REG - Investec PLC - Trading Statement Pre Close 1H2025

InvestecAnnouncement

20/09/2024 07:00

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RNS Number : 9555E  Investec PLC  20 September 2024

 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 September 2024

Investec Group today announces its scheduled pre-close trading update for the
interim period ending 30 September 2024 (1H2025). 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 2024 and compares forecast
1H2025 to 1H2024 (30 September 2023).

The comparability of the total Group's year-on-year performance will be
affected by the financial effects of previously announced strategic actions
which resulted in the Group's performance being presented on a continuing and
discontinuing basis in line with the relevant accounting standards in the
prior period.

The following commentary is based on the Group's total performance, with the
comparative period comprising of continued and discontinued operations.

 

 1H2025 earnings update and guidance

 

Revenue momentum from our diversified client franchises continued. The initial
months of this period were characterised by low levels of activity ahead of
the national elections in both our anchor geographies. The latter part of this
period has seen a more positive economic outlook reflecting increasing
certainty on global interest rate cuts.

 

For the six months ending 30 September 2024, the Group expects:

·      Pre-provision adjusted operating profit to be between £520
million and £550 million (1H2024: £487.7 million) or 6.7% to 12.9% ahead of
prior period

·      Adjusted earnings per share between 37.2p and 40.2p (1H2024:
38.7p) or 4.0% behind to 4.0% ahead of prior period

·      Headline earnings per share between 35.3p and 38.2p (1H2024:
36.9p) or 1.4% behind to 3.5% ahead of prior period which includes the cost of
executing strategic actions, and the amortisation of intangible assets
associated with the Rathbones combination in the current period

·      Basic earnings per share between 35.2p and 38.2p (1H2024: 69.6p)
or 45.0% to 50.0% behind prior period. The prior period was positively
impacted by the 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 around the upper end of the through-the-cycle
(TTC) range of 25bps to 45bps. The overall credit quality remained strong, in
line with the position at FY2024 with no evidence of trend deterioration

·      Cost to income ratio to be below the 53.3% reported in the prior
period, benefitting from revenue growing ahead of costs

·      Group adjusted operating profit before tax between £450 million
and £482 million (1H2024: £441.4 million)

o  Southern African business adjusted operating profit to be at least 15.0%
ahead of prior period in Rands (1H2024: R4 832 million, £205.9 million).
Specialist Bank adjusted operating profit expected to be at least 11.0% ahead
of prior period in Rands (1H2024: R4 616 million, £196.8 million). Credit
loss ratio is expected to be below the midpoint of the TTC range of 15bps to
35bps. The expected credit losses (ECLs) reflect lower recoveries from
previously written off exposures relative to prior period. ROE is expected to
be closer to the upper end of the 16.0% to 20.0% medium-term target range

o  UK business, including Rathbones Group, adjusted operating profit to be 5%
to 11% behind the prior period (1H2024: £235.4 million). Specialist Bank
adjusted operating profit is expected to be flat to 9.0% lower following a
significant increase in the prior period (1H2024: £207.4 million). We expect
to report a credit loss ratio above the upper end of the guided range of 50bps
to 60bps, driven by certain specific impairments. ROTE is expected to be
between 13.0% to 14.0%, within the medium-term target range of 13.0% to 17.0%

·      Group ROE to be between 13.0% and 14.0%, within the Group's
upgraded 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 balance sheet growth, increasing
contribution from our various growth initiatives as well as the elevated
interest rate environment

o  Net interest income benefitted from the growth in average lending books
and higher average interest rates which was partly offset by the effects of
deposit repricing in the UK. Southern Africa also benefitted from lower cost
of funds as we continued to implement our strategies to optimise the funding
pool

o  Non-interest revenue (NIR) growth reflects the diversified nature of our
business model. Continued client acquisition and higher activity levels
underpinned NIR growth. The positive net inflows into SA Wealth &
Investment discretionary FUM in the prior year and the current period
contributed to the NIR growth. Trading income was behind prior period due to
reduced client flows in corporate foreign exchange and interest rate trading
desks as well as lower risk management gains in hedging the remaining and
significantly reduced financial products run down book in the UK. Equity
trading income arising from client flow was strong as markets trended upwards.
The consolidation of Capitalmind also supported NIR growth as it became a
Group subsidiary in the second quarter of FY2024. Investment income
contributed to the revenue growth given the improving global markets backdrop

·      The cost to income ratio improved relative to the prior period
(1H2024: 53.3%) as revenue grew ahead of costs. Fixed operating expenditure
reflected continued investment in people and technology for growth and
inflationary pressures. Variable remuneration decreased in line with the
slower growth in profitability.

For the five-month period ended 31 August 2024:

·      Within Specialist Banking, core loans increased by 6.1%
annualised to £31.7 billion (31 March 2024: £30.9 billion) and increased by
3.1% in neutral currency annualised, driven by private client lending in both
geographies and corporate client lending in the UK. Growth in lending turnover
was partially offset by the elevated repayments given the high interest rate
environment. Customer deposits remained flat at £39.5 billion on reported
basis and decreased by 2.9% in neutral currency annualised

·      Funds under management (FUM) in Southern Africa increased by
10.7% to £23.2 billion (31 March 2024: £20.9 billion. Net discretionary
inflows of R8.5 billion were augmented by net inflows of R1.3 billion in
non-discretionary FUM

·      Rathbones Group, a 41.25% held Investec associate, reported funds
under management and administration of £108.9 billion at 30 June 2024.

 

The Group maintained strong capital and liquidity levels and is well
positioned to continue supporting our clients and build to scale our
identified growth opportunities, in an improving economic environment.

 

The previously announced disposal of Assupol by Bud Group Holdings to Sanlam
is now unconditional following the approval by the South African Prudential
Authority. Assupol is a significant asset within the group of assets earmarked
to facilitate Investec's and other shareholders' exit from The Bud Group
Holdings.

 

The Group continues to trade in line with its FY2025 guidance.

 

The Group remains committed to its purpose of creating enduring worth for all
our stakeholders and the strategic priority to optimise shareholder returns.

 

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 / 10:00 South
African time. Please REGISTER HERE
(https://services.choruscall.za.com/DiamondPassRegistration/register?confirmationNumber=4730734&linkSecurityString=c997f5432.)
for the call.

 

Interim results

The interim results for the six months ending 30 September 2024 are scheduled
for release on Thursday, 21 November 2024.

 

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           31-Aug-24  31- Mar-24  Annualised % change  Annualised Neutral currency

% change
 UK and Other  16,931     16,557      5.4%                 5.4%
 South Africa  14,757     14,344      6.9%                 0.3%
 Total         31,687     30,901      6.1%                 3.1%

    Customer deposits

 £'m           31-Aug-24  31- Mar-24  Annualised % change  Annualised Neutral currency

% change
 UK and Other  21,207     20,784      4.9%                 4.9%
 South Africa  18,312     18,721      (5.2%)               (11.5%)
 Total         39,519     39,505      0.1%                 (2.9%)

 

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

% change

 Wealth & Investment - Southern Africa      23,169     20,922     10.7%       8.1%
 Discretionary                              13,083     12,517     4.5%        1.9%
 Non-discretionary                          10,086     8,406      20.0%       17.4%
                                            108,900    107,600

 Rathbones Group plc*

*  The balance of £108.9bn reflects total funds under management and
administration (FUMA) as reported at 30 June 2024 by Rathbones Group plc.

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 external 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 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:

 

                     5 months to           Year ended            Six months to 30 September 2023

                     31 August 2024        31 March 2024
 Currency            Period end  Average   Period end  Average   Period end        Average

 per GBP1.00
 South African Rand  23.32       23.42     23.96       23.54     22.99             23.48
 Euro                1.19        1.18      1.17        1.16      1.15              1.16
 US Dollar           1.31        1.27      1.26        1.26      1.22              1.26

 

3.     Profit forecasts

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

§  Adjusted EPS is expected to be between 37.2p and 40.2p which is below and
ahead of 1H2024 respectively

§  HEPS is expected to be between 35.3p and 38.2p which is below and ahead
of 1H2024 respectively

§  Basic EPS is expected to be between 35.2p and 38.2p which is below 1H2024

§  Pre-provision adjusted operating profit is expected to be between £520.0
million and £552 million which is ahead of 1H2024

§  Adjusted operating profit is expected to be between £450 million and
£482 million which is ahead of 1H2024

§  The UK business' including Rathbones Group adjusted operating profit to
be 5.0% to 11% behind prior period. Specialist Bank adjusted operating profit
is expected to be flat to 9.0% behind prior period. The UK business ROTE is
expected to be between 13.0% to 14.0%, within the medium-term target range of
13.0% to 17.0%

§  The Southern African business' adjusted operating profit to increase by
at least 15% ahead of prior period in Rands. Specialist Bank adjusted
operating profit expected to be at least 11.0% higher than prior period in
Rands. SA business ROE is expected to be closer to the upper end of 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
upgraded 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 September 2024

·      These forward-looking statements represent a profit forecast
under the Listing Rules. The Profit Forecasts relate to the six months ending
30 September 2024

·      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 5 months to 31 August 2024; 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 2024.

·      Percentage changes shown on a neutral currency basis for balance
sheet items assume that the relevant closing exchange rates at 31 August 2024
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

·      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 7,600+ 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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