TIDMINVP
RNS Number : 8968H
Investec PLC
16 March 2018
Investec Limited Investec plc
Incorporated in the Republic of South Incorporated in England
Africa and Wales
Registration number 1925/002833/06 Registration number 3633621
JSE share code: INL LSE share code: INVP
NSX share code: IVD JSE share code: INP
BSE share code: INVESTEC ISIN: GB00B17BBQ50
ISIN: ZAE000081949
Investec (comprising Investec plc and Investec Limited) -
pre-close briefing statement
16 March 2018
Investec is today hosting an investor pre-close briefing at
09:00 (BST time) (11:00 South African time) which will focus on
developments within the group's core business areas for the
financial year ending 31 March 2018.
Financial overview of the year ending 31 March 2018
Notwithstanding a recently improved outlook in both our key
geographies, over the last year Brexit and political uncertainty
has continued to impact corporate and consumer confidence in the UK
and in South Africa. Alongside this, the South African stock market
has performed well over the year, while the UK stock market
remained relatively flat over the period.
Against this backdrop, the Asset Management and Wealth &
Investment divisions are expected to report results ahead of the
prior year. Both divisions have benefitted from higher levels of
average funds under management and strong inflows.
The Specialist Banking business is expected to report results
behind the prior year. The South African Specialist Banking
business is expected to report results ahead of the prior year,
whilst the UK Specialist Banking business is expected to report
results well behind the prior year.
Taking into account the above mentioned factors, operating
profit (refer to definition in the notes) is expected to be in line
with the prior year.
Salient financial features include:
-- The appreciation of the average Rand: Pounds Sterling
exchange rate has had a positive impact on the group's results
-- Revenue is expected to be ahead of the prior year
-- Recurring income as a percentage of total operating income is
expected to be approximately 76%
-- Impairments are expected to be ahead of the prior year
-- Expenses are expected to increase slightly ahead of revenue
as a consequence of continued planned investment in growing the
client franchise businesses and related infrastructure; as well as
additional premises costs relating to the London office move
-- For the period 31 March 2017 to 28 February 2018:
o Third party assets under management increased 9.1% to GBP164.5
billion - an increase of 8.0% on a currency neutral basis
o Core loans and advances increased 11.7% to GBP25.4 billion -
an increase of 9.5% on a currency neutral basis
o Customer accounts (deposits) increased 5.5% to GBP30.7 billion
- an increase of 3.4% on a currency neutral basis.
Operational and strategic overview
The group has achieved satisfactory operating performance
against a challenging backdrop in its two core geographies. The UK
economy has continued to be influenced by the complexities of
Brexit, while the result of the December elective conference has
since driven an improvement in the South African economic outlook,
which should positively impact activity levels going forward.
Operating fundamentals across the group have largely continued
the trends seen in the first half of the financial year, with
performance underpinned by sound growth in the group's key earnings
drivers and a solid recurring income base. The group has continued
to invest for growth across its client franchise businesses,
ensuring that it remains competitive and relevant in the markets in
which it operates.
On behalf of the board
Fani Titi (Chairman), Stephen Koseff (Chief Executive Officer)
and Bernard Kantor (Managing Director)
Business commentary
Salient features of the operating performance of the group's
core business areas are listed below and further details will be
provided in the briefing presentation which can be viewed on the
group's website.
Asset Management
-- Since 31 March 2017 assets under management have increased by
11.1% to GBP105.9 billion at 28 February 2018 (an increase of 9.9%
on a currency neutral basis)
-- Strong net inflows of GBP4.2 billion to end of February 2018
-- Earnings growth has been supported by market levels and solid
net inflows partially offset by lower performance fees in South
Africa
-- Good business momentum supported by competitive investment performance.
Wealth & Investment
-- Overall performance of the global business is expected to be ahead of the prior year:
o Higher average funds under management
o Solid underlying net inflows of GBP1.8 billion
-- Since 31 March 2017 assets under management have increased by
5.8% to GBP57.9 billion at 28 February 2018 (an increase of 4.6% on
a currency neutral basis)
-- The positive earnings impact of growth in funds under
management in South Africa has been reduced by Rand strength and
lower activity levels in the first part of the year
-- Costs are expected to be ahead of the prior year impacted by
the launch of Click & Invest during the year as well as the
implementation of a number of new regulations.
Specialist Banking
-- The Ongoing Specialist Banking business is expected to post results behind the prior year
-- In summary key aspects include:
o Net interest income
-- Net interest increase has been supported by book growth of
11.7% since 31 March 2017
-- The UK business has continued to benefit from a reduction in
the cost of funding
-- Positive earnings from book growth in South Africa has been
largely offset by the roll off of higher yielding debt
securities
o Net fees and commissions
-- Good performance from the South African banking and
structuring businesses
-- UK corporate fees have been impacted by less investment
banking activity following a strong prior year
o Investment, associate, trading and other operating income
-- Investment income is expected to be well behind the prior
year, while associate income is expected to be well ahead of the
prior year
-- Trading income from customer flow is expected to be behind
the prior year as a consequence of lower activity levels
-- Losses incurred in South Africa on Steinhoff International
holdings NV (Steinhoff) and its subsidiaries are expected to be
less than the estimate announced on 11 December 2017 on the
Johannesburg Stock Exchange, but still had a negative impact on
revenue
o Costs
-- Costs are expected to increase as the group continues to
deliberately invest in IT infrastructure and headcount to grow the
franchise, notably the build out of the UK private client
offering
-- Costs are also impacted by the additional premises expenses
relating to the London office move scheduled for the middle of the
2018 calendar year
o Information on the UK Specialist Banking legacy business:
-- The legacy portfolio is expected to report a higher loss than
the prior year as a result of additional impairments for
accelerated exits that may occur on certain legacy assets
-- Total legacy portfolio assets are expected to decline to
GBP315 million (31 March 2017: GBP476 million).
Liquidity and capital management
-- The group has maintained strong liquidity levels
-- Cash balances remain strong. Currently the group holds
GBP12.6 billion in cash and near cash balances (GBP7.2 billion
(R118.4 billion) in Investec Limited and GBP5.4 billion in Investec
plc) which amounts to 41.0% of customer deposits
-- Advances as a percentage of customer deposits at 28 February
2017 was 81% (31 March 2017: 76%)
-- For the year to 31 March 2018 for both Investec plc and Investec Limited:
o Capital ratios are expected to be within the group's target
total capital adequacy range
o The common equity tier 1 ratio is expected to be slightly
below the group's target of 10% for Investec Limited; Investec plc
is expected to remain ahead of target
o Leverage ratios are sound and remain comfortably ahead of the
group's target of 6% on an estimated Basel 3 fully loaded
basis.
-- The group is likely to implement the Foundation Internal
Ratings-Based (FIRB) approach in South Africa in the 2019 financial
year, subject to regulatory approval, as a transitional step to
implementing the Advanced Internal Ratings-Based (AIRB)
approach.
Asset quality and impairment trends
-- The total income statement impairment charge is expected to be ahead of the prior year
o Impairments on the UK legacy portfolio are expected to be
significantly ahead of the prior year as referred to above
o Impairments in South Africa and the ongoing UK business are
expected to be ahead of the prior year, although the credit loss
ratio remains at the lower end of the group's long term range at
approximately 0.30%
-- The group expects the credit loss ratio on average core loans
and advances to be between 0.60% and 0.65% (March 2017: 0.54%).
Other information
Additional aspects
-- Effective tax rate: expected to be approximately 9% impacted
by the release of provisions in South Africa which are no longer
required
-- Net non-controlling interests of approximately GBP82 million
(profits attributable) relating to the Asset Management business
and the consolidation of the Investec Property Fund
-- Weighted number of shares in issue for the year ending 31
March 2018 is expected to be approximately 923 million.
-- Notes:
1. Key trends set out above, unless stated otherwise, relate to
the eleven months ended 28 February 2018.
2. The financial information on which this statement is based
has not been reviewed and reported on by the group's auditors.
3. References to operating profit relate to adjusted operating
profit, where adjusted operating profit refers to net profit before
tax, goodwill, acquired intangibles and non-operating items but
after adjusting for earnings attributable to other non-controlling
interests and before non-controlling interests relating to Asset
Management. Trends within the divisional sections relate to
adjusted operating profit before group costs.
4. Amounts represented on a currency neutral basis for income
statement items assume that the relevant average exchange rates, as
reflected below, for the year to 31 March 2018 remain the same as
those in the prior year. Amounts represented on a currency neutral
basis for balance sheet items assume that the relevant closing
exchange rates, as reflected below, at 28 February 2018 remain the
same as those at 31 March 2017.
5. Please note that matters discussed in the briefing and
highlighted above may contain forward looking statements which are
subject to various risks and uncertainties and other factors,
including, but not limited to:
- the further development of standards and interpretations under
International Financial Reporting Standards (IFRS) applicable to
past, current and future periods, evolving practices with regard to
the interpretation and application of standards under IFRS
- domestic and global economic and business conditions
- market related risks.
-- A number of these factors are beyond the group's control.
-- 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 or implied.
-- Any forward looking statements made are based on the
knowledge of the group at 15 March 2017.
6. 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 Pounds
Sterling over the period:
Eleven months Six months Year to
to to
---------------
28-Feb-2018 30-Sep-17 31-Mar-17
--------------- ----------------- ----------------- -----------------
Currency Period Average Period Average Period Average
end end end
------- -------- ------- -------- ------- --------
per GBP1.00
--------------- ------- -------- ------- -------- ------- --------
South African
Rand 16.24 17.27 18.10 17.06 16.77 18.42
--------------- ------- -------- ------- -------- ------- --------
Australian
Dollar 1.77 1.71 1.71 1.69 1.64 1.75
--------------- ------- -------- ------- -------- ------- --------
Euro 1.13 1.14 1.13 1.14 1.17 1.19
--------------- ------- -------- ------- -------- ------- --------
US Dollar 1.38 1.33 1.34 1.30 1.25 1.31
--------------- ------- -------- ------- -------- ------- --------
Presentation details
The briefing starts at 09:00 (BST time) (11:00 South African
time) and will be broadcast live via video conference from the
group's offices in Johannesburg to London. The briefing will also
be available via a live and recorded telephone conference call, a
live and delayed video webcast, a delayed podcast and a delayed
Mp3. Further details in this regard can be found on the website at:
www.investec.com
Timetable:
Year end: 31 March 2018
Release of year end results: 17 May 2018
For further information please contact:
Investec Investor Relations
UK: +44 (0) 207 597 5546
UK: +44 (0) 207 597 4493
South Africa: +27 (0) 11 286 7070
investorrelations@investec.com
About Investec
Investec is an international specialist bank and asset manager
that provides a diverse range of financial products and services to
a select client base in three principal markets, the UK and Europe,
South Africa and Asia/Australia as well as certain other countries.
The group was established in 1974 and has approximately 9 900
employees.
Investec focuses on delivering distinctive profitable solutions
for its clients in three core areas of activity namely, Asset
Management, Wealth & Investment and Specialist Banking.
In July 2002 the Investec group implemented a dual listed
company structure with listings on the London and Johannesburg
Stock Exchanges. The combined group's current market capitalisation
is approximately GBP6.1 billion.
Johannesburg and London
Sponsor: Investec Bank Limited
This information is provided by RNS
The company news service from the London Stock Exchange
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