TIDMINVP
RNS Number : 8397S
Investec PLC
19 March 2021
Investec Limited Investec plc
Incorporated in the Republic of South Incorporated in England and Wales
Africa Registration number 3633621
Registration number 1925/002833/06 LSE share code: INVP
JSE share code: INL JSE share code: INP
NSX share code: IVD ISIN: GB00B17BBQ50
BSE share code: INVESTEC
ISIN: ZAE000081949
Investec (comprising Investec plc and Investec Limited) -
pre-close trading update
19 March 2021
Investec today announces its scheduled pre-close trading update
for the year ending 31 March 2021 (FY2021).
An investor conference call will be held today at 09:00 UK time
/ 11:00 South African time. Please register for the call at
www.investec.com/investorrelations .
Commentary on the group's financial performance in this
pre-close trading update represents the continuing operations
(excluding Ninety One, formerly Investec Asset Management) for the
11 months ended 28 February 2021 and compares forecast FY2021 to
FY2020.
Fani Titi, Group Chief Executive commented :
"The group's operating results for the year ending 31 March 2021
are expected to be in line with the guidance released in our
interim results in November 2020. We are encouraged by the momentum
we are seeing across our business, the continued recovery of
markets and the positive developments related to COVID-19 vaccines.
Our expected performance demonstrates the strength of our
underlying client franchises, the continued execution of our
strategic objectives and the resilience of our people in what has
been an unprecedented year.
Adjusted earnings per share from continuing operations for
FY2021 is expected to be 20% - 29% behind the prior year.
Underlying performance has been resilient notwithstanding the
challenging operating environment and the elevated risk management
and risk reduction costs associated with hedging our UK structured
products book as previously communicated.
While the general outlook is improving, the long-term impact of
the pandemic is uncertain. Investec remains well capitalised,
highly liquid, and well provisioned for impairments. With the
simplification of the group now substantially complete, we are
positioned to pursue long term growth."
Trading update - key highlights:
The year-on-year performance has been negatively impacted by
lower interest rates, elevated costs related to the hedging of our
UK structured products book as guided in November, reduced client
activity and a c.14% depreciation of the average Rand against Pound
Sterling. This was offset by lower expected credit losses and
continued cost containment.
Adjusted operating profit is expected to be 16% - 24% behind the
prior year. The effective tax rate for FY2021 is expected to be
approximately 22% (FY2020: 11.9%).
The second half (2H2021) adjusted operating profit and earnings
are expected to be ahead of comparable numbers reported in the
first half (1H2021) of the financial year, reflecting an improving
trend, particularly in the last quarter.
-- Resilient client franchises : The Specialist Banking
businesses saw improved client activity in 2H2021 (as economies
continued to recover) with good client acquisition in both
geographies. The Private Banking franchise reported strong lending
book growth in 2H2021. Corporate lending activity was largely
subdued over the period under review, showing improvement in the
last quarter of the 2020 calendar year. The Wealth & Investment
businesses reported growth in funds under management (FUM)
reflecting market recovery, continued net inflows and good
investment performance.
-- Key earnings drivers: Core loans increased 5.5% to GBP26.3
billion (FY2020: GBP24.9 billion) while deposits were up 5.9% to
GBP34.1 billion (FY2020: GBP32.2 billion). Over the 11 months to 28
February 2021, third-party FUM increased by 26.7% to GBP57 billion
(FY2020: GBP45 billion) with net inflows of GBP961 million.
-- Operating income: While revenue benefitted from improved
client activity and liability repricing in 2H2021 relative to
1H2021, the expected revenue decline in FY2021 reflects an
environment still marked by the crisis that prevailed throughout
the financial year. Risk management and risk reduction costs
related to the hedging of the UK structured products book are
expected to be in line with guidance.
-- Costs: Operating costs for FY2021 are expected to be lower
than FY2020 by mid-single digits and include costs associated with
the implementation of strategic initiatives during the period under
review.
-- Asset quality: The group expects to report a lower expected
credit loss charge in 2H2021 compared to 1H2021. The credit loss
ratio is expected to be between 37bps and 44bps (1H2021: 47bps;
FY2020: 52bps). We have seen a reduction in clients seeking
COVID-19 relief over the period. Currently, 2.3% of UK and an
immaterial portion of South Africa's exposures are under some form
of COVID-19 relief compared to the peak of 13.7% and 23%
respectively.
-- Capital and liquidity: Capital and leverage ratios remain
sound, ahead of internal board-approved minimum targets and
regulatory requirements. The liquidity coverage ratio (LCR) and net
stable funding ratio (NSFR) remain well above the regulatory
minimum and the group's cash and near cash at 28 February 2021 was
GBP13.9 billion (representing c.40.8% of customer deposits).
-- Net asset value (NAV): NAV per share is expected to increase
from 414.3p (FY2020) to between 436p and 465p, while Tangible NAV
per share is expected to increase from 377.7p (FY2020) to between
398p and 427p.
FY2021 earnings guidance: The table below contains the group's
earnings guidance metrics for the total group both including and
excluding discontinued operations. Ninety One was consolidated up
to 13 March 2020 (the date of the demerger) and disclosed as a
discontinued operation for the year ended 31 March 2020.
Total group Total group
(excluding discontinued (including discontinued
operations) operations)
FY2021 range FY2020 FY2021 range FY2020
----------------- -------- ----------------- --------
Adjusted EPS
- p 24 to 27 33.9 24 to 27 46.5
----------------- -------- ----------------- --------
Basic EPS
- p 19.7 to 22.5 17.5 19.7 to 22.5 115.3*
----------------- -------- ----------------- --------
HEPS - p 19.5 to 22.3 21.5 19.5 to 22.3 29.2
----------------- -------- ----------------- --------
* includes the gain from the demerger of Ninety One.
Dividend guidance: We note the updated guidance from the
Prudential Authority and the Prudential Regulation Authority
regarding the payment of dividends. A final dividend will be
considered as part of the normal Board process leading up to the
release of the final 31 March 2021 results on 21 May 2021. The
group's targeted dividend payout ratio remains between 30% and 50%
of adjusted earnings per share.
Business update: Following the FY2021 year end results
presentation in May, the group will provide a business update on
Investec plc. Webcast details will be provided in due course.
For further information please contact:
Investec Investor Relations
Qaqambile Dwayi
South Africa: +27 (0) 11 291 0129/+27 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)63 685
6053
Divisional overview
The commentary and trends that follow, unless stated otherwise,
relate to the continuing operations for the 11 months ended 28
February 2021, and compare forecast FY2021 to FY2020. Continuing
operations in FY2021 include the group's equity accounted earnings
for Ninety One.
Adjusted operating profit from continuing operations is expected
to be 16% - 24% behind FY2020 (FY2020: GBP285.7 million) for
Southern Africa, while the UK is expected to be 15% - 26% behind
FY2020 (FY2020: GBP133.5 million).
Southern Africa:
-- Specialist Bank: Adjusted operating profit is expected to be
behind FY2020 in Rands and Pounds Sterling (FY2020: R4 960 million,
GBP263.7 million).
o Stronger client acquisition and activity levels within the
Private Bank, particularly in 2H2021, were offset by subdued
corporate lending activity. We note the meaningful recovery in
client activity levels since December 2020, however, these were
insufficient to reverse the experience in the first eight months of
the financial year.
o The results reflect lower transactional fee income given
subdued client activity and the impact of lower interest rates.
o The ECL impairment charge in 2H2021 is expected to be lower
than 1H2021, in line with guidance.
o Operating costs are expected to be lower than the prior
year.
-- Wealth & Investment: Adjusted operating profit is
expected to be ahead of FY2020 in Rands, marginally behind in
Pounds Sterling (FY2020: R501 million, GBP26.8 million).
o Over the 11 months to 28 February 2021 third-party FUM
increased by 30.7% to R329.8 billion (FY2020: R252.4 billion) with
net inflows of R200 million (discretionary inflows of R6.7 billion
were offset by R6.5 billion outflows in non-discretionary
portfolios).
o A moderate increase in fees in Rands was offset by the impact
of a low interest rate environment.
o Operating costs are expected to be lower than the prior
year.
UK & Other:
-- Specialist Bank: Adjusted operating profit is expected to be
significantly behind FY2020 (FY2020: GBP102.6 million) largely as a
consequence of structured products hedging costs as previously
guided.
o Client activity has picked up since the last quarter of the
2020 calendar year supported by steady deal flow and a strong
pipeline in certain lending areas despite a third UK lockdown.
o Private Banking activity showed strong book growth and client
acquisition, supporting net interest income which is broadly flat
despite lower interest rates.
o Net fees and commissions were slightly lower than FY2020.
Strong equity capital markets activity was offset by lower lending
activity levels.
o Trading income continued to be negatively impacted by elevated
risk management and risk reduction costs on hedging the structured
products book.
o The ECL impairment charge in 2H2021 is expected to be lower
than 1H2021 as we have not seen portfolio-wide stress due to
COVID-19.
o Operating costs are expected to be higher than the prior year
given once-off costs associated with implementation of
restructures, including the reorganisation of the UK bank and the
closure of our operations in Australia.
-- Wealth & Investment: Adjusted operating profit is
expected to be ahead of FY2020 (FY2020: GBP63.0 million).
o Over the 11 months to 28 February 2021 third-party FUM
increased by 23.5% to GBP40.9 billion (FY2020: GBP33.1 billion)
with net inflows of GBP952 million.
o Higher income from increased transaction volumes (in early
FY2021) and the associated repositioning of client portfolios was
offset by the impact of lower interest rates.
o Operating costs are expected to be lower than the prior
year.
Group Investments: Adjusted operating profit is expected to be
ahead of FY2020 (FY2020: GBP16.7m) driven by the positive impact
from the inclusion of the equity accounted earnings from the
group's 25% stake in Ninety One and profit on the sale of certain
assets. Operating costs are expected to be lower than the prior
year.
Group costs: Group costs are expected to be below GBP35 million
for FY2021 as guided in the interim results. These were also
positively impacted by the non-repeat of costs associated with the
exit of a marketing contract in the UK in the prior year.
Other information
-- The results of Ninety One are equity accounted in FY2021. In
FY2020, Ninety One was consolidated up to 13 March 2020 (the date
of the demerger) and thus shown as a discontinued operation for the
year ended 31 March 2020.
-- Results have been negatively impacted by the depreciation of
the average Rand against Pound Sterling exchange rate of
approximately 14%.
-- The effective tax rate is expected to be approximately 22% (FY2020: 11.9%).
-- The weighted average number of shares in issue for FY2021 is
expected to be approximately 929 million (FY2020: 946 million)
.
On behalf of the board
Perry Crosthwaite (Chairman), Fani Titi (Group Chief
Executive)
Key income drivers
Core loans
GBP'm 28-Feb-21 31- Mar-20 % change Neutral currency
% change
---------- ----------- ---------
UK and Other 12,595 11,870 6.1% 6.1%
South Africa 13,688 13,041 5.0% (0.8%)
Total 26,283 24,911 5.5% 2.5%
-------------- ---------- ----------- --------- -----------------
Customer deposits
GBP'm 28-Feb-21 31- Mar-20 % change Neutral currency
% change
---------- ----------- ---------
UK and Other 16,386 15,272 7.3% 7.3%
South Africa 17,745 16,949 4.7% (1.0%)
Total 34,131 32,221 5.9% 2.9%
-------------- ---------- ----------- --------- -----------------
Funds under Management
(FUM)
GBP'm 28-Feb-21 31-Mar-20 % change Neutral currency
% change
---------- ---------- ---------
Total Wealth & Investment
FUM 56,646 44,510 27.3% 25.3%
UK and Other 40,893 33,117 23.5% 23.5%
---------
Discretionary 34,274 27,599 24.2% 24.2%
Non-discretionary 6,619 5,518 20.0% 20.0%
---------- --------- -----------------
Southern Africa 15,753 11,393 38.3% 30.7%
---------
Discretionary and annuity 8,332 5,982 39.3% 31.6%
Non-discretionary 7,422 5,411 37.2% 29.6%
---------- --------- -----------------
Specialist Bank 388 508 (23.7%) (25.0%)
Total third party FUM 57,034 45,018 26.7% 24.8%
----------------------------------- ========== ========== ========= =================
Notes
1. 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. Pro-forma
financial information was prepared for illustrative purposes and
because of its nature may not fairly present the issuer's financial
position, changes in equity or results of operations. 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 specifically excludes
the after-tax gains realised on the demerger and the sale of
subsidiaries in FY2020 but includes the transaction costs incurred.
Headline earnings is an earnings measure required to be calculated
and disclosed by the JSE and is calculated in accordance with the
guidance provided in Circular 1/2019.
-- Headline earnings per share (HEPS) 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.
-- Core loans is defined as net loans 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 as a percentage of
average gross core loans subject to ECL.
2. 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:
11 months to Year to Six months to
28 February 2021 31 March 2020 30 September
2020
Currency Period Average Period Average Period Average
per GBP1.00 end end end
--------- --------- ------- -------- ------- --------
South African
Rand 20.94 21.39 22.15 18.78 21.58 22.05
--------- --------- ------- -------- ------- --------
Australian Dollar 1.81 1.81 2.03 1.87 1.80 1.85
--------- --------- ------- -------- ------- --------
Euro 1.15 1.12 1.13 1.15 1.10 1.12
--------- --------- ------- -------- ------- --------
US Dollar 1.40 1.30 1.24 1.27 1.29 1.27
--------- --------- ------- -------- ------- --------
3. Profit forecasts
-- The following matters highlighted in this announcement contain forward-looking statements:
-- Adjusted EPS is expected to be between 24p and 27p which is
behind FY2020.
-- Basic EPS is expected to be between 19.7p and 22.5p which is
ahead of FY2020.
-- HEPS is expected to be between 19.5p and 22.3p which is
behind FY2020.
-- Adjusted operating profit is expected to be 16% to 24% behind
FY2020.
-- Adjusted operating profit for the South African Specialist
Bank is expected to be behind FY2020.
-- The UK Specialist Bank adjusted operating profit is expected
to be significantly behind FY2020.
-- The South African Wealth & Investment business adjusted
operating profit is expected to be ahead of FY2020 in Rands, behind
in Pounds Sterling.
-- The UK Wealth & Investment business adjusted operating
profit is expected to be ahead of FY2020.
(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 actual future
results, performance or achievements in the markets in which it
operates to differ from those expressed in the Profit
Forecasts.
-- Any forward looking statements made are based on the
knowledge of the group at 18 March 2021.
-- These forward looking statements represent a profit forecast
under the Listing Rules. The Profit Forecasts relate to the year
ending 31 March 2021.
-- 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 2020 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 2021.
-- The Profit Forecasts have been prepared based on (a) the
unaudited interim financial statements of the group for the six
months to 30 September 2020, and the results of the Specialist
Banking and Wealth & Investment businesses underlying those
interim financial statements; (b) the unaudited management accounts
of the group and the Specialist Banking and Wealth & Investment
businesses for the eleven months to 28 February 2021; and (c) the
projected financial performance of the group and the Specialist
Banking and Wealth & Investment businesses for the remaining
one month of the year ending 31 March 2021.
-- Percentage changes shown on a neutral currency basis for
balance sheet items assume that the relevant closing exchange rates
at 28 February 2021 remain the same as those at 31 March 2021.
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 above.
-- 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 reporting period. 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 judgmental in nature.
-- Valuation of investment properties is performed by
capitalising the budget net income of the property at the market
related yield applicable at the time.
-- The group's income tax charge and balance sheet provision are
judgmental 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.
About Investec
Investec partners with private, institutional, and corporate
clients, offering 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 8,500 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, which became separately listed on 16 March 2020. Investec's
current market capitalisation is approximately GBP2.4 billion.
Johannesburg and London
JSE Equity Sponsor: Investec Bank Limited
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