INL,INP : Investec (comprising Investec plc and Investec Limited) ? pre-close trading update

20/09/2019 06:00:00 - INP

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 Investec (comprising Investec plc and Investec Limited) - pre-close trading update 20 September 2019 Investec today announces its pre-close trading update ahead of its interim results for the six months ending 30 September 2019 (1H2020), which are due for release on 21 November 2019. A conference call will be held at 9:00 (BST time) / 10:00 (South African time). Dial-in details are in the Notes section of this announcement. Key points: - Further progress on simplifying and focusing the business in pursuit of disciplined growth over the long term - Group 1H2020 adjusted operating profit is expected to be slightly behind the prior period (in line on a neutral currency basis) given challenging market conditions - Adjusted earnings per share is expected to be 4%-7% lower than prior period - The group's credit loss ratio remained low. Capital and leverage ratios remain above targets - At 31 August 2019, third party assets under management (AUM) increased 6.7% to GBP178.4 billion - The proposed demerger and separate listing of Investec Asset Management is on track - The Bank and Wealth business three-year financial targets remain. The key trends set out below, unless stated otherwise, relate to the five months ended 31 August 2019, and compare forecast 1H2020 to 1H2019. Strategic and operational overview The group remains committed to its objective to simplify and focus the business in pursuit of disciplined growth over the long term. The proposed demerger and separate listing of Investec Asset Management is on track, with regulatory approval obtained in August 2019. The Bank and Wealth business is focused on its strategic priorities of increasing discipline in capital allocation; managing the cost base for greater efficiencies; accelerating revenue growth; expanding connectivity across the organisation to more fully serve client needs; and bolstering digital capabilities. In this regard the following management actions have been executed: - Closure of the Click - adjusted earnings per share is expected to be approximately 4% to 7% lower than the prior period - basic earnings per share are expected to be approximately 10% to 13% behind the prior period - headline earnings per share are expected to be approximately 15% to 18% behind the prior period - the Bank and Wealth business is expected to report adjusted operating profit behind the prior period; and - the Asset Management business is expected to report adjusted operating profit ahead of the prior period. (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, Bank and Wealth's and/or Asset Management's actual future results, performance or achievements in the markets in which they operate to differ from those expressed in the Profit Forecasts - Any forward looking statements made are based on the knowledge of the group, Bank and Wealth and Asset Management at 19 September 2019 - These forward looking statements represent a profit forecast under the Listing Rules. The Profit Forecasts relate to the period ending 30 September 2019 - The financial information on which the Profit Forecasts are based, is the responsibility of the Directors of the group and have 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 2019 annual financial statements, which are in accordance with IFRS and are those which the group anticipates will be applicable for the interim period ending 30 September 2019 - The Profit Forecasts have been prepared based on (a) the unaudited management accounts of the Investec group for the five months to 31 August 2019; and (b) the projected financial performance of the Investec group for the remaining one month of the interim period ending 30 September 2019. 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 - The Rand/Pound Sterling and US Dollar/Pound Sterling exchange rates remain materially unchanged from the prevailing rates detailed below - 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 next financial year. 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 judgemental in nature - Valuation of investment properties is performed twice annually by directors of subsidiary companies who are qualified valuators. The valuation is performed by capitalising the budget net income of the property at the market related yield applicable at the time. Properties in Investec Property Fund are valued according to the JSE Listings Requirements - The group's income tax charge and balance sheet provision are judgemental 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. 3. Definitions - References to adjusted operating profit refer to net profit before tax, goodwill, acquired intangibles and non-operating items but after adjusting for earnings attributable to other non-controlling interests and before non-controlling interests relating to Asset Management. Trends within the divisional sections relate to adjusted operating profit before group costs. Adjusted operating profit is considered an important measure by Investec of the profit realised by the group in the ordinary course of operations. In addition, it forms the basis of the dividend pay-out policy. 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. This pro forma financial information has not been reported on by the group's auditors - The credit loss ratio is calculated as expected credit loss (ECL) impairment charges on gross core loans and advances as a percentage of average gross core loans and advances subject to ECL. 4. 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 to Six months to 31-Aug-2019 31-Mar-19 30-Sep-18 Currency Period Average Period Average Period Average end end end per GBP1.00 South African 18.50 18.27 18.80 18.04 18.44 17.76 Rand Australian Dollar 1.81 1.82 1.83 1.80 1.80 1.79 Euro 1.11 1.13 1.16 1.13 1.12 1.13 US Dollar 1.22 1.26 1.30 1.31 1.30 1.33 Conference call details The conference call will commence at 9:00 (BST time) (10:00 South African time). Telephone conference dial in numbers: - Australia: 1 800 350 100 - Ireland: 014 860 742 - Johannesburg (Neotel): 011 535 3600 - Johannesburg (Telkom): 010 201 6800 - Other (Neotel): [phone] - Other (Telkom): [phone] - UK: 0 333 300 1418 - USA: 1 508 924 4326 Timetable: Interim period end: 30 September 2019 Release of interim results: 21 November 2018 For further information please contact: Investec Investor Relations UK: [phone] / [phone] South Africa: [phone] [e-mail] For media enquiries please contact: Lansons (UK PR advisers) - Tom Baldock. Tel: [phone] Brunswick (SA PR advisers) - Marina Bidoli. Tel: [phone] About Investec Investec is an international specialist bank and asset manager that provides a diverse range of financial products and services to a select client base in three principal markets, the United Kingdom and Europe, South Africa and Asia/Australia, as well as certain other countries. The group was established in 1974 and currently has approximately 10 500 employees. Investec focuses on delivering distinctive profitable solutions for its clients in three core areas of activity namely, Asset Management, Wealth & Investment and Specialist Banking. 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 GBP5.0 billion. Johannesburg and London Sponsor: Investec Bank Limited Date: 20/09/2019 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. 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