| Thu 16 Sep 2010, 9:50 | | INL/ INP - Investec - Pre-close briefing |
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INL INP
INL INP
INL/ INP - Investec - 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
Investec is today hosting an investor pre-close briefing at 9:00 (GMT time)
(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.
Operational and financial overview
The group has continued to build its asset management and investment
platforms and these businesses have recorded strong inflows during the
period. Operating conditions within the group`s banking and advisory
businesses remain mixed with low levels of economic activity and a
difficult trading environment persisting in the first half of the financial
year.
Salient financial features include:
- Operating profit (refer to definition in the notes) is expected to
be marginally higher than the prior year.
- The UK business is performing in line with the prior year, recording a
very strong operational performance, although profits earned on debt
buy-backs in the prior year were not repeated. The South African
business has posted a satisfactory performance.
- The slower pace of economic recovery has caused a delay in the
improvement of the level of non-performing loans and defaults have
continued to increase. Impairments remain at elevated levels but are
starting to improve and the annualised credit loss charge as a
percentage of average gross loans and advances is expected to be
within a range of 0.85% to 0.90% (31 March 2010: 1.16%).
- Since 31 March 2010 core loans and advances have remained flat at
GBP17.8 billion, customer deposits have increased by 5% to GBP23.1
billion and third party assets under management have decreased by 2%
to GBP72.9 billion. Growth in average assets under management has,
however, increased by 32% over the period.
- Core advances (excluding own originated securitised assets) as a
percentage of customer deposits were 71.8% (31 March 2010:76.2%).
- The group has a strong balance sheet with low gearing, substantial
cash and near cash and solid capital ratios.
.
Outlook
Operating profit continues to be underpinned by a solid recurring income
base as well as a strong performance from the group`s non-capital intensive
Asset Management and Private Wealth businesses. The Capital Markets
division has benefitted from good levels of activity and opportunities
within the traded credit markets, and there has been a moderate build up in
activity levels in the group`s other banking businesses. Weak economic
growth continues to impact the overall demand for credit and levels of
transactional activity, and the performance of the core banking businesses
remains dependent on the sustainability of economic recovery and the
normalisation of economic activity.
On behalf of the board
Hugh Herman (Chairman), Stephen Koseff (Chief Executive Officer) and
Bernard Kantor (Managing Director)
Operational overview - further details
Liquidity management
- Diversifying Investec`s funding sources has been a key element in
improving the quality of the group`s balance sheet and reducing its
reliance on wholesale funding.
- The group currently holds GBP10.2 billion of cash and near cash balances
(GBP5.3 billion in Investec Limited and GBP4.9 billion in Investec plc)
which amounts to 35% of its liability base.
- The group remains successful in building and growing its retail
deposit franchise.
Capital
- The group holds capital in excess of regulatory requirements targeting a
minimum tier one capital ratio of 11% and a total capital adequacy ratio
range of 14% to 17% on a consolidated basis for each of Investec plc and
Investec Limited.
- The group has conducted an initial review of the Basel III requirements
as set out in the Basel Committee on Banking Supervision announcement on
12 September 2010. Based on this review the group believes that its
current capital structure and capital ratios exceed the minimum capital
requirements for 2019.
Expected 31 Mar 30 Sep
capital 2010 2009
adequacy
ratios at
30 Sep 2010
Investec plc
Total 15.9% 15.9% 15.5%
Tier 1 11.7% 11.3% 11.0%
Investec Limited
Total 15.8% 15.6% 14.7%
Tier 1 11.7% 12.1% 11.3%
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 transacts primarily with mid to large sized corporates, public
sector bodies and institutions.
- Investec continues to focus on asset quality and credit risk in all
geographies.
- The slower pace of economic recovery has caused a delay in the
improvement of the level of non-performing loans and defaults have
continued to increase. Credit risk however, remains appropriately
managed and net defaults (after collateral and impairments) are fully
covered.
- Impairments remain at elevated levels but are starting to improve and
the annualised credit loss charge as a percentage of average gross loans
and advances is expected to be within a range of 0.85% to 0.90% (31
March 2010: 1.16%).
Gearing
- The group`s gearing ratios remain low as reflected in the following
table:
31 Aug 31 Mar 30 Sep
2010 2010 2009
Core loans to capital ratio 4.8x 5.4x 5.8x
Core loans (excluding own 71.8%
originated assets which have 76.2% 89.5%
been securitised) to
customer deposits
Total gearing 11.5x 12.5x 12.1x
Total gearing (excluding 10.7x 11.7x 11.2x
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 group`s website.
Overview of expected performance: 6 months ended 30 September 2010 compared
to 6 months ended 30 September 2009
- Recurring income as a percentage of total operating income amounts to
approximately 62% (30 Sept 2009:61%)
- Moderate increase in total operating income:
- Net interest income is in line with the prior year
- Significant increase in net fees and commissions receivable
- A decline in income from principal transactions
- Expenses have increased substantially:
-Acquisitions: Rensburg Sheppards plc; Leasedirect Finance
-The restructure of the UK Trust business
-In addition, an increase in headcount in certain divisions: Capital
Markets, Asset Management and Group Services
- The growth in expenses has exceeded the growth in income resulting in
a rise in the cost to income ratio, although this ratio remains within
the group`s target
Asset Management
- Solid long term investment performance, with over 90% of institutional
mandates outperforming benchmark since inception/GIPs inception
- Continued strong net inflows in excess of GBP1.5 billion
- Performing significantly ahead of 1H10
- Assets under management:
- Since 31 March 2010: have remained flat at GBP46.3 billion
- Average numbers as calculated for the 5 months to 31 August 2010
compared to the 6 months to 30 September 2009 have increased by 38%.
Private Wealth (formerly Private Client Portfolio Management and
Stockbroking)
- Performing ahead of 1H10 - higher average funds under management
- Acquisition of Rensburg Sheppards plc - effective 25 June 2010
- Integration of the Private Bank Private Wealth business in South
Africa is complete
- Assets under management:
-Since 31 March 2010: have decreased by 4% to GBP25.9 billion
-Average numbers as calculated for the 5 months to 31 August 2010
compared to the 6 months to 30 September 2009 have increased by
22%.
Property Activities
- Good performance from the investment property portfolio
- Remain focused on building the group`s property funds across all
geographies.
Private Banking
- Market conditions continue to impact exits and activity levels
resulting in lower operating profit year on year
- South Africa: performing ahead of the prior year as a result of
improved margins
- UK: results have been negatively impacted by the restructure of the
Trust business
- Core loans:
-Since 31 March 2010: have decreased by 1% to GBP12.7 billion
-Average numbers as calculated for the 5 months to 31 August 2010
compared to the 6 months to 30 September 2009 have increased by 11%
- Deposits:
-Since 31 March 2010: have increased by 3% to GBP12.1 billion
-Average numbers as calculated for the 5 months to 31 August 2010
compared to the 6 months to 30 September 2009 have increased by 37%.
Investment Banking
- Agency and Advisory
-Corporate Finance activity levels have started to improve but this is
not yet reflected in earnings
-Trading conditions remain difficult for the Institutional
Stockbroking business
- Principal Investments (Direct Investments and Private Equity)
-South Africa Principal Investments are performing marginally ahead of
the prior year
-UK Principal Investments shows a significant improvement over the
prior year:
- Consolidated investments are performing in line with the prior
year - still loss making
- Benefitted from a solid performance from other investments.
Capital Markets
- Very strong performance globally (particularly in the UK)
- Good levels of activity across the advisory and structuring
businesses:
- Notably from the Principal Finance, Structured Finance and
Structured Equity Derivatives businesses
- Core loans:
- Since 31 March 2010: have remained flat at GBP4.5 billion
- Average numbers as calculated for the 5 months to 31 August 2010
compared to the 6 months to 30 September 2009 have decreased by 7%.
Other Activities
- Central Funding:
- South Africa significantly behind 1H10 largely due to lower average
levels of interest rates and a relatively weaker performance from
equity investments
- UK - profits due to the debt repurchase programme not repeated in
1H11
- Central Costs
- Have increased largely due to numerous brand building initiatives
Other information
Additional aspects
- Effective tax rate: expected to be approximately 23%
- Weighted number of shares in issue for the six months ended 30 September
2010 expected to be approximately 741 million
- Net exceptional gain arising from the requirement under new accounting
rules to fair value the group`s existing 47% holding of Rensburg
Sheppard`s plc at the point the group acquired the remaining 53%
amounting to approximately GBP71 million.
Notes:
1. Key trends set out above, unless stated otherwise, relate to the five-
months ended 31 August 2010, and compare the first half of the 2010
financial year (1H10) to the first half of the 2011 financial year (1H11).
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. 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 16 September 2010.
5. 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 and Euros. 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:
Year to date 31 Aug 2010 31 Mar 2010 30 Sep 2009
Currency per Close Ave Close Ave Close Ave
GBP1.00
South African 11.37 11.31 11.11 12.38 11.99 12.74
Rand
Australian 1.73 1.71 1.66 1.88 1.81 1.99
Dollar
Euro 1.21 1.18 1.12 1.13 1.09 1.14
Dollar 1.54 1.51 1.52 1.59 1.60 1.59
Presentation details
The briefing starts at 9:00 (GMT time) (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 2010
Release of interim results: 18 November 2010
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 bank and asset manager 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.
Investec focuses on delivering distinctive profitable solutions for its
clients in six core areas of activity namely, Asset Management, Private
Wealth, Property Activities, Private Banking, Investment Banking and
Capital Markets.
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 GBP4.1 billion.
Johannesburg
16 September 2010
Sponsor: Investec Bank Limited
Date: 16/09/2010 09:50:01 Produced by the JSE SENS Department.
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