| Fri 19 Mar 2021, 9:00 | | INVESTEC PLC - Investec (comprising Investec plc and Investec Limited) – Pre-close Trading Update |
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Investec (comprising Investec plc and Investec Limited) – Pre-close Trading Update
Investec Limited Investec plc
Incorporated in the Republic of South Africa Incorporated in England and Wales
Registration number 1925/002833/06 Registration number 3633621
JSE share code: INL LSE share code: INVP
NSX share code: IVD JSE share code: INP
BSE share code: INVESTEC ISIN: GB00B17BBQ50
ISIN: ZAE000081949
Investec (comprising Investec plc and Investec Limited) – pre-close trading update
19 March 2021
Investec today announces its scheduled pre-close trading update for the year ending 31
March 2021 (FY2021).
An investor conference call will be held today at 09:00 UK time / 11:00 South African time.
Please register for the call at www.investec.com/investorrelations.
Commentary on the group’s financial performance in this pre-close trading update represents
the continuing operations (excluding Ninety One, formerly Investec Asset Management) for
the 11 months ended 28 February 2021 and compares forecast FY2021 to FY2020.
Fani Titi, Group Chief Executive commented:
“The group’s operating results for the year ending 31 March 2021 are expected to be in line with
the guidance released in our interim results in November 2020. We are encouraged by the
momentum we are seeing across our business, the continued recovery of markets and the positive
developments related to COVID-19 vaccines. Our expected performance demonstrates the
strength of our underlying client franchises, the continued execution of our strategic objectives and
the resilience of our people in what has been an unprecedented year.
Adjusted earnings per share from continuing operations for FY2021 is expected to be 20% - 29%
behind the prior year. Underlying performance has been resilient notwithstanding the challenging
operating environment and the elevated risk management and risk reduction costs associated with
hedging our UK structured products book as previously communicated.
While the general outlook is improving, the long-term impact of the pandemic is uncertain. Investec
remains well capitalised, highly liquid, and well provisioned for impairments. With the simplification
of the group now substantially complete, we are positioned to pursue long term growth.”
Trading update - key highlights:
The year-on-year performance has been negatively impacted by lower interest rates, elevated
costs related to the hedging of our UK structured products book as guided in November,
reduced client activity and a c.14% depreciation of the average Rand against Pound Sterling.
This was offset by lower expected credit losses and continued cost containment.
Adjusted operating profit is expected to be 16% - 24% behind the prior year. The effective tax
rate for FY2021 is expected to be approximately 22% (FY2020: 11.9%).
The second half (2H2021) adjusted operating profit and earnings are expected to be ahead of
comparable numbers reported in the first half (1H2021) of the financial year, reflecting an
improving trend, particularly in the last quarter.
• Resilient client franchises: The Specialist Banking businesses saw improved client
activity in 2H2021 (as economies continued to recover) with good client acquisition in
both geographies. The Private Banking franchise reported strong lending book growth
in 2H2021. Corporate lending activity was largely subdued over the period under
review, showing improvement in the last quarter of the 2020 calendar year. The
Wealth & Investment businesses reported growth in funds under management (FUM)
reflecting market recovery, continued net inflows and good investment performance.
• Key earnings drivers: Core loans increased 5.5% to £26.3 billion (FY2020: £24.9
billion) while deposits were up 5.9% to £34.1 billion (FY2020: £32.2 billion). Over the
11 months to 28 February 2021, third-party FUM increased by 26.7% to £57 billion
(FY2020: £45 billion) with net inflows of £961 million.
• Operating income: While revenue benefitted from improved client activity and
liability repricing in 2H2021 relative to 1H2021, the expected revenue decline in
FY2021 reflects an environment still marked by the crisis that prevailed throughout
the financial year. Risk management and risk reduction costs related to the hedging
of the UK structured products book are expected to be in line with guidance.
• Costs: Operating costs for FY2021 are expected to be lower than FY2020 by mid-
single digits and include costs associated with the implementation of strategic
initiatives during the period under review.
• Asset quality: The group expects to report a lower expected credit loss charge in
2H2021 compared to 1H2021. The credit loss ratio is expected to be between 37bps
and 44bps (1H2021: 47bps; FY2020: 52bps). We have seen a reduction in clients
seeking COVID-19 relief over the period. Currently, 2.3% of UK and an immaterial
portion of South Africa’s exposures are under some form of COVID-19 relief
compared to the peak of 13.7% and 23% respectively.
• Capital and liquidity: Capital and leverage ratios remain sound, ahead of internal
board-approved minimum targets and regulatory requirements. The liquidity coverage
ratio (LCR) and net stable funding ratio (NSFR) remain well above the regulatory
minimum and the group’s cash and near cash at 28 February 2021 was £13.9 billion
(representing c.40.8% of customer deposits).
• Net asset value (NAV): NAV per share is expected to increase from 414.3p
(FY2020) to between 436p and 465p, while Tangible NAV per share is expected to
increase from 377.7p (FY2020) to between 398p and 427p.
FY2021 earnings guidance: The table below contains the group’s earnings guidance metrics
for the total group both including and excluding discontinued operations. Ninety One was
consolidated up to 13 March 2020 (the date of the demerger) and disclosed as a discontinued
operation for the year ended 31 March 2020.
Total group Total group
(excluding discontinued operations) (including discontinued operations)
FY2021 range FY2020 FY2021 range FY2020
Adjusted EPS - p 24 to 27 33.9 24 to 27 46.5
Basic EPS - p 19.7 to 22.5 17.5 19.7 to 22.5 115.3*
HEPS - p 19.5 to 22.3 21.5 19.5 to 22.3 29.2
* includes the gain from the demerger of Ninety One.
Dividend guidance: We note the updated guidance from the Prudential Authority and the
Prudential Regulation Authority regarding the payment of dividends. A final dividend will be
considered as part of the normal Board process leading up to the release of the final 31
March 2021 results on 21 May 2021. The group’s targeted dividend payout ratio remains
between 30% and 50% of adjusted earnings per share.
Business update: Following the FY2021 year end results presentation in May, the group will
provide a business update on Investec plc. Webcast details will be provided in due course.
For further information please contact:
Investec Investor Relations
Qaqambile Dwayi
South Africa: +27 (0) 11 291 0129/+27 11 286 7070
investorrelations@investec.com
For media enquiries please contact:
Lansons (UK PR advisers) – Tom Baldock. Tel: +44 (0)78 6010 1715
Brunswick (SA PR advisers) – Graeme Coetzee. Tel: +27 (0)63 685 6053
Divisional overview
The commentary and trends that follow, unless stated otherwise, relate to the continuing
operations for the 11 months ended 28 February 2021, and compare forecast FY2021 to
FY2020. Continuing operations in FY2021 include the group’s equity accounted earnings for
Ninety One.
Adjusted operating profit from continuing operations is expected to be 16% - 24% behind
FY2020 (FY2020: £285.7 million) for Southern Africa, while the UK is expected to be 15% -
26% behind FY2020 (FY2020: £133.5 million).
Southern Africa:
• Specialist Bank: Adjusted operating profit is expected to be behind FY2020 in
Rands and Pounds Sterling (FY2020: R4 960 million, £263.7 million).
o Stronger client acquisition and activity levels within the Private Bank,
particularly in 2H2021, were offset by subdued corporate lending activity. We
note the meaningful recovery in client activity levels since December 2020,
however, these were insufficient to reverse the experience in the first eight
months of the financial year.
o The results reflect lower transactional fee income given subdued client
activity and the impact of lower interest rates.
o The ECL impairment charge in 2H2021 is expected to be lower than 1H2021,
in line with guidance.
o Operating costs are expected to be lower than the prior year.
• Wealth & Investment: Adjusted operating profit is expected to be ahead of FY2020
in Rands, marginally behind in Pounds Sterling (FY2020: R501 million, £26.8 million).
o Over the 11 months to 28 February 2021 third-party FUM increased by
30.7% to R329.8 billion (FY2020: R252.4 billion) with net inflows of R200
million (discretionary inflows of R6.7 billion were offset by R6.5 billion
outflows in non-discretionary portfolios).
o A moderate increase in fees in Rands was offset by the impact of a low
interest rate environment.
o Operating costs are expected to be lower than the prior year.
UK & Other:
• Specialist Bank: Adjusted operating profit is expected to be significantly behind
FY2020 (FY2020: £102.6 million) largely as a consequence of structured products
hedging costs as previously guided.
o Client activity has picked up since the last quarter of the 2020 calendar year
supported by steady deal flow and a strong pipeline in certain lending areas
despite a third UK lockdown.
o Private Banking activity showed strong book growth and client acquisition,
supporting net interest income which is broadly flat despite lower interest
rates.
o Net fees and commissions were slightly lower than FY2020. Strong equity
capital markets activity was offset by lower lending activity levels.
o Trading income continued to be negatively impacted by elevated risk
management and risk reduction costs on hedging the structured products
book.
o The ECL impairment charge in 2H2021 is expected to be lower than 1H2021
as we have not seen portfolio-wide stress due to COVID-19.
o Operating costs are expected to be higher than the prior year given once-off
costs associated with implementation of restructures, including the
reorganisation of the UK bank and the closure of our operations in Australia.
• Wealth & Investment: Adjusted operating profit is expected to be ahead of FY2020
(FY2020: £63.0 million).
o Over the 11 months to 28 February 2021 third-party FUM increased by
23.5% to £40.9 billion (FY2020: £33.1 billion) with net inflows of £952 million.
o Higher income from increased transaction volumes (in early FY2021) and the
associated repositioning of client portfolios was offset by the impact of lower
interest rates.
o Operating costs are expected to be lower than the prior year.
Group Investments: Adjusted operating profit is expected to be ahead of FY2020 (FY2020:
£16.7m) driven by the positive impact from the inclusion of the equity accounted earnings
from the group’s 25% stake in Ninety One and profit on the sale of certain assets. Operating
costs are expected to be lower than the prior year.
Group costs: Group costs are expected to be below £35 million for FY2021 as guided in the
interim results. These were also positively impacted by the non-repeat of costs associated
with the exit of a marketing contract in the UK in the prior year.
Other information
• The results of Ninety One are equity accounted in FY2021. In FY2020, Ninety One was
consolidated up to 13 March 2020 (the date of the demerger) and thus shown as a
discontinued operation for the year ended 31 March 2020.
• Results have been negatively impacted by the depreciation of the average Rand against
Pound Sterling exchange rate of approximately 14%.
• The effective tax rate is expected to be approximately 22% (FY2020: 11.9%).
• The weighted average number of shares in issue for FY2021 is expected to be
approximately 929 million (FY2020: 946 million).
On behalf of the board
Perry Crosthwaite (Chairman), Fani Titi (Group Chief Executive)
Key income drivers
Core loans
Neutral currency
£'m 28-Feb-21 31- Mar-20 % change
% change
UK and Other 12,595 11,870 6.1% 6.1%
South Africa 13,688 13,041 5.0% (0.8%)
Total 26,283 24,911 5.5% 2.5%
Customer deposits
Neutral currency
£'m 28-Feb-21 31- Mar-20 % change
% change
UK and Other 16,386 15,272 7.3% 7.3%
South Africa 17,745 16,949 4.7% (1.0%)
Total 34,131 32,221 5.9% 2.9%
Funds under Management (FUM)
Neutral currency
£'m 28-Feb-21 31-Mar-20 % change
% change
Total Wealth & Investment FUM 56,646 44,510 27.3% 25.3%
UK and Other 40,893 33,117 23.5% 23.5%
Discretionary 34,274 27,599 24.2% 24.2%
Non-discretionary 6,619 5,518 20.0% 20.0%
Southern Africa 15,753 11,393 38.3% 30.7%
Discretionary and annuity 8,332 5,982 39.3% 31.6%
Non-discretionary 7,422 5,411 37.2% 29.6%
Specialist Bank 388 508 (23.7%) (25.0%)
Total third party FUM 57,034 45,018 26.7% 24.8%
Notes
1. Definitions
• Adjusted operating profit refers to operating profit before goodwill, acquired
intangibles and strategic actions and after adjusting for earnings attributable to
other non-controlling interests. Non-IFRS measures such as adjusted operating
profit are considered as pro forma financial information as per the JSE Listing
Requirements. The pro forma financial information is the responsibility of the
group’s Board of Directors. Pro-forma financial information was prepared for
illustrative purposes and because of its nature may not fairly present the issuer's
financial position, changes in equity or results of operations. This pro forma
financial information has not been reported on by the group’s auditors.
• Adjusted earnings is calculated by adjusting basic earnings attributable to
shareholders for the amortisation of acquired intangible assets, non-operating
items including strategic actions, and earnings attributable to perpetual
preference shareholders and other additional tier 1 security holders.
• Adjusted earnings per share is calculated as adjusted earnings attributable to
shareholders divided by the weighted average number of ordinary shares in issue
during the year.
• Headline earnings is adjusted earnings plus the after tax financial effect of
strategic actions and the amortisation of acquired intangible assets. This
adjustment specifically excludes the after-tax gains realised on the demerger and
the sale of subsidiaries in FY2020 but includes the transaction costs incurred.
Headline earnings is an earnings measure required to be calculated and
disclosed by the JSE and is calculated in accordance with the guidance provided
in Circular 1/2019.
• Headline earnings per share (HEPS) is calculated as headline earnings divided
by the weighted average number of ordinary shares in issue during the year.
• Basic earnings is earnings attributable to ordinary shareholders as defined by
IAS33 Earnings Per Share.
• Core loans is defined as net loans to customers plus net own originated
securitised assets.
• The credit loss ratio is calculated as expected credit loss (ECL) impairment
charges on gross core loans as a percentage of average gross core loans subject
to ECL.
2. Exchange rates
The group’s reporting currency is Pounds Sterling. Certain of the group’s operations are
conducted by entities outside the UK. The results of operations and the financial condition of
these individual companies are reported in the local currencies in which they are domiciled,
including Rands, Australian Dollars, 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 the Pound Sterling over the period:
11 months to Year to Six months to
28 February 2021 31 March 2020 30 September 2020
Currency Period Period Period
Average Average Average
per GBP1.00 end end end
South African Rand 20.94 21.39 22.15 18.78 21.58 22.05
Australian Dollar 1.81 1.81 2.03 1.87 1.80 1.85
Euro 1.15 1.12 1.13 1.15 1.10 1.12
US Dollar 1.40 1.30 1.24 1.27 1.29 1.27
3. Profit forecasts
• The following matters highlighted in this announcement contain forward-looking
statements:
- Adjusted EPS is expected to be between 24p and 27p which is behind
FY2020.
- Basic EPS is expected to be between 19.7p and 22.5p which is ahead of
FY2020.
- HEPS is expected to be between 19.5p and 22.3p which is behind
FY2020.
- Adjusted operating profit is expected to be 16% to 24% behind FY2020.
- Adjusted operating profit for the South African Specialist Bank is
expected to be behind FY2020.
- The UK Specialist Bank adjusted operating profit is expected to be
significantly behind FY2020.
- The South African Wealth & Investment business adjusted operating
profit is expected to be ahead of FY2020 in Rands, behind in Pounds
Sterling.
- The UK Wealth & Investment business adjusted operating profit is
expected to be ahead of FY2020.
(collectively the Profit Forecasts).
• The basis of preparation of each of these statements and the assumptions upon
which they are based are set out below. These statements are subject to various
risks and uncertainties and other factors – 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 in the Profit Forecasts.
• Any forward looking statements made are based on the knowledge of the group
at 18 March 2021.
• These forward looking statements represent a profit forecast under the Listing
Rules. The Profit Forecasts relate to the year ending 31 March 2021.
• The financial information on which the Profit Forecasts are based is the
responsibility of the Directors of the group and has not been reviewed and
reported on by the group’s auditors.
Basis of preparation
• The Profit Forecasts have been properly compiled using the assumptions stated
below, and on a basis consistent with the accounting policies adopted in the
group’s September 2020 unaudited interim financial statements, which are in
accordance with IFRS and are those which the group anticipates will be
applicable for the year ending 31 March 2021.
• The Profit Forecasts have been prepared based on (a) the unaudited interim
financial statements of the group for the six months to 30 September 2020, and
the results of the Specialist Banking and Wealth & Investment businesses
underlying those interim financial statements; (b) the unaudited management
accounts of the group and the Specialist Banking and Wealth & Investment
businesses for the eleven months to 28 February 2021; and (c) the projected
financial performance of the group and the Specialist Banking and Wealth &
Investment businesses for the remaining one month of the year ending 31 March
2021.
• Percentage changes shown on a neutral currency basis for balance sheet items
assume that the relevant closing exchange rates at 28 February 2021 remain the
same as those at 31 March 2021.
Assumptions
The Profit Forecasts have been prepared on the basis of the following assumptions
during the forecast period:
Factors outside the influence or control of the Investec Board:
• There will be no material change in the political and/or economic environment
that would materially affect the Investec group.
• There will be no material change in legislation or regulation impacting on the
Investec group’s operations or its accounting policies.
• There will be no business disruption that will have a significant impact on the
Investec group’s operations, whether for Covid-19 or otherwise.
• The Rand/Pound Sterling and US Dollar/Pound Sterling exchange rates and the
tax rates remain materially unchanged from the prevailing rates detailed above.
• There will be no material changes in the structure of the markets, client demand
or the competitive environment.
Estimates and judgements
In preparation of the Profit Forecasts, the group makes estimations and applies
judgement that could affect the reported amount of assets and liabilities within the
reporting period. Key areas in which judgement is applied include:
• Valuation of unlisted investments primarily in the private equity, direct
investments portfolios and embedded derivatives. Key valuation inputs are based
on the most relevant observable market inputs, adjusted where necessary for
factors that specifically apply to the individual investments and recognising
market volatility.
• The determination of ECL against assets that are carried at amortised cost and
ECL relating to debt instruments at fair value through other comprehensive
income (FVOCI) involves the assessment of future cash flows which is
judgmental in nature.
• Valuation of investment properties is performed by capitalising the budget net
income of the property at the market related yield applicable at the time.
• The group’s income tax charge and balance sheet provision are judgmental in
nature. This arises from certain transactions for which the ultimate tax treatment
can only be determined by final resolution with the relevant local tax authorities.
The group recognises in its tax provision certain amounts in respect of taxation
that involve a degree of estimation and uncertainty where the tax treatment
cannot finally be determined until a resolution has been reached by the relevant
tax authority. The carrying amount of this provision is often dependent on the
timetable and progress of discussions and negotiations with the relevant tax
authorities, arbitration processes and legal proceedings in the relevant tax
jurisdictions in which the group operates. Issues can take many years to resolve
and assumptions on the likely outcome would therefore have to be made by the
group.
• Where appropriate, the group has utilised expert external advice as well as
experience of similar situations elsewhere in making any such provisions.
Determination of interest income and interest expense using the effective interest
rate method involves judgement in determining the timing and extent of future
cash flows.
About Investec
Investec partners with private, institutional, and corporate clients, offering international
banking, investments, and wealth management services in two principal markets, South
Africa and the UK, as well as certain other countries. The group was established in 1974 and
currently has approximately 8,500 employees.
In 2002, Investec implemented a dual listed company structure with listings on the London
and Johannesburg Stock Exchanges. In March 2020, the group successfully completed the
demerger of Ninety One, which became separately listed on 16 March 2020. Investec’s
current market capitalisation is approximately £2.4 billion.
Johannesburg and London
JSE Equity Sponsor: Investec Bank Limited
Date: 19-03-2021 09:00:00
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