Investec Limited Incorporated in the Republic of South Africa
Registration number 1925/002833/06
JSE share code: INL
JSE hybrid code: INPR
JSE debt code: INLV
NSX share code: IVD
BSE share code: INVESTEC
ISIN: ZAE000081949
LEI: 213800CU7SM6O4UWOZ70
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Investec plc Incorporated
in England and Wales
Registration number 3633621
LSE share code: INVP
JSE share code: INP
ISIN: GB00B17BBQ50
LEI: 2138007Z3U5GWDN3MY22
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Group pre-close trading update and trading statement
20
March 2024
Investec Group today announces its
scheduled pre-close trading update for the year ending 31 March
2024 (FY2024). 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 29 February 2024 and compares forecast FY2024 to
FY2023 (31 March 2023). The average Rand / Pound Sterling exchange
rate depreciated by approximately 15% for the 11 months to 29
February 2024, resulting in a significant difference between
reported and neutral currency performance.
The comparability of the total
Group's year-on-year performance will be affected by the financial
effects of previously announced strategic actions, some of which
will result in the Group's performance being presented on a
continuing and discontinuing basis in line with the relevant
accounting standards.
These strategic actions include the
following:
-
Combination of Investec Wealth & Investment UK (IW&I UK)
with the Rathbones Group
-
Approximately R6.7 billion or c.£300 million share buy-back and
share repurchase programme, in line with the Group's strategy to
optimise capital in South Africa
-
Disposal of the property management companies to Investec Property
Fund (IPF) (now known as Burstone Group Limited) and consequent
deconsolidation of IPF
-
The restructure of The Bud Group Holdings (formerly known as IEP)
in the prior year to facilitate Investec's orderly exit
-
The distribution of the Group's 15% shareholding in Ninety One in
the prior year
We outline the accounting treatment
of the structural strategic actions in note 1 provided at the end
of this announcement.
The following commentary is based on
the Group's total performance, comprising of continued and
discontinued operations.
FY2024 earnings update
and guidance
The Group's diversified revenue
streams and the success of our client acquisition strategies across
our client franchises have continued to underpin a solid
performance, notwithstanding the uncertain macroeconomic
environment and persistent market volatility that prevailed. Our
strong balance sheet and successful strategic execution since our
2019 capital markets day have allowed us to support our clients and
achieve our FY2024 and medium-term financial targets.
For the year ending 31 March 2024,
the Group expects:
· Adjusted earnings per share between 76.0p and 80.0p or 10.0%
to 16.0% ahead of prior year (FY2023: 68.9p)
· Basic
earnings per share between 102.9p and 106.8p or 19.9% to 24.5%
ahead of prior year (FY2023: 85.8p), positively impacted by the net
gain from the implementation of the UK Wealth & Investment
combination with Rathbones which was partly offset by the effects
of IPF's deconsolidation
· Headline earnings per share between 70.0p and 74.0p or 4.8% to
10.6% ahead of prior year (FY2023: 66.8p) which includes the cost
of executing strategic actions
· Adjusted operating profit before tax between £866.9 million
and £909.6 million (FY2023: £818.7 million)
o UK
business, including Rathbones Group adjusted operating profit to be
at least 15.0% higher than prior year (FY2023: £377.8 million).
Specialist Bank expected to be at least 30.0% higher than prior
year (FY2023: £303.4 million). This guidance incorporates a
provision for the potential impact of the recently announced
Financial Conduct Authority (FCA) review into historical motor
finance commission arrangements and sales
o Southern African business' adjusted operating profit to be at
least 10.0% ahead of prior year in Rands (FY2023: R 8 977 million,
£440.9 million). Specialist Bank expected to be at least 5.0%
higher than prior year in Rands (FY2023: R8 668 million, £423.8
million). The prior year includes returns earned on the excess
capital which was subsequently deployed to execute the share
buy-back programme
· ROE to
be above the mid-point of the Group's target range of 12% to
16%.
The year-to-date performance which
formed the basis for the above expectations is summarised
below:
Pre-provision adjusted operating
profit growth was above mid-single digits, reflecting the strength
of our client franchises and continued success in the Group's
strategic execution.
· Revenue growth was supported by balance sheet growth, progress
in our incremental growth strategies as well as a rising interest
rate environment
o Net
interest income continued to benefit from the growth in average
lending books and higher average interest rates
o Non-interest revenue (NIR) growth reflects the diversified
nature of our business model. Continued client acquisition,
improved client activity levels and higher trading income
underpinned the NIR growth. The first-time consolidation of
Capitalmind as the Group seeks to extend its footprint into
Continental Europe while increasing the proportion of capital-light
revenues, also supported NIR growth. Share of post-tax profit
of associates and investment income were impacted by some of the
strategic actions mentioned above
· The
cost to income ratio was in line with 1H2024 as revenue grew ahead
of costs. Fixed operating expenditure reflected continued
investment in people and technology for growth, inflationary
pressures, as well as higher regulatory costs. Variable
remuneration grew in line with profitability.
The Group expects to report a credit
loss ratio around the mid-point of the through-the-cycle (TTC)
range of 25bps to 35bps. In South Africa, the expected credit
losses (ECLs) benefitted from recoveries from previously written
off exposures and the credit loss ratio is expected be below the
8bps reported in the interim results in November 2023. The UK is
expected to report a credit loss ratio within the guided range of
50bps to 60bps communicated in November 2023 and above the upper
end of its TTC range of 30bps to 40bps. Given the challenging
macroeconomic and elevated interest rate environment, we have seen
idiosyncratic client stresses with no evidence of trend
deterioration in the overall credit quality of our lending
books.
For the 11 month period ended 29
February 2024:
· Within
Specialist Banking, core loans increased by 1.6% annualised to
£30.8 billion (31 March 2023: £30.4 billion) and increased by 7.1%
in neutral currency annualised, driven by corporate lending in both
geographies and private client lending in South Africa. Customer
deposits remained flat at £39.5 billion (31 March 2023: £39.6
billion) and increased by 5.5% in neutral currency
annualised
· Funds
under management (FUM) in Southern Africa increased by 3.6% to
£20.5 billion (31 March 2023: £19.8 billion), an increase of 13.7%
in neutral currency. In the Southern African business, net
discretionary inflows of R16.4 billion were partly offset by net
outflows of c.R3.0 billion in non-discretionary FUM
· Investec Wealth & Investment UK FUM is now reported as
part of the Rathbones Group following the completion of the
combination in September 2023. As at 31 December 2023, Rathbones, a
41.25% held Investec associate, reported FUMA of
£105.3bn.
The Group maintained strong and
above Board-approved capital and liquidity levels, allowing us to
continue supporting our clients and build to scale our identified
growth opportunities.
The Group remains committed to its
strategic priority to optimise shareholder returns while creating
enduring worth for all our stakeholders. We have made significant
progress on the share repurchase programme announced in November
2022 and concluded the disposal of the property management
companies to Burstone Group. The Bud Group Holdings announced the
proposed disposal of Assupol to Sanlam. 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 intends to publish revised
medium-term financial targets when it reports its full year results
on 23 May 2024.
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 for the
call.
Year end
results
The year end results for the year
ending 31 March 2024 are scheduled for release on
Thursday, 23 May
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
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
|
29-Feb-24
|
31- Mar-23
|
% change
|
Neutral currency
% change
|
UK and Other
|
16,622
|
15,563
|
6.8%
|
6.8%
|
South Africa
|
14,201
|
14,818
|
(4.2%)
|
6.2%
|
Total
|
30,823
|
30,381
|
1.5%
|
6.5%
|
Customer deposits
£'m
|
29-Feb-24
|
31- Mar-23
|
% change
|
Neutral currency
% change
|
UK and Other
|
20,541
|
19,116
|
7.5%
|
7.5%
|
South Africa
|
18,948
|
20,440
|
(7.3%)
|
2.7%
|
Total
|
39,488
|
39,556
|
(0.2%)
|
5.0%
|
Funds under Management (FUM)
|
|
|
|
|
£'m
|
29-Feb-24
|
31-Mar-23
|
% change
|
Neutral currency
% change
|
|
|
|
|
|
Wealth & Investment - Southern Africa
|
20,547
|
19,830
|
3.6%
|
13.7%
|
Discretionary
|
12,311
|
10,704
|
15.0%
|
26.6%
|
Non-discretionary
|
8,236
|
9,126
|
(9.8%)
|
(1.5%)
|
Rathbones Group plc*
|
105,340
|
40,747
|
|
Discretionary and annuity
|
|
35,291
|
Non-discretionary
|
|
5,456
|
|
|
|
|
|
* The
balance at 31 March 2023 reflects the funds managed by Investec
Wealth and Investment Limited ('IW&I UK'). The balance of
£105.3bn reflects total funds under management and administration
(FUMA) as reported at 31 December 2023 by Rathbones Group
plc.
Notes
1. Further details on structural
strategic actions executed.
· Following the completion of the combination with Rathbones
(effective 21 September 2023), the Group has deconsolidated
IW&I UK and from the effective date applies equity accounting
to its investment in the Rathbones Group (41.25% economic
interest). In accordance with IFRS 5 (Non-current Assets Held for Sale and
Discontinued Operations), the Group's interest in IW&I
UK will be presented as a discontinued operation for the current
financial year.
· Subsequent to the disposal of the IPF management companies
(effective 6 July 2023) and IPF's name change to Burstone Group
Limited, the Group's 24.3% shareholding in Burstone Group has been
deconsolidated and is now held as an investment at fair value
through profit and loss.
· Effective 30 May 2022, the Group distributed a 15%
shareholding in Ninety One, with the remaining 10.08% shareholding
held as an investment at fair value through other comprehensive
income.
· The
Group holds its 38.3% interest in The Bud Group Holdings at fair
value through profit and loss following the restructure in November
2022.
· The
Group has repurchased R6.7 billion of its shares to date in
relation to the R7 billion share repurchase programme announced in
November 2022.
2. 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.
3. 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
29 February
2024
|
Year ended
31 March
2023
|
Currency
per
GBP1.00
|
Period end
|
Average
|
Period end
|
Average
|
South African Rand
|
24.31
|
23.48
|
21.94
|
20.45
|
Euro
|
1.17
|
1.16
|
1.14
|
1.16
|
US Dollar
|
1.26
|
1.26
|
1.24
|
1.21
|
4. Profit forecasts
· The
following matters highlighted in this announcement contain
forward-looking statements:
§ Adjusted EPS is expected to be between 76.0p and 80.0p which
is ahead of FY2023.
§ Basic EPS is expected to be between 102.9p and 106.8p
which is ahead of FY2023.
§ HEPS
is expected to be between 70.0p and 74.0p which is ahead of
FY2023.
§ Adjusted operating profit is expected to be between £866.9
million and £909.6 million which is ahead of 1H2023.
§ The
UK business' including Rathbones Group adjusted operating profit to
be at least 15.0% ahead of prior year.
§ The
Southern African business' adjusted operating profit to increase by
at 10% ahead of prior year in Rands.
§ ROE
is expected to be above the mid-point of the Group's 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 - 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 2024.
· These
forward looking statements represent a profit forecast under the
Listing Rules. The Profit Forecasts relate to the year ending 31
March 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 2023 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
2024.
· The
Profit Forecasts have been prepared based on (a) audited financial
statements of the Group for the year ended 31 March 2023, 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
29 February 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 31
March 2024.
· Percentage changes shown on a neutral currency basis for
balance sheet items assume that the relevant closing exchange rates
at 29 February 2024 remain the same as those at 28 February
2023. 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.
· Management's estimate of the provision
recognised for the potential impact of the recently announced
Financial Conduct Authority review into historical motor finance
commission arrangements and sales is based on information available
to management as at 19 March 2024. In January 2024, the FCA made an
announcement regarding its review of the Motor Vehicle Finance
market up to the period ending January 2021. The Group commenced
lending into the UK Motor Vehicle Finance market in June 2015
through its Mann Island Finance subsidiary. During this period
gross core loans in Motor Finance grew from £11 million as at 31
March 2016 to £555 million as at 31 March 2021. The Group continues
to monitor developments across the industry and will co-operate
with FCA reviews, as and if required.
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 7,500+ 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