| Thu 23 Sep 2021, 8:00 | | INVESTEC LIMITED - Investec group pre-close trading update and trading statement |
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Investec group pre-close trading update and trading statement
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 LEI: 2138007Z3U5GWDN3MY22
LEI: 213800CU7SM6O4UWOZ70
Investec group pre-close trading update and trading statement
23 September 2021
Investec today announces its scheduled pre-close trading update for the interim period ending
30 September 2021 (1H2022). An investor conference call will be held today at 09:00 UK time
/10:00 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 five months ended 31 August 2021 and compares forecast 1H2022 to 1H2021 (30
September 2020).
1H2022 earnings guidance
For the six months ending 30 September 2021, the group expects:
- Adjusted operating profit before tax between £265 million and £293 million (or 86% to
106% ahead of 1H2021) (1H2021: £142.5 million).
o The Southern African business’ adjusted operating profit at least 50% ahead
in Rands for the period (1H2021: R2 184 million, £99.1 million).
o The UK business’ adjusted operating profit at least 125% higher than the prior
period (1H2021: £43.4 million).
- Adjusted earnings per share between 21.5p and 24p (or 92% to 114% ahead of
1H2021) (1H2021: 11.2p),
• Basic earnings per share between 20.2p and 22.7p (or 110% to 136% ahead of
1H2021) (1H2021: 9.6p), and
• Headline earnings per share between 20.2p and 22.7p (or 120% to 147% ahead of
1H2021) (1H2021: 9.2p).
31 March 2022 (FY2022) earnings range
Based on current business momentum, for FY2022, the group expects to report adjusted
earnings per share above the upper end of the 36p to 41p range guided in May 2021.
Group overview
Performance for the five months ended 31 August 2021 was characterised by good growth in
revenue and lower impairments.
- Revenue was positively impacted by increased client activity across the business and
lower funding costs. Risk management and risk reduction costs associated with the UK
structured products book were immaterial.
- ECL charges were lower, aided by limited specific impairments and certain recoveries.
The group has retained COVID-19 related overlays to account for the uncertainty that
remains in the economic environment.
- Operating costs have increased in line with activity and revenue levels; however,
efficiency ratios have improved as revenue increased ahead of costs.
- The average Rand/Pounds Sterling exchange rate appreciated by c.9% over the
period.
The group’s trading performance was substantially ahead of the comparative period ended 31
August 2020 and in line with the pre-COVID comparative period ended 31 August 2019. This
recovery in performance underscores the resilience of our client franchises.
The group is well capitalised and has strong liquidity, above Board approved minimums. The
business continues to focus on its commitment to clients, offering them an “Out of the Ordinary”
service and innovative solutions.
The changes made to simplify and focus the group are bearing fruit, positioning the group well
for the future.
Divisional review
The Wealth & Investment business grew funds under management (FUM) by 9.9% to £63.8
billion at 31 August 2021 (31 March 2021: £58 billion) supported by net inflows of £1.4 billion,
favourable market movements and investment performance. Operating margin was higher in
the UK, while flat in SA.
- In the Southern African business, FUM increased by 9.5% to R364.5 billion (31 March
2021: R333 billion), with net inflows of R16.7 billion.
Adjusted operating profit for 1H2022 is expected to be ahead of the prior period in
Rands (1H2021: R264 million, £12.0 million).
- In the UK business, FUM increased by 9.0% to £45.4 billion (31 March 2021: £41.7
billion) with net inflows of £0.6 billion.
Adjusted operating profit for 1H2022 is expected to be ahead of 1H2021 (1H2021:
£28.9 million).
Within Specialist Banking, core loans grew by 6.5% to £28.2 billion at 31 August 2021 (31
March 2021: £26.4 billion) given increased activity levels and good client acquisition within
private banking across both geographies. The UK experienced increased demand for corporate
credit across a number of portfolios while SA corporate credit demand remained largely muted.
Net interest income (NII) benefitted from higher average lending books and lower cost of
funding as liabilities repriced. Higher point of sale activity, lending turnover, and client flow
trading volumes underpinned the growth in non-interest revenue (NIR) over the period.
Impairments were lower due to limited specific impairments and continued recoveries over the
period. Cost to income ratios improved as revenue grew ahead of costs.
- In the Southern African business, core loans increased by 1.8% to R292.5 billion (31
March 2021: R287.3 billion).
Adjusted operating profit for 1H2022 is expected to be higher in Rands for the period
(1H2021: R2 049 million, £92.9 million).
- In the UK business, core loans grew by 9.2% to £13.5 billion (31 March 2021: £12.3
billion).
Adjusted operating profit for 1H2022 is expected to be ahead of 1H2021 (1H2021:
£12.9 million).
Adjusted operating profit from Group Investments is expected to be ahead of 1H2021
(1H2021: £13.2 million) as investee companies’ profitability recovered given the improving
economic environment.
Group costs are expected to be lower than the prior period (1H2021: £17.3 million).
Interim results
The interim results for the six months ending 30 September 2021 are scheduled for release on
Thursday,18 November 2021.
The financial information on which this trading statement is based, has not been reviewed and
reported on the by the external auditors.
For further information please contact:
Investec Investor Relations
Qaqambile Dwayi
South Africa: Tel: +27 (0)83 457 2134 investorrelations@investec.com
Media Queries
Lansons (UK PR advisers) – Tom Baldock. Tel: +44 (0)78 6010 1715
Brunswick (SA PR advisers) – Graeme Coetzee. Tel: +27 (0)63 685 6053
On behalf of the board
Philip Hourquebie (Chair), Fani Titi (Group Chief Executive)
Key income drivers
Core loans
Neutral currency
£'m 31- Aug-21 31- Mar-21 % change
% change
UK and Other 13,463 12,331 9.2% 9.2%
South Africa 14,697 14,107 4.2% 1.8%
Total 28,160 26,438 6.5% 5.3%
Customer deposits
Neutral currency
£'m 31- Aug-21 31- Mar-21 % change
% change
UK and Other 16,071 16,070 0.0% 0.0%
South Africa 20,172 18,379 9.8% 7.3%
Total 36,243 34,449 5.2% 3.9%
Funds under Management (FUM)
Neutral currency
£'m 31-Aug-21 31-Mar-21 % change
% change
Total Wealth & Investment FUM 63,764 58,039 9.9% 9.1%
UK and Other 45,445 41,684 9.0% 9.0%
Discretionary 38,424 35,207 9.1% 9.1%
Non-discretionary 7,021 6,477 8.4% 8.4%
Southern Africa 18,319 16,355 12.0% 9.5%
Discretionary and annuity 9,417 8,587 9.7% 7.2%
Non-discretionary 8,902 7,768 14.6% 12.0%
Specialist Bank 380 397 (4.3%) (5.6%)
Total FUM 64,144 58,436 9.8% 9.0%
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. 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 1/2021.
- 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:
Five months to Year ended Six months to
31 August 2021 31 March 2021 30 September 2020
Currency Period Period Period
Average Average Average
per GBP1.00 end end end
South African Rand 19.90 19.93 20.36 21.33 21.58 22.05
Australian Dollar 1.88 1.84 1.81 1.82 1.80 1.85
Euro 1.17 1.16 1.17 1.12 1.10 1.12
US Dollar 1.38 1.39 1.38 1.31 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 21.5p and 24p which is ahead of
1H2021.
- Basic EPS is expected to be between 20.2p and 22.7p which is ahead of
1H2021.
- HEPS is expected to be between 20.2p and 22.7p which is ahead of
1H2021.
- Adjusted operating profit is expected to be 86% to 106% ahead of 1H2021.
- Adjusted operating profit for the Southern African Specialist Bank is
expected to be ahead of 1H2021 in Rands.
- The UK Specialist Bank adjusted operating profit is expected to be ahead
of 1H2021.
- The Southern African Wealth & Investment business adjusted operating
profit is expected to be ahead of 1H2021 in Rands.
- The UK Wealth & Investment business adjusted operating profit is
expected to be ahead of 1H2021.
- Adjusted earnings per share for FY2022 is expected to be above the upper
end of the 36p to 41p range guided in May 2021.
(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
22 September 2021.
- These forward looking statements represent a profit forecast under the Listing
Rules. The Profit Forecasts relate to the period ending 30 September 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 March 2021 audited financial statements, which are in accordance with
IFRS and are those which the group anticipates will be applicable for the period
ending 30 September 2021.
- The Profit Forecasts have been prepared based on (a) audited financial statements
of the group for the year ended 31 March 2021, and the results of the Specialist
Banking and Wealth & Investment businesses underlying those audited financial
statements; (b) the unaudited management accounts of the group and the
Specialist Banking and Wealth & Investment businesses for the five months to 31
August 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 period ending 30 September 2021.
- Percentage changes shown on a neutral currency basis for balance sheet items
assume that the relevant closing exchange rates at 31 August 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 group (comprising Investec plc and Investec Limited) 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 8,200
employees.
In 2002, Investec implemented a dual listed company structure with listings on the London and
Johannesburg Stock Exchanges. Investec’s current market capitalisation is approximately £2.7
billion.
Johannesburg and London
JSE Equity Sponsor: Investec Bank Limited
Date: 23-09-2021 08:00:00
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