REG - Investec PLC - Pre-Close Trading Statement

InvestecAnnouncement

20/03/2025 07:15

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RNS Number : 3806B  Investec PLC  20 March 2025

 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
 

20 March 2025

Investec Group today announces its scheduled pre-close trading update for the
year ending 31 March 2025 (FY2025). 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 11 months ended 28 February 2025 and compares forecast
FY2025 to FY2024 (31 March 2024).

The prior year results are presented on a continuing and discontinuing basis
in line with the relevant accounting standards as a result of previously
announced strategic actions.

The following commentary is based on the Group's total performance.

 

 FY2025 earnings update and guidance

 

Our client franchises continued to make progress against our strategic
priorities, supporting revenue growth in a challenging operating environment.
Our diversified business model and strong balance sheet allowed us to continue
supporting our clients and achieve results within our financial target ranges.

 

For the year ending 31 March 2025, the Group expects:

·      Pre-provision adjusted operating profit to be between £1 013
million and £1 076 million (FY2024: £963.6 million) or c.5.0% to c.12.0%
ahead of prior year

·      Adjusted earnings per share between 75.0p and 81.2p (FY2024:
78.1p) or c.4.0% behind to c.4.0% ahead of prior year

·      Headline earnings per share between 67.2p and 73.5p (FY2024:
72.9p) or c.8.0% behind to c.1.0% ahead of prior year

·      Basic earnings per share between 67.2p and 73.5p (FY2024: 105.3p)
or c.30.0% to c.36.0% behind prior year. The prior year was positively
impacted by the significant net gain from the implementation of the UK Wealth
& Investment combination with Rathbones which was partially offset by the
effects of Burstone's deconsolidation; and the amortisation of intangible
assets associated with the Rathbones combination in the current period

·      Credit loss ratio to be within the through-the-cycle (TTC) range
of 25bps to 45bps. The overall credit quality remained strong

·      Cost to income ratio to be below the 53.8% reported in the prior
year, benefitting from revenue growing ahead of costs

·      Group adjusted operating profit before tax between £888 million
and £956 million

(FY2024: £884.5 million)

o  Southern African business adjusted operating profit to be at least 5.0%
ahead of prior year in Rands (FY2024: R10 097 million, £429.0 million).
Specialist Bank adjusted operating profit expected to be between 2.0% and 7.0%
ahead of prior year in Rands (FY2024: R9 516 million, £404.3 million). Credit
loss ratio is expected to remain around the lower end of the TTC range of
15bps to 35bps. The expected credit losses (ECLs) reflect lower recoveries
from previously written off exposures relative to prior year. The Southern
African business ROE is expected to be between 17.7% and 18.7%, within the
16.0% to 20.0% medium-term target range. The Investec Limited CET1 ratio at 31
December 2024 was 14.8%(1) (31 Mar 2024: 13.6%)

o  UK business, including Rathbones Group, adjusted operating profit to be
4.0% behind to 4.0% ahead of the prior year (FY2024: £455.5 million).
Specialist Bank adjusted operating profit is expected to be c.4.0% behind to
c.4.0% ahead of prior year, following a significant increase of 33.9% in the
prior year (FY2024: £406.2 million). We expect to report a credit loss ratio
around the upper end of the previously guided range of 50bps to 60bps, driven
by certain specific impairments. The UK business ROTE is expected to be
between 13.5% to 14.5%, within the medium-term target range of 13.0% to 17.0%.
The Investec plc CET1 ratio at 31 December 2024 was 12.3%(2) (31 Mar 2024:
12.4%(3))

 

·      Group ROE to be between 13.0% and 14.0%, within the Group's
medium-term target range of 13.0% to 17.0%. Group ROTE is expected to be
between 15.5% and 16.5%, within the 14.0% to 18.0% medium-term range.

 

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

·      Revenue growth was supported by continued client acquisition,
strong net inflows in discretionary and annuity funds under management (FUM)
in the current and prior periods and higher average advances

o  Net interest income benefitted from the growth in average lending books
and lower cost of funds in Southern Africa in line with our strategy to
optimise the funding pool, this was partly offset by the effects of deposit
repricing in the UK

o  Non-interest revenue (NIR) benefitted from year-to-date improvement in
fee-generating activities within our Banking businesses, as well as strong
fees from our SA Wealth & Investment business. Investment income also
positively contributed to NIR growth reflecting net fair value gains, and
dividends received. Increased market liquidity and the upward trending market
resulted in higher trading income from client flow; this was partially offset
by lower risk management gains in hedging the remaining and significantly
reduced financial products run down book in the UK.

·      The cost to income ratio improved relative to the prior year
(FY2024: 53.8%) as revenue grew ahead of costs. Fixed operating expenditure
reflected continued investment in people and technology for growth and
inflationary pressures. Variable remuneration in each geography was in line
with respective underlying performance

·      Investec's share of Rathbones reported post-tax underlying profit
attributable to shareholders for their year ended 31 December 2024 of £167.6
million is £69.1 million (FY2024: £66.9 million)

( )

(1) Investec Limited is predominately on the advanced approach for credit and
market risk. Investec Limited's capital information includes unappropriated
profits. If unappropriated profits are excluded from capital information,
Investec Limited's CET1 ratio would be 57bps (111bps) lower.

(2) Investec plc reports capital ratios measured on a Standardised capital
measurement approach. Investec plc's December 2024 CET1 ratio excludes
quarterly profits and associated foreseeable charges and dividends for the
period 1 October 2024 to 31 December 2024. In accordance with the Prudential
Regulation Authority rules, quarterly profits may only be included in a firm's
capital position once the profits have been independently verified by an
external audit firm.

(3)Investec plc's March 2024 capital disclosures follow Investec's normal
basis of presentation and do not include the deduction of foreseeable charges
and dividends when calculating the CET1 ratio as required under the Capital
Requirements Regulation.

 

 

 

For the 11 month period ended 28 February 2025:

·      Within Specialist Banking, core loans increased by 4.7%
annualised to £32.2 billion

(31 March 2024: £30.9 billion) and increased by 3.2% annualised in neutral
currency, driven by growth in private client lending in both geographies as
well as corporate lending in South Africa. Growth in corporate lending
turnover in the UK was offset by elevated repayments given the higher interest
rate environment

·      Customer deposits increased by 4.8% annualised to £41.2 billion
on reported basis and increased by 3.3% annualised in neutral currency

·      Funds under management (FUM) in Southern Africa increased by
14.5% to £24.0 billion (31 March 2024: £20.9 billion). Net discretionary and
annuity inflows of R14.7 billion were partly offset by outflows of R9.6
billion in non-discretionary FUM

·      Rathbones Group, a 41.25% held Investec associate, reported funds
under management and administration of £109.2 billion as at 31 December 2024.

 

The Group maintained strong capital and liquidity levels and is well
positioned to continue supporting our clients navigate the current environment
and execute on our strategic priorities.

 

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=2171710&linkSecurityString=98c4a863a)
for the call.

 

Year end results

The year end results for the year ending 31 March 2025 are scheduled for
release on Thursday, 22 May 2025.

 

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)

Tim Schultz Tel: +27 (0)82 309 2496

 

Lansons (UK PR advisers)

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

 

 

Key income drivers

 

    Core loans

 £'m           28-Feb-25  31- Mar-24  % change  Neutral currency

% change
 UK and Other  16,607     16,557      0.3%      0.3%
 South Africa  15,633     14,344      9.0%      6.0%
 Total         32,240     30,901      4.3%      3.0%

    Customer deposits

 £'m           28-Feb-25  31- Mar-24  % change  Neutral currency

% change
 UK and Other  21,246     20,784      2.2%      2.2%
 South Africa  19,984     18,721      6.7%      3.8%
 Total         41,230     39,505      4.4%      3.0%

 

 Funds under Management (FUM)
 £'m                                        28-Feb-25  31-Mar-24   % change   Neutral currency

% change

 Wealth & Investment - Southern Africa      23,959     20,922     14.5%       11.8%
 Discretionary                              14,181     12,517     13.3%       10.4%
 Non-discretionary                          9,778      8,405      16.3%       13.8%
                                            109,200    107,600

 Rathbones Group plc*

*  The balance of £109.2bn reflects total funds under management and
administration (FUMA) as reported at 31 December 2024 by Rathbones Group plc.

 

 

Notes

 

1.     Definitions

·      Adjusted operating profit refers to profit before tax of
continuing operations, adjusted to remove goodwill, acquired intangibles and
strategic actions, including such items within equity accounted earnings, and
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
external auditors

·      Adjusted earnings attributable to ordinary shareholders is
calculated as earnings attributable to shareholders adjusted to remove
goodwill, acquired intangible assets, strategic actions, including such items
within equity accounted earnings, 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 ordinary 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 by The South African Institute of Chartered Accountants in
Circular 1/2023

·      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

                     28 February 2025       31 March 2024
 Currency            Period end  Average    Period end  Average

 per GBP1.00
 South African Rand  23.31       23.22      23.96       23.54
 Euro                1.21        1.19       1.17        1.16
 US Dollar           1.26        1.27       1.26        1.26

 

 

 

 

 

 

 

 

 

3.     Profit forecasts

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

§  Adjusted EPS is expected to be between 75.0p and 81.2p which is below and
ahead of FY2024 respectively

§  HEPS is expected to be between 67.2p and 73.5p which is below and ahead
of FY2024 respectively

§  Basic EPS is expected to be between 67.2p and 73.5p which is below FY2024

§  Pre-provision adjusted operating profit is expected to be between £1 013
million and £1 076 million which is ahead of FY2024

§  Adjusted operating profit is expected to be between £888 million and
£956 million which is ahead of FY2024

§  The UK business' including Rathbones Group adjusted operating profit to
be 4.0% behind to 4.0% ahead of prior year. Specialist Bank adjusted operating
profit is expected to be 4.0% behind to 4.0% ahead of prior year. The UK
business ROTE is expected to be between 13.5% to 14.5%, within the medium-term
target range of 13.0% to 17.0%

§  The Southern African business' adjusted operating profit to increase by
at least 5.0% ahead of prior year in Rands. Specialist Bank adjusted operating
profit expected to be between 2.0% and 7.0% ahead of prior year in Rands. SA
business ROE is expected to be between 17.5% and 18.5% within the 16.0% to
20.0% medium-term target range

§  ROE is expected to be between 13.0% and 14.0%, within the Group's
medium-term target range of 13% to 17%.

(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 - which 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 19 March 2025

·      These forward-looking statements represent a profit forecast
under the Listing Rules. The Profit Forecasts relate to the year ended 31
March 2025

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 compiled using the assumptions
stated below, and on a basis consistent with the accounting policies adopted
in the Group's March 2024 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 2025.

·      The Profit Forecasts have been prepared based on (a) audited
financial statements of the Group for the year ended 31 March 2024, 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 2025; 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 2025.

·      Percentage changes shown on a neutral currency basis for balance
sheet items assume that the relevant closing exchange rates at 28 February
2025 remain the same as those at 31 March 2024. 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 remain materially unchanged from the prevailing rates detailed above

·      The tax rates remain materially unchanged

·      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

·      Based on the current available information, the provision for the
motor commission review as reported as at 30 September 2024 is not expected to
change materially. There remains significant uncertainty across the industry
as to the extent of any misconduct and customer loss that may be identified,
and/or the nature, extent and timing of any remediation action that may
subsequently be required following the Court of Appeal decision and FCA motor
commission review. The Group notes that the ultimate financial impact of the
Court of Appeal decision and ongoing FCA investigation into motor commission
could materially vary, pending further guidance from the FCA or the outcome of
the intended appeal to the UK Supreme Court

·      Valuation of investment properties is performed by capitalising
the budgeted 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. The Group was established in 1974
and currently has 7,800+ employees. Investec has a dual listed company
structure with primary listings on the London and Johannesburg Stock
Exchanges.

 

Johannesburg and London

 

JSE Equity and Debt Sponsor: Investec Bank Limited

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