| Thu 19 Nov 2015, 10:49 | | Investec Unaudited combined consolidated financial |
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INL INPR INPPR INP INPP 201511190025A
Unaudited combined consolidated financial results for the six months ended 30 September 2015
Investec Limited
Incorporated in the Republic of South Africa
Registration number: 1925/002833/06
JSE ordinary share code: INL
ISIN: ZAE000081949
NSX ordinary share code: IVD
BSE ordinary share code: INVESTEC
JSE share code: INPR
ISIN: ZAE000063814
Investec plc
Incorporated in England and Wales
Registration number: 3633621
JSE ordinary share code: INP
ISIN: GB00B17BBQ50
JSE share code: INPPR
ISIN: GB00B4B0Q974
Unaudited combined consolidated financial results for the six months ended 30 September 2015
Investec, the International specialist bank and asset manager, announces its results for the six months
ended 30 September 2015
This announcement covers the results of the Investec group for the six
months ended 30 September 2015.
Basis of presentation
Statutory basis
Statutory information is set out in a separate section in this announcement.
The sale of businesses during the previous financial year (further detail is
provided in the "Notes to the commentary section") has had a significant
effect on the comparability of the group's financial position and results. As a
result, comparison on a statutory basis of these interim results with the prior
period would be less meaningful.
Ongoing basis
In order to present a more meaningful view of the group's performance,
the results are presented on an ongoing basis excluding items that in
management's view could distort the comparison of performance between
periods. Based on this principle, the following items are excluded from
underlying profit:
- the results of the businesses sold i.e. Investec Bank (Australia) Limited, the
UK Kensington business and the Start (Irish) mortgage business;
- the remaining legacy business in the UK.
This basis of presentation is consistent with the approach adopted for the
year ended 31 March 2015. A reconciliation between the statutory and
ongoing income statement is provided.
Unless the context indicates otherwise, all comparatives included in the
commentary relate to the six months ended 30 September 2014. Group
results have been negatively impacted by the 8.2% depreciation of the
average Rand: Pounds Sterling exchange rate over the period. Amounts
represented on a currency neutral basis for income statement items assume
that the relevant average exchange rates remain the same for the six
month period to 30 September 2015 when compared to the prior period.
Amounts represented on a currency neutral basis for balance sheet items
assume that the relevant closing exchange rates remain the same as at
30 September 2015 when compared to 31 March 2015.
Overview of results
Positive business momentum contributes to improved results
- Sustained improvement in the operating environment in the UK has
supported good levels of activity in the banking businesses.
- In South Africa the corporate and private banking businesses have seen
strong growth in loan portfolios and client activity, notwithstanding an
overall weakness in macro-economic conditions.
- The Specialist Banking investment and fixed income portfolios have
posted a solid result during the period.
- The Specialist Banking business has reported results substantially ahead
of the prior period.
- The Asset Management and Wealth & Investment businesses have
reported solid net inflows of GBP4.0 billion.
- Continued investment in infrastructure, digital platforms and increased
headcount are supporting growth initiatives in the overall business.
- The group has further grown and enhanced its international offering,
increasing its client base and deepening its core franchise.
- A diversified portfolio and a sound balance of earnings generated
between capital light and capital intensive businesses continues to
support a high level of recurring income.
Statutory operating profit salient features
- Statutory operating profit before goodwill, acquired intangibles, non-
operating items and taxation and after other non-controlling interests
("operating profit") increased 16.1% to GBP279.4 million (2014: GBP240.8
million) – an increase of 22.5% on a currency neutral basis.
- Statutory adjusted earnings per share (EPS) before goodwill, acquired
intangibles and non-operating items increased 13.2% from 19.7 pence to
22.3 pence – an increase of 19.8% on a currency neutral basis.
Solid performance from the ongoing business
- Ongoing operating profit increased 16.5% to GBP315.0 million (2014:
GBP270.4 million) – an increase of 22.2% on a currency neutral basis.
- Ongoing adjusted EPS before goodwill, acquired intangibles and non-
operating items increased 13.3% from 22.5 pence to 25.5 pence – an
increase of 19.1% on a currency neutral basis.
- Third party assets under management decreased 8.2% to GBP113.9
billion (31 March 2015: GBP124.1billion) – a decrease of 3.1% on a
currency neutral basis.
- Customer accounts (deposits) decreased 4.2% to GBP21.7 billion
(31 March 2015: GBP22.6 billion) - an increase of 4.5% on a currency neutral
basis.
- Core loans and advances decreased 2.5% to GBP16.1 billion (31 March
2015: GBP16.5 billion) - an increase of 7.1% on a currency neutral basis.
The UK legacy portfolio continues to be actively managed
down
- The legacy portfolio reduced from GBP696 million at 31 March 2015 to GBP645
million through redemptions and write-offs.
- The legacy business reported a loss before taxation of GBP35.5 million
(2014:GBP41.7 million) with impairments on the legacy portfolio reducing 24.5%
from GBP37.6 million to GBP28.4 million.
Maintained a sound balance sheet
- Capital remained well in excess of current regulatory requirements. The
group is comfortable with its common equity tier 1 ratio target at a 10%
level, as its current leverage ratios for both Investec Limited and Investec
plc are above 7%.
- Liquidity remained strong with cash and near cash balances amounting to
GBP9.2 billion.
Dividend increase of 11.8%
- The board declared a dividend of 9.5 pence per ordinary share (2014:
8.5 pence) resulting in a dividend cover based on the group's adjusted
EPS before goodwill and non-operating items of 2.3 times (2014: 2.3
times), consistent with the group's dividend policy.
Stephen Koseff, Chief Executive Officer of Investec said:
"We are pleased with the progress shown by the group, with profits
comfortably ahead of last year. In particular, our Specialist Banking
businesses are benefiting from positive business momentum, as reflected in
the growth in our loan books and increased client base. Our investment to
digitise and internationalise the Wealth & Investment operation will place it
on a strong footing to continue its growth trajectory, whilst good net inflows
demonstrate the resilience and diversification of our Asset Management
franchise. We are well placed to continue our growth despite the Rand
weakness and market volatility."
Bernard Kantor, Managing Director of Investec said:
"Strong results from our Specialist Bank reflect our hard work to develop
and reshape this business. The strength of our Asset Management and
Wealth & Investment franchises supported solid net inflows, notwithstanding
challenging market conditions. Investec continues to position its core
businesses for sustained growth in its principal markets."
For further information please contact:
Investec +27 (0) 11 286 7070 or +44 (0) 20 7597 5546 /
+44 (0) 20 7597 4493
Stephen Koseff, Chief Executive Officer
Bernard Kantor, Managing Director
Ursula Nobrega, Investor Relations (mobile:+27 (0) 82 552 8808)
Brunswick (SA PR advisers)
Marina Bidoli
Tel: +2711 502 7405 / +2783 253 0478
Cecilia de Almeida
Tel: +2711 502 7418 / +2783 325 9169
Newgate (UK PR advisers)
Jonathan Clare/Jason Nisse/Alistair Kellie/Andy Jones
Tel: +44 (0)20 7680 6550
Presentation/conference call details
A presentation on the results will commence at 9:00 UK time/11:00 SA time.
Viewing options as below:
- Live on South African TV (Business day TV channel 412 DSTV)
- A live and delayed video webcast at www.investec.com
- Toll free numbers for the telephone conference facilities
– SA participants: 0800 200 648
– UK participants: 0808 162 4061
– rest of Europe and other participants: +800 246 78 700
– Australian participants: 1800 350 100
– USA participants: 1855 481 6362
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 UK and Europe, South Africa and Asia/Australia
as well as certain other countries. The group was established in 1974 and
currently has approximately 8 500 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
GBP4.7 billion.
Investec plc and Investec Limited (combined results)
Unaudited combined consolidated financial results for the six months ended
30 September 2015.
The commentary below largely focuses on the results of the ongoing
business.
Overall group performance – ongoing basis
Operating profit before goodwill, acquired intangibles, non-operating items
and taxation and after other non-controlling interests ("operating profit")
increased 16.5% to GBP315.0 million (2014: GBP270.4 million) – an increase
of 22.2% on a currency neutral basis. Group results have been negatively
impacted by the 8.2% depreciation of the average Rand: Pounds Sterling
exchange rate over the period.
The combined South African businesses operating profit rose 13.0% in
Rand, whilst the combined UK and Other businesses posted a 37.8%
increase in operating profit in Pounds Sterling.
Operating profit in the Specialist Banking business increased 29.1%
benefiting from good levels of client activity across our geographies,
supported by a deepening of the client franchise. Wealth & Investment's
operating profit decreased by 0.5% and Asset Management's operating profit
declined 8.0%. Both divisions have continued to experience higher levels of
average funds under management and net inflows.
Salient features of the period under review are:
- Adjusted earnings attributable to shareholders before goodwill, acquired
intangibles and non-operating items increased 15.2% to GBP222.6
million (2014: GBP193.2 million) – an increase of 20.9% on a currency
neutral basis.
- Adjusted earnings per share (EPS) before goodwill, acquired intangibles
and non-operating items increased 13.3% from 22.5 pence to 25.5
pence – an increase of 19.1% on a currency neutral basis.
- Recurring income as a percentage of total operating income amounted
to 71.6% (2014: 74.6%).
- The annualised credit loss charge as a percentage of average gross
core loans and advances amounted to 0.22% (2014: 0.29%), with
impairments decreasing by 14.3% to GBP17.7 million.
- Third party assets under management decreased 8.2% to
GBP113.9 billion (31 March 2015: GBP124.1billion) – a decrease of
3.1% on a currency neutral basis.
- Customer accounts (deposits) decreased 4.2% to GBP21.7 billion
(31 March 2015: GBP22.6 billion) - an increase of 4.5% on a currency
neutral basis.
- Core loans and advances decreased 2.5% to GBP16.1 billion
(31 March 2015: GBP16.5 billion) - an increase of 7.1% on a currency
neutral basis.
Business unit review – ongoing basis
Asset Management
Asset Management operating profit decreased by 8.0% to GBP70.6 million
(2014: GBP76.7 million). The business benefited from solid net inflows of
GBP2.9 billion. Earnings were impacted by market and currency volatility
and lower performance fees in South Africa. Total funds under management
amount to GBP70.1 billion (31 March 2015: GBP77.5 billion).
Wealth & Investment
Wealth & Investment operating profit decreased by 0.5% to GBP37.9 million
(2014: GBP38.0 million). The business benefited from higher average funds
under management and net inflows of GBP1.1 billion. Total funds under
management amount to GBP43.4 billion (31 March 2015: GBP46.1 billion).
Overall performance of the global business is marginally behind the prior
period due to investment expenditure on growth initiatives, particularly in
the UK business. These initiatives should support an increase in operating
margin in the medium term.
Specialist Banking
Specialist Banking operating profit increased by 29.1% to GBP229.2 million
(2014: GBP177.6 million).
South Africa reported a solid increase in net interest income driven by loan
book growth of 9.5% to ZAR199.4 billion. The unlisted investment portfolio
performed well during the period. The corporate and private banking
businesses benefited from positive business momentum and franchise
growth. The credit loss ratio on average core loans and advances improved
marginally to 0.28% (2014: 0.29%), despite the business reporting a
moderate increase in impairments.
The UK and Other businesses experienced good levels of activity, higher
earnings from the fixed income portfolio and a normalised performance from
the Hong Kong investment portfolio. Core loans grew 3.1% to GBP6.6 billion
and impairments declined over the period, with the credit loss ratio
amounting to 0.13% (2014: 0.27%).
Further information on key developments within each of the business units is
provided in a detailed report published on the group's website:
http://www.investec.com.
Group costs
These largely relate to group brand and marketing costs and a portion of
executive and support functions which are associated with group level
activities. These costs are not incurred by the operating divisions and are
necessary to support the operational functioning of the group. Historically,
these numbers were reflected solely in the results of the Specialist Bank
and the group now reflects these separately. These costs amounted to
GBP22.6 million (2014: GBP21.9 million).
Financial statement analysis – ongoing basis
Total operating income
Total operating income before impairment losses on loans and advances
increased by 11.2% to GBP992.1 million (2014: GBP891.8 million).
Net interest income increased by 7.8% to GBP284.1 million (2014:
GBP263.5 million) largely due to strong book growth and an increase in
margin earned on early redemption of loans, reflecting higher activity levels.
Net fee and commission income increased by 0.9% to GBP530.6 million
(2014: GBP525.9 million) as a result of higher average funds under
management over the period and net inflows in the Asset Management and
Wealth Management businesses. The Specialist Banking business benefited
from a solid performance from the corporate treasury, corporate structuring
and property fund management businesses in South Africa. Growth in fees
in the global private banking business was supported by increased client
activity. This was partially offset by lower fees earned in the UK corporate
finance business and the asset management business in South Africa.
Investment income increased significantly to GBP112.4 million (2014:
GBP54.8 million). The group's unlisted investment portfolio in South
Africa delivered a solid performance, the Hong Kong investment portfolio
performance normalised and the UK experienced higher earnings from the
fixed income portfolio.
Trading income arising from customer flow increased by 10.8% to
GBP57.3 million (2014:GBP51.7 million) whilst trading income from
other trading activities reflected a profit of GBP4.3 million (2014: loss of
GBP9.1 million) largely due to foreign currency gains.
Other operating income includes associate income and income earned on an
operating lease portfolio.
Impairment losses on loans and advances
Impairments on loans and advances decreased from GBP20.7 million to
GBP17.7 million. Since 31 March 2015 gross defaults have improved from
GBP247.1 million to GBP210.1 million. The percentage of default loans (net
of impairments but before taking collateral into account) to core loans and
advances amounted to 0.85% (31 March 2015: 1.04%).
Operating costs
The ratio of total operating costs to total operating income was 65.4%
(2014:67.4%). Total operating costs grew by 8.0% to GBP648.6 million
(2014: GBP600.5 million) reflecting: an increase in headcount and business
infrastructure expenses across divisions to support increased activity and
growth initiatives; an increase in variable remuneration given increased
profitability in certain businesses.
Taxation
The effective tax rate amounts to 21.2 % (2014:18.8%).
Profit attributable to non-controlling interests
Profit attributable to non-controlling interests mainly comprises:
- GBP8.6 million profit attributable to non-controlling interests in the Asset
Management business.
- GBP12.7 million profit attributable to non-controlling interests in the
Investec Property Fund Limited.
- A reduction of GBP2.5 million relating to Euro denominated preferred
securities issued by a subsidiary of Investec plc which were reflected on
the balance sheet as part of non-controlling interests. (The transaction
was hedged and a forex transaction loss arising on the hedge was
reflected in operating profit before goodwill with the equal and opposite
impact reflected in earnings attributable to non-controlling interests).
These securitites were redeemed on 24 June 2015.
Balance sheet analysis
Since 31 March 2015:
- Total shareholders' equity (including non-controlling interests) decreased
by 9.3% to GBP3.7 billion largely due to the depreciation of the Rand
against Pounds Sterling.
- Net asset value per share decreased 5.2% to 345.8 pence and net
tangible asset value per share (which excludes goodwill and intangible
assets) decreased by 6.8% to 287.1 pence.
- The annualised return on adjusted average shareholders' equity of the
ongoing business increased from 13.8% to 14.8%.
Liquidity and funding
As at 30 September 2015 the group held GBP9.2 billion in cash and near
cash balances (GBP4.4 billion in Investec plc and R100.0 billion in Investec
Limited) which amounted to 36.0% of its liability base. Loans and advances
to customers as a percentage of customer deposits amounted to 75.1%
(31 March 2015: 74.0%). The group had higher average liquidity levels in
the UK driven by the sale of group assets in the prior financial year. These
balances have decreased by 12.9% since 31 March 2015, as part of a
planned strategy by the group to reduce surplus cash balances post the
sale of group assets, whilst maintaining its overall conservative approach
to liquidity management. The group comfortably meets Basel liquidity
requirements for the Liquidity Coverage Ratio (LCR) and Net Stable Funding
Ratio (NSFR) in the UK. In South Africa the group has continued to see good
progress from Investec Cash Investments leading to higher cash balances.
Basel III LCR regulations have been implemented from 1 January 2015.
Investec Bank Limited (Solo basis) ended the period to 30 September 2015
with the three-month average of its LCR at 118.3%, which is well ahead of
the minimum levels required. Further detail with respect to the bank's LCR
ratio in South Africa is provided on the website.
Capital adequacy and leverage ratios
The group is targeting a minimum common equity tier one capital ratio above
10% by March 2016 and a total capital adequacy ratio range of 14% to
17% on a consolidated basis for each of Investec plc and Investec Limited
respectively. The group's anticipated fully loaded Basel III common equity
tier 1 capital adequacy ratios in both Investec plc and Investec Limited are
reflected in the table below.
30 September 31 March
2015 2015
Investec plc^
Capital adequacy ratio 16.4% 16.7%
Tier 1 ratio 11.7% 11.9%
Common equity tier 1 ratio 10.5% 10.2%
Common equity tier 1 ratio
(anticipated Basel III "fully loaded"*) 10.5% 10.2%
Leverage ratio (current) 7.4% 7.7%
Leverage ratio (anticipated Basel III
"fully loaded"*) 6.7% 6.6%
Investec Limited^
Capital adequacy ratio 14.2% 14.7%
Tier 1 ratio 10.9% 11.3%
Common equity tier 1 ratio 9.5% 9.6%
Common equity tier 1 ratio
(anticipated Basel III "fully loaded"*) 9.5% 9.5%
Leverage ratio (current*) 7.4% 8.1%
Leverage ratio (anticipated Basel III
"fully loaded"*) 6.7% 7.2%
*Based on the group's understanding of current and draft regulations, "fully
loaded" is based on Basel III capital requirements as fully phased in by 2022.
^The capital adequacy disclosures follow Investec's normal basis of presentation
so as to show a consistent basis of calculation across the jurisdictions in which
the group operates. For Investec plc this does not include the deduction of
foreseeable dividends when calculating CET1 capital as now required under the
CRR and EBA technical standards. The impact of the final proposed ordinary and
preference dividends totalling GBP59 million for Investec plc would be around
50 bps. Investec Limited's capital information includes unappropriated profits.
If unappropriated profits are excluded from the capital information, Investec
Limited's tier 1 and capital adequacy ratio would be 9 bps lower.
Legacy business – overview of results
Since 31 March 2015 the group's legacy portfolio in the UK has continued
to be actively managed down from GBP696 million to GBP645 million
largely through redemptions and write-offs. The total legacy business
over the period reported a loss before taxation of GBP35.5 million
(2014:GBP41.7 million). The remaining legacy portfolio will continue to
be managed down as the group sees opportunities to clear the portfolio.
Management believe that the remaining legacy book will still take two to
four years to wind down. Total net defaults in the legacy book amount to
GBP181 million (31 March 2015: GBP185 million).
Additional information - South African Investment Vehicle
In South Africa a new investment vehicle, Investec Equity Partners (IEP),
has been created in which Investec will hold a 45% stake alongside other
strategic investors who will hold the remaining 55%. Investec Principal
Investments will transfer certain portfolio companies to this new vehicle and
IEP will resultantly raise an additional ZAR10 billion of new equity and debt
capital to grow the underlying companies transferred and to take advantage
of future investment opportunities. This transaction is subject to regulatory
approval. It is intended that all Investec Principal Investments staff will
transfer to the new company from 1 January 2016.
Operating Responsibilities
Investec, in pursuit of sustained growth across its businesses, has
restructured certain operating responsibilities with the aim of achieving the
following broad objectives:
- To maintain differentiated businesses that are integrated and coordinated
under the Investec brand, while focused on providing the best solution
for the client;
- To facilitate the growth of businesses with direct management
responsibility and accountability;
- To ensure talented future leaders are in place for the long-term success
of the group.
Investec has always maintained a policy of growing talent from within. The
majority of the group's leaders have an extensive history with the group
and are valued for their institutional knowledge and expertise. Key global
businesses are supported by experienced management teams who are
responsible for driving the performance of those businesses.
Set out below are the following operating responsibilities (certain of which are
subject to regulatory approval):
Group
Stephen Koseff remains Group Chief Executive Officer and Bernard Kantor
remains Group Managing Director. They continue to focus on group strategy,
development and growth of the Investec global businesses, and the
positioning of the group among all stakeholders.
Glynn Burger continues as Group Risk and Finance Director with Nishlan
Samujh performing the role of Group Chief Financial Officer.
Specialist Bank
Investec is consolidating its integration strategy in the Specialist Bank.
Ciaran Whelan and David van der Walt become joint Heads of the Specialist
Bank. Ciaran Whelan will focus on private banking and David van der Walt
on corporate and institutional banking. David van der Walt remains Chief
Executive Officer of Investec Bank plc.
In South Africa, Richard Wainwright becomes Chief Executive Officer of
Investec Bank Limited and together with Glynn Burger, the Joint Geographic
Head of South Africa.
Andy Leith becomes Executive Chairman of IEP, the new South African
investment vehicle (refer above). He will be actively involved and responsible
for this business and continues as a Senior Group Executive of Investec
Limited, where he will focus on key client relationships and the integration of
Investec's offering to these clients.
Robin Magid and Nick Riley remain Head of Property Trading and
Development and Chief Executive Officer of Investec Property Fund,
respectively.
Asset Management
Hendrik du Toit continues as Chief Executive Officer of Investec Asset
Management.
Wealth & Investment
Steve Elliot remains Global Head of the Wealth & Investment business, with
Jonathan Wragg and Henry Blumenthal being responsible for the UK and
South African businesses, respectively.
Outlook
Investec is positioning itself for sustained growth with an enhanced
operational focus. The group has successfully implemented its key strategic
initiatives and continues to develop its core businesses in its principal
markets. The macro environment is uncertain as global equity markets
remain volatile and, in South Africa, social and economic challenges
persist. Investec, nevertheless, remains positive. Current levels of activity
are supporting performance as the group focuses on providing value for
shareholders and an exceptional experience for clients.
On behalf of the boards of Investec plc and Investec Limited
Fani Titi Stephen Koseff Bernard Kantor
Chairman Chief Executive Officer Managing Director
18 November 2015
Notes to the commentary section above
Presentation of financial information
Investec operates under a Dual Listed Companies (DLC) structure with
primary listings of Investec plc on the London Stock Exchange and Investec
Limited on the JSE Limited.
In terms of the contracts constituting the DLC structure, Investec plc and
Investec Limited effectively form a single economic enterprise in which
the economic and voting rights of ordinary shareholders of the companies
are maintained in equilibrium relative to each other. The directors of the
two companies consider that for financial reporting purposes, the fairest
presentation is achieved by combining the results and financial position of
both companies.
Accordingly, the interim results for Investec plc and Investec Limited present the
results and financial position of the combined DLC group under International
Financial Reporting Standards (IFRS), denominated in Pounds Sterling. In
the commentary above, all references to Investec or the group relate to the
combined DLC group comprising Investec plc and Investec Limited.
Foreign currency impact
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 position of the 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:
Six months to Year to Six months to
Currency per 30 Sep 2015 31 Mar 2015 30 Sep 2014
Period Period Period
GBP1.00 end Average end Average end Average
South African
Rand 20.95 19.33 17.97 17.82 18.33 17.86
Australian Dollar 2.15 2.05 1.95 1.85 1.85 1.81
Euro 1.35 1.39 1.38 1.28 1.28 1.24
US Dollar 1.51 1.54 1.49 1.62 1.62 1.68
Exchange rates between local currencies and Pounds Sterling have
fluctuated over the period. The most significant impact arises from the
volatility of the Rand. The average exchange rate over the period has
depreciated by 8.2% and the closing rate has depreciated by 16.6% since
31 March 2015.
Sale of Investec Bank (Australia) Limited
The sale of Investec Bank (Australia) Limited's Professional Finance and Asset
Finance and Leasing businesses and its deposit book to Bank of Queensland
Limited was effective 31 July 2014 for cash proceeds of GBP122 million.
This resulted in the derecognition of approximately GBP1.7 billion of assets
and approximately GBP1.7 billion of liabilities associated with the businesses
sold. The group continues to have a presence in Australia, focusing on its
core activities of Specialised Finance, Corporate Advisory, Property Fund
Management and Asset Management. The remaining business operates as
a non-banking subsidiary of the Investec group. As a result, the group is no
longer reporting the activities of its Australian businesses separately with these
activities now reported under the "UK and Other" geographical segment and
the "UK and Other" Specialist Banking segment.
Sales of Kensington Group plc and Start Mortgage Holdings
Limited
On 9 September 2014 the group announced the sale of its UK intermediated
mortgage business Kensington Group plc ("Kensington") together with
certain other Investec mortgage assets to funds managed by Blackstone
Tactical Opportunities Advisors L.L.C. and TPG Special Situations Partners
for GBP180 million in cash based on a tangible net asset value of the
business of GBP165 million at 31 March 2014. This transaction became
effective on 30 January 2015.
On 15 September 2014 the group announced the sale of its Irish
intermediated mortgage business Start Mortgage Holdings Limited ("Start")
together with certain other Irish mortgage assets to an affiliate of Lone Star
Funds. This transaction became effective on 4 December 2014.
This resulted in the derecognition of approximately GBP4.1 billion of assets
and approximately GBP2 billion of external liabilities associated with these
businesses sold.
As part of the sale of Kensington, a final net settlement amount was paid
after the 31 March 2015 year end. As a result of this payment, a further loss
before taxation of GBP4.7 million was recognised during the period.
Accounting policies and disclosures
These unaudited summarised combined consolidated financial results
have been prepared in terms of the recognition and measurement criteria
of International Financial Reporting Standards, and the presentation and
disclosure requirements of IAS 34, (Interim Financial Reporting).
The accounting policies applied in the preparation of the results for the period
to 30 September 2015 are consistent with those adopted in the financial
statements for the year ended 31 March 2015.
The financial results have been prepared under the supervision of Glynn
Burger, the Group Risk and Finance Director. The financial statements for
the six months to 30 September 2015 will be posted to stakeholders on
30 November 2015. These accounts will be available on the group's website
on the same date.
Proviso
- Please note that matters discussed in this announcement 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 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 November 2015
- The information in the announcement for the six months ended
30 September 2015, which was approved by the board of directors on
18 November 2015, does not constitute statutory accounts as defined
in Section 435 of the UK Companies Act 2006. The 31 March 2015
financial statements were filed with the registrar and were unqualified
with the audit report containing no statements in respect of sections
498(2) or 498(3) of the UK Companies Act
- This announcement is available on the group's website: www.investec.com.
Ongoing financial information
Ongoing summarised income statement
Six months to Six months to
30 September 30 September Variance
GBP'000 2015 2014 % change amount
Net interest income 284 142 263 468 7.8% 20 674
Net fee and commission income 530 590 525 895 0.9% 4 695
Investment income 112 373 54 793 >100.0% 57 580
Trading income arising from
– customer flow 57 318 51 716 10.8% 5 602
– balance sheet management and other trading activities 4 304 (9 088) >100.0% 13 392
Other operating income 3 345 5 004 (33.2%) (1 659)
Total operating income before impairment losses on loans and advances 992 072 891 788 11.2% 100 284
Impairment losses on loans and advances (17 741) (20 701) (14.3%) 2 960
Operating income 974 331 871 087 11.9% 103 244
Operating costs (648 630) (600 507) 8.0% (48 123)
Depreciation on operating leased assets (220) (1 089) (79.8%) 869
Operating profit before goodwill, acquired intangibles and non-operating items 325 481 269 491 20.8% 55 990
Profit attributable to Asset Management non-controlling interests (8 647) (9 356) (7.6%) 709
(Profit)/loss attributable to other non-controlling interests (10 518) 957 (>100.0%) (11 475)
Operating profit before taxation 306 316 261 092 17.3% 45 224
Taxation (69 018) (50 757) 36.0% (18 261)
Preference dividends accrued (14 708) (17 181) (14.4%) 2 473
Adjusted attributable earnings to ordinary shareholders 222 590 193 154 15.2% 29 436
Number of weighted average shares (million) 871.8 858.1
Adjusted earnings per share (pence) 25.5 22.5 13.3%
Cost to income ratio 65.4% 67.4%
Segmental geographical and business analysis of operating profit before goodwill, acquired intangibles,
non-operating items, taxation and after other non-controlling interests – ongoing business
for the six months to 30 September UK Southern Total
GBP'000 and Other Africa group
2015
Asset Management 40 127 30 427 70 554
Wealth & Investment 25 896 11 954 37 850
Specialist Banking 98 786 130 389 229 175
164 809 172 770 337 579
Group costs (17 036) (5 580) (22 616)
Total group 147 773 167 190 314 963
Other non-controlling interest – equity 10 518
Operating profit 325 481
2014
Asset Management 37 684 38 996 76 680
Wealth & Investment 26 912 11 126 38 038
Specialist Banking 59 873 117 712 177 585
124 469 167 834 292 303
Group costs (17 223) (4 632) (21 855)
Total group 107 246 163 202 270 448
Other non-controlling interest – equity (957)
Operating profit 269 491
Reconciliation from statutory summarised income statement to ongoing summarised income statement
Removal of:**
UK legacy
business Sale Sale
for the six months to 30 September 2015 Statutory excluding assets assets Ongoing
GBP'000 as disclosed sale assets UK Australia business
Net interest income 285 500 1 358 – – 284 142
Net fee and commission income 533 906 3 316 – – 530 590
Investment income 112 387 14 – – 112 373
Trading income arising from
– customer flow 56 895 (423) – – 57 318
– balance sheet management and other trading activities 4 004 (300) – – 4 304
Other operating income 3 345 – – – 3 345
Total operating income before impairment losses on loans and advances 996 037 3 965 – – 992 072
Impairment losses on loans and advances (46 140) (28 399) – – (17 741)
Operating income/(loss) 949 897 (24 434) – – 974 331
Operating costs (659 719) (11 089) – – (648 630)
Depreciation on operating leased assets (220) – – – (220)
Operating profit before goodwill, acquired intangibles and non-operating
items 289 958 (35 523) – – 325 481
Profit attributable to Asset Management non-controlling interests (8 647) – – – (8 647)
Profit attributable to other non-controlling interests (10 518) – – – (10 518)
Operating profit before taxation 270 793 (35 523) – – 306 316
Taxation (61 485) 7 533# – – (69 018)#
Preference dividends accrued (14 708) – – – (14 708)
Adjusted attributable earnings to ordinary shareholders 194 600 (27 990) – – 222 590
Number of weighted average shares (million) 871.8 871.8
Adjusted earnings per share (pence) 22.3 25.5
Cost to income ratio 66.2% 65.4%
# Applying the groups effective statutory taxation rate of 21.2%.
Removal of:**
UK legacy
business Sale Sale
for the six months to 30 September 2014 Statutory excluding assets assets Ongoing
GBP'000 as disclosed sale assets UK Australia business
Net interest income 332 386 10 790 45 861 12 267 263 468
Net fee and commission income 527 006 1 689 (3 306) 2 728 525 895
Investment income 45 975 (4 689) (2 262) (1 867) 54 793
Trading income arising from
– customer flow 51 285 (183) (38) (210) 51 716
– balance sheet management and other trading activities (9 199) 168 (125) (154) (9 088)
Other operating income 5 052 – – 48 5 004
Total operating income before impairment losses on loans and advances 952 505 7 775 40 130 12 812 891 788
Impairment losses on loans and advances (66 400) (37 629) (6 594) (1 476) (20 701)
Operating income/(loss) 886 105 (29 854) 33 536 11 336 871 087
Operating costs (645 204) (11 838) (20 056) (12 803) (600 507)
Depreciation on operating leased assets (1 089) – – – (1 089)
Operating profit/(loss) before goodwill, acquired intangibles and non-
operating items 239 812 (41 692) 13 480 (1 467) 269 491
Profit attributable to Asset Management non-controlling interests (9 356) – – – (9 356)
Loss attributable to other non-controlling interests 957 – – – 957
Operating profit/(loss) before taxation 231 413 (41 692) 13 480 (1 467) 261 092
Taxation (45 167) 7 853* (2 539)* 276* (50 757)*
Preference dividends accrued (17 181) – – – (17 181)
Adjusted attributable earnings to ordinary shareholders 169 065 (33 839) 10 941 (1 191) 193 154
Number of weighted average shares (million) 858.1 858.1
Adjusted earnings per share (pence) 19.7 22.5
Cost to income ratio 67.8% 67.4%
* Applying the groups effective statutory taxation rate of 18.8%.
** - The remaining legacy business in the UK.
- The result of the businesses sold i.e. Investec Bank (Australia) Limited, the UK Kensington business and the Start (Irish) mortgage business.
Statutory financial information
Salient financial features
Results in Pounds Sterling Results in Rand
Neutral
currency Neutral
Six months to Six months to Six months to currency Six months to Six months to
30 September 30 September % 30 September % 30 September 30 September %
2015 2014 change 2015 change 2015 2014 change
Operating profit before
taxation* (million) 279.4 240.8 16.1% 295.0 22.5% 5 442 4 286 27.0%
Earnings attributable to
shareholders (million) 197.6 121.6 62.5% 209.1 72.0% 3 843 1 742 >100%
Adjusted earnings
attributable to
shareholders** (million) 194.6 169.1 15.1% 205.5 21.5% 3 787 3 002 26.1%
Adjusted earnings per
share** 22.3p 19.7p 13.2% 23.6p 19.8% 434.4c 349.9c 24.1%
Basic earnings per share 20.1p 11.6p 73.3% 21.3p 83.6% 391.6c 157.1c >100%
Headline earnings per
share 21.0p 17.6p 19.3% 22.4p 27.3% 410.5c 312.0c 31.6%
Dividends per share 9.5p 8.5p 11.8% 207c 146c 41.8%
Cost to income ratio 66.2% 67.8%
Results in Pounds Sterling Results in Rand
Neutral
currency Neutral
At At At currency At At
30 September 31 March % 30 September % 30 September 31 March %
2015 2015 change 2015 change 2015 2015 change
Net asset value per share 345.8 364.9 (5.2%) 364.6 (0.1%) 7 244 6 559 10.4%
Net tangible asset value
per share 287.1 308.1 (6.8%) 305.4 (0.9%) 6 014 5 538 8.6%
Total equity (million) 3 666 4 040 (9.3%) 3 985 (1.4%) 76 786 72 625 5.7%
Total assets (million) 41 700 44 353 (6.0%) 45 808 3.3% 873 498 797 218 9.6%
Core loans and advances
(million) 16 731 17 189 (2.7%) 18 305 6.5% 350 460 308 957 13.4%
Cash and near cash
balances (million) 9 165 9 975 (8.1%) 9 957 (0.2%) 192 013 179 242 7.1%
Customer accounts
(deposits) (million) 21 659 22 615 (4.2%) 23 633 4.5% 453 683 406 485 11.6%
Third party assets under
management (million) 113 942 124 106 (8.2%) 120 223 (3.1%) 2 387 077 2 230 197 7.0%
Return on average adjusted
shareholders' equity 12.6% 10.6%
Return on average risk-
weighted assets 1.51% 1.25%
Defaults (net of
impairments and before
collateral) as a percentage
of net core loans 1.90% 2.07%
Loans and advances to
customers as a percentage
of customer deposits 75.1% 74.0%
Credit loss ratio (income
statement impairment
charge as a % of average
gross core loans and
advances) 0.54% 0.68%
* Before goodwill, acquired intangibles, non-operating items and after other non-controlling interests
** Before goodwill, acquired intangibles, non-operating items and after non-controlling interests.
Combined consolidated income statement
Six months to Six months to Year to
30 September 30 September 31 March
GBP'000 2015 2014 2015
Interest income 849 817 912 645 1 790 867
Interest expense (564 317) (580 259) (1 155 890)
Net interest income 285 500 332 386 634 977
Fee and commission income 591 037 590 666 1 226 257
Fee and commission expense (57 131) (63 660) (137 214)
Investment income 112 387 45 975 128 334
Trading income arising from
– customer flow 56 895 51 285 106 313
– balance sheet management and other trading activities 4 004 (9 199) (13 424)
Other operating income 3 345 5 052 12 236
Total operating income before impairment losses on loans and advances 996 037 952 505 1 957 479
Impairment losses on loans and advances (46 140) (66 400) (128 381)
Operating income 949 897 886 105 1 829 098
Operating costs (659 719) (645 204) (1 322 705)
Depreciation on operating leased assets (220) (1 089) (1 535)
Operating profit before goodwill and acquired intangibles 289 958 239 812 504 858
Impairment of goodwill (717) (4 783) (5 337)
Amortisation of acquired intangibles (7 848) (7 394) (14 497)
Operating profit 281 393 227 635 485 024
Net loss on disposal of subsidiaries (4 746) (18 593) (93 033)
Profit before taxation 276 647 209 042 391 991
Taxation on operating profit before goodwill and acquired intangibles (61 485) (45 167) (99 023)
Taxation on acquired intangibles and acquisition/disposal/integration of subsidiaries 1 610 (33 852) (17 574)
Profit after taxation 216 772 130 023 275 394
Profit attributable to Asset Management non-controlling interests (8 647) (9 356) (18 184)
(Profit)/loss attributable to other non-controlling interests (10 518) 957 (11 701)
Earnings attributable to shareholders 197 607 121 624 245 509
Impairment of goodwill 717 4 783 5 337
Amortisation of acquired intangibles 7 848 7 394 14 497
Net loss on disposal of subsidiaries 4 746 18 593 93 033
Taxation on acquired intangibles and acquisition/disposal/integration of subsidiaries (1 610) 33 852 17 574
Preference dividends paid (22 434) (21 935) (34 803)
Accrual adjustment on earnings attributable to other equity holders 7 726 4 869 (1 211)
Currency hedge attributable to perpetual equity investments – (115) (413)
Adjusted earnings 194 600 169 065 339 523
Headline adjustments* (11 165) (18 203) (30 753)
Headline earnings 183 435 150 862 308 770
Earnings per share (pence)
– Basic 20.1 11.6 24.4
– Diluted 19.1 11.0 23.1
Adjusted earnings per share (pence)
– Basic 22.3 19.7 39.4
– Diluted 21.2 18.7 37.3
Dividends per share (pence)
– Interim 9.5 8.5 8.5
– Final N/A N/A 11.5
Headline earnings per share (pence)
– Basic 21.0 17.6 35.8
– Diluted 20.0 16.7 33.9
Number of weighted average shares – (million) 871.8 858.1 862.7
* The headline earnings adjustments are made up of property revaluations, loss on disposal of subsidiaries, the impairment of goodwill and non-current assets held for sale and gains
on available for sale instruments recycled through the income statement. This line represents the reconciling items from adjusted earnings to headling earnings.
Summarised combined consolidated statement of comprehensive income
Six months to Six months to Year to
30 September 30 September 31 March
GBP'000 2015 2014 2015
Profit after taxation 216 772 130 023 275 394
Other comprehensive (loss)/income:
Items that may be reclassified to the income statement
Fair value movements on cash flow hedges taken directly to other comprehensive income* (16 734) (5 124) (32 816)
Gains on realisation of available-for-sale assets recycled to the income statement* (1 145) (4 432) (4 660)
Fair value movements on available-for-sale assets taken directly to other comprehensive income* (13 757) 9 158 1 037
Foreign currency adjustments on translating foreign operations (266 255) (115 842) (58 318)
Items that will never be reclassified to the income statement:
Re-measurement of net defined pension liability – – 6 340
Total comprehensive (loss)/income (81 119) 13 783 186 977
Total comprehensive (loss)/income attributable to ordinary shareholders (67 075) (17 850) 120 124
Total comprehensive (loss)/income attributable to non-controlling interests (36 478) 9 698 32 050
Total comprehensive income attributable to perpetual preferred securities 22 434 21 935 34 803
Total comprehensive (loss)/income (81 119) 13 783 186 977
* Net of taxation of (GBP14.6 million) (six months to 30 September 2014: (GBP0.9million), year to 31 March 2015: GBP1.3 million).
Summarised combined consolidated cash flow statement
Six months to Six months to Year to
30 September 30 September 30 March
GBP'000 2015 2014 2015
Cash inflows from operations 350 477 308 376 617 363
Increase in operating assets (1 859 634) (986 865) (2 312 292)
Increase in operating liabilities 1 220 550 1 638 568 2 291 132
Net cash (outflow)/inflow from operating activities (288 607) 960 079 596 203
Net cash (outflow)/inflow from investing activities (19 081) 81 915 193 737
Net cash outflow from financing activities (348 234) (168 665) (259 012)
Effects of exchange rate changes on cash and cash equivalents (181 554) (46 188) (17 091)
Net (decrease)/increase in cash and cash equivalents (837 476) 827 141 513 837
Cash and cash equivalents at the beginning of the period 4 562 848 4 049 011 4 049 011
Cash and cash equivalents at the end of the period 3 725 372 4 876 152 4 562 848
Cash and cash equivalents is defined as including cash and balances at central banks, on demand loans and advances to banks and non-sovereign and non-bank cash placements
(all of which have a maturity profile of less than three months).
Combined consolidated balance sheet
30 September 31 March 30 September
GBP'000 2015 2015 2014
Assets
Cash and balances at central banks 2 003 037 2 529 562 3 178 509
Loans and advances to banks 2 261 008 3 045 864 2 598 625
Non-sovereign and non-bank cash placements 545 878 586 400 567 683
Reverse repurchase agreements and cash collateral on securities borrowed 2 504 339 1 812 156 1 120 419
Sovereign debt securities 2 739 669 2 958 641 2 656 672
Bank debt securities 988 133 1 161 055 1 422 390
Other debt securities
