INVESTEC Final Results for the year ended 31 March 2018

Transparency directive : regulatory news

17/05/2018 07:00
Investec PLC  -  INVP   

Final Results for the year ended 31 March 2018


Released 07:00 17-May-2018

Investec plc and Investec Limited (combined results)


Unaudited combined consolidated financial results for the year ended 31 March 2018


















This announcement covers the results of the Investec group for the year ended 31 March 2018.



 


Basis of presentation


 


Statutory basis


Statutory information is set out in a separate section in this announcement. In order to present a more meaningful view of the group's performance the results continue to be presented on an ongoing basis as explained further below.


 


Ongoing basis


The results presented on an ongoing basis exclude items that in management's view could distort the comparison of performance between periods. Based on this principle, the remaining legacy business in the UK continues to be excluded from underlying profit.


 


This basis of presentation is consistent with the approach adopted for the prior year ended 31 March 2017. A reconciliation between the statutory and ongoing income statement is provided.


 


Unless the context indicates otherwise, all comparatives included in the commentary relate to the year ended 31 March 2017. Group results have benefited from a 6.6% appreciation of the average Rand: Pound Sterling exchange rate over the year. Amounts represented on a currency neutral basis for income statement items assume that the relevant average exchange rates for the year to 31 March 2018 remain the same as those in the prior year. Amounts represented on a currency neutral basis for balance sheet items assume that the relevant closing exchange rates at 31 March 2018 remain the same as those at 31 March 2017.


 


Overview of results


 


Solid client activity levels supporting underlying performance


 


·      The group's asset and wealth management businesses have generated substantial net inflows of GBP7.3 billion, which together with favourable market levels has supported higher average funds under management


·      The banking businesses have benefited from sound levels of corporate and private client activity driving strong loan book growth over the year


·      The group has continued to invest into the business, positioning itself for further growth across its client franchise businesses and ensuring that it remains competitive and relevant in the markets in which it operates


·      Impairments on the legacy portfolio have increased in anticipation of accelerated exits of certain assets in line with the group's strategy of managing down this portfolio


·      Taking into account the above mentioned factors, the group has achieved satisfactory operating performance against a challenging backdrop in its two core geographies, underpinned by sound growth in key earnings drivers and a solid recurring income base.


 


Statutory operating profit salient features


 


·      Statutory operating profit before goodwill, acquired intangibles, non-operating items and taxation and after other non-controlling interests ("operating profit") increased 1.4% to GBP607.5 million (2017: GBP599.1 million) - a decrease of 3.5% on a currency neutral basis.


·      The effective tax rate amounted to 9.6% (2017: 18.5%) mainly impacted by the lower rate in South Africa following the release of provisions no longer required.


·      Statutory adjusted earnings per share (EPS) before goodwill, acquired intangibles and non-operating items increased 10.1% from 48.3 pence to 53.2 pence - an increase of 4.1% on a currency neutral basis.


 


Satisfactory performance from the ongoing business


 


·      Ongoing operating profit increased 5.6% to GBP701.0 million (2017: GBP663.7 million) - an increase of 1.2% on a currency neutral basis.


·      Ongoing adjusted EPS before goodwill, acquired intangibles and non-operating items increased 13.3% from 54.1 pence to 61.3 pence - an increase of 8.1% on a currency neutral basis.


·      Annuity income as a percentage of total operating income amounted to 76.3% (2017: 72.0%).


·      The credit loss charge as a percentage of average gross core loans and advances amounted to 0.26% (2017: 0.29%), remaining at the lower end of the group's long term range despite an increase in impairments.


·      Third party assets under management increased 6.5% to GBP160.6 billion (31 March 2017: GBP150.7 billion) - an increase of 6.2% on a currency neutral basis.


·      Customer accounts (deposits) increased 6.5% to GBP31.0 billion (31 March 2017: GBP29.1 billion) - an increase of 5.9% on a currency neutral basis.


·      Core loans and advances increased 11.6% to GBP24.8 billion (31 March 2017: GBP22.2 billion) - an increase of 11.0% on a currency neutral basis.


 


The UK legacy portfolio continues to be actively managed down


 


·      The legacy portfolio reduced from GBP476 million at 31 March 2017 to GBP313 million through asset sales, redemptions and write-offs.


·      The legacy business reported a loss before taxation of GBP93.5 million (2017: GBP64.6 million) reflecting an increase in impairments for accelerated exits anticipated to occur on certain legacy assets.


 


Maintained a sound balance sheet


 


·      Capital remained in excess of current regulatory requirements. The group is comfortable with its common equity tier 1 ratio target at a 10% level, as its current leverage ratios for both Investec Limited and Investec plc are above 7%. Both Investec Limited and Investec plc reported a common equity tier 1 ratio ahead of this target.


·      Liquidity remained strong with cash and near cash balances amounting to GBP12.8 billion.


 


Dividend increase of 4.3%


 


·      The board proposes a final dividend of 13.5 pence per ordinary share equating to a full year dividend of 24.0 pence (2017: 23.0 pence) resulting in a dividend cover based on the group's adjusted EPS before goodwill and non-operating items of 2.2 times (2017: 2.1 times), consistent with the group's dividend policy. The dividend increase of 4.3% is in line with the currency neutral increase in adjusted earnings per share of 4.1%.


 


 



Stephen Koseff, Chief Executive Officer of Investec said:


"Operating performance during the year was underpinned by sound growth in loans and funds under management and a solid recurring income base, despite a challenging backdrop in South Africa and the UK. The Wealth & Investment and Asset Management businesses generated substantial net inflows, with Asset Management exceeding GBP100 billion of funds under management for the first time. The Specialist Bank continued to see good client acquisition in its core franchise businesses which we have built and developed over a number of years. We have implemented an orderly succession plan and feel confident that we are handing over a business that is well placed to continue to grow both its market position and profitability over the foreseeable future."


 


Bernard Kantor, Managing Director of Investec said:


"Over the last 40 years we have been building a platform that is capable of being leveraged for further growth. Investec is now a meaningful player across many business areas, both in the UK and South Africa, and we believe the platform is robust, relevant and well positioned for future value creation. We are confident that Hendrik du Toit and Fani Titi, as joint chief executives from October, will lead Investec to new successes for the benefit of shareholders and all our stakeholders."


 



For further information please contact:


 


Investec +27 (0) 11 286 7070 or +44 (0) 20 7597 5546


Stephen Koseff, Chief Executive Officer


Bernard Kantor, Managing Director


Ursula Nobrega, Investor Relations (mobile:+27 (0) 82 552 8808)


Carly Newton, Investor Relations (+44 (0) 20 7597 4493)


 


Brunswick (SA PR advisers)


Marina Bidoli


Tel: +2711 502 7405 / +2783 253 0478


 


Newgate (UK PR advisers)


Jonathan Clare/Alistair Kellie/ Charlotte Coulson/Zoe Pocock


Tel: +44 (0)20 7680 6550


 


 


 


 


 


Presentation/conference call details


 


A presentation on the results will commence at 9:00 UK time/10:00 SA time on 17 May 2018. Viewing options as below:


·      Live on South African TV (Business Day TV channel 412 DSTV)


·      A live and delayed video webcast at www.investec.com


·      Toll free numbers for the telephone conference facilities


‒    SA participants: 011 535 3500


‒    UK participants: 0 808 143 3720


‒    Rest of Europe and other participants: + 27 11 535 3500


‒    Australian participants: 0 280 152 168


‒    USA participants: 1 855 242 3083


 


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 UK and Europe, South Africa and Asia/Australia as well as certain other countries. The group was established in 1974 and currently has approximately 10 150 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 GBP5.5 billion.



 


 


 


 


 


 


Investec plc and Investec Limited (combined results)


Unaudited combined consolidated financial results for the year ended 31 March 2018


The commentary below largely focuses on the results of the ongoing business.


Overall group performance - ongoing basis


Operating profit before goodwill, acquired intangibles, non-operating items and taxation and after other non-controlling interests ("operating profit") increased 5.6% to GBP701.0 million (2017: GBP663.7 million) - an increase of 1.2% on a currency neutral basis.


The combined South African businesses reported operating profit 3.3% ahead of the prior period (in Rands), whilst the combined UK and Other businesses posted a 1.2% increase in operating profit in Pounds Sterling.


Business unit review - ongoing basis


Asset Management


Asset Management operating profit increased by 8.0% to GBP178.0 million (2017: GBP164.8 million) supported by higher average funds under management arising from strong net inflows of GBP5.4 billion and favourable market and currency movements. Earnings were negatively impacted by lower performance fees in South Africa. Total funds under management amounted to GBP103.9 billion (31 March 2017: GBP95.3 billion).


Wealth & Investment


Wealth & Investment operating profit increased by 5.7% to GBP98.6 million (2017: GBP93.2 million). The business benefited from higher average funds under management supported by higher equity market levels over the year and solid net inflows of GBP2.0 billion. Total funds under management amounted to GBP56.0 billion (31 March 2017: GBP54.8 billion).


Specialist Banking


Specialist Banking operating profit increased by 4.3% to GBP474.0 million (2017: GBP454.4 million).


The South African business reported an increase in operating profit in Rands of 6.9% supported by sound corporate and private client activity levels as well as an increase in associate earnings from the IEP Group. This was partially offset by lower investment income. Core loans and advances increased 8.7% to R256.7 billion (31 March 2017: R236.2 billion). The credit loss ratio on average core loans and advances amounted to 0.28%, remaining flat at the lower end of its long term average, despite the business reporting an increase in impairments.


The UK and Other businesses reported a 9.3% decrease in operating profit. Strong growth in net interest income was supported by loan book growth of 15.1% to GBP9.4 billion (31 March 2017: GBP8.1 billion) and a reduction in the cost of funding. This was offset by a decrease in non-interest revenue following particularly strong investment banking and client flow trading activity levels in the prior year. In line with the division's current investment strategy to support franchise growth, IT infrastructure costs and headcount increased, notably for the continued build out of the private client banking offering. Impairments increased marginally with the credit loss ratio amounting to 0.24% (2017: 0.27%).


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


Group costs


These largely relate to group brand and marketing costs and a portion of executive and support functions which are associated with group level activities. These costs are not incurred by the operating divisions and are necessary to support the operational functioning of the group. These costs amounted to GBP49.6 million (2017: GBP48.8 million).


Financial statement analysis - ongoing basis


 


Total operating income


Total operating income before impairment losses on loans and advances increased by 6.9% to GBP2,442.8 million (2017: GBP2,285.9 million).  


 


Net interest income increased by 11.7% to GBP760.1 million (2017: GBP680.5 million) driven by robust levels of lending activity across the banking businesses and further supported by a reduction in the UK's cost of funding. This was slightly offset by the roll off of higher yielding debt securities and increased subordinated debt in South Africa.


 


Net fee and commission income increased by 7.0% to GBP1,361.2 million (2017: GBP1,271.6 million) supported by higher average funds under management and strong net inflows in the Asset Management and Wealth Management businesses, as well as a good performance from the South African banking businesses.


 


Investment income reduced by 4.4% to GBP129.7 million (2017: GBP135.6 million) as a result of a weaker performance from the unlisted investment portfolio in South Africa as well as certain of the group's listed investments.


 


Share of post taxation profit of associates of GBP46.8 million (2017: GBP18.9 million) primarily reflects earnings in relation to the group's investment in the IEP Group.


 


Trading income arising from customer flow decreased by 12.5% to GBP138.2 million (2017: GBP158.0 million) as a consequence of lower volatility, relative to the elevated levels experienced in the prior year following the Brexit vote, as well as losses incurred in South Africa on Steinhoff (refer to additional information). Trading income from other trading activities reflected a loss of GBP4.3 million (2017: GBP8.1 million income) predominantly impacted by currency volatility over the year.


 


Impairment losses on loans and advances


Impairments on loans and advances increased from GBP57.1 million to GBP63.9 million; however, the group's credit loss ratio reduced to 0.26% (2017: 0.29%), remaining at the lower end of its long term average. Since 31 March 2017 gross defaults have increased to GBP329.3 million (2017: GBP249.8 million) largely due to a few specific defaults in the UK banking business. The percentage of default loans (net of impairments but before taking collateral into account) to core loans and advances amounted to 0.82% (31 March 2017: 0.69%).


 


Operating costs


The ratio of total operating costs to total operating income amounted to 66.5% (2017: 65.8%). Total operating costs grew by 8.0% to GBP1,623.2 million (2017: GBP1,502.6 million) reflecting continued investment into IT and digital initiatives and higher headcount across divisions to support increased activity and growth strategies; notably the build out of the UK private client offerings. Cost growth in South Africa was somewhat offset by the pending acquisition of the South African head office building and the related rental provision no longer required.


 


Taxation


The effective tax rate amounted to 9.6% (2017: 18.5%) mainly impacted by the lower rate in South Africa following the release of provisions no longer required.   


                                                                                                                                                                                                                                                                                                                                                                                          


Profit attributable to non-controlling interests


Profit attributable to non-controlling interests mainly comprises:


·      GBP23.8 million profit attributable to non-controlling interests in the Asset Management business.


·      GBP52.6 million profit attributable to non-controlling interests in the Investec Property Fund Limited.


 


Balance sheet analysis


Since 31 March 2017:


·      Total shareholders' equity (including non-controlling interests) increased by 12.9% to GBP5.4 billion largely due to an increase in retained earnings and the issuance of Additional Tier 1 securities during the year.


·      Net asset value per share increased 5.0% to 452.5 pence and net tangible asset value per share (which excludes goodwill and intangible assets) increased by 6.5% to 401.5 pence.


·      The return on adjusted average shareholders' equity decreased from 12.5% to 12.1%.


·      The return on adjusted average shareholders' equity of the ongoing business decreased from 14.2% to 14.1%.


 


Liquidity and funding


As at 31 March 2018 the group held GBP12.8 billion in cash and near cash balances (GBP5.8 billion in Investec plc and R116.5 billion in Investec Limited) which amounted to 41.4% of customer deposits. Loans and advances to customers as a percentage of customer deposits amounted to 79.6% (31 March 2017: 76.2%). The cost of funding in the UK has been successfully managed down over the year. The group will continue to focus on maintaining an optimal overall liquidity and funding profile. The group comfortably exceeds Basel liquidity requirements for the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR). Investec Bank Limited (solo basis) ended the period to 31 March 2018 with the three-month average of its LCR at 133.9% and an NSFR of 108.4%. Further detail with respect to the bank's LCR and NSFR in South Africa is provided on the website. For Investec plc and Investec Bank plc (solo basis) the LCR is calculated using our own interpretations of the EU Delegated Act. The LCR reported to the PRA at 31 March 2018 was 306% for Investec plc and 301% for Investec Bank plc (solo basis). Ahead of the implementation of the final NSFR rules, the group has applied its own interpretations of regulatory guidance and definitions from the BCBS final guidelines to calculate the NSFR which was 142% for Investec plc and 133% for Investec Bank plc (solo basis). The reported NSFR and LCR may change over time with regulatory developments and guidance.


Capital adequacy and leverage ratios


The group is targeting a minimum common equity tier 1 capital ratio above 10% and a total capital adequacy ratio range of 14% to 17% on a consolidated basis for each of Investec plc and Investec Limited respectively. The group's anticipated fully loaded Basel III common equity tier 1 capital adequacy ratios in both Investec plc and Investec Limited are reflected in the table below.

















































































 



31 March


2018



31 March


2017



Investec plc^



 



 



Capital adequacy ratio



15.4%



15.1%



Tier 1 ratio



12.9%



11.5%



Common equity tier 1 ratio



11.0%



11.3%



Common equity tier 1 ratio (anticipated Basel III 'fully loaded'*)



11.0%



11.3%



Leverage ratio (current)



8.5%



7.8%



Leverage ratio (anticipated Basel III 'fully loaded'*)



8.4%



7.7%



Investec Limited**



 



 



Capital adequacy ratio



14.6%



14.1%



Tier 1 ratio



11.0%



10.7%



Common equity tier 1 ratio



10.2%



9.9%



Common equity tier 1 ratio (anticipated Basel III 'fully loaded'*)



10.2%



9.9%



Leverage ratio (current)



7.5%



7.3%



Leverage ratio (anticipated Basel III 'fully loaded'*)



7.1%



6.8%



 


^The capital adequacy disclosures follow Investec's normal basis of presentation so as to show a consistent basis of calculation across the jurisdictions in which the group operates. For Investec plc this does not include the deduction of foreseeable charges and dividends when calculating common equity tier 1 (CET1) capital as required under the Capital Requirements Regulation and European Banking Authority technical standards. The impact of this deduction totalling GBP65 million for Investec plc would lower the CET1 ratio by 45bps (31 March 2017: 45bps).


*The key difference between the 'reported' basis at 31 March 2018 and the 'fully loaded' basis is primarily relating to capital instruments that previously qualified as regulatory capital, but do not fully qualify under the CRD IV rules/ SARB regulations.  These instruments continue to be recognised on a reducing basis in the 'reported' figures until 2022.


**Investec Limited's capital information includes unappropriated profits. If unappropriated profits are excluded from the capital information, Investec Limited's common equity tier 1 ratio would be 25bps (31 March 2017: 24bps) lower.


Legacy business - overview of results


Since 31 March 2017 the group's legacy portfolio in the UK has continued to be actively managed down from GBP476 million to GBP313 million through asset sales, redemptions and write-offs. The legacy business reported a loss before taxation of GBP93.5 million (2017: GBP64.6 million) reflecting an increase in impairments for accelerated exits anticipated to occur on certain legacy assets. Total net defaults in the legacy book amounted to GBP90 million (31 March 2017: GBP125 million).


Additional information - Investec exposures to the Steinhoff Group of companies


On 11 December 2017 the group released an announcement on the Johannesburg Stock Exchange in relation to its exposures to Steinhoff International Holdings NV (Steinhoff), its subsidiaries and related entities. Trading and investment losses incurred in respect of these exposures amounted to R220 million (approximately GBP13 million) in the current financial year, less than the estimate referred to in the December announcement. As noted in that announcement Investec has credit exposures largely to Steinhoff Africa Holdings (Pty) Ltd subsidiaries and Steinhoff Africa Retail Ltd, which represent a small portion of the group's balance sheet. Based on the information currently available to the group, Investec is not expecting to suffer any losses on these exposures.


Outlook


The group has achieved a satisfactory operating performance, supported by sound growth in key earnings drivers, solid levels of client activity and a robust recurring income base.


 


Whilst the complexities of Brexit continue to cause uncertainty in the UK economy, the final quarter of the 2018 financial year has started to see an uplift in the South African economic outlook.


The group's continued investment in infrastructure, digital platforms and people means it is well positioned for future growth.


Investec remains committed to delivering shareholder value and has the right people and skills to take advantage of opportunities in its core markets, whilst providing exceptional service to our clients.


On behalf of the boards of Investec plc and Investec Limited
















Perry Crosthwaite



Stephen Koseff



Bernard Kantor



Chairman



Chief Executive Officer



Managing Director



 


16 May 2018


Notes to the commentary section above


·      Presentation of financial information


Investec operates under a Dual Listed Companies (DLC) structure with primary listings of Investec plc on the London Stock Exchange and Investec Limited on the JSE Limited.


In terms of the contracts constituting the DLC structure, Investec plc and Investec Limited effectively form a single economic enterprise in which the economic and voting rights of ordinary shareholders of the companies are maintained in equilibrium relative to each other. The directors of the two companies consider that for financial reporting purposes, the fairest presentation is achieved by combining the results and financial position of both companies.


Accordingly, the year-end results for Investec plc and Investec Limited present the results and financial position of the combined DLC group under International Financial Reporting Standards (IFRS), denominated in Pounds Sterling. In the commentary above, all references to Investec or the group relate to the combined DLC group comprising Investec plc and Investec Limited.


·      Foreign currency impact


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 position of the 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 Pounds Sterling over the period:














































 



Year to


31 March 2018



Year to


31 March 2017



Currency per GBP1.00



Period


end



Average



Period


end



Average



South African Rand



16.62



17.21



16.77



18.42



Australian Dollar



1.83



1.72



1.64



1.75



Euro



1.14



1.14



1.17



1.19



US Dollar



1.40



1.33



1.25



1.31



 


Exchange rates between local currencies and Pounds Sterling have fluctuated over the year. The most significant impact arises from the volatility of the Rand. The average exchange rate over the period has appreciated by 6.6% and the closing rate has appreciated by 0.9% since 31 March 2017.


·      Accounting policies and disclosures


 


These unaudited summarised combined 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 year ended 31 March 2018 are consistent with those adopted in the financial statements for the year ended 31 March 2017.


Standards and interpretations issued but not yet effective


The following significant standards and interpretations, which have been issued but are not yet effective for the current financial year, are applicable to the group.


IFRS 9 Financial Instruments


IFRS 9 is effective and will be implemented by the group from 1 April 2018. The group will provide its detailed transitional disclosures when it publishes its annual report for the year ended 31 March 2018 on 29 June 2018.


IFRS 9 replaces IAS 39 and sets out the new requirements for the recognition and measurement of financial instruments. These requirements focus primarily on the classification and measurement of financial instruments and measurement of impairment losses based on an expected credit loss (ECL) model.


Investec plc and Investec Limited apply the Standardised approach when calculating capital requirements. The impact of IFRS 9 on Investec plc's and Investec Limited's common equity tier 1 (CET 1) ratios is potentially more significant when compared to Internal Ratings Based approach banks, who already deduct from CET 1 capital any excess expected losses over impairment allowances.


Subject to finalisation, the adoption of IFRS 9 is expected to result in the following estimated impact for Investec plc and Investec Limited, respectively.


Investec plc


Balance sheet impairment allowance and provisions


Total balance sheet impairment allowance and provisions are expected to increase by approximately GBP106 million from GBP158 million as at 31 March 2018 to approximately GBP264 million as at 1 April 2018. This is driven by an increase in legacy impairments of approximately GBP57 million and an increase in ongoing impairments of approximately GBP70 million, partially offset by a reduction of approximately GBP21 million as a result of changes in classification and measurement of certain of the group's financial assets to fair value. The increase in impairment allowance and provisions is expected to reduce the CET 1 ratio by approximately 66bps on a fully loaded basis, or approximately 3bps on a day one impact transitional basis.  


Changes in classification and measurement of certain financial assets


In addition, changes in classification and measurement to fair value of certain of the group's other financial assets is expected to result in a decrease to equity of approximately GBP11 million (post taxation), with an approximate 7bps impact on the CET 1 ratio.


Reclassification of subordinated liabilities to fair value


As a result of the adoption of IFRS 9 Investec plc has elected to designate its subordinated liabilities to fair value. The interest rate portion of the subordinated debt is expected to reduce equity by approximately GBP48 million (post taxation) with an approximate 37bps impact on the day one transitional CET 1 ratio which will come back into retained earnings over the duration of the remaining term of the instrument (maturing February 2022). In addition, an amount of approximately GBP55 million (post taxation) has been transferred to an own credit reserve which does not have an impact on capital ratios.


Taken together, the adoption of IFRS 9 is expected to result in a decrease in Investec plc's transitional CET 1 ratio of approximately 47bps from 11.0% to approximately 10.5%, ahead of the group's target and in excess of minimum regulatory requirements. Investec plc confirmed to the PRA that it will use the transitional arrangements to absorb the full impact permissible of IFRS 9 in regulatory capital calculations.


Investec Limited


Balance sheet impairment allowance and provisions


Total balance sheet impairment allowance and provisions are expected to increase by approximately R657 million from R1.5 billion as at 31 March 2018 to approximately R2.2 billion as at 1 April 2018. This is driven by an increase in stage 1, stage 2, and stage 3 impairments of approximately R811 million, partially offset by a reduction of approximately R154 million as a result of the changes in classification and measurement of certain of the group's financial assets to fair value. The increase in impairment allowance and provisions is expected to reduce the CET 1 ratio by approximately 15bps on a fully loaded basis, or approximately 4bps on a day one impact transitional basis.  


Changes in classification and measurement of certain financial assets


In addition, changes in classification and measurement of certain of the group's other financial assets is expected to result in a decrease to equity of approximately R419 million (post taxation), with an approximate 16bps impact on the CET 1 ratio.


Taken together, the adoption of IFRS 9 is expected to result in a decrease in Investec Limited's transitional CET 1 ratio of approximately 20bps from 10.2% to approximately 10.0%, in line with the group's target and in excess of minimum regulatory requirements. Investec Limited confirmed to the SARB that it will use the transitional arrangements to absorb the full impact permissible of IFRS 9 in regulatory capital calculations.


IFRS 15 Revenue from contracts with customers


IFRS 15 is effective for annual periods beginning on or after 1 January 2018 and will be implemented by the group from 1 April 2018. IFRS 15 provides a principles-based approach for revenue recognition and introduces the concept of recognising revenue for obligations as they are satisfied. The group's current measurement and recognition principles are aligned to the standard and the group does not expect an impact to measurement principles currently applied. The impact of the disclosure requirements of the standard is currently being assessed.


The financial results have been prepared under the supervision of Glynn Burger, the Group Risk and Finance Director. The financial statements for the year ended 31 March 2018 will be posted to stakeholders on 29 June 2018. These accounts will be available on the group's website on the same date.


 


·      Proviso


§ Please note that matters discussed in this announcement 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 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 May 2018.


§ The information in the announcement for the year ended 31 March 2018, which was approved by the board of directors on 16 May 2018, does not constitute statutory accounts as defined in Section 435 of the UK Companies Act 2006. The 31 March 2017 financial statements were filed with the registrar and were unqualified with the audit report containing no statements in respect of sections 498(2) or 498(3) of the UK Companies Act.


§ This announcement is available on the group's website: www.investec.com


 


Financial assistance


Shareholders are referred to the Special Resolution number 3, which was approved at the annual general meeting held on 10 August 2017, relating to the provision of direct or indirect financial assistance in terms of Section 45 of the South African Companies Act, No 71 of 2008 to related or inter-related companies. Shareholders are hereby notified that in terms of S45(5)(a) of the South African Companies Act, the board of directors of Investec Limited provided such financial assistance during the period 1 October 2017 to 31 March 2018.


 


Johannesburg and London


 


Sponsor: Investec Bank Limited


 


 


 


 


 


 


Ongoing financial information

Consolidated summarised ongoing income statement


 






























































































































For the year to

GBP'000



31 March


2018



31 March


2017



Net interest income



760 101



 680 539



Net fee and commission income



 1 361 214



 1 271 591



Investment income



 129 722



 135 631



Share of post taxation profit of associates



 46 823



 18 890



Trading income/(loss) arising from



 



 



- customer flow



 138 244



 158 006



- balance sheet management and other trading activities



 (4 326)



 8 078



Other operating income



 11 038



 13 158



Total operating income before impairment losses on loans and advances



 2 442 816



 2 285 893



Impairment losses on loans and advances



 (63 890)



 (57 149)



Operating income



 2 378 926



 2 228 744



Operating costs



 (1 623 210)



 (1 502 623)



Depreciation on operating leased assets



 (2 421)



 (2 169)



Operating profit



 753 295



 723 952



Profit attributable to other non-controlling interests



 (52 288)



 (60 239)



Profit attributable to Asset Management non-controlling interests



 (23 817)



 (20 291)



Operating profit before taxation



 677 190



 643 422



Taxation



 (77 448)



 (130 438)



Preference dividends accrued



 (33 527)



 (25 838)



Adjusted earnings



 566 215



 487 146



Adjusted earnings per share (pence)



 61.3



 54.1



Number of weighted average shares (million)



923.5



 900.4



Cost to income ratio



66.5%



65.8%



 


Combined consolidated ongoing segmental analysis


Segmental geographical and business analysis of operating profit before goodwill, acquired intangibles, non-operating items, taxation and after other non-controlling interests - ongoing business


 




























































For the year to 31 March 2018

GBP'000



UK and


Other



Southern


Africa



Total


group



Asset Management



 103 918



74 127



178 045



Wealth & Investment



69 269



29 296



98 565



Specialist Banking



153 460



320 535



473 995



 



326 647



423 958



750 605



Group costs



(33 789)



 (15 809)



 (49 598)



Total group



292 858



408 149



701 007



Other non-controlling interest - equity



 



 



52 288



Operating profit



 



 



753 295



 




























































For the year to 31 March 2017

GBP'000



UK and


Other



Southern


Africa



Total


group



Asset Management



 91 262



 73 562



 164 824



Wealth & Investment



 28 053



 93 243



Specialist Banking



169 196



 285 226



454 422



 



 325 648



 386 841



712 489



Group costs



 (36 163)



 (12 613)



 (48 776)



Total group



 374 228



 663 713



Other non-controlling interest - equity



 



 



 60 239



Operating profit



 



 



 723 952



 


Reconciliation from statutory summarised income statement to ongoing summarised income statement






















































































































































For the year to 31 March 2018

GBP'000



Statutory


as


disclosed



UK legacy


 business



Ongoing


 business



Net interest income



760 398



297



760 101



Net fee and commission income/(expense)



1 361 207



(7)



1 361 214



Investment income



 130 048



 326



 129 722



Share of post taxation profit of associates



 46 823



 -  



 46 823



Trading income/(loss) arising from



 



 



 



- customer flow



 138 226



 (18)



 138 244



- balance sheet management and other trading activities



 (4 307)



 19



 (4 326)



Other operating income



 11 115



 77



 11 038



Total operating income before impairment losses on loans and advances



 2 443 510



 694



 2 442 816



Impairment losses on loans and advances



 (148 556)



 (84 666)



 (63 890)



Operating income/(loss)



 2 294 954



 (83 972)



 2 378 926



Operating costs



 (1 632 740)



 (9 530)



 (1 623 210)



Depreciation on operating leased assets



 (2 421)



 -  



 (2 421)



Operating profit/(loss)



 659 793



 (93 502)



 753 295



Profit attributable to other non-controlling interests



 (52 288)



 -  



 (52 288)



Profit attributable to Asset Management non-controlling interests



 (23 817)



 -  



 (23 817)



Operating profit/(loss) before taxation



 583 688



 (93 502)



 677 190



Taxation



 (59 099)



 18 349*



 (77 448)



Preference dividends accrued



 (33 527)



 -  



 (33 527)



Adjusted earnings



 491 062



 (75 153)



 566 215



Adjusted earnings per share (pence)



 53.2



 



 61.3



Number of weighted average shares (million)



923.5



 



923.5



Cost to income ratio



66.9%



 



66.5%



 










*



Applying the UK's effective taxation rate of 19.6%.



 


 






















































































































































For the year to 31 March 2017

GBP'000



Statutory


as


disclosed



UK legacy


 business



Ongoing


 business



Net interest income/(expense)



 679 895



 (644)



 680 539



Net fee and commission income/(expense)



 1 271 524



 (67)



 1 271 591



Investment income



 136 203



 572



 135 631



Share of post taxation profit of associates



 18 890



-



 18 890



Trading income/(loss) arising from



 



 



 



- customer flow



 158 001



 (5)



 158 006



- balance sheet management and other trading activities



 8 218



 140



 8 078



Other operating income



 13 483



 325



 13 158



Total operating income before impairment losses on loans and advances



 2 286 214



 321



 2 285 893



Impairment losses on loans and advances



 (111 454)



 (54 305)



 (57 149)



Operating income/(loss)



 2 174 760



 (53 984)



 2 228 744



Operating costs



 (1 513 231)



 (10 608)



 (1 502 623)



Depreciation on operating leased assets



 (2 169)





 (2 169)



Operating profit/(loss)



 659 360



 (64 592)



 723 952



Profit attributable to other non-controlling interests



 (60 239)



-  



 (60 239)



Profit attributable to Asset Management non-controlling interests



 (20 291)





 (20 291)



Operating profit/(loss) before taxation



 578 830



 (64 592)



 643 422



Taxation



 (118 488)



 11 950*



 (130 438)



Preference dividends accrued



 (25 838)





 (25 838)



Adjusted earnings



 434 504



 (52 642)



 487 146



Adjusted earnings per share (pence)



 48.3



 



 54.1



Number of weighted average shares (million)



 900.4



 



 900.4



Cost to income ratio



66.3%



 



65.8%



 










*



Applying the group's effective taxation rate of 18.5%.



 


Statutory financial information

Salient financial features


 


































































 



Results in Pounds Sterling



 



Actual as


reported


Year to


31 March


2018



Actual as


reported


Year to


31 March


2017



Actual as


reported


%


change



Neutral


currency^


Year to


31 March


2018



Neutral


currency


%


change



Operating profit before taxation* (million)



608



599



1.4%



578



(3.5%)



Earnings attributable to shareholders (million)



506



442



14.3%



478



8.1%



Adjusted earnings attributable to shareholders** (million)



491



435



13.0%



465



6.9%



Adjusted earnings per share**



53.2p



48.3p



10.1%



50.3p



4.1%



Basic earnings per share



51.2p



50.8p



0.8%



48.4p



(4.7%)



Dividends per share



24.0p



23.0p



4.3%



n/a



n/a



 


















*



Before goodwill, acquired intangibles, non-operating items and after other non-controlling interests.



**



Before goodwill, acquired intangibles, non-operating items and after non-controlling interests.



^



For income statement items we have used the average Rand: Pounds Sterling exchange rate that was applied in the prior year, i.e. 18.42.



 


























































































































 



Results in Pounds Sterling



 



Actual as


reported


Year to


31 March


2018



Actual as


reported


At


31 March


2017



Actual as


reported


%


change



Neutral


currency^^


At


31 March


2018



Neutral


currency


%


change



Net asset value per share



452.5p



431.0p



5.0%



454.0p



5.3%



Net tangible asset value per share



401.5p



377.0p



6.5%



403.0p



6.9%



Total equity (million)



5 428



4 809



12.9%



5 403



12.4%



Total assets (million)



57 617



53 535



7.6%



57 288



7.0%



Core loans and advances (million)



25 132



22 707



10.7%



24 995



10.1%



Cash and near cash balances (million)



12 825



12 038



6.5%



12 763



6.0%



Customer deposits (million)



30 987



29 109



6.5%



30 815



5.9%



Third party assets under management (million)



160 576



150 735



6.5%



160 138



6.2%



Return on average adjusted shareholders' equity



12.1%



12.5%



 



 



 



Return on average risk-weighted assets



1.45%



1.45%



 



 



 



Defaults (net of impairments and before collateral) as a percentage

of net core loans and advances to customers



1.17%



1.22%



 



 



 



Loans and advances to customers as a percentage of customer deposits



79.6%



76.2%



 



 



 



Credit loss ratio (income statement impairment charge as a % of average gross core loans and advances)



0.61%



0.54%



 



 



 



 










^^



For balance sheet items we have assumed that the Rand: Pounds Sterling closing exchange rate has remained neutral since 31 March 2017.



 


Combined consolidated income statement












































































































































































































































GBP'000



Year to


31 March


2018



Year to


31 March


2017



Interest income



2 491 009



2 230 765



Interest expense



(1 730 611)



(1 550 870)



Net interest income



760 398



679 895



Fee and commission income



1 543 447



1 429 588



Fee and commission expense



(182 240)



(158 064)



Investment income



130 048



136 203



Share of post taxation profit of associates



46 823



18 890



Trading income/(loss) arising from



 



 



- customer flow



138 226



158 001



- balance sheet management and other trading activities



(4 307)



8 218



Other operating income



11 115



13 483



Total operating income before impairment losses on loans and advances



2 443 510



2 286 214



Impairment losses on loans and advances



(148 556)



(111 454)



Operating income



2 294 954



2 174 760



Operating costs



(1 632 740)



(1 513 231)



Depreciation on operating leased assets



(2 421)



(2 169)



Operating profit before goodwill and acquired intangibles



659 793



659 360



Impairment of goodwill



-



(4 749)



Amortisation of acquired intangibles



(16 255)



(17 197)



Operating profit



643 538



637 414



Additional costs on acquisition of subsidiary



(6 039)



-



Profit before taxation



637 499



637 414



Taxation on operating profit before goodwill and acquired intangibles



(59 099)



(118 488)



Taxation on acquired intangibles and acquisition/disposal/integration of subsidiaries



3 253



4 070



Profit after taxation



581 653



522 996



Profit attributable to other non-controlling interests



(52 288)



(60 239)



Profit attributable to Asset Management non-controlling interests



(23 817)



(20 291)



Earnings attributable to shareholders



505 548



442 466



Impairment of goodwill



-



4 749



Amortisation of acquired intangibles



16 255



17 197



Additional costs on acquisition of subsidiary



6 039



-



Taxation on acquired intangibles and acquisition/disposal/integration of subsidiaries



(3 253)



(4 070)



Preference dividends paid



(32 980)



(25 658)



Accrual adjustment on earnings attributable to other equity holders



(547)



(180)



Adjusted earnings



491 062



434 504



Earnings per share (pence)



 



 



- Basic



51.2



 50.8



- Diluted



49.8



 48.8



Adjusted earnings per share (pence)



 



 



- Basic



53.2



 48.3



- Diluted



51.7



 46.4



Dividends per share (pence)



 



 



- Interim



10.5



 10.0



- Final



13.5



13.0



Number of weighted average shares - (million)



923.5



 900.4



 


 


 


 


 


 


 


 


 


 


 


 


Summarised combined consolidated statement of comprehensive income


 

















































































GBP'000



Year to


31 March


2018



Year to


31 March


2017



Profit after taxation



581 653



 522 996



Other comprehensive income:



 



 



Items that may be reclassified to the income statement



 



 



Fair value movements on cash flow hedges taken directly to other comprehensive income*



(5 746)



 53 324



Gains on realisation of available-for-sale assets recycled to the income statement*



(6 676)



 (7 781)



Fair value movements on available-for-sale assets taken directly to other comprehensive income*



20 051



 54 863



Foreign currency adjustments on translating foreign operations



(25 300)



540 534



Items that will never be reclassified to the income statement



 



 



Re-measurement of net defined benefit pension asset



3 938



 (43 580)



Total comprehensive income



567 920



 1 120 356



Total comprehensive income attributable to ordinary shareholders



451 913



892 201



Total comprehensive income attributable to non-controlling interests



83 027



202 497



Total comprehensive income attributable to perpetual preferred securities



32 980



 25 658



Total comprehensive income



567 920



1 120 356



 










*



Net of taxation of GBP11.7 million (year to 31 March 2017: GBP16.8 million).



 


Summarised combined consolidated cash flow statement


 





























































GBP'000



Year to


31 March


2018



Year to


31 March


2017



Cash inflows from operations



732 242



708 719



Increase in operating assets



(3 352 869)



(445 528)



Increase in operating liabilities



3 075 779



498 146



Net cash inflow from operating activities



455 152



761 428



Net cash outflow from investing activities



(37 799)



(59 615)



Net cash inflow from financing activities



45 383



37 523



Effects of exchange rate changes on cash and cash equivalents



(54 085)



332 092



Net increase in cash and cash equivalents



408 651



1 071 428



Cash and cash equivalents at the beginning of the year



5 721 728



4 650 300



Cash and cash equivalents at the end of the year



6 130 379



5 721 728



 


Cash and cash equivalents is defined as including cash and balances at central banks, on demand loans and advances to banks and non-sovereign and non-bank cash placements (all of which have a maturity profile of less than three months).


Combined consolidated balance sheet













































































































































































































































































































GBP'000



At


31 March


2018



At


31 March


2017



Assets



 



 



Cash and balances at central banks



4 040 512



3 351 702



Loans and advances to banks



2 165 533



3 191 041



Non-sovereign and non-bank cash placements



601 243



536 259



Reverse repurchase agreements and cash collateral on securities borrowed



2 207 477



2 358 970



Sovereign debt securities



4 910 027



3 804 627



Bank debt securities



587 164



639 189



Other debt securities



903 603



1 115 558



Derivative financial instruments



1 352 408



1 185 848



Securities arising from trading activities



1 434 391



1 376 668



Investment portfolio



885 499



835 899



Loans and advances to customers



24 673 009



22 189 975



Own originated loans and advances to customers securitised



459 088



517 162



Other loans and advances



347 809



355 248



Other securitised assets



148 387



148 964



Interests in associated undertakings



467 852



392 213



Deferred taxation assets



157 321



133 972



Other assets



1 876 116



1 900 480



Property and equipment



233 340



105 939



Investment properties



1 184 097



1 128 930



Goodwill



368 803



367 579



Intangible assets



125 389



143 261



Non-current assets held for sale



-



27 218



 



49 129 068



45 806 702



Other financial instruments at fair value through profit or loss in respect of liabilities to customers



8 487 776



7 728 130



 



57 616 844



53 534 832



Liabilities



 



 



Deposits by banks



2 931 267



2 736 066



Derivative financial instruments



1 471 563



1 296 206



Other trading liabilities



960 166



978 911



Repurchase agreements and cash collateral on securities lent



655 840



690 615



Customer accounts (deposits)



30 987 173



29 109 428



Debt securities in issue



2 717 187



2 386 180



Liabilities arising on securitisation of own originated loans and advances



136 812



90 125



Liabilities arising on securitisation of other assets



127 853



128 838



Current taxation liabilities



185 486



227 828



Deferred taxation liabilities



32 158



40 408



Other liabilities



2 012 268



1 910 830



 



42 217 773



39 595 435



Liabilities to customers under investment contracts



8 484 296



7 725 604



Insurance liabilities, including unit-linked liabilities



3 480



2 526



 



50 705 549



47 323 565



Subordinated liabilities



1 482 987



1 402 638



 



52 188 536



48 726 203



Equity



 



 



Ordinary share capital



240



237



Perpetual preference share capital



31



31



Share premium



2 416 736



2 341 228



Treasury shares



(160 132)



(126 879)



Other reserves



(345 606)



(310 275)



Retained income



2 530 825



2 226 751



Shareholders' equity excluding non-controlling interests



4 442 094



4 131 093



Other Additional Tier 1 securities in issue



304 150



32 798



Non-controlling interests



682 064



644 738



- Perpetual preferred securities issued by subsidiaries



92 312



91 492



- Non-controlling interests in partially held subsidiaries



589 752



553 246



Total equity



5 428 308



4 808 629



Total liabilities and equity



57 616 844



53 534 832



 


Summarised combined consolidated statement of changes in equity

















































































GBP'000



Year to


31 March


2018



Year to


31 March


2017



Balance at the beginning of the year



4 808 629



3 859 307



Total comprehensive income for the year



567 920



1 120 356



Share-based payments adjustments



69 218



55 961



Dividends paid to ordinary shareholders



(227 908)



(216 602)



Dividends declared to perpetual preference shareholders and Other Additional Tier 1 security holders



(15 736)



(15 279)



Dividends paid to perpetual preference shareholders included in non-controlling interests and Other Additional Tier 1 security holders



(17 244)



(10 379)



Dividends paid to non-controlling interests



(63 688)



(48 195)



Issue of ordinary shares



125 240



228 086



Issue of Other Additional Tier 1 security instruments



271 058



-



Redemption of perpetual preference shares



-



(81 743)



Net equity impact of non-controlling interest movements



32 752



29 542



Other equity movements



-



(80)



Movement of treasury shares



(121 933)



(112 345)



Balance at the end of the year



5 428 308



4 808 629



 


Combined consolidated segmental analysis




































































































































Year to 31 March

GBP'000



UK and


Other



Southern


 Africa



Total


group



Segmental geographical and business analysis of operating profit before goodwill, acquired intangibles, non-operating items, taxation and after other non-controlling interests



 



 



 



2018



 



 



 



Asset Management



103 918



74 127



178 045



Wealth & Investment



69 269



29 296



98 565



Specialist Banking



59 958



320 535



380 493



 



233 145



423 958



657 103



Group costs



(33 789)



(15 809)



(49 598)



Total group



199 356



408 149



607 505



Other non-controlling interest - equity



 



 



52 288



Operating profit



 



 



659 793



 



 



 



 



2017



 



 



 



Asset Management



91 262



73 562



164 824



Wealth & Investment



65 190



28 053



93 243



Specialist Banking



104 604



285 226



389 830



 



261 056



386 841



647 897



Group costs



(36 163)



(12 613)



(48 776)



Total group



224 893



374 228



599 121



Other non-controlling interest - equity



 



 



60 239



Operating profit



 



 



659 360



 


Analysis of financial assets and liabilities by category of financial instrument






































































































































































































































































































































































At 31 March 2018

GBP'000



Total


instruments


at fair value



Total


instruments


at amortised


cost



Insurance


related linked


instruments


at fair value



Non-financial


instruments


or scoped


out of


IAS 39



Total



Assets



 



 



 



 



 



Cash and balances at central banks



 7 784



4 032 728



-



-



4 040 512



Loans and advances to banks



236 077



1 929 456



-



-



2 165 533



Non-sovereign and non-bank cash placements



34 544



566 699



-



-



601 243



Reverse repurchase agreements and cash collateral on securities borrowed



787 905



1 419 572



-



-



2 207 477



Sovereign debt securities



4 701 643



208 384



-



-



4 910 027



Bank debt securities



369 172



217 992



-



-



587 164



Other debt securities



630 280



273 323



-



-



903 603



Derivative financial instruments



1 352 408



-



-



-



1 352 408



Securities arising from trading activities



1 434 391



-



-



-



1 434 391



Investment portfolio



885 499



-



-



-



885 499



Loans and advances to customers



1 171 628



23 501 381



-



-



24 673 009



Own originated loans and advances to customers securitised



-



459 088



-



-



459 088



Other loans and advances



-



347 809



-



-



347 809



Other securitised assets



130 388



17 999



-



-



148 387



Interests in associated undertakings



-



11 371



-



456 481



467 852



Deferred taxation assets



-



-



-



157 321



157 321



Other assets



190 740



1 239 331



-



446 045



1 876 116



Property and equipment



-



-



-



233 340



233 340



Investment properties



-



-



-



1 184 097



1 184 097



Goodwill



-



-



-



368 803



368 803



Intangible assets



-



-



-



125 389



125 389



 



11 932 459



34 225 133



-



2 971 476



49 129 068



Other financial instruments at fair value through profit or loss in respect of liabilities to customers



-



-



8 487 776



-



8 487 776



 



11 932 459



34 225 133



8 487 776



2 971 476



57 616 844



Liabilities



 



 



 



 



 



Deposits by banks



-



2 931 267



-



-



2 931 267



Derivative financial instruments



1 471 563



-



-



-



1 471 563



Other trading liabilities



960 166



-



-



-



960 166



Repurchase agreements and cash collateral on securities lent



90 049



565 791



-



-



655 840



Customer accounts (deposits)



2 375 704



28 611 469



-



-



30 987 173



Debt securities in issue



471 886



2 245 301



-



-



2 717 187



Liabilities arising on securitisation of own originated loans and advances



-



136 812



-



-



136 812



Liabilities arising on securitisation of other assets



127 853



-



-



-



127 853



Current taxation liabilities



-



-



-



185 486



185 486



Deferred taxation liabilities



-



-



-



32 158



32 158



Other liabilities



17 533



1 245 016



 



749 719



2 012 268



 



5 514 754



35 735 656



-



967 363



42 217 773



Liabilities to customers under investment contracts



-



-



8 484 296



-



8 484 296



Insurance liabilities, including unit-linked liabilities



-



-



3 480



-



3 480



 



5 514 754



35 735 656



8 487 776



967 363



50 705 549



Subordinated liabilities



-



1 482 987



-



-



1 482 987



 



5 514 754



37 218 643



8 487 776



967 363



52 188 536



 


Financial instruments carried at fair value


The table below analyses recurring fair value measurements for financial assets and financial liabilities. These fair value measurements are categorised into different levels in the fair value hierarchy based on the inputs to the valuation technique used. The different levels are identified as follows:


Level 1 - quoted (unadjusted) prices in active markets for identical assets or liabilities


Level 2 - inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)


Level 3 - inputs for the asset or liability that are not based on observable market data (unobservable inputs)


Assets and liabilities related to the long-term assurance business attributable to policyholders have been excluded from the analysis as the change in fair value of related assets is attributable to policyholders. These are all classified as level 1.


 







































































































































































































 



 



Fair value category



At 31 March 2018

GBP'000



Total


instruments


at fair value



Level 1



Level 2



Level 3



Assets



 



 



 



 



Cash and balances at central banks



7 784



7 784



-



-



Loans and advances to banks



236 077



236 077



-



-



Non-sovereign and non-bank cash placements



34 544



-



34 544



-



Reverse repurchase agreements and cash collateral on securities borrowed



787 905



196 170



591 735



-



Sovereign debt securities



4 701 643



4 701 643



-



-



Bank debt securities



369 172



293 830



75 342



-



Other debt securities



630 280



256 255



357 256



16 769



Derivative financial instruments



1 352 408



-



1 308 208



44 200



Securities arising from trading activities



1 434 391



1 405 197



22 440



6 754



Investment portfolio



885 499



190 395



107 285



587 819



Loans and advances to customers



1 171 628



-



1 037 888



133 740



Other securitised assets



130 388



-



-



130 388



Other assets



190 740



190 740



-



-



 



11 932 459



7 478 091



3 534 698



919 670



Liabilities



 



 



 



 



Derivative financial instruments



1 471 563



-



1 470 121



1 442



Other trading liabilities



960 166



863 123



97 043



-



Repurchase agreements and cash collateral on securities lent



90 049



-



90 049



-



Customer accounts (deposits)



2 375 704



-



2 375 704



-



Debt securities in issue



471 886



-



457 687



14 199



Liabilities arising on securitisation of other assets



127 853



-



-



127 853



Other liabilities



17 533



-



17 533



-



 



5 514 754



863 123



4 508 137



143 494



Net financial assets/(liabilities) at fair value



6 417 705



6 614 968



(973 439)



776 176



Transfers between level 1 and level 2



There were no transfers between level 1 and level 2 in the current year.



 


Level 2 financial assets and financial liabilities


The following table sets out the group's principal valuation techniques as at 31 March 2018 used in determining the fair value of its financial assets and financial liabilities that are classified within level 2 of the fair value hierarchy.

























































































 



Valuation basis/techniques



Main assumptions



Assets



 



 



Non-sovereign and non-bank cash placements



Discounted cash flow model



Yield curves



Reverse repurchase agreements and cash collateral on securities borrowed



Discounted cash flow model, Hermite interpolation, Black-Scholes



Yield curves


Volatilities



Bank debt securities



Discounted cash flow model



Yield curves


NCD curves



Other debt securities



Discounted cash flow model



Yield curves and NCD curves, external prices, broker quotes



Derivative financial instruments



Discounted cash flow model, Hermite interpolation, industry standard derivative pricing models including Black-Scholes



Yield curves, risk free rate, volatilities, forex forward points and spot rates, interest rate swap curves and credit curves



Securities arising from trading activities



Standard industry derivative pricing model



Interest rate curves, implied bond spreads, equity volatilities



Investment portfolio



Discounted cash flow model, relative valuation model


Comparable quoted inputs



Discount rate and fund unit price, net assets



Loans and advances to customers



Discounted cash flow model



Yield curves



Liabilities



Derivative financial instruments



Discounted cash flow model, Hermite interpolation, industry standard derivative pricing models including Black-Scholes



Yield curves, risk free rate, volatilities, forex forward points and spot rates, interest rate swap curves and credit curves



Other trading liabilities



Discounted cash flow model



Yield curves



Repurchase agreements and cash collateral on securities lent



 


Discounted cash flow model, Hermite interpolation



 


Yield curves



Customer accounts (deposits)



Discounted cash flow model



Yield curves



Debt securities in issue



Discounted cash flow model



Yield curves



Other liabilities



Discounted cash flow model



Yield curves



 


The following is a reconciliaiton of the opening balances to the closing balances for fair value measurement in level 3 of the fair value hierarchy.


 






















































For the year to 31 March 2018

GBP'000



Total level 3


financial


instruments



Balance at 1 April 2017



 770 686



Total gains or losses



52 226



     In the income statement



49 490



     In the statement of comprehensive income



2 736



Purchases



208 531



Sales



(144 027)



Settlements



(13 790)



Transfers into level 3



7 165



Transfers out of level 3



(73 192)



Foreign exchange adjustments



(31 423)



Balance as at 31 March 2018



776 176



 


During the year, GBP55.3 million has been transferred to level 2 due to an observable input becoming available to the valuation model.


 


In addition GBP17.9 million has been transferred to level 2 due to valuation methodologies being reviewed and observable inputs being used to determine the fair value.


 


GBP7.1 million has been transferred into level 3 due to inputs to valuation methods becoming unobservable.


 


The group transfers between levels within the fair value hierarchy when the significance of the unobservable inputs change or if the valuation methods changes.


 


The following table quantifies the gains or (losses) included in the income statement and other comprehensive income recognised on level 3 financial instruments:


 














































































For the year to 31 March 2018


GBP'000



Total



Realised



Unrealised



Total gains or (losses) included in the income statement for the year



 



 



 



Net interest income



1 613



1 613



-



Fee and commission income



93



-



93



Investment income



49 759



54 119



(4 360)



Trading loss arising from customer flow



(3 598)



(488)



(3 110)



Trading income arising from balance sheet management and other trading activities



1 623



40



1 583



 



49 490



55 284



(5 794)



Total gains or losses recognised in other comprehensive income for the year



 



 



 



Gains on realisation of available-for-sale assets recycled through the income statement



8 092



8 092



-



Fair value movements on available-for-sale assets taken directly to other comprehensive income



2 736



-



2 736



 



10 828



8 092



2 736



 


Sensitivity of fair values to reasonably possible alternative assumptions by level 3 instrument type


The fair value of financial instruments in level 3 are measured using valuation techniques that incorporate assumptions that are not evidenced by prices from observable market data. The following table shows the sensitivity of these fair values to reasonably possible alternative assumptions, determined at a transactional level:


 






















































































































































































































































































































































31 March 2018



Balance


sheet value


GBP'000



Significant unobservable


 input



Range of


 unobservable


 input used



Favourable


 changes


GBP'000



Unfavourable


 changes


GBP'000



Assets



 



 



 



 



 



Other debt securities



16 769



Reflected in income statement



 



 729



 (840)



 



 



Cash flow adjustments



CPR 8.3% - 10%



 254



 (363)



 



 



EBITDA



(5%)/5%



 327



 (327)



 



 



Other^



^



 148



 (150)



Derivative financial instruments



 44 200



Reflected in income statement



 



 6 507



 (8 729)



 



 



Volatilities



4% - 9%



 356



 (356)



 



 



Cash flow adjustments



CPR 8% - 10%



 154



 (140)



 



 



EBITDA



 (10%)/10%



 131



 (131)



 



 



WACC



19.5% - 48.5%



 4 049



 (5 750)



 



 



Other^



^



 1 817



 (2 352)



Securities arising from trading activities



 6 754



Reflected in income statement



 



 



 



 



 



Cash flow adjustments



CPR 8%



 1 180



 (1 080)



Investment portfolio



 587 819



Reflected in income statement



 



 125 231



 (138 497)



 



 



Price earnings multiple



5.0 x - 10 x



 6 159



 (6 120)



 



 



EBITDA



 *



 50 197



 (43 893)



 



 



Precious and industrial


metals prices



(10%)/6%



 2 420



 (4 081)



 



 



 Property prices



(10%)/10%



 2 046



 (2 046)



 



 



WACC



19.5% - 48.5%



 12 799



 (23 769)



 



 



 Cash flows



*



 2 301



 (2 483)



 



 



Other^



^



49 309



 (56 105)



 



 



 



 



 



 



 



 



Reflected in other


 comprehensive income



 



 2 138



 (2 113)



 



 



Price earnings multiple



4.0 x - 5.5 x



 175



 (246)



 



 



Other^



^



 1 963



 (1 867)



Loans and advances to customers



 133 740



Reflected in income statement



 



 15 490



 (16 771)



 



 



EBITDA



10%



 10 349



 (10 349)



 



 



Other^



^



 5 141



 (6 422)



Other securitised assets*



 130 388



Reflected in income statement



 



 



 



 



 



Cash flow adjustments



CPR 8%



 875



 (733)



Total level 3 assets



 919 670



 



 



 152 150



 (168 763)



Liabilities



 



 



 



 



 



Derivative financial instruments



(1 442)



Reflected in income statement



 



 (110)



 122



 



 



Cash flow adjustments



CPR 10%



 (107)



 119



 



 



Volatilities



8%



 (3)



 3



Debt securities in issue



(14 199)



Reflected in income statement



 



 



 



 



 



Volatilities



6%



 (157)



 157



Liabilities arising on securitisation of other assets*



(127 853)



Reflected in income statement



 



 



 



 



 



Cash flow adjustments



CPR 8%



 (236)



 231



Total level 3 liabilities



(143 494)



 



 



 (503)



 510



Net level 3 assets



 776 176



 



 



 



 



 


















*



The sensitivity of the fair value of liabilities arising on securitisation of other assets has been considered together with other securitised assets.



^



Other - The valuation sensitivity for the private equity, other equity investments and embedded derivatives (profit share) portfolios has been assessed by adjusting various inputs such as expected cash flows, discount rates, earnings multiples rather than a single input. It is deemed appropriate to reflect the outcome on a portfolio basis for the purposes of this analysis as the sensitivity of the investments cannot be determined through the adjustment of a single input.



**



The EBITDA and cash flows have been stressed on an investment-by-investment basis in order to obtain favourable and unfavourable valuations.



 


Fair value of financial assets and liabilities at amortised cost


 



























































































At 31 March 2018


GBP'000



Carrying


amount



Fair value



Assets



 



 



Loans and advances to banks



1 929 456



1 929 497



Reverse repurchase agreements and cash collateral on securities borrowed



1 419 572



1 419 659



Sovereign debt securities



208 384



208 034



Bank debt securities



217 992



229 095



Other debt securities



273 323



270 801



Loans and advances to customers



23 501 381



23 496 971



Other loans and advances



347 809



344 894



Other assets



1 239 331



1 235 273



Liabilities



 



 



Deposits by banks



2 931 267



2 937 012



Repurchase agreements and cash collateral on securities lent



565 791



565 629



Customer accounts (deposits)



28 611 469



28 646 834



Debt securities in issue



2 245 301



2 334 238



Other liabilities



1 245 016



1 108 294



Subordinated liabilities



1 482 987



1 695 153



 


 


 


 


 


 


 


Investec plc


Incorporated in England and Wales

Registration number 3633621

LSE ordinary share code: INVP


JSE ordinary share code: INP

ISIN: GB00B17BBQ50


Ordinary share dividend announcement


In terms of the DLC structure, Investec plc shareholders registered on the United Kingdom share register may receive all or part of their dividend entitlements through dividends declared and paid by Investec plc on their ordinary shares and/or through dividends declared and paid on the SA DAN share issued by Investec Limited.


Investec plc shareholders registered on the South African branch register may receive all or part of their dividend entitlements through dividends declared and paid by Investec plc on their ordinary shares and/or through dividends declared and paid on the SA DAS share issued by Investec Limited.


Declaration of dividend number 32


Notice is hereby given that the final dividend number 32, being a gross dividend of 13.5 pence (2017: 13 pence) per ordinary share has been recommended by the Board from income reserves in respect of the financial year ended 31 March 2018 payable to shareholders recorded in the shareholders' register of the company at the close of business on Friday, 27 July 2018.


·      for Investec plc shareholders, registered on the United Kingdom share register, through a dividend payment by Investec plc from income reserves of 13.5 pence per ordinary share


·      for Investec plc shareholders, registered on the South African branch register, through a dividend payment by Investec plc from income reserves of 6.5 pence per ordinary share and through a dividend paid by Investec Limited, on the SA DAS share, payable from income reserves, equivalent to 7 pence per ordinary share


 


The relevant dates for the payment of dividend number 32 are as follows:


Last day to trade cum-dividend


On the Johannesburg Stock Exchange (JSE)                                                     Tuesday, 24 July 2018 


On the London Stock Exchange (LSE)                                                          Wednesday, 25 July 2018 


 


Shares commence trading ex-dividend                                                                   


On the Johannesburg Stock Exchange (JSE)                                               Wednesday, 25 July 2018


On the London Stock Exchange (LSE)                                                              Thursday, 26 July 2018


 


Record date (on the JSE and LSE)                                                                     Friday, 27 July 2018


 


Payment date (on the JSE and LSE)                                                           Monday, 13 August 2018


Share certificates on the South African branch register may not be dematerialised or rematerialised between Wednesday, 25 July 2018 and Friday, 27 July 2018, both dates inclusive, nor may transfers between the United Kingdom share register and the South African branch register take place between Wednesday, 25 July 2018 and Friday, 27 July 2018, both dates inclusive.


Additional information for South African resident shareholders of Investec plc


·       Shareholders registered on the South African branch register are advised that the distribution of 13.5 pence, equivalent to a gross dividend of 232 cents per share, has been arrived at using the Rand/Pound Sterling average buy/sell forward rate, as determined at 11h00 (SA time) on Wednesday, 16 May 2018


·       Investec plc United Kingdom tax reference number: 2683967322360


·       The issued ordinary share capital of Investec plc is 669 838 695 ordinary shares


·       The dividend paid by Investec plc to South African resident shareholders registered on the South African branch register and the dividend paid by Investec Limited to Investec plc shareholders on the SA DAS share are subject to South African Dividend Tax (Dividend Tax) of 20% (subject to any available exemptions as legislated)


·       Shareholders registered on the South African branch register who are exempt from paying the Dividend Tax will receive a net dividend of 232 cents per share, comprising 120.29630 cents per share paid by Investec Limited on the SA DAS share and 111.70370 cents per ordinary share paid by Investec plc


·       Shareholders registered on the South African branch register who are not exempt from paying the Dividend Tax will receive a net dividend of 185.60000 cents per share (gross dividend of 232 cents per share less Dividend Tax of 46.40000 cents per share) comprising 96.23704 cents per share paid by Investec Limited on the SA DAS share and 89.36296 cents per ordinary share paid by Investec plc.


 


By order of the board


D Miller                                                                  


Company Secretary      


16 May 2018


 


Investec plc


Incorporated in England and Wales


Registration number:      3633621


Share code:                    INPP


ISIN:                               GB00B19RX541


 


Preference share dividend announcement


 


Non-redeemable non-cumulative non-participating preference shares ("preference shares")


 


Declaration of dividend number 24


 


Notice is hereby given that preference dividend number 24 has been declared from income reserves for the period 01 October 2017 to 31 March 2018 amounting to a gross preference dividend of 7.26027 pence per preference share payable to holders of the non-redeemable non-cumulative non-participating preference shares as recorded in the books of the company at the close of business on Friday, 08 June 2018.


 


For shares trading on the Johannesburg Stock Exchange (JSE), the dividend of 7.26027 pence per preference share is equivalent to a gross dividend of 123.53712 cents per share, which has been determined using the Rand/Pound Sterling average buy/sell forward rate as at 11h00 (SA Time) on Wednesday, 16 May 2018.


 


The relevant dates relating to the payment of dividend number 24 are as follows:


 


Last day to trade cum-dividend           


On the Johannesburg Stock Exchange (JSE)                                                Tuesday, 05 June 2018


On The International Stock Exchange (TISE)                                           Wednesday, 06 June 2018


Shares commence trading ex-dividend


On the Johannesburg Stock Exchange (JSE)                                           Wednesday, 06 June 2018


On The International Stock Exchange (TISE)                                               Thursday, 07 June 2018


Record date (on the JSE and TISE)                                                                Friday, 08 June 2018


Payment date (on the JSE and TISE)                                                          Monday, 18 June 2018


 


Share certificates may not be dematerialised or rematerialised between Wednesday, 06 June 2018 and Friday, 08 June 2018, both dates inclusive, nor may transfers between the United Kingdom share register and the South African branch register take place between Wednesday,06 June 2018 and Friday, 08 June 2018, both dates inclusive.


 


Additional information for South African resident shareholders of Investec plc


·        Investec plc United Kingdom tax reference number: 2683967322360


·        The issued preference share capital of Investec plc is 2 754 587 preference shares


·        The dividend paid by Investec plc to shareholders recorded on the South African branch register is subject to South African Dividend Tax (Dividend Tax) of 20% (subject to any available exemptions as legislated)


·        The net dividend amounts to 98.82970 cents per preference share for preference shareholders liable to pay the Dividend Tax and 123.53712 cents per preference share for preference shareholders exempt from paying the Dividend Tax.


 


By order of the board


 


 


D Miller


Company Secretary


 


16 May 2018


 


Investec plc


Incorporated in England and Wales


Registration number:      3633621


JSE share code: INPPR


ISIN: GB00B4B0Q974


Rand denominated preference share dividend announcement


 


Rand-denominated non-redeemable non-cumulative non-participating perpetual preference shares ("preference shares")


Declaration of dividend number 14


Notice is hereby given that preference dividend number 14 has been declared from income reserves for the period 01 October 2017 to 31 March 2018 amounting to a gross preference dividend of 485.34589 cents per preference share payable to holders of the Rand-denominated non-redeemable non-cumulative non-participating perpetual preference shares as recorded in the books of the company at the close of business on Friday, 08 June 2018.


The relevant dates relating to the payment of dividend number 14 are as follows:






















 


Last day to trade cum-dividend



 


Tuesday, 05 June 2018 



Shares commence trading ex-dividend



Wednesday, 06 June 2018



Record date



Friday, 08 June 2018 



Payment date



Monday, 18 June 2018



 


Share certificates may not be dematerialised or rematerialised between Wednesday, 06 June 2018 and Friday, 08 June 2018, both dates inclusive.


Additional information for South African resident shareholders of Investec plc


·        Investec plc United Kingdom tax reference number: 2683967322360


·        The issued Rand-denominated preference share capital of Investec plc is 131 447 preference shares


·       The dividend paid by Investec plc to shareholders recorded on the South African register is subject to South African Dividend Tax (Dividend Tax) of 20% (subject to any available exemptions as legislated)


·       The net dividend amounts to 388.27671 cents per preference share for preference shareholders liable to pay the Dividend Tax and 485.34589 cents per preference share for preference shareholders exempt from paying the Dividend Tax.


 


By order of the board


 


D Miller


Company Secretary


16 May 2018


 


 



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