REG - Investec PLC - Pre-Close Trading Update

InvestecAnnouncement

23/09/2022 07:00

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RNS Number : 3689A  Investec PLC  23 September 2022

 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

 

Investec Group pre-close trading update and trading statement
 

23 September 2022

Investec today announces its scheduled pre-close trading update for the
interim period ending 30 September 2022 (1H2023).  An investor conference
call will be held today at 09:00 UK time /10:00 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 five months ended 31 August 2022 and compares forecast
1H2023 to 1H2022 (30 September 2021)^.

 

1H2023 earnings update and guidance

For the six months ending 30 September 2022, the Group expects:

·      Adjusted operating profit before tax between £372.6 million and
£406.2 million (1H2022: £325.7 million).

o  The UK business' adjusted operating profit to be at least 20% higher than
prior period (1H2022: £133.8 million).

o  The Southern African business' adjusted operating profit to be at least
10% ahead of prior period in Rands (1H2022: R3 828 million, £191.9 million).

·      Adjusted earnings per share between 30.0p and 33.0p (or 14% to
25% ahead of prior period) (1H2022: 26.3p).

·      Basic earnings per share between 46.5p and 51.p (or 84% to 104%
ahead of prior period) (1H2022: 25.0p), positively impacted by the gain on the
implementation of the Ninety One distribution in May 2022.

·      Headline earnings per share between 30.0p and 34.0p (or 21% to
38% ahead of prior period) (1H2022: 24.7p).

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

 

The above expectations are predicated on the following year to date
performance:

 

The operating performance reflects the benefits from continued strategic
execution and the diversity in the Group's revenue streams. The prevailing
uncertain and volatile macro environment has had a negative impact on certain
market facing businesses.

 

Pre-provision adjusted operating profit increased, supported by continued
client acquisition, positive effects from rising global interest rates and
higher average advances.

·      The positive revenue trajectory experienced in the last financial
year continued. Net interest income benefitted from higher average lending
books and higher interest margin given the rising interest rate environment.
Non-interest revenue growth was underpinned by increased client activity,
higher lending turnover and net positive contribution from investment income,
partly offset by lower fees from some of our market facing businesses.

·      Fixed operating expenditure increased, driven by inflationary
pressure on salaries, investment in technology and normalisation of certain
business expenses as COVID-19 related restrictions were removed. Variable
remuneration grew in line with revenue. The cost to income ratio improved as
revenue grew faster than costs and is expected to be within our FY2024
targets.

In line with the guidance provided in May 2022, the credit loss ratio
normalised towards the through-the-cycle range. This is largely driven by the
deterioration in the macro-economic outlook and limited specific impairments,
partly offset by higher recoveries in South Africa. Post-model overlays have
been maintained.

For the five months period ended 31 August 2022:

·      The Wealth & Investment business FUM declined by 2.7% to
£61.7 billion, driven by market volatility which was partly offset by net
inflows of £48 million (discretionary net inflows: £324 million and
non-discretionary net outflows: £276 million).

·      Within Specialist Banking, core loans grew by 7.8% annualised to
£30.9 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 remains
committed to the achievement of its medium-term targets.

 

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

 

Other information

The financial information on which this 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 for the call at
www.investec.com/investorrelations (http://www.investec.com/investorrelations)

 

Interim results

The results for the interim period ending 30 September 2022 are scheduled for
release on Thursday,17 November 2022.

 

 

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
Carly Newton

SA Tel: +27 (0)83 457 2134
                               UK Tel: +44 (0)20
75974493

 

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           31-Aug-22  31- Mar-22  % change  Neutral currency

% change
 UK and Other  15,262     14,423      5.8%      5.8%
 South Africa  15,642     15,511      0.8%      4.0%
 Total         30,904     29,934      3.2%      4.9%

    Customer deposits

 £'m           31-Aug-22  31- Mar-22  % change  Neutral currency

% change
 UK and Other  18,694     18,286      2.2%      2.2%
 South Africa  22,113     21,832      1.3%      4.4%
 Total         40,807     40,118      1.7%      3.4%

 

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

% change
 Total Wealth & Investment FUM      61,682     63,376     (2.7%)    (1.8%)

 UK and Other                       42,688     44,419     (3.9%)    (3.9%)
 Discretionary                      36,014     37,215     (3.2%)    (3.2%)
 Non-discretionary                  6,674      7,204      (7.4%)    (7.4%)
 Southern Africa                    18,994     18,957     0.2%      3.3%
 Discretionary and annuity          10,434     9,756      6.9%      10.3%
 Non-discretionary                  8,560      9,201      (7.0%)    (4.1%)

 Specialist Bank                    418        424        (1.4%)    (1.5%)

 Total FUM                          62,100     63,800     (2.7%)    (1.7%)

 

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 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 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:

 

                     Five months to        Year ended            Six months to

                     31 August 2022        31 March 2022         30 September 2021
 Currency            Period end  Average   Period end  Average   Period end  Average

 per GBP1.00
 South African Rand  19.83       19.77     19.24       20.28     20.29       19.94
 Australian Dollar   1.70        1.75      1.75        1.85      1.86        1.85
 Euro                1.16        1.18      1.18        1.18      1.16        1.16
 US Dollar           1.16        1.23      1.31        1.37      1.35        1.39

 

3.   Profit forecasts

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

§ Adjusted EPS is expected to be between 30.0p and 33.0p which is ahead of
1H2022.

§ Basic EPS is expected to be between 46.5p and 51.3p which is ahead of
1H2022.

§ HEPS is expected to be between 30.0p and 34.6p which is ahead of 1H2022.

§ Adjusted operating profit is expected to be 14% to 25% ahead of 1H2022.

§ The UK business' adjusted operating profit to be at least 20% higher than
prior period

§ The Southern African business' adjusted operating profit to be at least 10%
ahead of prior period 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 22 September 2022.

·      These forward looking statements represent a profit forecast
under the Listing Rules. The Profit Forecasts relate to the period ending 30
September 2022.

·      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 period ending 30 September 2022.

·      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 five months to 31 August 2022; 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 30
September 2022.

·      Percentage changes shown on a neutral currency basis for balance
sheet items assume that the relevant closing exchange rates at 31 August 2022
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 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 8,300 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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