REG - Investec Bank PLC - Half-year Report

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30/11/2022 15:30

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RNS Number : 1200I  Investec Bank PLC  30 November 2022

 

 Investec Bank plc

 Incorporated in England and Wales

 Registration number 489604

 LEI: 84S0VF8TSMH0T6D4K848

 

 

Unaudited condensed Financial Statements for the six months ended 30 September
2022

Investec Bank plc

(Incorporated in England and Wales)

(Company Registration Number: 489604)

 

Interim Management Report

This Interim Management Report is issued by Investec Bank plc, a subsidiary of
the listed entity Investec plc, in accordance with the UK Listing Authority's
Disclosure and Transparency Rules and has been prepared in accordance with IAS
34 "Interim Financial Reporting". Unless stated otherwise, comparatives relate
to the six month period ended 30 September 2021 (1H2022). Further information
is contained in the Investec Bank plc unaudited consolidated interim financial
report for the six months ended 30 September 2022 (1H2023). Adjusted operating
profit refers to operating profit before amortisation of acquired intangibles,
strategic actions and taxation and after non-controlling interests.

Performance overview

The business delivered a solid set of results, with adjusted operating profit
up 36.2% against the prior period. Pre-provision adjusted operating profit
increased, supported by continued client acquisition resulting in higher
average advances, rising interest rates and increased client activity. Fee
income in our Wealth & Investment business was negatively impacted by the
effects of the market sell off on average funds under management (FUM).

Fixed operating expenditure reflects inflationary pressures and continued
investment in technology and people, while variable remuneration increased
given improved business performance.

Impairments were driven predominantly by updated forward looking
macro-economic scenarios since 31 March 2022.

Investec Bank plc (the bank) reported adjusted operating profit of GBP174.9
million for the six months ended 30 September 2022 (1H2022: GBP128.5 million).

The balance sheet remains strong, supported by sound capital and liquidity
ratios.

 

Key features of the period under review:

·      Net core loans increased 6.4% to GBP15.3 billion (31 March 2022:
GBP14.4 billion)

·      Third party funds under management (FUM) amounted to GBP40.5
billion (31 March 2022: GBP44.4 billion)

·      Customer accounts (deposits) increased 2.2% to GBP19.0 billion
(31 March 2022: GBP18.6 billion)

·      Cash and near cash balances decreased 4.6% to GBP8.5 billion (31
March 2022: GBP8.9 billion)

·      Capital ratios* remained sound with the bank reporting a total
capital ratio of 17.4% (31 March 2022: 18.2%), a common equity tier 1 ratio of
11.6% (31 March 2022: 12.0%) and a leverage ratio of 8.4% (31 March 2022:
9.3%)

·      The annualised credit loss ratio on average gross core loans
subject to expected credit losses was 32bps (31 March 2022: 17bps; 1H2022:
10bps).

 

*Including the deduction of foreseeable charges and dividends as required
under the Capital Requirements Regulation.

 

 

 

Business unit review

 

Wealth & Investment

 

Adjusted operating profit decreased 6.2% to GBP39.5 million (1H2022: GBP42.2
million), reflecting the volatile and uncertain operating environment.

 

FUM decreased by 8.9% to £40.5 billion impacted by the decline in market
levels since 31 March 2022 (31 March 2022: £44.4 billion). Net inflows for
1H2023 were £443 million. The elevated market volatility resulted in subdued
client activity and delays in investment decisions, negatively impacting both
inflows and commission-based fee income. Revenue was flat, positively impacted
by net organic flows in the current period and prior year and base rate
increases which were offset by lower fee income due to lower average FUM given
the market sell off. Commission based income was also negatively impacted by
the market conditions.

 

Operating costs were up 3.1% due to investment in technology, post-pandemic
normalisation in discretionary expenditure and inflationary pressures.

 

The business reported an operating margin of 22.6% (1H2022: 24.3%).

 

Specialist Banking

Adjusted operating profit increased by 56.9% to GBP135.4 million (1H2022:
GBP86.3 million).

 

Continued client acquisition supported the annualised loan book growth of
12.8% since 31 March 2022. Operating income growth was underpinned by higher
average book, higher fees, rising interest rates and sustained client
activity.

 

Net interest income increased 39.2% driven by higher average interest earning
assets, with average lending books up 15.5% relative to 1H2022, and the
positive effect of rising global interest rates.

 

Non-interest revenue increased 21.7% due to:

·      Higher fees from increased activity levels in the private equity
and power and infrastructure client franchises

·      Investment income driven by dividend income and realised gains on
disposal of investments.

·      Increase in trading income from customer flows supported by
higher hedging demand from clients given market volatility

·      Trading income from balance sheet management and other trading
activities growth was supported by the non-repeat of costs associated with the
early redemption of a senior bond in the prior period

-     offset by:

·      Lower fees and trading income from equity capital markets
activities given the volatile and uncertain environment

 

ECL impairment charges totalled £27.9 million, resulting in a credit loss
ratio of 32bps (1H2022: 10bps). The increase in ECL charges was driven by the
deterioration in forward-looking macro-economic assumptions, updated scenario
weightings in ECL models and Stage 3 ECL charges, albeit still below
historical experience. This follows limited impairment charges in the prior
period given the significant government support available to UK households and
companies during the pandemic. The management overlay of £16.8 million was
retained to account for the uncertainty that remains in the macro-economic
environment, in particular, the ongoing UK political environment and
associated market volatility.

 

The cost to income ratio improved to 63.2% (1H2022: 72.4%). Operating costs
increased by 17.1% period-on-period primarily driven by an increase in
variable remuneration in line with business performance, inflationary
pressures and investment in people and technology.

 

Net core loans grew by 12.8% annualised to £15.3 billion (31 March 2022:
£14.4 billion) driven by residential mortgages and strong demand for
corporate credit across multiple portfolios. A portion of the loan growth was
the translation effects from the weakening of the Pound Sterling against the
US Dollar and Euro during the period.

 

Further information on key developments within each of the business units is
provided in the Investec group's interim report published on the Investec
group's website: http://www.investec.com (http://www.investec.com) .

 

Operational review

Funding and liquidity

As at 30 September 2022, Investec Bank plc had GBP8.5 billion in cash and near
cash balances (31 March 2022: GBP8.9 billion), representing 44.5% of customer
deposits. The bank continues to maintain a conservative liquidity and funding
profile. Loans and advances to customers as a percentage of customer deposits
amounted to 80.7% (31 March 2022: 77.5%). The bank comfortably exceeds Basel
liquidity requirements for the Liquidity Coverage Ratio (LCR) and Net Stable
Funding Ratio (NSFR). At 30 September 2022 IBP (solo basis) LCR was 360% and
the NSFR was 129%.

Capital adequacy*

Capital remained comfortably in excess of regulatory requirements and the bank
continued to meet the Investec group's internal board-approved capital
targets. As at 30 September 2022, the common equity tier 1 ratio of the bank
was 11.6%, the total capital ratio was 17.4% and the current leverage ratio
was 8.4%.

*Including the deduction of foreseeable dividends as required under the
Capital Requirements Regulation.

Credit quality and counterparty exposures

The bank lends mainly to high net worth and high income individuals, mid to
large sized corporates, public sector bodies and institutions. The majority of
the bank's credit and counterparty exposures reside within its principal
operating geography, namely the UK.

 

Expected credit loss (ECL) impairment charges amounted to GBP27.9 million
(1H2022: GBP5.0 million). The bank's annualised credit loss ratio for the
period was 32bps (31 March 2022: 17bps; 1H2022: 10bps). Since 31 March 2022,
gross core loan Stage 3 assets amounted to GBP304 million (31 March 2022: GBP
291 million). Stage 3 assets (net of ECL) as a percentage of net core loans
subject to ECL was 1.6% (31 March 2022: 1.6%).

 

Taxation

The tax charge on adjusted operating profit was GBP40.7 million (1H2022:
GBP16.3 million), resulting in an effective tax rate of 23.4% (1H2022: 12.7%).

 

Outlook

We continue to successfully navigate the uncertain macro backdrop that has
persisted since the onset of the pandemic and have made significant progress
against the strategic goals outlined at the Investec Group's 2019 Capital
Markets Day. We have strong capital and robust liquidity levels, are firmly
committed to our medium-term targets and well positioned to pursue identified
growth initiatives in our chosen markets.

 

On behalf of the board of Investec Bank plc

 

 

Ruth Leas

Chief Executive Officer

 

Note to the commentary section

This interim management report includes an unaudited consolidated condensed
set of financial statements produced by the bank for the six months ended 30
September 2022, which can be accessed via the following link
http://www.rns-pdf.londonstockexchange.com/rns/1200I_1-2022-11-30.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/1200I_1-2022-11-30.pdf) . This
document is also available on Investec's website at
https://www.investec.com/content/dam/investor-relations/financial-information/interim-results/2022/Investec-Bank-plc-website-booklet-Sep-2022.pdf
(https://www.investec.com/content/dam/investor-relations/financial-information/interim-results/2022/Investec-Bank-plc-website-booklet-Sep-2022.pdf)
, and via the National Document Storage Mechanism at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism)

 

These unaudited consolidated financial results have been prepared in terms of
the recognition and measurement criteria of International Financial Reporting
Standards, and the presentation and disclosure requirements of IAS 34,
(Interim Financial Reporting).

The accounting policies applied in the preparation of the results for the
period to 30 September 2022 are consistent with those adopted in the financial
statements for the year ended 31 March 2022.

Contingent liabilities

 

The group assessed its exposure to legal proceedings and the appropriateness
of related provisions recognised on the balance sheet as at 30 September 2022.
It was concluded that the provisions held as at 30 September 2022 reflect our
best estimate of the potential financial outflows that may arise. Refer to
page 23 of the Investec Bank plc unaudited condensed financial information for
the six months ended 30 September 2022 for further detail.

 

 

Enquires and further information:

Investor Relations

Investec Bank plc

Telephone: 020 7597 5546 / 020 7597 3593

30 Gresham Street, London, EC2V 7QP

United Kingdom

Investec Bank plc

directors' responsibilitY STATEMENT

 

 

The directors (the names of whom are set out below) are required to prepare
the financial statements on a going concern basis unless it is not appropriate
to do so. In making this assessment, the directors have considered information
relating to present and future conditions. Each of the directors (the names of
whom are set out below) confirm that to the best of their knowledge these
condensed consolidated interim financial statements have been prepared in
accordance with International Accounting Standard (IAS) 34 "Interim Financial
Reporting", as adopted by the UK, and that the interim management report
herein includes a fair review of the information required by the Financial
Conduct Authority's (FCA's) Disclosure Guidance and Transparency Rule (DTR)
4.7.2R and DTR 4.2.8R, namely:

 

·      An indication of important events that have occurred during the
six months ended 30 September 2022 and their impact on the condensed
consolidated interim financial statements, and a description of the principal
risks and uncertainties for the remaining six months of the financial year;
and

·      Material related party transactions in the six months ended 30
September 2022 and any material changes in the related party transactions
described in the last annual report

 

 

Signed on behalf of the board

 

 

 

 

Ruth Leas

Chief Executive Officer

30 November 2022

 

Investec Bank plc board of directors:

 

Executive directors

Ruth Leas (Chief Executive Officer)

Kevin McKenna (Chief Risk Officer)

Marlé van der Walt (Finance Director)

Fani Titi

 

Non-executive directors

Brian Stevenson (Chair)

Moni Mannings (Senior Independent Director)

Henrietta Baldock

Zarina Bassa

David Germain

Paul Seward

Lesley Watkins

 

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