REG - Investec PLC - Pre-Close Trading Statement

InvestecAnnouncement

16/03/2023 07:00

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RNS Number : 1135T  Investec PLC  16 March 2023

 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

 JSE hybrid code: INPR                          JSE share code: INP

ISIN: GB00B17BBQ50
 JSE debt code: INLV

                                              LEI: 2138007Z3U5GWDN3MY22
 NSX share code: IVD

 BSE share code: INVESTEC

 ISIN: ZAE000081949

 LEI: 213800CU7SM6O4UWOZ70

 

Group pre-close trading update and trading statement
 

16 March 2023

Investec today announces its scheduled pre-close trading update for the year
ending 31 March 2023 (FY2023).

Commentary on the Group's financial performance in this pre-close trading
update represents the 11 months ended 28 February 2023 and compares forecast
FY2023 to FY2022 (31 March 2022) ^.

 

FY2023 earnings update and guidance

For the year ending 31 March 2023, the Group expects:

·      Adjusted earnings per share between 66p and 70p ( 20% to 27%
ahead of prior year) (FY2022: 55.1p).

·    Basic earnings per share between 83p and 87p ( 60% to 67% ahead of
prior year) (FY2022: 52.0p), positively impacted by the gain on the
implementation of the Ninety One distribution in May 2022.

·      Headline earnings per share between 65p and 69p ( 22% to 29%
ahead of prior period) (FY2022: 53.3p).

·      Adjusted operating profit before tax between £782.8 million and
£833.6 million (FY2022: £687.4 million).

o  UK business' adjusted operating profit to be at least 15% higher than
prior year (FY2022: £302.8 million). Specialist Bank expected to be at least
30% higher than prior year (FY2022: £193.7 million).

o  Southern African business' adjusted operating profit to be at least 10%
ahead of prior year in Rands (FY2022: R7 812 million, £384.6 million).
Specialist Bank expected to be at least 15% higher than prior year in rands
(FY2022: R7 104 million, £349.4 million).

·       ROE to be within the Group's FY2024 target range of 12% to 16%,
in line with guidance given in November 2022.

 

The year to date performance which formed the basis for the above expectations
is summarised below:

 

The Group experienced strong performance, notwithstanding the complex
macroeconomic backdrop that prevailed in the period. Our diversified business
model and strong balance sheet allowed us to support our clients amidst this
evolving environment. Continued execution of our stated strategy has enabled
the Group to achieve its FY2024 targets.

 

The increase in pre-provision adjusted operating profit was underpinned by
continued client acquisition, positive effects from rising global interest
rates and higher average advances.

·      In the UK, the revenue growth experienced in the first half has
continued while the effects of weakening macro backdrop negatively impacted
equity capital markets (ECM) activity levels. In Southern Africa, the Group
experienced positive revenue momentum in the second half.

o  Net interest income benefitted from higher average lending books and
higher interest margin given the rising interest rate environment.

o  Non-interest revenue was negatively impacted by lower fees in the wealth
and investment businesses and UK ECM given market weakness, the distribution
of 15% shareholding in Ninety One and lower investment income; this was partly
offset by a positive contribution from trading income.

·    Fixed operating expenditure increased in line with the first half,
driven by continued investment in people and technology, and post-pandemic
normalisation of certain business expenses. Variable remuneration grew in line
with profitability. The cost to income ratio improved as revenue grew faster
than costs and is expected to be in line with 1H2023 levels and within our
FY2024 targets.

In line with the guidance provided in November 2022, the credit loss ratio
continued to normalise towards the through-the-cycle (TTC) range and is
expected to be in the bottom half of the Group's TTC range of 25bps to 35bps.

For the 11 months period ended 28 February 2023:

·     The Wealth & Investment business FUM declined by 3.7% to
£61.0 billion. This was driven by market volatility which was partly offset
by net inflows of £396 million (discretionary net inflows: £756 million and
non-discretionary net outflows: £361 million).

·      Within Specialist Banking, core loans grew by 1.5% (9.2% in
constant currency) annualised to £30.4 billion, driven by corporate lending
in both geographies and residential mortgage growth predominantly in the UK.

 

The Group is well capitalised with strong liquidity, above Board approved
minimums, and is well positioned to continue to support its clients and pursue
growth opportunities in line with our strategic objectives.

 

Investec has made significant progress on its capital optimisation strategy.
To date, the Group has acquired c.52 million shares or an equivalent of c.5.2%
of the shares outstanding before the November 2022 announcement of the share
purchase and share buy-back programme; and returned c.R5.4 billion or £245
million to shareholders through this programme. In South Africa, Investec
Limited received the approval to commence the capital measurement for the
income producing real estate portfolio under the advanced internal ratings
based (AIRB) based approach, resulting in 222bps uplift to CET 1 ratio as at
31 January 2023.

 

^ The Group distributed 15% of Ninety One on 30 May 2022, retaining a 10%
interest.

 

Other information

The financial information on which this trading update and trading statement
is based, has not been reviewed and

reported on by the external auditors.

 

An investor conference call will be held today at 09:00 UK time /11:00 South
African time. Please REGISTER HERE
(https://services.choruscall.za.com/DiamondPassRegistration/register?confirmationNumber=5135561&linkSecurityString=b5fa78c68)
for the call.

 

Year end results

The results for the year ending 31 March 2023 are scheduled for release on
Thursday,18 May 2023.

 

On behalf of the board

Philip Hourquebie (Chair), Fani Titi (Group Chief Executive)

 

For further information please contact:

Investec Investor Relations

General enquiries: investorrelations@investec.co.za
(mailto:investorrelations@investec.co.za)

 

Results:

Qaqambile
Dwayi

SA Tel: +27 (0)83 457 2134
 

 

Brunswick (SA PR advisers)

Graeme Coetzee Tel: +27 (0)63 685 6053

 

Lansons (UK PR advisers)

Tom Baldock Tel: +44 (0)78 6010 1715

 

 

 

 

 

 

 

 

 

 

 

Key income drivers

 

    Core loans

 £'m           28-Feb-23  31- Mar-22  % change  Neutral currency

% change
 UK and Other  15,763     14,423      9.3%      9.4%
 South Africa  14,617     15,511      (5.8%)    9.1%
 Total         30,379     29,934      1.5%      9.2%

    Customer deposits

 £'m           28-Feb-23  31- Mar-22  % change  Neutral currency

% change
 UK and Other  19,383     18,286      6.0%      6.0%
 South Africa  19,831     21,832      (9.2%)    5.2%
 Total         39,214     40,118      (2.3%)    5.5%

 

 Funds under Management (FUM)
 £'m                                28-Feb-23  31-Mar-22  % change  Neutral currency

% change
 Total Wealth & Investment FUM      61,044     63,376     (3.7%)    0.8%

 UK and Other                       41,445     42,894     (3.4%)    (3.4%)
 Discretionary                      35,847     36,728     (2.4%)    (2.4%)
 Non-discretionary                  5,598      6,166      (9.2%)    (9.2%)
 Southern Africa                    19,599     20,482     (4.3%)    9.5%
 Discretionary and annuity          10,690     10,243     4.4%      20.0%
 Non-discretionary                  8,909      10,239     (13.0%)   (1.1%)

 Specialist Bank                    383        424        (9.6%)    (6.3%)

 Total FUM                          61,427     63,800     (3.7%)    0.7%

 

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 Listings 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 an earnings measure required to be
calculated and disclosed by the JSE and is calculated in accordance with the
guidance provided in Circular 1/2021.

·      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 ended            Year ended

                     28 February 2023       31 March 2022         31 March 2021
 Currency            Period end  Average    Period end  Average   Period end  Average

 per GBP1.00
 South African Rand  22.27       20.30      19.24       20.28     20.36       21.33
 Euro                1.14        1.16       1.18        1.18      1.17        1.12
 US Dollar           1.21        1.20       1.31        1.37      1.38        1.31

 

3.     Profit forecasts

·      The following matters highlighted in this announcement contain
forward-looking statements:

§ Adjusted EPS is expected to be between 66.0p and 70.0p which is ahead of
FY2022.

§ Basic EPS is expected to be between 83.0p and 87.0p which is ahead of
FY2022.

§ HEPS is expected to be between 65.0p and 69.0p which is ahead of FY2022.

§ Adjusted operating profit is expected to be 14% to 21% ahead of FY2022.

§ The UK business' adjusted operating profit to be at least 15% higher than
prior year.

§ The Southern African business' adjusted operating profit to be at least 10%
ahead of prior year in Rands.

§ ROE is expected to be within the Group's FY2024 target range of 12% to 16%.

(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 15 March 2023.

·      These forward looking statements represent a profit forecast under
the Listing Rules. The Profit Forecasts relate to the period ending 31 March
2023.

·      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 March 2022 audited financial statements, which
are in accordance with IFRS and are those which the Group anticipates will be
applicable for the year ending 31 March 2023.

·      The Profit Forecasts have been prepared based on (a) audited
financial statements of the Group for the year ended 31 March 2022, and the
results of the Specialist Banking and Wealth & Investment businesses
underlying those audited financial statements; (b) the unaudited management
accounts of the Group and the Specialist Banking and Wealth & Investment
businesses for the 11 months to 28 February 2023; and (c) the projected
financial performance of the Group and the Specialist Banking and Wealth &
Investment businesses for the remaining one month of the period ending 31
March 2023.

·      Percentage changes shown on a neutral currency basis for balance
sheet items assume that the relevant closing exchange rates at 28 February
2023 remain the same as those at 31 March 2022. This neutral currency
information has not been reported on by the Group's auditors.

 

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.

·      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 Group (comprising Investec plc and Investec Limited) partners with
private, institutional, and corporate clients, offering private banking,
wealth management, corporate and investment banking, and investments 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 8,500+
employees.

 

In 2002, Investec implemented a dual listed company structure with listings on
the London and Johannesburg Stock Exchanges.

 

 

Johannesburg and London

 

JSE Equity Sponsor: Investec Bank Limited

 

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