| Thu 19 May 2016, 13:30 | | INVESTEC PLC - Unaudited combined consolidated fi |
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INVESTEC PLC - Unaudited combined consolidated fin 19 May 2016
INP INL 201605190010A
Unaudited combined consolidated financial results for the year ended 31 March 2016
Investec plc
Incorporated in England and Wales
(Registration number 3633621)
JSE share code: INP
LSE share code: INVP
ISIN: GB00B17BBQ50
Investec Limited
Incorporated in the Republic of South Africa
Registration number 1925/002833/06)
JSE share code: INL
NSX share code: IVD
BSE share code: INVESTEC
ISIN: ZAE000081949
INVESTEC PLC AND
INVESTEC LIMITED
(COMBINED RESULTS)
Unaudited combined
consolidated financial
results for the year to
31 March 2016
Unaudited combined consolidated financial results for the year ended 31 March 2016
This announcement covers the results of the Investec group for the year ended 31 March 2016.
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.
Consequently, comparison on a statutory basis of these full year results with
the prior year 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 in the prior year 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
prior 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 year ended 31 March 2015. Group results have
been negatively impacted by the 16.3% 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 year to 31 March 2016
when compared to the prior year. Amounts represented on a currency
neutral basis for balance sheet items assume that the relevant closing
exchange rates remain the same as at 31 March 2016 when compared to
31 March 2015.
OVERVIEW OF RESULTS
SOUND PERFORMANCE NOTWITHSTANDING CHALLENGING OPERATING
ENVIRONMENTS
- Macro uncertainty and volatility in the group's key operating geographies
during the financial year impacted overall results.
- Net new fund inflows and reasonable levels of activity in the group's
banking businesses supported sound performance.
- The Specialist Banking business reported results ahead of the prior year.
Strong loan growth was supported by client activity in both the corporate
and private banking businesses and the investment and debt securities
portfolios delivered good results.
- The Asset Management and Wealth & Investment businesses reported
solid net inflows of GBP5.3 billion.
- The group has successfully leveraged its ability to provide clients an
international offering, increasing its client base and deepening its core
franchise.
- Continued investment in infrastructure, digital platforms and increased
headcount are supporting growth initiatives in the overall business.
- Geographical and operational diversity continues to support a stable
recurring income base and earnings through varying market conditions.
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 2.5% to GBP505.6 million (2015:
GBP493.2 million) – an increase of 13.5% on a currency neutral basis.
- Statutory adjusted earnings per share (EPS) before goodwill, acquired
intangibles and non-operating items increased 4.8% from 39.4 pence to
41.3 pence – an increase of 15.7% on a currency neutral basis.
SATISFACTORY PERFORMANCE FROM THE ONGOING BUSINESS
- Ongoing operating profit increased 0.6% to GBP583.9 million (2015:
GBP580.7 million) – an increase of 9.9% on a currency neutral basis.
- Ongoing adjusted EPS before goodwill, acquired intangibles and
non-operating items increased 2.3% from 47.5 pence to 48.6 pence –
an increase of 11.4% on a currency neutral basis.
- Third party assets under management decreased 2.0% to
GBP121.7 billion (31 March 2015: GBP124.1 billion) – an increase of
3.8% on a currency neutral basis.
- Customer accounts (deposits) increased 6.3% to GBP24.0 billion
(31 March 2015: GBP22.6 billion) - an increase of 16.6% on a currency
neutral basis.
- Core loans and advances increased 6.3% to GBP17.5 billion
(31 March 2015: GBP16.5 billion) - an increase of 17.3% on a currency
neutral basis.
THE UK LEGACY PORTFOLIO CONTINUES TO BE ACTIVELY MANAGED
DOWN
- The legacy portfolio reduced from GBP695 million at 31 March 2015 to
GBP583 million through redemptions and write-offs.
- The legacy business reported a loss before taxation of GBP78.3 million
(2015:GBP107.7 million) with impairments on the legacy portfolio
reducing 18.4% from GBP83.5 million to GBP68.1 million.
MAINTAINED A SOUND BALANCE SHEET
- Capital remained well in excess of current regulatory requirements.
The common equity tier 1 ratios of Investec Limited and Investec plc
are slightly below the group's 2016 target of 10% as a consequence
of strong growth in credit risk weighted assets. Current leverage ratios
remain sound at approximately 7% for both Investec Limited and
Investec plc.
- Liquidity remained strong with cash and near cash balances amounting
to GBP11.0 billion.
DIVIDEND INCREASE OF 5.0%
- The board proposes a final dividend of 11.5 pence per ordinary share
equating to a full year dividend of 21.0 pence (2015: 20.0 pence)
resulting in a dividend cover based on the group's adjusted EPS before
goodwill and non-operating items of 2.0 times (2015: 2.0 times),
consistent with the group's dividend policy.
Stephen Koseff, Chief Executive Officer of Investec said:
"The decisive action we took within the Specialist Bank in prior years,
supported by continued penetration of our target client base, has achieved
strong results. Wealth and Investment's increased collaboration with the
Private Banking business is proving successful. Asset Management have
continued to see good net inflows across their client groups. Overall a good
performance in a challenging environment reinforces our strategy of building
a diversified business model."
Bernard Kantor, Managing Director of Investec said:
"These results demonstrate our ability to deliver a good and consistent
performance even when faced with uncertain economic conditions. The
growth of our loan book in both the UK and South Africa and net new fund
inflows of over GBP5 billion is testament to the quality of our people and the
strength of our client franchises."
FOR FURTHER INFORMATION PLEASE CONTACT:
Investec +27 (0) 11 286 7070 or +44 (0) 20 7597 5546
Stephen Koseff, Chief Executive Officer
Bernard Kantor, Managing Director
Ursula Nobrega, Investor Relations (mobile:+27 (0) 82 552 8808)
Carly Lunz, Investor Relations (+44 (0) 20 7597 4493)
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/10:00 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 9 000 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
GBP4.3 billion.
INVESTEC PLC AND INVESTEC LIMITED (COMBINED RESULTS)
UNAUDITED COMBINED CONSOLIDATED FINANCIAL RESULTS FOR THE
YEAR ENDED 31 MARCH 2016
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 0.6% to GBP583.9 million (2015: GBP580.7 million) – an increase
of 9.9% on a currency neutral basis. Group results have been negatively
impacted by the 16.3% depreciation of the average Rand: Pounds Sterling
exchange rate over the period.
The combined South African businesses operating profit rose 8.0% in Rand,
whilst the combined UK and Other businesses posted a 12.8% increase in
operating profit in Pounds Sterling.
Salient features of the year under review are:
- Adjusted earnings attributable to shareholders before goodwill, acquired
intangibles and non-operating items increased 3.2% to GBP423.1 million
(2015: GBP409.9 million) – an increase of 12.4% on a currency neutral
basis.
- Adjusted earnings per share (EPS) before goodwill, acquired intangibles
and non-operating items increased 2.3% from 47.5 pence to 48.6 pence
– an increase of 11.4% on a currency neutral basis.
- Recurring income as a percentage of total operating income amounted
to 71.8% (2015: 71.9%).
- The credit loss charge as a percentage of average gross core loans
and advances amounted to 0.26% (2015: 0.22%), with impairments
increasing by 5.1% to GBP41.4 million.
- Third party assets under management decreased 2.0% to
GBP121.7 billion (31 March 2015: GBP124.1 billion) – an increase of
3.8% on a currency neutral basis.
- Customer accounts (deposits) increased 6.3% to GBP24.0 billion
(31 March 2015: GBP22.6 billion) - an increase of 16.6% on a currency
neutral basis.
- Core loans and advances increased 6.3% to GBP17.5 billion
(31 March 2015: GBP16.5 billion) - an increase of 17.3% on a currency
neutral basis.
BUSINESS UNIT REVIEW – ONGOING BASIS
Asset Management
Asset Management operating profit decreased by 9.5% to GBP134.8 million
(2015: GBP149.0 million). The business benefited from solid net inflows of
GBP3.2 billion. Earnings were impacted by market and currency weakness.
Total funds under management amount to GBP75.7 billion (31 March 2015:
GBP77.5 billion).
Wealth & Investment
Wealth & Investment operating profit increased by 8.8% to GBP85.7 million
(2015: GBP78.8 million). The business benefited from higher average funds
under management and solid net inflows of GBP2.1 billion. Total funds under
management amount to GBP45.5 billion (31 March 2015: GBP46.1 billion).
Specialist Banking
Specialist Banking operating profit increased by 4.3% to GBP409.2 million
(2015: GBP392.3 million).
The South African business reported an increase in operating profit in Rands
of 12.7%. Net interest income was driven by loan book growth of 19.7% to
R218.0 billion. The unlisted investment portfolio performed well during the
year. The corporate and private banking businesses benefited from positive
business momentum and franchise growth. The credit loss ratio on average
core loans and advances amounted to 0.26% (2015: 0.28%), the lower end
of its long term average trend, despite the business reporting a moderate
increase in impairments.
The UK and Other businesses reported a 20.9% increase in operating profit.
Good levels of activity supported strong loan growth and increased net
interest income. The debt securities portfolio performed well during the year
and the Hong Kong investment portfolio results improved. Core loans grew
13.4% to GBP7.2 billion and impairments increased, with the credit loss ratio
amounting to 0.26% (2015: 0.12%).
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. These costs
amounted to GBP45.8 million (2015: GBP39.3 million).
FINANCIAL STATEMENT ANALYSIS – ONGOING BASIS
Total operating income
Total operating income before impairment losses on loans and advances
increased by 2.5% to GBP1,934.8 million (2015: GBP1,887.1 million).
Net interest income increased by 6.1% to GBP571.9 million (2015:
GBP539.0 million) 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 decreased by 2.9% to GBP1,058.3 million
(2015: GBP1,090.4 million) largely as a result of lower fees earned in the
UK corporate business following a strong prior year. The deal pipeline has
however remained sound. This was partially offset by a good performance
from the corporate treasury, corporate structuring and property fund
management businesses in South Africa as well as the acquisition of Blue
Strata (rebranded Investec Import Solutions). In addition, growth in fees in the
global private banking business was supported by increased client activity.
Investment income increased by 11.9% to GBP169.9 million (2015:
GBP151.8 million) as a result of higher earnings from the UK debt securities
portfolio, improved results from the Hong Kong portfolio and a sound
performance from the group's unlisted investment portfolio.
Trading income arising from customer flow increased by 4.0% to
GBP110.9 million (2015: GBP106.6 million) whilst trading income from
other trading activities reflected a profit of GBP11.6 million (2015: loss of
GBP13.0 million) largely due to foreign currency gains (these are largely offset
in non-controlling interests as further detailed below).
Other operating income includes associate income and income earned on
operating lease rentals.
Impairment losses on loans and advances
Impairments on loans and advances increased from GBP39.4 million to
GBP41.4 million with an increase in the group's credit loss ratio to 0.26%
(2015: 0.22%). Since 31 March 2015 gross defaults have decreased from
GBP247.1 million to GBP201.9 million. The percentage of default loans (net
of impairments but before taking collateral into account) to core loans and
advances amounted to 0.78% (31 March 2015: 1.04%).
Operating costs
The ratio of total operating costs to total operating income was 65.8%
(2015: 66.5%). Total operating costs grew by 1.4% to GBP1,272.1 million
(2015: GBP1,254.0 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 19.1% (2015:19.6%).
Profit attributable to non-controlling interests
Profit attributable to non-controlling interests mainly comprises:
- GBP16.5 million profit attributable to non-controlling interests in the
Asset Management business.
- GBP37.6 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 is reflected
in operating profit before goodwill with the equal and opposite impact
reflected in earnings attributable to non-controlling interests. These
securities were redeemed on 24 June 2015.
BALANCE SHEET ANALYSIS
Since 31 March 2015:
- Total shareholders' equity (including non-controlling interests) decreased
by 4.5% to GBP3.9 billion largely due to the depreciation of the Rand
against Pounds Sterling.
- Net asset value per share decreased 3.4% to 352.3 pence and net
tangible asset value per share (which excludes goodwill and intangible
assets) decreased by 4.5% to 294.3 pence.
- The return on adjusted average shareholders' equity of the ongoing
business increased from 13.8% to 13.9%.
LIQUIDITY AND FUNDING
As at 31 March 2016 the group held GBP11.0 billion in cash and near
cash balances (GBP5.1 billion in Investec plc and R124.9 billion in Investec
Limited) which amounted to 38.7% of its liability base. Loans and advances
to customers as a percentage of customer deposits amounted to 73.5%
(31 March 2015: 74.0%). The group has continued to diversify and improve
the quality of its funding sources and remains very liquid. 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 31 March 2016 with the three-month average of its
LCR at 117.3%, 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% 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.
31 March 31 March
2016 2015
Investec plc^
Capital adequacy ratio 15.1% 16.7%
Tier 1 ratio 10.7% 11.9%
Common equity tier 1 ratio 9.7% 10.2%
Common equity tier 1 ratio
(anticipated Basel III "fully loaded"*) 9.7% 10.2%
Leverage ratio (current) 7.0% 7.7%
Leverage ratio (anticipated Basel III "fully
loaded"*) 6.3% 6.6%
Investec Limited
Capital adequacy ratio 14.0% 14.7%
Tier 1 ratio 10.7% 11.3%
Common equity tier 1 ratio 9.6% 9.6%
Common equity tier 1 ratio
(anticipated Basel III "fully loaded"*) 9.6% 9.5%
Leverage ratio (current*) 6.9% 8.1%
Leverage ratio (anticipated Basel III
"fully loaded"*) 6.3% 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 GBP46 million for Investec plc would be
40bps lower. Investec Limited's capital information includes unappropriated
profits. If unappropriated profits are excluded from the capital information,
Investec Limited's common equity tier 1 ratio would be 16 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 GBP695 million to GBP583 million largely
through redemptions and write-offs. The total legacy business over the year
reported a loss before taxation of GBP78.3 million (2015:GBP107.7 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 take a further two to four years to clear. Total
net defaults in the legacy book amount to GBP143 million (31 March 2015:
GBP185 million).
ADDITIONAL INFORMATION - SOUTH AFRICAN INVESTMENT VEHICLE
In South Africa a new investment vehicle, Investec Equity Partners (IEP),
was created on 11 January 2016 in which Investec holds a 45% stake
alongside other strategic investors who hold the remaining 55%. Investec
Principal Investments transferred certain portfolio investments to the value
of R7.6 billion to IEP. In exchange Investec received R2.5 billion in cash
and 45% of the shares in IEP (R5.1 billion), reflected as an associate on the
balance sheet.
ADDITIONAL INFORMATION - ACQUISITION OF THE BLUE STRATA GROUP
On 1 July 2015, Investec Bank Limited concluded transaction agreements
with the management and shareholders of the Blue Strata group for the
acquisition of the remaining 51.5% of the Blue Strata group, not already
owned by it. Investec and Blue Strata have had a fruitful partnership over the
past 13 years since Blue Strata's founding in 2002.
As import regulations and complexities increase, Blue Strata offers a
compelling value proposition to clients by simplifying the import process, and
Investec foresees exciting benefits unfolding in offering Blue Strata's services
to more of Investec's existing client base. The full integration of the business
into Investec offers the opportunity to unlock substantial benefits and will
allow Blue Strata to accelerate its growth.
For the post-acquisition period, 1 July 2015 to 31 March 2016, the operating
income of Blue Strata was GBP9.5 million and the profit before taxation
amounted to GBP3.2 million.
OUTLOOK
Investec is positioned to maintain sustainable growth in its principal markets
as the businesses develop with a strong client and operational focus. The
macro environment remains volatile due to uncertainty in global markets, the
pending EU membership referendum in the UK, and economic, political and
social challenges in South Africa. Current levels of activity are, nevertheless,
supporting group performance and Investec remains committed to providing
shareholder value and exceptional client experience.
On behalf of the boards of Investec plc and Investec Limited
Fani Titi Stephen Koseff Bernard Kantor
Chairman Chief Executive Officer Managing Director
18 May 2016
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 year-end 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:
Year to Year to
Currency per 31 March 2016 31 March 2015
Period Period
GBP1.00 end Average end Average
South African Rand 21.13 20.72 17.97 17.82
Australian Dollar 1.87 2.04 1.95 1.85
Euro 1.26 1.37 1.38 1.28
US Dollar 1.44 1.50 1.49 1.62
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 16.3% and the closing rate has depreciated by 17.6% 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 no longer reports the activities of its Australian
businesses separately with these activities 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 GBP4.8 million was recognised during the current year.
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 year
ended 31 March 2016 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
year ended 31 March 2016 will be posted to stakeholders on 30 June 2016.
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 May 2016.
- The information in the announcement for the year ended 31 March 2016,
which was approved by the board of directors on 18 May 2016, 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
Year to Year to
31 March 31 March
GBP'000 2016 2015 Variance % change
Net interest income 571 929 539 041 32 888 6.1%
Net fee and commission income 1 058 340 1 090 435 (32 095) (2.9%)
Investment income 169 915 151 848 18 067 11.9%
Trading income arising from
– customer flow 110 879 106 588 4 291 4.0%
– balance sheet management and other trading activities 11 617 (13 041) 24 658 > 100.0%
Other operating income 12 090 12 188 (98) (0.8%)
Total operating income before impairment losses on loans and advances 1 934 770 1 887 059 47 711 2.5%
Impairment losses on loans and advances (41 368) (39 352) (2 016) 5.1%
Operating income 1 893 402 1 847 707 45 695 2.5%
Operating costs (1 272 108) (1 254 009) (18 099) 1.4%
Depreciation on operating leased assets (2 165) (1 294) (871) 67.3%
Operating profit before goodwill, acquired intangibles and non-operating items 619 129 592 404 26 725 4.5%
Profit attributable to Asset Management non-controlling interests (16 529) (18 184) 1 655 (9.1%)
Profit attributable to other non-controlling interests (35 201) (11 701) (23 500) (> 100.0%)
Operating profit before taxation 567 399 562 519 4 880 0.9%
Taxation on operating profit before goodwill and acquired intangibles (118 151) (116 182) (1 969) 1.7%
Preference dividends accrued (26 130) (36 427) 10 297 (28.3%)
Adjusted attributable earnings to ordinary shareholders 423 118 409 910 13 208 3.2%
Adjusted earnings per share (pence) 48.6 47.5 2.3%
Cost to income ratio 65.8% 66.5%
Number of weighted average shares (million) 870.5 862.7
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 year to 31 March 2016 UK Southern Total
GBP'000 and Other Africa group
2016
Asset Management 76 853 57 930 134 783
Wealth & Investment 63 127 22 608 85 735
Specialist Banking 156 378 252 837 409 215
296 358 333 375 629 733
Group costs (35 160) (10 645) (45 805)
Total group 261 198 322 730 583 928
Other non-controlling interest – equity 35 201
Operating profit 619 129
2015
Asset Management 75 491 73 484 148 975
Wealth & Investment 56 871 21 910 78 781
Specialist Banking 129 341 262 918 392 259
261 703 358 312 620 015
Group costs (30 048) (9 264) (39 312)
Total group 231 655 349 048 580 703
Other non-controlling interest – equity 11 701
Operating profit 592 404
Reconciliation from statutory summarised income statement to ongoing summarised income
statement
Removal of:**
UK legacy
business Sale Sale
For the year to 31 March 2016 Statutory excluding assets assets Ongoing
GBP'000 as disclosed sale assets UK Australia business
Net interest income 573 769 1 840 – – 571 929
Net fee and commission income 1 061 625 3 285 – – 1 058 340
Investment income 170 408 493 – – 169 915
Trading income arising from
– customer flow 110 227 (652) – – 110 879
– balance sheet management and other trading activities 11 377 (240) – – 11 617
Other operating income 12 090 – – – 12 090
Total operating income before impairment losses on loans and
advances 1 939 496 4 726 – – 1 934 770
Impairment losses on loans and advances (109 516) (68 148) (41 368)
Operating income 1 829 980 (63 422) – – 1 893 402
Operating costs (1 287 021) (14 913) – – (1 272 108)
Depreciation on operating leased assets (2 165) – – – (2 165)
Operating profit before goodwill, acquired intangibles and non-
operating items 540 794 (78 335) – – 619 129
Profit attributable to other non-controlling interests (35 201) – – – (35 201)
Profit attributable to Asset Management non-controlling interests (16 529) – – – (16 529)
Operating profit before taxation 489 064 (78 335) – – 567 399
Taxation on operating profit before goodwill and acquired intangibles* (103 202) 14 949 – – (118 151)
Preference dividends accrued (26 130) – – – (26 130)
Adjusted attributable earnings to ordinary shareholders 359 732 (63 386) – – 423 118
Adjusted earnings per share (pence) 41.3 48.6
Cost to income ratio 66.4% 65.8%
Number of weighted average shares (million) 870.5 870.5
* Applying the group's effective taxation rate of 19.1%.
Removal of:**
UK legacy
business Sale Sale
For the year to 31 March 2015 Statutory excluding assets assets Ongoing
GBP'000 as disclosed sale assets UK Australia business
Net interest income 634 977 12 526 71 143 12 267 539 041
Net fee and commission income 1 089 043 756 (4 876) 2 728 1 090 435
Investment income 128 334 (16 204) (5 443) (1 867) 151 848
Trading income arising from
- customer flow 106 313 350 (415) (210) 106 588
- balance sheet management and other trading activities (13 424) 19 (248) (154) (13 041)
Other operating income 12 236 – – 48 12 188
Total operating income before impairment losses on loans and
advances 1 957 479 (2 553) 60 161 12 812 1 887 059
Impairment losses on loans and advances (128 381) (83 468) (4 085) (1 476) (39 352)
Operating income 1 829 098 (86 021) 56 076 11 336 1 847 707
Operating costs (1 322 705) (21 648) (34 245) (12 803) (1 254 009)
Depreciation on operating leased assets (1 535) – (241) – (1 294)
Operating profit before goodwill, acquired intangibles
and non-operating items 504 858 (107 669) 21 590 (1 467) 592 404
Profit attributable to other non-controlling interests (11 701) – – – (11 701)
Profit attributable to Asset Management non-controlling interests (18 184) – – – (18 184)
Operating profit before taxation 474 973 (107 669) 21 590 (1 467) 562 519
Taxation on operating profit before goodwill and acquired intangibles* (99 023) 21 103 (4 232) 288 (116 182)
Preference dividends accrued (36 427) – – – (36 427)
Adjusted attributable earnings to ordinary shareholders 339 523 (86 566) 17 358 (1 179) 409 910
Adjusted earnings per share (pence) 39.4 47.5
Cost to income ratio 67.6% 66.5%
Number of weighted average shares (million) 862.7 862.7
* Applying the group's effective statutory taxation rate of 19.6%.
** - The remaining legacy business in the UK.
- The result of the businesses sold in the prior year 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
Year to Year to Year to currency Year to Year to
31 March 31 March % 31 March % 31 March 31 March %
2016 2015 change 2016 change 2016 2015 change
Operating profit before
taxation* (million) 506 493 2.5% 560 13.5% 10 494 8 817 19.0%
Earnings attributable to
shareholders (million) 368 246 50.0% 409 66.3% 7 635 3 970 92.3%
Adjusted earnings
attributable to
shareholders** (million) 360 340 6.0% 397 16.8% 7 459 6 076 22.8%
Adjusted earnings per
share** 41.3p 39.4p 4.8% 45.6p 15.7% 857c 704c 21.7%
Basic earnings per share 38.5p 24.4p 57.8% 42.8p 75.4% 798c 387c > 100.0%
Headline earnings per
share 38.5p 35.8p 7.5% 41.3p 15.4% 796c 640c 24.4%
Dividends per share 21.0p 20.0p 5.0% n/a n/a 473c 362c 30.7%
Cost to income ratio 66.4% 67.6% 65.5% 66.4% 67.6%
Results in Pounds Sterling Results in Rand
Neutral
currency Neutral
At At At currency At At
31 March 31 March % 31 March % 31 March 31 March %
2016 2015 change 2016 change 2016 2015 change
Net asset value per share 352.3p 364.9p (3.5%) 370.6p 1.6% 7 444c 6 559c 13.5%
Net tangible asset value
per share 294.3p 308.1p (4.5%) 312.1p 1.3% 6 218c 5 538c 12.3%
Total equity (million) 3 859 4 040 (4.5%) 4 217 4.4% 81 543 72 625 12.3%
Total assets (million) 45 352 44 353 2.3% 50 066 12.9% 958 221 797 218 20.2%
Core loans and advances
(million) 18 119 17 189 5.4% 19 929 15.9% 382 826 308 957 23.9%
Cash and near cash
balances (million) 10 962 9 975 9.9% 12 001 20.3% 231 616 179 242 29.2%
Customer accounts
(deposits) (million) 24 044 22 615 6.3% 26 369 16.6% 508 024 406 485 25.0%
Third party assets under
management (million) 121 683 124 106 (2.0%) 128 791 3.8% 2 571 141 2 230 197 15.3%
Return on average adjusted
shareholders' equity 11.5% 10.6%
Return on average risk-
weighted assets 1.34% 1.25%
Defaults (net of
impairments and before
collateral) as a percentage
of net core loans 1.54% 2.07%
Loans and advances to
customers as a percentage
of customer deposits 73.6% 74.0%
Credit loss ratio (income
statement impairment
charge as a % of average
gross core loans and
advances) 0.62% 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
Year to Year to
31 March 31 March
GBP'000 2016 2015
Interest income 1 705 640 1 790 867
Interest expense (1 131 871) (1 155 890)
Net interest income 573 769 634 977
Fee and commission income 1 188 012 1 226 257
Fee and commission expense (126 387) (137 214)
Investment income 170 408 128 334
Trading income arising from
– customer flow 110 227 106 313
– balance sheet management and other trading activities 11 377 (13 424)
Other operating income 12 090 12 236
Total operating income before impairment losses on loans and advances 1 939 496 1 957 479
Impairment losses on loans and advances (109 516) (128 381)
Operating income 1 829 980 1 829 098
Operating costs (1 287 021) (1 322 705)
Depreciation on operating leased assets (2 165) (1 535)
Operating profit before goodwill and acquired intangibles 540 794 504 858
Impairment of goodwill (1 577) (5 337)
Amortisation of acquired intangibles (16 248) (14 497)
Operating profit 522 969 485 024
Net loss on disposal of subsidiaries (4 778) (93 033)
Profit before taxation 518 191 391 991
Taxation on operating profit before goodwill and acquired intangibles (103 202) (99 023)
Taxation on acquired intangibles and acquisition/disposal/integration of subsidiaries 5 197 (17 574)
Profit after taxation 420 186 275 394
Profit attributable to Asset Management non-controlling interests (16 529) (18 184)
Profit attributable to other non-controlling interests (35 201) (11 701)
Earnings attributable to shareholders 368 456 245 509
Impairment of goodwill 1 577 5 337
Amortisation of acquired intangibles, net of taxation 16 248 14 497
Net loss on disposal of subsidiaries 4 778 93 033
Taxation on acquired intangibles and acquisition/disposal/integration of subsidiaries (5 197) 17 574
Preference dividends paid (33 192) (34 803)
Accrual adjustment on earnings attributable to other equity holders 7 062 (1 211)
Currency hedge attributable to perpetual equity instruments – (413)
Adjusted earnings 359 732 339 523
Headline adjustments* (25 012) (30 753)
Headline earnings 334 720 308 770
Earnings per share (pence)
– Basic 38.5 24.4
– Diluted 36.7 23.1
Adjusted earnings per share (pence)
– Basic 41.3 39.4
– Diluted 39.4 37.3
Dividends per share (pence)
– Interim 9.5 8.5
– Final 11.5 11.5
Headline earnings per share (pence)
– Basic 38.5 35.8
– Diluted 36.7 33.9
Number of weighted average shares – (million) 870.5 862.7
* 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
Year to Year to
31 March 31 March
GBP'000 2016 2015
Profit after taxation 420 186 275 394
Other comprehensive income
Items that may be reclassified to the income statement
Fair value movements on cash flow hedges taken directly to other comprehensive income* (31 934) (32 816)
Gains on realisation of available-for-sale assets recycled to the income statement* (1 961) (4 660)
Fair value movements on available-for-sale assets taken directly to other comprehensive income* (37 153) 1 037
Foreign currency adjustments on translating foreign operations* (240 875) (58 318)
Items that will never be reclassified to the income statement
Re-measurement of net defined benefit pension liability 4 738 6 340
Total comprehensive income 113 001 186 977
Total comprehensive income attributable to ordinary shareholders 84 932 32 050
Total comprehensive (loss)/income attributable to non-controlling interests (5 123) 120 124
Total comprehensive income attributable to perpetual preferred securities 33 192 34 803
Total comprehensive income 113 001 186 977
* Net of taxation of GBP26.2 million (year to 31 March 2015: GBP1.3 million).
Summarised combined consolidated cash flow statement
Year to Year to
31 March 31 March
GBP'000 2016 2015
Cash inflows from operations 596 621 617 363
Increase in operating assets (4 580 570) (2 312 292)
Increase in operating liabilities 4 602 620 2 291 132
Net cash inflow from operating activities 618 671 596 203
Net cash (outflow)/inflow from investing activities (11 760) 193 737
Net cash outflow from financing activities (347 741) (259 012)
Effects of exchange rate changes on cash and cash equivalents (171 718) (17 091)
Net increase in cash and cash equivalents 87 452 513 837
Cash and cash equivalents at the beginning of the year 4 562 848 4 049 011
Cash and cash equivalents at the end of the year 4 650 300 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
31 March 31 March
GBP'000 2016 2015
Assets
Cash and balances at central banks 3 007 269 2 529 562
Loans and advances to banks 2 498 585 3 045 864
Non-sovereign and non-bank cash placements 466 573 586 400
Reverse repurchase agreements and cash collateral on securities borrowed 2 497 125 1 812 156
Sovereign debt securities 3 208 862 2 958 641
Bank debt securities 896 855 1 161 055
Other debt securities 949 950 627 373
Derivative financial instruments 1 580 949 1 580 681
Securities arising from trading activities 1 119 074 1 086 349
Investment portfolio 660 795 947 846
Loans and advances to customers 17 681 572 16 740 263
Own originated loans and advances to customers securitised 437 243 448 647
Other loans and advances 321 617 574 830
Other securitised assets 160 295 780 596
Interests in associated undertakings 267 099 25 244
Deferred taxation assets 112 135 99 301
Other assets 2 092 661 1 741 713
Property and equipment 90 888 102 354
Investment properties 938 879 617 898
Goodwill 368 039 361 527
Intangible assets 148 280 147 227
Non-current assets classified as held for sale – 40 726
39 504 745 38 016 253
Other financial instruments at fair value through profit or loss in respect of liabilities to customers 5 847 036 6 337 149
45 351 781 44 353 402
Liabilities
Deposits by banks 2 397 403 1 908 294
Derivative financial instruments 1 582 847 1 544 168
Other trading liabilities 957 418 885 003
Repurchase agreements and cash collateral on securities lent 971 646 1 284 945
Customer accounts (deposits) 24 044 281 22 614 868
Debt securities in issue 2 299 751 1 709 369
Liabilities arising on securitisation of own originated loa
