Half-year Report

Investec Bank PLC

29 November 2024

 

Investec Bank plc Incorporated in England and Wales Registration number 489604 LEI: 84S0VF8TSMH0T6D4K848

 

Unaudited condensed Financial Statements for the six months ended 30 September 2024

Investec Bank plc

(Incorporated in England and Wales)

(Company Registration Number: 489604)

Interim Management Report

This Interim Management Report is issued by Investec Bank plc (the Bank), a subsidiary of the listed entity Investec plc, in accordance with the UK Listing Authority's Disclosure and Transparency Rules and together with the Investec Bank plc unaudited consolidated interim financial report for the six months ended 30 September 2024 (1H2025) has been prepared in accordance with IAS 34 "Interim Financial Reporting". Unless stated otherwise, comparatives relate to the six month period ended 30 September 2023 (1H2024). Adjusted operating profit refers to operating profit before amortisation of acquired intangibles, strategic actions and taxation and after non-controlling interests.

Basis of presentation

The comparability of the Bank's total period on period performance is affected by the financial effects of the combination of Investec Wealth & Investment UK (IW&I UK) with the Rathbones Group (Rathbones) which took place at the end of the prior period. IW&I UK was reflected as a discontinued operation in line with applicable accounting principles in the prior period. The current period (i.e. post combination) recognises the Bank's 41.25% economic interest in the combined Rathbones Group as post taxation operating income from associates in continuing operations.

Performance overview

·      Adjusted operating profit increased by 7.2% to £241.5 million (1H2024: £225.2 million)

·      Revenue benefitted from balance sheet growth, the breadth and depth of our client franchises, as well as the elevated interest rate environment

·      The cost to income ratio improved to 49.7% (1H2024: 54.0%)

·      The annualised credit loss ratio on average gross core loans subject to ECL was 67bps (31 March 2024: 58bps; 1H2024: 55bps) in line with September 2024 Investec Group pre-close guidance. The overall credit quality of the book remained stable, with no evidence of trend deterioration.

·      Net core loans increased by 2.3% annualised to £16.7 billion (31 March 2024: £16.6 billion)

·      Customer accounts (deposits) increased 8.8% annualised to £21.8 billion (31 March 2024: £20.9 billion)

·      Cash and near cash balances increased 1.2% to £9.8 billion (31 March 2024: £9.7 billion)

·      Capital ratios* remained sound with the Bank reporting a total capital ratio of 19.9% (31 March 2024: 19.8%), a common equity tier 1 ratio of 13.5% (31 March 2024: 13.3%) and a leverage ratio of 10.4% (31 March 2024: 10.7%)

·      Rathbones Group Plc, of which Investec owns a 41.25% economic interest, had Funds Under Management and Administration (FUMA) of £108.8 billion on 30 September 2024 (£107.6 billion at 31 March 2024)

*Including the deduction of foreseeable charges and dividends as required under the Capital Requirements Regulation.

Business unit review

Specialist Banking

Pre-provision adjusted operating profit decreased by 1.0% to £260.0 million (1H2024: £262.7 million). Adjusted operating profit decreased by 7.3% to £207.2 million (1H2024: £223.4 million); our diversified client franchises in the UK mid-market and selected geographies performed well within the context of a challenging macroeconomic environment.  The two-year (i.e. post COVID-19) adjusted operating profit compound annual growth rate (CAGR) is 23.7%. We have continued to successfully execute our client acquisition strategies to build scale and relevance in the UK and other markets in which we operate. Our value proposition is underpinned by our 'One Investec' integrated approach, taking our clients along both the personal and business journey.

Net core loans grew by 2.3% annualised to £16.7 billion since 31 March 2024 driven by 6.9% annualised growth in the UK residential mortgage lending book, alongside a flat corporate lending portfolio within a constrained market environment. Moderate growth across the corporate loan book was offset by higher levels of repayments, particularly in the real estate lending portfolio, as well as the translation impact of US Dollar and Euro denominated loans. Our diversified lending franchises allowed us to navigate the uncertain operating environment which prevailed over the period.

Operating income decreased by 3.9%; strong growth in net fee and commission income generated from our M&A advisory business in line with our strategy to grow capital light earnings was offset by lower net interest income and lower trading income from customer flow. Investment income also contributed positively given the improving global markets backdrop.

Net interest income decreased by 5.2%, the benefit of a larger average loan book and higher average interest rates was offset by higher cost of funding as deposits repriced.

Non-interest revenue remained broadly flat due to:

·      Higher M&A advisory fees primarily from the consolidation of Capitalmind as it became a subsidiary in June 2023. We have also seen higher arrangement fees in certain lending areas

·      Higher investment income was largely driven by net fair value gains from equity investments

-     Offset by:

·      Lower trading income from customer flow, primarily as a result of lower risk management gains from hedging the significantly reduced financial products run down book and lower interest rate and FX hedging volumes in our Treasury Risk Solutions business. This was partially offset by strong equity trading income from customer flow on the back of positive market sentiment.

ECL impairment charges totalled £52.8 million, resulting in an annualised credit loss ratio of 67bps (1H2024: 55bps) in line with the Group's September 2024 pre-close guidance. The increase in ECL charges was largely driven by Stage 3 ECL charges on certain exposures. Overall asset quality of the book remained stable; Stage 3 and Stage 2 exposures decreased to 3.2% (31 March 2024: 3.3%) and 6.9% (31 March 2024: 8.6%) of gross core loans subject to ECL at 30 September 2024 respectively. We have seen a reduction in exposures migrating into Stage 3.

The cost to income ratio improved to 52.2% (1H2024: 53.6%). Operating costs decreased by 6.6% period-on-period. The increase in fixed operating costs reflects continued investment in people and technology for growth and inflationary pressures. Variable remuneration decreased in line with business performance.

The Group notes the recent Court of Appeal decisions on the Wrench, Johnson and Hopcraft cases relating to motor commission arrangements. The Group has assessed the potential impact of these decisions, as well as any broader implications, pending the outcome of the intended appeal applications and concluded the provision of £30 million at 31 March 2024 still remains appropriate based on the information currently available. The ultimate financial impact of the Court of Appeal decision and ongoing FCA investigation into motor commission could materially vary, pending further guidance from the FCA or the outcome of the intended appeal to the UK Supreme Court.

Further information on key developments within each of the business units is provided in the Investec group's interim report published on the Investec group's website: http://www.investec.com.

Wealth & Investment UK - presented as discontinued operations in the prior period

The all-share combination of IW&I UK and Rathbones successfully completed at the end of the prior period, creating the UK's leading discretionary wealth manager with £108.8 billion FUMA at 30 September 2024.

In the prior period (pre the combination) the IW&I UK business generated adjusted operating profit (post -tax) of £35.9 million and an operating margin of 25.2%. In line with the applicable accounting standards this has been presented as a discontinued operation in the prior period.

The current period (post the combination) includes the Bank's 41.25% share of the combined Rathbones Group operating earnings recognised as post taxation income from associates of £32.3 million within continuing operations. As disclosed by Rathbones on 17 October 2024, going forward the Bank will be incorporating Rathbones' latest published interim results i.e. post taxation earnings for the six months ended 30 June 2024 in our interim results for the six months to 30 September 2024. Rathbones reported underlying operating margin of 25.1% for the six months to 30 June 2024, showing progress towards the target of a 30%+ margin.

The Rathbones Group reported increased synergy delivery of £25.5 million per annum on a cash run-rate basis at 30 September 2024, significantly ahead of the first-year post-combination objective of £15 million.

We remain confident that the combination will deliver scale and efficiency to power future long-term growth.

Capital and Liquidity

Funding and liquidity

As at 30 September 2024, the Bank had £9.8 billion in cash and near cash balances (31 March 2024: £9.7 billion), representing 44.9% of customer deposits. The Bank continues to maintain a conservative liquidity and funding profile. Loans and advances to customers as a percentage of customer deposits amounted to 77.0% (31 March 2024: 79.5%). The Bank comfortably exceeds Basel liquidity requirements for the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR). As at 30 September 2024 IBP (solo basis) LCR was 456% and the NSFR was 147%.

Capital adequacy*

Capital remained comfortably in excess of regulatory requirements and the Bank continued to meet the Investec group's internal board-approved capital targets. As at 30 September 2024, the Common Equity Tier 1 ratio of the Bank was 13.5%, the total capital ratio was 19.9% and the leverage ratio was 10.4%.

*Including the deduction of foreseeable charges and dividends as required under the Capital Requirements Regulation.

Credit quality and counterparty exposures

The Bank lends mainly to high net worth and high income individuals, mid to large sized corporates, public sector bodies and institutions. The majority of the bank's credit and counterparty exposures reside within its principal operating geography, namely the UK.

Taxation

Taxation on operating profit before acquired intangibles and strategic actions from continuing operations was £45.7 million (1H2024: £51.9 million), resulting in an effective operational tax rate of 21.8% (1H2024: 22.8%).

Outlook

Revenue momentum in the second half of the 2025 financial year is expected to be underpinned by average book growth, stronger client activity levels and continued success in our client acquisition strategies, partly offset by the effects of reducing global interest rates.

The Bank has maintained strong capital and liquidity levels and is well positioned to continue supporting our clients and pursue disciplined growth as the economic environment improves. We remain committed to our purpose of creating enduring worth for all our stakeholders.

On behalf of the Board of Investec Bank plc

Ruth Leas

Chief Executive Officer

Note to the commentary section

This interim management report includes an unaudited consolidated condensed set of financial statements produced by the Bank for the six months ended 30 September 2024, which can be accessed via the following link http://www.rns-pdf.londonstockexchange.com/rns/2470O_1-2024-11-29.pdf. This document is also available on Investec's website at https://www.investec.com/content/dam/investor-relations/financial-information/interim-results/2024/Investec-Bank-plc-Website-Booklet-Sep-2024.pdf, and via the National Document Storage Mechanism at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism

These unaudited 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 period to 30 September 2024 are consistent with those adopted in the financial statements for the year ended 31 March 2024. 

Contingent liabilities

The group assessed its exposure to legal proceedings and the appropriateness of related provisions recognised on the balance sheet as at 30 September 2024. It was concluded that the provisions held as at 30 September 2024 reflect our best estimate of the potential financial outflows that may arise. Refer to page 25 of the Investec Bank plc unaudited condensed financial information for the six months ended 30 September 2024 for further detail.

Enquires and further information:

Investor Relations

Investec Bank plc

Telephone: [phone]

30 Gresham Street, London, EC2V 7QP

United Kingdom           

Investec Bank plc

directors' responsibilitY STATEMENT

The directors (the names of whom are set out below) are required to prepare the financial statements on a going concern basis unless it is not appropriate to do so. In making this assessment, the directors have considered information relating to present and future conditions.

Each of the directors (the names of whom are set out below) confirm that these condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard (IAS) 34 "Interim Financial Reporting", as adopted by the UK and, to the best of their knowledge:

(i)         gives a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation as a whole;

(ii)         the interim management report herein includes a fair review of the information required by the Financial Conduct Authority's (FCA's) Disclosure Guidance and Transparency Rule (DTR) 4.2.7R, namely: An indication of important events that have occurred during the six months ended 30 September 2024 and their impact on the condensed consolidated interim financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year.

Signed on behalf of the board

Ruth Leas

Chief Executive Officer

29 November 2024

Investec Bank plc board of directors:

Executive directors

Ruth Leas (Chief Executive Officer)

Kevin McKenna (Chief Risk Officer)

Marlé van der Walt (Finance Director)

Fani Titi

Non-executive directors

John Reizenstein (Chair)

Henrietta Baldock

David Germain

Paul Seward

Lesley Watkins

 

END