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

20/03/2020 07:00:00 - 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 March 2020 Investec today announces its scheduled pre-close trading update ahead of its full-year results for the 12 months ending 31 March 2020 (FY2020), which are due for release on 21 May 2020. A conference call will be held today at 8:30 UK time / 10:30 South African time; dial-in details are in the Notes section of this announcement. Key points: * The Group has navigated challenging market conditions, exacerbated recently by the ongoing public health and economic effects of COVID-19. * Further progress was made in the Group's strategy to simplify and focus the business. This includes the completion of the demerger and listing of Ninety One (the asset management business) which increased capital levels; as well as the restructuring, closure and sale of non-core and subscale businesses resulting in a reduction in risk. * Group adjusted operating profit is expected to be 7% to 14% behind FY2019 (FY2019: P732 million) and adjusted earnings per share is expected to be 16% to 23% behind FY2019 (FY2019: 60.9p), primarily due to the challenging market conditions mentioned above and effective tax rate normalisation. * The Group's cash and near cash at 18 March 2020 was P12.4 billion (representing 40% of customer deposits). Capital and leverage ratios remain sound, ahead of internal targets and regulatory requirements. * Net asset value is expected to be between 425p-450p (FY2019: 434.1p) and tangible net asset value is expected to be between 385p-405p (FY2019: 386.0p) at 31 March 2020. Net asset value has been positively impacted by profitability and the demerger and negatively by the depreciation of the Rand. Fani Titi, CEO of Investec, said: "Investec has delivered a resilient performance in challenging market conditions. We have also made notable progress in the simplification of the business and have continued to invest in our platforms to achieve sustainable growth for the long term. In these current difficult times, we are resolutely focused on the safety of our people, the integrity of our balance sheet and supporting our clients. We remain optimistic about our longer-term potential." Strategic, operational and financial overview The Group has continued to progress with the execution of its previously stated strategic objectives, in particular simplifying and focusing the business to create value over the long- term. Investec successfully completed the demerger of Ninety One (formerly known as Investec Asset Management), which became separately listed on 16 March 2020. Investec decided not to proceed with the sell down of a 10% stake in Ninety One given market volatility and our already comfortable capital position. In the UK Specialist Bank, we expect costs to have reduced by approximately P25m in FY2020. Previously identified Group cost savings of approximately P10m and technology platform efficiency savings of circa P7.5m remain executable in FY2021. Cost efficiency remains an important area of focus for the Group. We have made good traction in our UK Private Bank proposition with client acquisition and advances growth in line with expectations. In South Africa, we remain committed to rationalising and optimising the value of the investment portfolio as previously communicated. The operating environment in the second half of the financial year (2H2020) was difficult in both South Africa and the UK. The effects of COVID-19 on global markets are expected to negatively impact Investec's fourth-quarter operating performance. The commentary and trends that follow, unless stated otherwise, relate to the 11 months ended 29 February 2020, and compare forecast FY2020 to restated FY2019 as provided in the Group's 1H2020 disclosures (refer to Note 1). The Group * The Group (including the Asset Management business) is expected to report adjusted operating profit 7% to 14% behind the prior year (FY2019: P732 million) and adjusted earnings per share 16% to 23% behind the prior year (FY2019: 60.9p) driven by lower operating performance and effective tax rate normalisation in South Africa. o Operating income is expected to be behind the prior year (FY2019: P2,527 million). Both net interest income and net fee and commission income are expected to be ahead of the prior year, while other income (refer to Note 2) is expected to be behind the prior year. o Operating costs are expected to reduce from the prior year (FY2019: P1,668 million). o While impairments are expected to increase, the credit loss ratio is expected to be between 0.31% to 0.37%. o The effective tax rate is expected to be approximately 16% (FY2019: 12%). Bank and Wealth (continuing operations) * Bank and Wealth adjusted operating profit is expected to be 16% to 22% behind the prior year (FY2019: P552m). o Adjusted operating profit in the South African Specialist Bank is expected to be behind the prior year (FY2019: P310 million) with growth in net interest income partially offset by lower associate and trading income. o The UK Specialist Bank adjusted operating profit is expected to be down on the prior year (FY2019: P192 million). The marginal growth in net interest and fee income was offset by a reduction in other income (refer to Note 2) year- on-year as a result of recent market volatility, tough trading conditions and a higher base from balance sheet management in the prior year. o The South African Wealth (b) the unaudited management accounts of the Group and Bank and Wealth for the eleven months to 29 February 2020; and (c) the projected financial performance of the Group and Bank and Wealth for the remaining one month of the year ending 31 March 2020. * Percentage changes shown on a neutral currency basis for balance sheet items assume that the relevant closing exchange rates at 29 February 2020 remain the same as those at 31 March 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, 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 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. For further information please contact: Investec Investor Relations Carly Newton UK: +44 (0) 207 597 5546 / +44 (0) 207 597 4493 South Africa: +27 (0) 11 286 7070 investorrelations@investec.com For media enquiries please contact: Lansons (UK PR advisers) - Tom Baldock. Tel: +44 (0)78 6010 1715 Brunswick (SA PR advisers) - Graeme Coetzee. Tel: +27 (0)11 502 7419/+27 (0)63 685 6053 About Investec Investec partners with private, institutional and corporate clients to offer 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 8,300 employees. In 2002, Investec implemented a dual listed company structure with listings on the London and Johannesburg Stock Exchanges. In March 2020, the Group successfully completed the demerger of Ninety One (formerly known as Investec Asset Management), which became separately listed on 16 March 2020. Investec's current market capitalisation is approximately GBP1.6 billion. Johannesburg and London Sponsor: Investec Bank Limited Date: 20-03-2020 09:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 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