| Thu 18 Sep 2008, 10:00 | | INL/INP - Investec Limited/Investec Plc - Investec Plc - pre-close briefing |
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INL INP
INL INP
INL/INP - Investec Limited/Investec Plc - Investec Plc - pre-close briefing
Investec Limited
Incorporated in the Republic of South Africa
Registration number 1925/002833/06
JSE share code: INL
ISIN: ZAE000081949
Investec plc
Incorporated in England and Wales
Registration number 3633621
JSE share code: INP
ISIN: GB00B17BBQ50
Investec plc - pre-close briefing
18 September 2008
Balanced business model and recurring revenue base support profitability in
challenging market environment
As previously announced, Investec is today hosting an investor pre-close
briefing at 9:00 (GMT) (10:00 South African time) which will focus on
developments within the group`s core business areas in the first half of the
current financial year.
Overall group performance commentary
Operating fundamentals across the group continue to be impacted by the global
credit and capital market crisis and volatile equity markets. The group has,
however, continued to benefit from its recurring revenue base and geographical
and operational diversity. Although the reporting period has not yet ended, at
this point the group expects to report normalised operating profit* in line with
the prior year, with the South African and UK operations recording an increase
and the Australian operations a decline in operating profit.
Since 31 March 2008 core loans and advances grew by 14% to GBP14.8 billion,
customer deposits grew by 15% to GBP13.9 billion and third party assets under
management increased by 10% to GBP58.0 billion supporting the group`s growing
base of recurring income. The group expects to record strong growth in net
interest income, growth in net fees and commissions receivable and a marginal
decline in principal transaction income.
Disciplined risk and financial management remain important elements of
Investec`s sustainable growth strategy. The group continues to maintain a high
level of liquidity and capital in excess of regulatory requirements. The group
currently has approximately GBP5.8 billion of cash and near cash available to
support its activities. As a result of the weaker credit cycle we have seen a
decline in the performance of the loan portfolio. Impairment losses on loans and
advances have thus increased year on year, although they are expected to be at a
lower level than that recorded in the second half of the 2008 financial year.
Outlook and strategy
The operating environment remains challenging and the uncertain outlook is not
conducive to growth. The group`s strategy remains to build a diversified and
balanced portfolio of businesses. The group will continue to develop its
existing platforms, seek to create additional operational efficiencies, contain
costs and take advantage of opportunities that may present themselves across
core geographies. As a specialist bank concentrating on niches the group knows
and understands, Investec has a core level of sustainable earnings that should
enable it to navigate through varying cycles and support the group`s long-term
growth objectives.
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 website.
Private Banking
- Since 31 March 2008:
- The loan portfolio has increased 16% to GBP10.3 billion
- Total deposits have increased 9% to GBP7.2 billion
- Total funds under advice have increased 5% to GBP3.9 billion
- Higher average advances support good growth in net interest income
- Majority of specialisations continue to perform well in South Africa
- Lower levels of activity in UK and Australia
- Weak economic conditions have resulted in a higher level of impairments
Private Client Portfolio Management and Stockbroking
- Since 31 March 2008:
- Total funds under management (South African and UK) have increased by
5% to GBP21.0 billion. (Including GBP13 billion relating to Rensburg
Sheppards plc - this information has not been updated since their last
reporting period)
- Total South African funds under management have remained flat at
R112.5 billion
- South Africa
- Decreased market volumes and reduced market value of portfolios in
home currency
- Weaker performance from alternative products
Capital Markets
- Core loans and advances have increased 13% to GBP4.3 billion since 31 March
2008
- Reasonable levels of activity across the advisory, structuring and trading
businesses
- Mixed business performance - some businesses performing well and others
have been negatively impacted by current environment
- The division is expected to perform slightly behind the prior year
(excluding GBP36 million write downs on US structured credit investments
that occurred in the first half of the previous financial year i.e. 1H08)
- Kensington:
- Stable performance from Kensington - included for full 6 months
Headcount has been reduced significantly
- Bad debt provision is based on a house price decline assumption of
circa -35% i.e. 2008: -15%, 2009: -10%, and an extra -10% haircut to
the price to reflect forced sale discount
- The total book has decreased from GBP6.1 billion to GBP5.5 billion
- Arrears have increased marginally as the book becomes more seasoned
- Average LTVs have increased to 72% as a consequence of house price
deflation
Investment Banking
- Agency and Advisory
- UK performed well
- South Africa - reasonable levels of activity and pipeline but few
deals closed; reduced broking volumes
- Australia - reasonable levels of activity and pipeline but few deals
closed
- Principal Investments (Direct Investments and Private Equity)
- South Africa Principal Investments should be slightly ahead of last
year
- UK and Australia Principal Investments impacted by weaker performance
from some of the underlying investments (some impact offset in
minorities) and fair value adjustments
Asset Management
- Since 31 March 2008 assets under management have increased 14% to GBP32.8
billion
- Earnings growth under pressure from tough mutual fund environment
- Shift in fund mix to institutional continues
- Strong net inflows drives increase in assets under management
- Environment expected to be challenging going forward
Property Activities
- Weaker property fundamentals
- However, performing in line with the prior year, benefiting from
transactions completed and reasonable performance from the investment
property portfolio
Other Activities
- Central Funding:
- Strong performance in South Africa driven by higher rates and
increased cash holdings
- Central Costs
- Marginally up on previous year
Other information
Additional aspects
- Effective tax rate: expected to be 25% - 26%
- Weighted number of shares in issue for the 6 months to 30 September 2008
expected to be approximately 629 million
Capital
- We have capital in excess of regulatory requirements
Expected Expected
capital capital
adequacy ratios adequacy ratios
(including op (excluding op
risk) risk)
Investec
plc 15.8% 17.9%
Total 9.5% 10.7%
Tier 1
Investec
Limited 14.1% 15.6%
Total 10.1% 11.2%
Tier 1
Liquidity management
- Continue to focus on maintaining a stock of readily available, high quality
liquid assets in excess of regulatory requirements
- As at 15 September 2008 our cash and near cash around the world was:
- Southern Africa: R51.8 billion
- UK and Europe: GBP1.9 billion
- Australia: A$ 1.0 billion
Asset quality
- Continued strong focus on asset quality and credit risk in all geographies
- Impairments and defaults have increased in light of weak economic
conditions, particularly in Private Bank (UK and South Africa)
- We expect gross defaults as % of core loans and advances to increase
marginally
Notes:
1. Key trends set out above, unless stated otherwise, relate to the five
months ended 31 August 2008, and compare the first half of the current
financial year (1H09) to the first half of the previous financial year
(1H08).
2. The financial information on which this statement is based has not been
reviewed and reported on by the group`s auditors.
3. *Normalised operating profit refers to net profit before tax, goodwill and
non-operating items but after adjusting for earnings attributable to
minorities.
4. 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 18 September 2008.
5. Our reporting currency is Pounds Sterling. Certain of our operations are
conducted by entities outside the UK. The results of operations and the
financial condition of our individual companies are reported in the local
currencies in which they are domiciled, including Rands, Australian Dollars
and Euros. These results are then translated into Pounds Sterling at the
applicable foreign currency exchange rates for inclusion in our 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:
Year to date 31 Aug 2008 31 March 2008 30 Sept 2007
Currency per Close Ave Close Ave Close Ave
GBP1.00
South African 14.00 15.03 16.17 14.31 13.98 14.21
Rand
Australian 2.12 2.10 2.18 2.32 2.30 2.39
Dollar
Euro 1.24 1.26 1.25 1.42 1.43 1.47
Presentation details
The briefing starts at 9:00 (GMT) (10:00 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:
Six months ended: 30 September 2008
Release of interim results: 13 November 2008
For further information please contact:
Investec Investor Relations
UK: +44 (0) 207 597 5546
South Africa: +27 (0) 11 286 7070
investorrelations@investec.com
About Investec
Investec is an international specialist banking group that provides a diverse
range of financial products and services to a niche client base in three
principal markets, the United Kingdom, South Africa and Australia as well as
certain other countries. The group was established in 1974 and currently has
approximately 6 000 permanent employees.
Investec focuses on delivering distinctive profitable solutions for its clients
in five core areas of activity namely, Private Client Activities, Capital
Markets, Investment Banking, Asset Management and Property Activities.
In July 2002 the Investec group implemented a dual listed company structure with
listings on the London and Johannesburg Stock Exchanges. Management and staff
own approximately 15% of the equity share capital of the group. The combined
group`s current market capitalisation is approximately GBP2.6 billion.
Date: 18/09/2008 10:00:01 Produced by the JSE SENS Department.
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