Investec pleased with performance amid global turmoil
By Josh White
Date: Thursday 15 Nov 2018
(Sharecast News) - Investec issued its unaudited combined consolidated financial results for the six months ended 30 September on Thursday, reporting a "sound" operational performance.
The FTSE 250 company did say that was notwithstanding a "challenging" operating environment, with rising US interest rates, the threat of trade wars, concerns over global growth prospects, weak economic growth in South Africa, and Brexit-related uncertainty in the UK contributing to that.
It said its Asset Management and Wealth & Investment businesses had grown funds under management, supported by strong net flows of £4.8bn.
The Specialist Banking business saw a "substantial reduction" in impairments, as well as revenue growth supported by reasonable levels of client activity.
Investec's cost-to-income ratio improved "marginally", the board said, with revenue growth and cost containment remaining priorities.
The firm said it had a "solid base" of annuity revenue, which continued to support earnings through varying market conditions.
Operating profit before goodwill, acquired intangibles, non-operating items and taxation and after other non-controlling interests increased 14.2% to £359.3m year-on-year, or 17.6% on a currency-neutral basis.
Overall group results were said to have been negatively impacted by the depreciation of the average rand-to-sterling exchange rate of around 4.1% over the period.
The combined South African businesses reported operating profit 5.0% ahead of the prior period in rands, whilst the combined UK and other businesses posted a 40.2% increase in operating profit in pounds sterling.
Investec's board said "salient features" of the period included an 8.2% improvement in adjusted earnings attributable to shareholders before goodwill, acquired intangibles and non-operating items £265.3m, or an increase of 11.1% on a currency-neutral basis.
Adjusted earnings per share before goodwill, acquired intangibles and non-operating items were up 6.4% to 28.3p from 26.6p, or an increase of 9.4% on a currency-neutral basis.
Annuity income as a percentage of total operating income amounted to 75.5%, down slightly from 76.4%.
The total income statement impairment charge reduced materially to £31m from £59.6m, with the annualised credit loss charge as a percentage of average gross core loans and advances subject to expected credit losses improving to 0.34% from 0.52%.
Investec's annualised return on adjusted average shareholders' equity increased to 13.4% from 12.1% at 31 March.
Third party assets under management rose 3.7% to £166.5bn - an increase of 7.2% on a currency-neutral basis.
Customer accounts, or deposits, fell 2.1% to £30.3bn, although that was an increase of 4.3% on a currency-neutral basis.
Core loans and advances dipped 3.7% to £24.2b, though on a currency-neutral basis, that was an increase of 2.4%.
The group said it had maintained a "sound capital position", with common equity tier one ratios of 10.4% for Investec plc and 10.3% for Investec Limited, ahead of the group's CET1 ratio target.
Its board said it was "comfortable" with its CET1 ratio target at a 10% level, as its leverage ratios for both Investec Limited and Investec plc were above 7%.
Liquidity was said to remain "strong", with cash and near-cash balances amounting to £12.5bn.
The board declared a dividend of 11p per ordinary share, up from 10.5p, resulting in a dividend cover based on the group's adjusted earnings per share before goodwill and non-operating items of 2.6x, compared to 2.5x previously and consistent with Investec's dividend policy.
Investec said the proposed demerger and separate listing of Investec Asset Management, which still remained subject to regulatory and shareholder approvals, was progressing well.
"The outgoing executives have handed over a resilient business with positive momentum and good growth potential," said joint chief executive officers Fani Titi and Hendrik du Toit in a statement.
"It is now up to us to implement our strategy of simplification and greater focus, involving the demerger and separate listing of the Asset Management business and the positioning of the Specialist Bank and Wealth & Investment businesses for sustainable long-term growth.
"Revenue growth, capital allocation and cost discipline remain high on our agenda."
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