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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
18 March 2022
Investec today announces its scheduled pre-close trading update for the year ending 31 March
2022 (FY2022). Commentary on the Group's financial performance in this pre-close trading
update represents the 11 months ended 28 February 2022 and compares forecast FY2022 to
FY2021 (31 March 2021).
FY2022 earnings update and guidance
The Group is pleased to update the FY2022 adjusted earnings per share guidance to between
51p and 55p, from the 48p to 53p range guided in November 2021.
For the year ending 31 March 2022, the Group expects:
- Adjusted operating profit before tax between #642 million and #683 million (FY2021:
#377.6 million).
- The Southern African business' adjusted operating profit to be at least 30%
ahead of prior year in Rands (FY2021: R5 510 million, #251.6 million).
- The UK business' adjusted operating profit to be at least 120% higher than
prior year (FY2021: #126.0 million).
- Adjusted earnings per share between 51p and 55p (or 76% to 90% ahead of prior year)
(FY2021: 28.9p).
- Basic earnings per share between 48p and 52p (or 90% to 106% ahead of prior year)
(FY2021: 25.2p).
- Headline earnings per share between 49p and 53p (or 84% to 99% ahead of prior year)
(FY2021: 26.6p).
The above expectations are predicated on the following year to date performance:
Group operating performance is above the pre-COVID comparative period, benefitting from
strategic execution and post-pandemic economic recovery.
- Pre-provision adjusted operating profit increased, supported by continued client
acquisition, growth in funds under management (FUM) and higher average advances.
- The revenue momentum experienced in the first half of the financial year
continued into the second half. Net interest income benefitted from lower
funding costs and higher average lending books. Increased client activity,
higher lending turnover and supportive market conditions underpinned the
growth in non-interest revenue over the period.
- Fixed operating expenditure was well contained in line with the Group's focus
on cost efficiencies, while variable remuneration grew in line with revenue. The
cost to income ratio improved as revenue grew faster than costs.
- Expected credit loss impairment charges were significantly lower given limited
default experience and certain recoveries. Post-model overlays have been
maintained.
- On average, the Rand/Pounds Sterling exchange rate appreciated by c.5%
over the period.
- For the period ended 28 February 2022:
- The Wealth & Investment business grew FUM by 6.6% to #61.9 billion, driven
by net inflows of #2.0 billion and positive market conditions. Current market
volatility may impact FUM at 31 March 2022.
- Within Specialist Banking, core loans grew by 8.9% to #28.8 billion, driven by
corporate lending and residential mortgage growth in both geographies.
The Group is well capitalised with strong liquidity, above Board approved minimums, and is
well positioned to pursue identified growth opportunities.
The Group has no material direct or indirect exposure to Russia or Ukraine; however, the
outlook may be affected by uncertainty arising from the likely impacts of the Russian invasion
of Ukraine on the global economy and financial markets.
Other information
The financial information on which this trading statement is based, has not been reviewed and
reported on by the external auditors.
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
Year end results
The results for the year ending 31 March 2022 are scheduled for release on Thursday,19 May
2022.
On behalf of the board
Philip Hourquebie (Chair), Fani Titi (Group Chief Executive)
For further information please contact:
Investec Investor Relations
General enquiries: investorrelations@investec.co.za
Results:
Qaqambile Dwayi Carly Newton
SA Tel: +27 (0)83 457 2134 UK Tel: +44 (0)20 75974493
Brunswick (SA PR advisers)
Graeme Coetzee Tel: +27 (0)63 685 6053
Lansons (UK PR advisers)
Tom Baldock Tel: +44 (0)78 6010 1715
Key income drivers
Core loans
Neutral currency
#'m 28-Feb-22 31- Mar-21 % change
% change
UK and Other 14,273 12,331 15.8%* 15.8%
South Africa 14,516 14,107 2.9% 4.7%
Total 28,789 26,438 8.9% 9.8%
*17.4% excluding Australia
Customer deposits
Neutral currency
#'m 28-Feb-22 31- Mar-21 % change
% change
UK and Other 18,025 16,070 12.2% 12.2%
South Africa 19,863 18,379 8.1% 10.0%
Total 37,888 34,449 10.0% 11.0%
Funds under Management (FUM)
Neutral currency
#'m 28-Feb-22 31-Mar-21 % change
% change
Total Wealth & Investment FUM 61,889 58,039 6.6% 7.2%
UK and Other 43,383 41,684 4.1% 4.1%
Discretionary 36,443 35,207 3.5% 3.5%
Non-discretionary 6,940 6,477 7.1% 7.1%
Southern Africa 18,506 16,355 13.1% 15.1%
Discretionary and annuity 9,467 8,587 10.2% 12.2%
Non-discretionary 9,039 7,768 16.4% 18.4%
Specialist Bank 405 397 1.9% 3.6%
Total FUM 62,294 58,436 6.6% 7.2%
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:
Eleven months to Year ended Year ended
28 February 2022 31 March 2021 31 March 2020
Currency Period Period Period
Average Average Average
per GBP1.00 end end end
South African Rand 20.72 20.33 20.36 21.33 22.15 18.78
Australian Dollar 1.85 1.85 1.81 1.82 2.03 1.87
Euro 1.19 1.17 1.17 1.12 1.13 1.15
US Dollar 1.34 1.37 1.38 1.31 1.24 1.27
3. Profit forecasts
- The following matters highlighted in this announcement contain forward-looking
statements. Each of the below forecasts are expected to be ahead of FY2021:
- Adjusted EPS is expected to be between 51p and 55p.
- Basic EPS is expected to be between 48p and 52p.
- HEPS is expected to be between 49p and 53p.
- Adjusted operating profit is expected to be between #642 million and #683
million.
- Adjusted operating profit for the Southern African business is expected to
be at least 30% ahead of the prior year in Rands.
- The UK business' adjusted operating profit is expected to be at least 120%
higher than the prior year.
- The outlook may be affected by uncertainty arising from the likely impacts
of the Russian invasion of Ukraine on the global economy and financial
markets.
(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 17 March 2022.
- These forward looking statements represent a profit forecast under the Listing
Rules. The Profit Forecasts relate to the year ending 31 March 2022.
- 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 31 March 2022.
- The Profit Forecasts have been prepared based on (a) reviewed interim financial
statements of the Group for the six months to 30 September 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 eleven
months to 28 February 2022; 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 31 March 2022.
- Percentage changes shown on a neutral currency basis for balance sheet items
assume that the relevant closing exchange rates at 28 February 2022 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.
Johannesburg and London
Sponsor: Investec Bank Limited
Date: 18-03-2022 09:00:00
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