitions
• Adjusted operating profit refers to operating profit before goodwill, acquired
intangibles and strategic actions and after adjusting for earnings attributable to
other non-controlling interests. Non-IFRS measures such as adjusted operating
profit are considered as pro forma financial information as per the JSE Listing
Requirements. The pro forma financial information is the responsibility of the
Group’s Board of Directors. This pro forma financial information has not been
reported on by the Group’s auditors.
• Adjusted earnings is calculated by adjusting basic earnings attributable to
shareholders for the amortisation of acquired intangible assets, non-operating
items including strategic actions, and earnings attributable to perpetual
preference shareholders and other additional tier 1 security holders.
• Adjusted earnings per share is calculated as adjusted earnings attributable to
shareholders divided by the weighted average number of ordinary shares in issue
during the year.
• Headline earnings is adjusted earnings plus the after tax financial effect of
strategic actions and the amortisation of acquired intangible assets. This
adjustment will specifically exclude the after-tax gains realised on the demerger
and the sale of subsidiaries but include the transaction costs incurred. Headline
earnings is an earnings measure required to be calculated and disclosed by the
JSE and was calculated in accordance with the guidance provided in Circular
4/2018.
• Headline earnings per share is calculated as headline earnings divided by the
weighted average number of ordinary shares in issue during the year.
• Basic earnings is earnings attributable to ordinary shareholders as defined by
IAS33 Earnings Per Share
• Other income includes: Investment income, share of post taxation operating
profit of associates, trading income and other operating income.
• Core loans and advances is defined as net loans and advances to customers
plus net own originated securitised assets.
• The credit loss ratio is calculated as expected credit loss (ECL) impairment
charges on gross core loans and advances as a percentage of average gross
core loans and advances subject to ECL.
3. Conference call details
The conference call will commence today at 8:30 (UK time) (10:30 South African time).
Telephone conference dial in numbers:
- Australia: 1 800 350 100
- Ireland: 014 860 742
- Johannesburg (Neotel): 011 535 3600
- Johannesburg (Telkom): 010 201 6800
- Other (Neotel): +27 11 535 3600
- Other (Telkom): +27 10 201 6800
- UK: 0 333 300 1418
- USA: 1 508 924 4326
4. Timetable:
Year end: 31 March 2020
Release of year end results: 21 May 2020
5. Exchange rates
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, Euros and US Dollars. 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 the Pound Sterling over the period:
Eleven months to Six months to Year to
29-Feb-2020 30-Sep-19 31-Mar-19
Currency Period Average Period Average Period Average
end end end
per GBP1.00
South African Rand 20.08 18.61 18.69 18.28 18.80 18.04
Australian Dollar 1.97 1.86 1.82 1.82 1.83 1.80
Euro 1.16 1.15 1.13 1.13 1.16 1.13
US Dollar 1.28 1.28 1.23 1.26 1.30 1.31
6. Profit forecasts
• The following matters as discussed in the briefing and highlighted above contain
forward-looking statements:
- The Group (including the Asset Management business) is expected to
report adjusted operating profit 7% to 14% behind the prior year and
adjusted earnings per share 16% to 23% behind the prior year.
- Group basic earnings per share is expected to be between 135% and
148% above the prior year and Group HEPS is expected to be between
41% and 46 % behind the prior year.
- Bank and Wealth adjusted operating profit is expected to be 16% to 22%
behind the prior year.
- Adjusted operating profit in the South African Specialist Bank is expected
to be behind the prior year.
- The UK Specialist Bank adjusted operating profit is expected to be
behind the prior year.
- The South African Wealth & Investment business adjusted operating
profit is expected to be ahead of the prior year.
- The UK Wealth & Investment business adjusted operating profit is
expected to be behind the prior year.
(collectively the Profit Forecasts).
• The basis of preparation of each of these statements and the assumptions upon
which they are based are set out below. These statements are subject to various
risks and uncertainties and other factors – these factors may cause the Group’s
and/or Bank and Wealth’s actual future results, performance or achievements in
the markets in which they operate to differ from those expressed in the Profit
Forecasts.
• Any forward looking statements made are based on the knowledge of the Group
and Bank and Wealth at 19 March 2020.
• These forward looking statements represent a profit forecast under the Listing
Rules. The Profit Forecasts relate to the period ending 31 March 2020.
• The financial information on which the Profit Forecasts are based is the
responsibility of the Directors of the Group and has not been reviewed and
reported on by the Group’s auditors.
Basis of preparation
• The Profit Forecasts have been properly compiled using the assumptions stated
below, and on a basis consistent with the accounting policies adopted in the
Group’s September 2019 unaudited interim financial statements, which are in
accordance with IFRS and are those which the Group anticipates will be
applicable for the year ending 31 March 2020.
• The Profit Forecasts have been prepared based on (a) the unaudited interim
financial statements of the Group for the six months to 30 September 2019, and
the results of Bank and Wealth underlying those interim financial statements; (b)
the unaudited management accounts of the Group and Bank and Wealth for the
eleven months to 29 February 2020; and (c) the projected financial performance
of the Group and Bank and Wealth for the remaining one month of the year
ending 31 March 2020.
• Percentage changes shown on a neutral currency basis for balance sheet items
assume that the relevant closing exchange rates at 29 February 2020 remain the
same as those at 31 March 2019.
Assumptions
The Profit Forecasts have been prepared on the basis of the following assumptions
during the forecast period:
Factors outside the influence or control of the Investec Board:
• There will be no material change in the political and/or economic environment
that would materially affect the Investec Group.
• There will be no material change in legislation or regulation impacting on the
Investec Group’s operations or its accounting policies.
• There will be no business disruption that will have a significant impact on the
Investec Group’s operations, whether for Covid-19 or otherwise
• The Rand/Pound Sterling and US Dollar/Pound Sterling exchange rates and the
tax rates remain materially unchanged from the prevailing rates detailed below
• There will be no material changes in the structure of the markets, client demand
or the competitive environment.
Estimates and judgements
In preparation of the Profit Forecasts, the Group makes estimations and applies
judgement that could affect the reported amount of assets and liabilities within the next
financial year. Key areas in which judgement is applied include:
• Valuation of unlisted investments primarily in the private equity, direct
investments portfolios and embedded derivatives. Key valuation inputs are based
on the most relevant observable market inputs, adjusted where necessary for
factors that specifically apply to the individual investments and recognising
market volatility.
• The determination of ECL against assets that are carried at amortised cost and
ECL relating to debt instruments at fair value through other comprehensive
income (FVOCI) involves the assessment of future cash flows which is
judgemental in nature.
• Valuation of investment properties is performed twice annually by directors of
subsidiary companies who are qualified valuators. The valuation is performed by
capitalising the budget net income of the property at the market related yield
applicable at the time. Properties in Investec Property Fund are valued according
to the JSE Listings Requirements.
• The Group’s income tax charge and balance sheet provision are judgemental in
nature. This arises from certain transactions for which the ultimate tax treatment
can only be determined by final resolution with the relevant local tax authorities.
The Group recognises in its tax provision certain amounts in respect of taxation
that involve a degree of estimation and uncertainty where the tax treatment
cannot finally be determined until a resolution has been reached by the relevant
tax authority. The carrying amount of this provision is often dependent on the
timetable and progress of discussions and negotiations with the relevant tax
authorities, arbitration processes and legal proceedings in the relevant tax
jurisdictions in which the Group operates. Issues can take many years to resolve
and assumptions on the likely outcome would therefore have to be made by the
Group.
• Where appropriate, the Group has utilised expert external advice as well as
experience of similar situations elsewhere in making any such provisions.
Determination of interest income and interest expense using the effective interest
rate method involves judgement in determining the timing and extent of future
cash flows.
For further information please contact:
Investec Investor Relations
Carly Newton
UK: +44 (0) 207 597 5546 / +44 (0) 207 597 4493
South Africa: +27 (0) 11 286 7070
investorrelations@investec.com
For media enquiries please contact:
Lansons (UK PR advisers) – Tom Baldock. Tel: +44 (0)78 6010 1715
Brunswick (SA PR advisers) – Graeme Coetzee. Tel: +27 (0)11 502 7419/+27 (0)63 685 6053
About Investec
Investec partners with private, institutional and corporate clients to offer international banking,
investments and wealth management services in two principal markets, South Africa and the
UK, as well as certain other countries. The Group was established in 1974 and currently has
approximately 8,300 employees.
In 2002, Investec implemented a dual listed company structure with listings on the London
and Johannesburg Stock Exchanges. In March 2020, the Group successfully completed the
demerger of Ninety One (formerly known as Investec Asset Management), which became
separately listed on 16 March 2020. Investec’s current market capitalisation is approximately
GBP1.6 billion.
Johannesburg and London
Sponsor: Investec Bank Limited
Date: 20-03-2020 09:00:00
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