| Thu 19 Mar 2009, 11:01 | | INL/INP - Investec Limited/Investec Plc - Pre-clos |
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INL INP
INL INP
INL/INP - Investec Limited/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 - pre-close briefing
19 March 2009
Balanced business model, sound balance sheet 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) (11:00 South African time) which will focus on
developments within the group`s core business areas in the second half of the
current financial year ending 31 March 2009.
Operational overview
Operating fundamentals and activity levels across the group`s core geographies
continue to be negatively impacted by the global financial market crisis and
volatile equity markets. The group`s three core geographies remain profitable
with recurring income as a percentage of total operating income amounting to
approximately 75%. The group has maintained a sound balance sheet and a robust
business model throughout this period, supported by:
* A senior management "hands-on" culture, ensuring strict management of risk
and liquidity.
* High levels of cash and near cash, currently representing 25% of the
group`s liability base.
* Healthy capital ratios.
* Low leverage ratios.
* Geographical and operational diversity.
Further detail with respect to these aspects is provided below.
Financial overview
Salient financial features include:
* Since 31 March 2008:
* core loans and advances grew by 23% to GBP15.9 billion
* customer deposits increased by 14% to GBP13.8 billion
* third party assets under management decreased by 9% to GBP48.0 billion
* These trends have been impacted by the weakening in the Pound Sterling
against the group`s other major reporting currencies.
* Higher average advances resulting in strong growth in net interest income.
* The weak economic conditions have lead to an increase in the levels of
defaults and a concomitant rise in the credit loss ratio.
* Lower levels of activity and falling asset prices have resulted in a
decline in net fees and commissions receivable and revenue from principal
transactions.
* Expenses continue to be tightly managed and are expected to be marginally
down.
* Net operating income (after expenses and minorities but before impairments
on loans and advances) is expected to be in line with the prior year.
* Adjusted EPS (refer to definition in the notes) is expected to be between
22% and 30% lower than the previous year (March 2008: 56.9p).
Outlook
The results for the financial year ending 31 March 2009 will demonstrate that
Investec was able to navigate a steady course during a year of unprecedented
turmoil in financial markets. Looking ahead the outlook for the global economy
is uncertain and markets remain volatile. The group has a sound balance sheet
and we believe that the market upheaval we have seen since September last year
will present interesting opportunities to strengthen our market position across
our core geographies.
On behalf of the board
Hugh Herman (Chairman), Stephen Koseff (Chief Executive Officer) and Bernard
Kantor (Managing Director)
Operational overview - further details
Liquidity management
* The group has a liquidity management philosophy that has been in place for
many years.
* The group continues to focus on:
* maintaining a high level of readily available, high quality liquid
assets.
* diversifying funding sources.
* maintaining an appropriate mix of term funding.
* limiting concentration risk.
* The group currently holds GBP5.2 billion of cash and near cash balances
(GBP2.6 billion in Investec Limited and GBP2.6 billion in Investec plc).
* The group has been successful in increasing customer deposits and has
access to longer term funding facilities.
* An active campaign to build the group`s retail deposit franchise has
been launched in the UK and Ireland which has been successful:
- Private Bank UK: average monthly inflows in January and February 2009
of GBP75 million; most recent month GBP84 million.
- Capital Markets UK: average monthly inflows in January and February
2009 of GBP38 million, mostly 5 year term; most recent month GBP63
million.
* Investec Bank plc in the UK has received an Institution Certificate
under the Credit Guarantee Scheme 2008 and is accordingly eligible to
apply under the Scheme Rules for Eligibility Certificates in respect
of debt instruments issued by it. In terms of the Scheme, debt
instruments issued by the eligible institution are guaranteed by the
Debt Management Office subject to certain conditions.
* Investec Bank (Australia) Limited is eligible to issue government
backed debt and has recently completed a 3 year and 5 year government
guaranteed fixed rate transferable deposit issue.
* Australia: retail deposit inflows since Sept 2008 of A$556 million.
Capital
* Investec has always held capital well in excess of regulatory requirements
and the group intends to perpetuate this philosophy and ensure that it
remains well capitalised in a vastly changed banking world.
* Accordingly, as announced in November 2008, the group has adjusted its
capital adequacy targets and is focusing on building its capital base,
targeting a minimum tier one capital ratio of 11% and a total capital
adequacy ratio of 14% to 17%. Investec intends to meet these targets by
2010.
* The group is on the standardised approach in terms of Basel II and as a
result has higher risk-weighted assets than banks applying the advanced
approach to similar portfolios, thus understating capital ratios.
Expected capital Expected capital adequacy
adequacy ratios ratios (excluding op risk)
(including op risk)
Investec plc
Total 15.3% 17.5%
Tier 1 9.6% 11.0%
Investec Limited
Total 13.8% 15.5%
Tier 1 10.5% 11.8%
Asset quality
* The bulk of Investec`s credit and counterparty risk arises through its
Private Banking and Capital Markets activities. The Private Bank lends to
high net worth and high income individuals, whilst the Capital Markets
division primarily transacts with mid to large sized corporates, public
sector bodies and institutions.
* Investec continues to focus on asset quality and credit risk in all
geographies.
* Impairments and defaults on core loans and advances have increased in light
of weak economic conditions across all geographies.
* The group expects the credit loss ratio on core loans and advances to be
between 1.1% and 1.2%
Gearing
* Investec is not a highly geared bank as reflected in the following table:
28 Feb 2009 30 Sep 2008 31 Mar 2008
Core loans to capital ratio 6.8x 6.6 x 6.2 x
Core loans (excluding own 1.1x 1.0 x 1.0 x
originated assets which have been
securitised) to customer deposits
Total gearing 13.3x 13.4 x 13.8 x
Total gearing (excluding 12.2x 12.3 x 12.1x
securitised assets)
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 increased 20% to GBP10.7 billion
* Total deposits increased 11% to GBP7.3 billion
* Total funds under advice decreased 12% to GBP3.2 billion
* Market conditions have negatively impacted impairments, exits and activity
levels resulting in significantly lower operating profit in 2H09 across all
geographies.
* Increased efforts on retail deposit raising initiatives have proven to be
successful, notably in the last quarter.
Private Client Portfolio Management and Stockbroking
* Since 31 March 2008:
* Total funds under management (South African and UK) have decreased by
14% to GBP17.1 billion. (Including GBP11.5 billion relating to
Rensburg Sheppards plc - this information has not been updated since
their last reporting period)
* Total South African funds under management have decreased by 29% to
R80.5 billion.
* South Africa:
* Decreased market volumes and reduced market value of portfolios in
home currency.
* Weaker performance from alternative products.
* Performing marginally behind 1H09.
Capital Markets
* Core loans and advances have increased 17% to GBP4.4 billion since 31 March
2008
* Reasonable levels of activity across the advisory, structuring and trading
businesses.
* Increase in impairments across all geographies reflects the weaker credit
cycle.
* Taken advantage of select distressed debt and credit opportunities.
* Performing slightly behind 1H09.
* Kensington:
* Stable performance from Kensington - performing in line with 1H09.
* Increase in impairments in line with weak housing market.
* Bad debt provision is based on further house price decline for 2009 of
-15%, and an extra -10% haircut to the price to reflect forced sale
discount.
* The total book has decreased from GBP6.1 billion to GBP5.2 billion.
* Arrears have increased as the book becomes more seasoned.
* Average LTVs have increased to 82% as a consequence of house price
deflation.
* Cancellation of Bradford & Bingley plc forward sale agreement for
which Investec has received compensation.
Investment Banking
* Agency and Advisory
* Significant slow down in activity levels as equity markets have
continued to decline.
* Principal Investments (Direct Investments and Private Equity)
* South Africa Principal Investments continues to perform well.
* UK and Australia Principal Investments severely impacted by a sharp
fall in markets and downward fair value adjustments.
Asset Management
* Since 31 March 2008 assets under management have decreased 5% to GBP27.3
billion
* Earnings have been impacted by weak equity markets and the tougher mutual
fund environment.
* Performing marginally behind 1H09.
* Shift in fund mix to institutional continues.
* Positive net flows.
* Extremely challenging environment going forward.
Property Activities
* Weaker property fundamentals.
* However, performing in line with the 1H09, benefiting from fees earned on
projects completed in the current period and reasonable performance from
the investment property portfolio.
Other Activities
* Central Funding:
* Slightly weaker performance in South Africa in 2H09.
* Good performance in the UK due to debt purchase programme.
* Central Costs
* Marginally up on 1H09.
Other information
Additional aspects
* Effective tax rate: expected to be approximately 24%
* Weighted number of shares in issue for the year ended 31 March 2009
expected to be approximately 635 million.
* Goodwill impairments:
* Marginal across the group but one of the Investment Banking division`s
investments is currently being reviewed where a goodwill impairment
may be required.
Notes:
1 Key trends set out above, unless stated otherwise, relate to the eleven
months ended 28 February 2009, and compare the first half of the financial
year (1H09) to the second half of the financial year (2H09)
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 normalised operating profit, where
normalised operating profit refers to net profit before tax, goodwill and
non-operating items but after adjusting for earnings attributable to
minorities. Trends within the divisional sections relate to normalised
operating profit.
4 EPS is as determined in accordance with International Financial Reporting
Standards. Adjusted EPS is before goodwill impairment and non-operating
items and after taking into consideration the accrual of dividends
attributable to perpetual preference shareholders.
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 19 March 2009.
6 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 28 Feb 2009 30 Sep 2008 31 Mar 2008
Currency per Close Ave Close Ave Close Ave
GBP1.00
South African Rand 14.30 14.91 14.98 14.95 16.17 14.31
Australian Dollar 2.23 2.19 2.26 2.12 2.18 2.32
Euro 1.12 1.22 1.27 1.26 1.25 1.42
Dollar 1.42 1.75 1.78 1.94 1.99 2.01
Presentation details
The briefing starts at 9:00 (GMT) (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 ended: 31 March 2009
Release of year end results: 21 May 2009
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 5 600 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 GBP1.5 billion.
Date: 19/03/2009 10:50:02 Produced by the JSE SENS Department.
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