TIDMINVP
RNS Number : 9223S
Investec PLC
15 March 2019
Investec Limited Investec plc
Incorporated in the Republic of South Incorporated in England
Africa 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
15 March 2019
Investec is today hosting an investor pre-close briefing at
09:00 BST time/11:00 South African time, which will focus on
developments within the group's core business areas for the
financial year ending 31 March 2019.
Strategic, operational, and financial overview of the year
ending 31 March 2019
Approximately six months ago, the group announced its intention
to simplify and focus its business in pursuit of disciplined growth
over the long term. This process started with the announcement of
the intention to demerge and separately list Investec Asset
Management. Subsequently, the group has articulated a clear set of
strategic priorities for both the Asset Management and Bank and
Wealth businesses.
The Bank and Wealth business is focused on a plan to enhance the
effectiveness of its operating platform to better serve clients and
deliver long-term shareholder returns. There are five key
priorities: increasing discipline in capital allocation; managing
the cost base for greater efficiencies; accelerating revenue
growth; expanding connectivity across the organisation to more
fully serve client needs; and bolstering digital capabilities.
The Asset Management business is concentrating efforts on its
existing offering: deepening and strengthening investment and
client capabilities for the long term; scaling the offering through
its global distribution model; and positioning for growth.
The operating environment has remained challenging over the
period. Global equity markets experienced a sharp decline at the
end of the 2018 calendar year before showing some recovery.
Economic growth has been weak in both South Africa and the UK, the
group's two core banking markets.
Against this backdrop, the group's operating profit (refer to
the definition in the notes) is expected to be ahead of the prior
year. The Bank and Wealth business is expected to report results
ahead of the prior year, while the Asset Management business is
expected to report results marginally behind the prior year.
Additional information is provided under the business review
section of this announcement.
Salient financial features of the group for the period under
review include:
-- Revenue is expected to be in line with the prior year
-- Annuity income as a percentage of total operating income is
expected to be approximately 77% (2018: 76%)
-- The expected credit loss (ECL) charge is anticipated to be
significantly less than the prior year. The credit loss ratio is
expected to be between 0.30% to 0.35% (September 2018: 0.34%; March
2018: 0.61%)
-- Modest cost growth is expected
-- Overall group results have been negatively impacted by the
depreciation of the average Rand against Pound Sterling exchange
rate of approximately 4% over the period
-- For the period 31 March 2018 to 28 February 2019:
o Third party assets under management increased 1.9% to GBP163.7
billion - an increase of 5.8% on a currency neutral basis
o Net inflows of GBP6.9 billion were generated
o Core loans and advances decreased 0.9% to GBP24.9 billion - an
increase of 6.0% on a currency neutral basis
o Customer accounts (deposits) increased 1.1% to GBP31.3 billion
- an increase of 8.1% on a currency neutral basis
-- The proposed demerger and separate listing of Investec Asset
Management is on track, subject to regulatory and shareholder
approvals.
Conclusion
The group's performance has been supported by growth in assets
under management and substantial net inflows, good loan book
growth, and significantly improved performance from the UK
Specialist Banking business. The group is committed to a strategy
of simplification, focus, and growth with discipline. The Bank and
Wealth business and the Asset Management business are dedicated to
pursuing the objectives outlined at their capital markets day
presentations.
On behalf of the board
Perry Crosthwaite (Chairman), Fani Titi (Joint Chief Executive
Officer) and Hendrik du Toit (Joint Chief Executive Officer)
Liquidity and capital management
-- The group has maintained a healthy liquidity position
-- The loans to customer deposits ratio at 28 February 2019 was 78.2% (31 March 2018: 79.6%)
-- Cash balances remain strong at GBP13.2 billion at 28 February
2019 (31 March 2018: GBP12.8 billion), equating to 42.0% of
customer deposits. This comprises cash and near cash of GBP6.3
billion (R117.1 billion) in Investec Limited and GBP6.9 billion in
Investec plc as at 28 February 2019
-- For the year to 31 March 2019 for both Investec plc and Investec Limited:
o Common equity tier 1 ratios are expected to remain in line
with the group's target of 10%
o Leverage ratios are robust and remain comfortably ahead of the
group's target of 6%
-- The group expects to implement the Foundation Internal
Ratings-Based (FIRB) approach in South Africa in the first quarter
of the 2020 financial year, subject to regulatory approval.
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.
Bank and Wealth
Specialist Banking
-- The Specialist Banking business is expected to post results
well ahead of the prior year. The UK Specialist Bank is expected to
report results significantly ahead of the prior year, while the
South African Specialist Bank is expected to report results behind
the prior year
-- In summary, key aspects include:
o Net interest and net fee income
-- An increase in net interest income driven by book growth in
both the UK and South Africa
-- Net fees and commissions in line with the prior year;
supported by strong advisory and structuring fees earned in the UK
Investment Banking business, and offset by lower investment banking
and corporate client activity levels in South Africa
o Other income (refer to the definition in the notes)
-- Other income is expected to be behind the prior year largely
due to a weaker performance across the investment portfolio
o Impairments
-- Impairments are expected to decrease significantly due to no
further occurrence of substantial losses on the legacy
portfolio
o Costs
-- Costs in the UK are expected to increase in line with
revenue
-- Costs in South Africa are expected to grow ahead of revenue,
primarily as a result of the prior-year rental provision
release.
Wealth & Investment
-- The Wealth & Investment business is expected to report results behind the prior year
-- Net inflows of GBP0.5 billion were generated to the end of
February 2019 (sound discretionary inflows were partially offset by
outflows relating to discontinued non-core non-managed UK
services)
-- Since 31 March 2018, assets under management have decreased
by 4.0% to GBP53.8 billion (a decrease of 0.6% on a currency
neutral basis)
-- Earnings have been impacted primarily by lower
transaction-based commissions and a non-recurring investment gain
realised in the prior year.
Asset Management
-- The Asset Management business is expected to report results
marginally behind the prior year
-- Substantial net inflows of GBP6.4 billion were generated to the end of February 2019
-- Since 31 March 2018, assets under management have increased
by 5.2% to GBP109.2 billion (an increase of 9.2% on a currency
neutral basis)
-- Revenue growth was dampened by considerable market volatility
during the second half of the year
-- Earnings have been impacted by lower performance fees in
South Africa and higher costs in the UK, including Markets in
Financial Instruments Directive II (MiFID II) and new premises
costs.
Other information
-- The effective tax rate is expected to be approximately 13%
compared with 9.6% in the prior year
-- Net non-controlling interests are expected to amount to
approximately GBP91 million (profits attributable) relating to the
Asset Management business and the consolidation of the Investec
Property Fund
-- The weighted number of shares in issue for the year ending 31
March 2019 is expected to be approximately 942 million.
Notes
1. Profit forecasts for the group, Bank and Wealth and Asset Management
-- The following matters as discussed in the briefing and
highlighted above contain forward-looking statements:
-- the group's operating profit (refer to the definition in the
notes) is expected to be ahead of the prior year;
-- the Bank and Wealth business is expected to report results
ahead of the prior year; and
-- the Asset Management business is expected to report results
marginally 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, Bank and Wealth's
and/or Asset Management'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, Bank and Wealth and Asset Management at 14
March 2019
-- These forward looking statements represent a profit forecast
under the Listing Rules. The Profit Forecasts relate to the period
ending 31 March 2019
-- The financial information on which the Profit Forecasts are
based, is the responsibility of the Directors of the group and have
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 2018 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 2019
-- The Profit Forecasts have been prepared based on (a) the
unaudited interim financial statements of the group for the six
months to 30 September 2018, and the results of Bank and Wealth and
Asset Management underlying those interim financial statements; (b)
the unaudited management accounts of the Investec group for the
eleven months to 28 February 2019; and (c) the projected financial
performance of the Investec group for the remaining one month of
the year ending 31 March 2019.
Assumptions
The Profit Forecast has 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
-- 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.
2. Definitions
-- 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 before group costs. Adjusted operating
profit is considered an important measure by Investec of the profit
realised by the group in the ordinary course of operations. In
addition, it forms the basis of the dividend pay-out policy.
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
-- Amounts represented on a currency neutral basis for balance
sheet items assume that the relevant closing exchange rates, as
reflected below, at 28 February 2019 remain the same as those at 31
March 2018
-- 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
-- References to other income relate to investment income, share
of post taxation profit of associates, trading income and other
operating income.
3. 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 Six months Year to
to to
28-Feb-2019 30-Sep-18 31-Mar-18
----------------- ----------------- -----------------
Currency Period Average Period Average Period Average
end end end
------- -------- ------- -------- ------- --------
per GBP1.00
------- -------- ------- -------- ------- --------
South African
Rand 18.62 17.96 18.44 17.76 16.62 17.21
------- -------- ------- -------- ------- --------
Australian
Dollar 1.87 1.80 1.80 1.79 1.83 1.72
------- -------- ------- -------- ------- --------
Euro 1.17 1.13 1.12 1.13 1.14 1.14
------- -------- ------- -------- ------- --------
US Dollar 1.33 1.31 1.30 1.33 1.40 1.33
------- -------- ------- -------- ------- --------
Presentation details
The briefing starts at 09:00 (BST time) (11:00 South African
time) and will be broadcast live via video conference from the
group's offices in London to Johannesburg. 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 2019
Release of year end results: 16 May 2019
For further information please contact:
Investec Investor Relations
UK: +44 (0) 207 597 5546
UK: +44 (0) 207 597 4493
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 select client base in three principal markets, the UK and Europe,
South Africa and Asia/Australia as well as certain other countries.
The group was established in 1974 and has approximately 10 300
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 GBP4.7 billion.
Johannesburg and London
Sponsor: Investec Bank Limited
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END
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