Pre-close briefing

RNS Number : 7666S

Investec PLC

16 September 2010

 



Investec Limited Incorporated in the Republic of South Africa                     Registration number 1925/002833/06 JSE share code: INL ISIN: ZAE000081949

Investec plc Incorporated in England and Wales Registration number 3633621 JSE share code: INP ISIN: GB00B17BBQ50

As part of the dual listed company structure, Investec plc and Investec Limited notify both the London Stock Exchange and the JSE Limited of matters which are required to be disclosed under the Disclosure and Transparency Rules and the Listing Rules of the United Kingdom Listing Authority (the "UKLA") and/or the JSE Listing Requirements.

Accordingly, we advise of the following:

 

Investec - pre-close briefing

 

16 September 2010

Investec is today hosting an investor pre-close briefing at 9:00 (GMT time) (10:00 South African time) which will focus on developments within the group's core business areas in the first half of the current financial year.

Operational and financial overview

The group has continued to build its asset management and investment platforms and these businesses have recorded strong inflows during the period. Operating conditions within the group's banking and advisory businesses remain mixed with low levels of economic activity and a difficult trading environment persisting in the first half of the financial year.

Salient financial features include:

·      Operating profit (refer to definition in the notes) is expected to be marginally higher than the prior year.

·      The UK business is performing in line with the prior year, recording a very strong operational performance, although profits earned on debt buy-backs in the prior year were not repeated. The South African business has posted a satisfactory performance.

·      The slower pace of economic recovery has caused a delay in the improvement of the level of non-performing loans and defaults have continued to increase. Impairments remain at elevated levels but are starting to improve and the annualised credit loss charge as a percentage of average gross loans and advances is expected to be within a range of 0.85% to 0.90% (31 March 2010: 1.16%).

·      Since 31 March 2010 core loans and advances have remained flat at GBP17.8 billion, customer deposits have increased by 5% to GBP23.1 billion and third party assets under management have decreased by 2% to GBP72.9 billion. Growth in average assets under management has, however, increased by 32% over the period.

·      Core advances(excluding own originated securitised assets) as a percentage of customer deposits were 71.8% (31 March 2010:76.2%). 

·      The group has a strong balance sheet with low gearing, substantial cash and near cash and solid capital ratios. 

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Outlook

Operating profit continues to be underpinned by a solid recurring income base as well as a strong performance from the group's non-capital intensive Asset Management and Private Wealth businesses. The Capital Markets division has benefitted from good levels of activity and opportunities within the traded credit markets, and there has been a moderate build up in activity levels in the group's other banking businesses. Weak economic growth continues to impact the overall demand for credit and levels of transactional activity, and the performance of the core banking businesses remains dependent on the sustainability of economic recovery and the normalisation of economic activity.

On behalf of the board

Hugh Herman (Chairman), Stephen Koseff (Chief Executive Officer) and Bernard Kantor (Managing Director)

Operational overview - further details

Liquidity management

·      Diversifying Investec's funding sources has been a key element in improving the quality of the group's balance sheet and reducing its reliance on wholesale funding.

·      The group currently holds GBP10.2 billion of cash and near cash balances (GBP5.3 billion in Investec Limited and GBP4.9 billion in Investec plc) which amounts to 35% of its liability base.

·      The group remains successful in building and growing its retail deposit franchise.

Capital

·      The group holds capital in excess of regulatory requirements targeting a minimum tier one capital ratio of 11% and a total capital adequacy ratio range of 14% to 17% on a consolidated basis for each of Investec plc and Investec Limited.

·      The group has conducted an initial review of the Basel III requirements as set out in the Basel Committee on Banking Supervision announcement on 12 September 2010. Based on this review the group believes that its current capital structure and capital ratios exceed the minimum capital requirements for 2019.

	Expected capital adequacy ratios at 30 Sep 2010	31 Mar 2010	30 Sep 2009
Investec plc Total Tier 1	15.9% 11.7%	15.9% 11.3%	15.5% 11.0%
Investec Limited Total Tier 1	15.8% 11.7%	15.6% 12.1%	14.7% 11.3%

Asset quality

·      The bulk of Investec's credit and counterparty risk arises through its Private Banking and Capital Markets activities. The Private Bank lends to high net worth and high income individuals, whilst the Capital Markets division transacts primarily with mid to large sized corporates, public sector bodies and institutions.

·      Investec continues to focus on asset quality and credit risk in all geographies.

·      The slower pace of economic recovery has caused a delay in the improvement of the level of non-performing loans and defaults have continued to increase. Credit risk however, remains appropriately managed and net defaults (after collateral and impairments) are fully covered.

·      Impairments remain at elevated levels but are starting to improve and the annualised credit loss charge as a percentage of average gross loans and advances is expected to be within a range of 0.85% to 0.90% (31 March 2010: 1.16%).

Gearing

·      The group's gearing ratios remain low as reflected in the following table:

	31 Aug 2010	31 Mar 2010	30 Sep 2009
Core loans to capital ratio	4.8x	5.4x	5.8x
Core loans (excluding own originated assets which have been securitised) to customer deposits	71.8%	76.2%	89.5%
Total gearing	11.5x	12.5x	12.1x
Total gearing (excluding securitised assets)	10.7x	11.7x	11.2x

Business commentary

Salient features of the operating performance of the group's core business areas are listed below and further details will be provided in the briefing presentation which can be viewed on the group's website.

Overview of expected performance: 6 months ended 30 September 2010 compared to 6 months ended 30 September 2009

·      Recurring income as a percentage of total operating income amounts to approximately 62% (30 Sept 2009:61%)

·      Moderate increase in total operating income:

o  Net interest income is in line with the prior year

o  Significant increase in net fees and commissions receivable

o  A decline in income from principal transactions

·      Expenses have increased substantially:

o  Acquisitions: Rensburg Sheppards plc; Leasedirect Finance

o  The restructure of the UK Trust business

o  In addition, an increase in headcount in certain divisions: Capital Markets, Asset Management and Group Services

·      The growth in expenses has exceeded the growth in income resulting in a rise in the cost to income ratio, although this ratio remains within the group's target

Asset Management

·      Solid long term investment performance, with over 90% of institutional mandates outperforming benchmark since inception/GIPs inception

·      Continued strong net inflows in excess of GBP1.5 billion

·      Performing significantly ahead of 1H10

·      Assets under management:

o  Since 31 March 2010: have remained flat at GBP46.3 billion

o  Average numbers as calculated for the 5 months to 31 August 2010 compared to the 6 months to 30 September 2009 have increased by 38%.

Private Wealth (formerly Private Client Portfolio Management and Stockbroking)

·      Performing ahead of 1H10 - higher average funds under management

·      Acquisition of Rensburg Sheppards plc - effective 25 June 2010

·      Integration of the Private Bank Private Wealth business in South Africa is complete

·      Assets under management:

§ Since 31 March 2010: have decreased by 4% to GBP25.9 billion

§ Average numbers as calculated for the 5 months to 31 August 2010 compared to the 6 months to 30 September 2009 have increased by 22%.

Property Activities

·      Good performance from the investment property portfolio

·      Remain focused on building the group's property funds across all geographies.

Private Banking

·      Market conditions continue to impact exits and activity levels resulting in lower operating profit year on year

·      South Africa: performing ahead of the prior year as a result of improved margins

·      UK: results have been negatively impacted by the restructure of the Trust business

·      Core loans:

o  Since 31 March 2010: have decreased by 1% to GBP12.7 billion

o  Average numbers as calculated for the 5 months to 31 August 2010 compared to the 6 months to 30 September 2009 have increased by 11%

·      Deposits:

o  Since 31 March 2010: have increased by 3% to GBP12.1 billion

o  Average numbers as calculated for the 5 months to 31 August 2010 compared to the 6 months to 30 September 2009 have increased by 37%.

Investment Banking

•       Agency and Advisory

o  Corporate Finance activity levels have started to improve but this is not yet reflected in earnings

o  Trading conditions remain difficult for the Institutional Stockbroking business

•       Principal Investments (Direct Investments and Private Equity)

o  South Africa Principal Investments are performing marginally ahead of the prior year

o  UK Principal Investments shows a significant improvement over the prior year:

•       Consolidated investments are performing in line with the prior year - still loss making

•       Benefitted from a solid performance from other investments.

Capital Markets

·      Very strong performance globally (particularly in the UK)

·      Good levels of activity across the advisory and structuring businesses:

o  Notably from the Principal Finance, Structured Finance and Structured Equity Derivatives businesses

·      Core loans:

o  Since 31 March 2010: have remained flat at GBP4.5 billion

o  Average numbers as calculated for the 5 months to 31 August 2010 compared to the 6 months to 30 September 2009 have decreased by 7%.

Other Activities

·      Central Funding:

o  South Africa significantly behind 1H10 largely due to lower average levels of interest rates and a relatively weaker performance from equity investments

o  UK - profits due to the debt repurchase programme not repeated in 1H11

·      Central Costs

o  Have increased largely due to numerous brand building initiatives

Other information

Additional aspects

·      Effective tax rate: expected to be approximately 23%

·      Weighted number of shares in issue for the six months ended 30 September 2010 expected to be approximately 741 million

·      Net exceptional gain arising from the requirement under new accounting rules to fair value the group's existing 47% holding of Rensburg Sheppard's plc at the point the group acquired the remaining 53% amounting to approximately GBP71 million.

Notes:

1.   Key trends set out above, unless stated otherwise, relate to the five-months ended 31 August 2010, and compare the first half of the 2010 financial year (1H10) to the first half of the 2011 financial year (1H11).

2.   The financial information on which this statement is based has not been reviewed and reported on by the group's auditors.

3.   References to operating profit relate to normalised operating profit, where normalised operating profit refers to net profit before tax, goodwill and non-operating items but after adjusting for earnings attributable to minorities. Trends within the divisional sections relate to normalised operating profit.

4.   Please note that matters discussed in the briefing and highlighted above 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 International Financial Reporting Standards (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 16 September 2010.

5.   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 and Euros. 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 date	31 Aug 2010		31 Mar 2010		30 Sep 2009
Currency per GBP1.00	Close	Ave	Close	Ave	Close	Ave
South African Rand	11.37	11.31	11.11	12.38	11.99	12.74
Australian Dollar	1.73	1.71	1.66	1.88	1.81	1.99
Euro	1.21	1.18	1.12	1.13	1.09	1.14
Dollar	1.54	1.51	1.52	1.59	1.60	1.59

Presentation details

The briefing starts at 9:00 (GMT time) (10:00 South African time) and will be broadcast live via video conference from the group's offices in Johannesburg to London. The briefing will also be available via a live and recorded telephone conference call, a live and delayed video webcast, a delayed podcast and a delayed Mp3. Further details in this regard can be found on the website at: www.investec.com

Timetable:

Six months ended: 30 September 2010

Release of interim results: 18 November 2010

For further information please contact:

Investec Investor Relations                                                                     

UK: [phone]                                                          

South Africa: [phone]

[e-mail]

 

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 United Kingdom, South Africa and Australia as well as certain other countries. The group was established in 1974.

Investec focuses on delivering distinctive profitable solutions for its clients in six core areas of activity namely, Asset Management, Private Wealth, Property Activities, Private Banking, Investment Banking and Capital Markets.

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 GBP4.1 billion.

 

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