Investec Group

People look at results and from time to time we forget that the results are really an outcome and in our case a validation of what we do for our clients. So before I start, let me just thank all my colleagues for the contribution they make in looking after our clients. Because we're going to be talking a bit more today about our growth plans in the second half of this presentation, I thought to start off with our strategic positioning. As you know, we have always been a business that is not everything to everyone. We have select clients that we serve in fairly narrowly defined positions. And it is really important as we embark on a path of growth that you understand that we will be evolving naturally the model that we have been following all the time. As you know, our model is based on the fact that we support our client on their journeys, both as personal clients and as business clients. And we tailor solutions to the needs that they have. And these solutions are delivered with a high touch and a level of service that we generally refer to as out of reach. the ordinary. So as we think about the next number of years going forward, that is the lens through which we will look at what we are trying to do. We're very pleased with these results, given the environment that we're operating in today. And as a business, as we look forward, we have a level of excitement, enthusiasm, and energy that we can do more for our clients. And we will have the opportunity. in the second half for some of my colleagues to present on our offering to the corporate mid-market. Really excited to hear what they will have to say. At the final year results in May next year, we will present our proposition to enhance our offering to our private clients. You know that we presented a comprehensive strategy for growth in May. We are now starting to unpack elements of that strategy and hopefully you will find that interesting and meaningful. As the last point on the slide shows, this is a business focused on building. No, no, this is still the slide. I'm still on the same slide. Is this what is on the screen? See, I've got two slides in front of me, and I'm talking to the right-hand side of my presentation. So the last point on that screen, which is what I'm talking about in terms of our strategic positioning, relates to the posture of our business for the next three to five years, a business dedicated to disciplined growth. OK, Nish, I'm going to do this now. Click. Good. Nish is going to take you through the results in great detail, but I would like to give you some basic highlights on these results and some key takeaways. We are very pleased that we are reporting a growth in adjusted earnings per share of 2.5% to 40.5%. We're also quite pleased that we've seen significant activity in our clients and this is evidenced by the growth in net core loans and advances, the growth in deposits and the growth in funds under management as represented by the second set of graphs. So our client franchises are deep and our earnings are diversified in nature. Capital generation has continued to be strong, and this enables us to reinvest in the business. The reinvestment, for instance, in our corporate mid-market franchise, the reinvestment in our platforms, as we modernize our state, is but an example of the strong capital generation that we have, and in addition, we are able to reward our shareholders with distributions. You will know that in this period, The board has declared a dividend per share of 17.5 P, and we also have undertaken a significant portion of the share buyback program that we announced in May. So capital generation is really quite important. And the last set of graphs on the right show that our return on equity is is well anchored within our medium term targets. The presentation today will talk about how we move from circa 14 to the top end of our range of 13 to 17%. If you look at the next slide, our pre-provision adjusted operating profit is slightly behind at 527.4 million pounds. As I've indicated, we have very good client activity, so our net interest revenue was very strong in this period, but we had the effect of lower interest rates on our endowment and so our net interest income was negatively affected by that. As indicated, we are also investing heavily for growth as we move forward. Our cost to income ratio at 51.9% is below our indicated range of 52% to 54%. As we look forward, we've indicated to the market that we expect to be in this range, even though we will continue to invest in people and technology, firstly to support our current revenues, secondly to transform our operating platforms, and thirdly to invest in the growth initiatives that we have spoken about in May. Our credit loss ratio at 35 basis points is, through the cycle, target range of 25 to 45 basis points, even though interest rates from where we stand are still relatively low. We would expect over the next 12 to 18 months that we will see a continued reduction in interest rates, even though that may be at a pace that is slower than we would like. Very happy with the return on tangible equity at 15.7%. And of course, the increase in a tangible net asset value per share of 7.4% is very pleasing in our view. I'm not going to talk to this slide on our commitment to our path to net zero by 2050. As expected, you don't have changes in this particular slide from period to period. This is a long-term commitment to what's reducing fossil fuel exposures, driving sustainable and transitional finance activities, and promoting within our client base. a movement towards being more sustainable. So you shouldn't expect changes on this slide at every reporting period, but it is important that we indicate that we remain committed to our path to net zero by 2050. Now to unpack the results, I'm going to ask Nishlin to take us through the rest of the results presentation and I will close off at the end, Nish. Green is for next. The slide on the right is the next slide.

We got it. Thanks, Fani. I'm just going to spend a little bit of time to give you some of the context that we operated in, give you some detail about how we've performed geographically as well as across our businesses. So if we start with the context, and we had a debate when we produced the slide as to exactly how you calibrate 1.5 and 1.1%, because these numbers are still relatively low in terms of growth. But I think that the direction is extremely important. If we look back into 2024, we were all talking about the election environment and the fact that most of the world will be in a state of flux, in a state of change. And I think we're through that particular cycle, but the consequences is what we continue to live out. And those consequences has a bearing on how these projections actually move out over time. And it does really feel like we're moving into territory where that's becoming a lot more clearer, albeit that there are still pockets and pockets and pockets of uncertainty that sits in the system itself. Interest rates, interestingly, have been on a path that's reducing. And if we spoke to you, again, a year ago, we would have probably have expected these graphs to have a sharper line down. And that's not the reality, because at the end of the day, some of those uncertainties, and particularly the implications around inflation, has been tightly managed across the world. But that being said, we are definitely in a reducing interest rate environment. And in fact, from a South African perspective, the debate around setting the inflation target closer to 3% with a 1% flex around those numbers really will encourage these numbers to get towards 8% from a South African context. Now, I'm not sure when we last heard those sort of numbers in a South African context. The rates have been coming down from a UK perspective, but probably similar to South Africa, yes, we see it down by a percent year on year, but that rate of reduction is still relatively slow. And it's because of these things, you know, we continuously have indicated that interest rate reductions will have a negative impact on our earnings in the short term. But as a business, we encourage and we really want to see a lower interest rate environment. And hopefully what you will see in these results is the momentum that gets introduced, particularly in the non-interest revenue lines as we go through the detail. If we look at exchange rates, the RAND had a negative impact on our income statement as the average rates were a bit weaker in the period. And in fact, from a balance sheet perspective, it had a positive impact because the closing rates were a little bit stronger over the period. And off late, I think the RAND has seen good support, particularly if you think that that economy has now come off the gray list. The fact that we've seen an upgrade from Standard & Poor's, an upgrade that we hadn't seen for 16 years. And that turn, I think we should not underestimate. From a markets perspective, I draw your attention to the March 25 that you see on this schedule. And that's really where we opened this financial year, with relatively weaker markets at the beginning. And since then, we've seen strong growth in markets. And you will see that in our AUM. But what we are also highly encouraged by is the record flows that we continue to see into our platforms, particularly in South Africa. Now, looking at our earnings drivers, AUM for our wealth business in South Africa is up 13.4%. Yes, 11.3% in neutral currency, and that's supported by net inflows for this first six months of 11.5 billion rand, a significant number. We also have acquired a few aspects and bolstered our Swiss platform, and that's added 5.2 billion rand of AUM and net inflows. Clients continue to manage their money, so from non-discretionary funds, we do continue to see some volatility in that. Ratbones reported £113 billion of AUM, and that's really supported by stronger markets. They had net outflows, I think it was around about £0.2 billion, but The business has been focused on the integration, and I think from our perspective, we see a business that has now really gone through the bulk of that and should shift to the front foot, focused on markets and focused on flows. Net core loans grew by 8%. And I'll unpack that by geography on the right-hand side. And it's quite pleasing to see the green arrows around that particular wagon wheel. It's not a perfect market yet. And it remains a highly competitive market in a low growth environment. And it's in this context that we produce these numbers. And that is also supported by the fact that we continue to grow our client pools and we continue to penetrate markets deeper, but really holistically focused on what Fani has highlighted, which is to be pinpointed in terms of where we execute our efforts. Now, Hugh, you reminded me of how this slide starts, so let's get it done. Adjusted operating profit was down 1.4% in the period. And let's look at what's driven that particular outcome. We see that net interest income is reduced by 2.1%. And again, when we speak of the short term, this is the impact that you will see in the six-month measurement, is that low interest rates in both South Africa and from a UK perspective has had a negative impact. However, in certain instances, we've managed to navigate that really supported by the fact that we continue to see book growth across our platforms, albeit at competitive margin levels, as well as improving the cost of money across our businesses. Non-interest income has largely neutralized that drop in net interest income, and that has been supported by strong fees and good investment income over the period. And that's momentum that is coming to the system, as well as the fact that we've seen stronger advisory fees in this particular period. Our impairment charge has dropped from 42 basis points last year to about 35 basis points in this period. I would say the real outcome is a very similar position to what we saw at the end of March. Asset quality remaining robust across our businesses. We do have some experience specific impairments, but we don't see any trending in any of our portfolios that causes any particular concerns for us. I think as we introduce our strategies around, for example, corporate mid-market, we are very mindful of the fact that in that particular market you may have higher levels of impairments supported by higher margins. And at the end of the day, we will talk about those probably next year when we unpack some of that detail. Operating costs is up 1.5%. So you may think that we've really, really cut our costs. But the reality is that when I unpack the detail around that, firstly, variable remuneration is lower in both geographies. And that's a function of determining the variable remuneration based on economic return. as well as the competitive environment that we operate in, but really following profitability in the different businesses itself. Fixed costs are actually running well ahead of inflation, and I'll get into some detail around that. And the way we look at fixed costs is, what does it cost us to run the business as it stands? And those costs are running at around about 1% to 1.5% ahead of inflation as we absorb some of the costs that have come into the system in both geographies as well as other service costs and the fact that we've, although tightly managed headcount, we still have increased headcount to service the business overall. And I'll unpack that for you in some detail. And the second area that drives costs is really the implementation of systems and processes that will support our growth initiatives. The third area is to continue to build resilience in our business and to continue to enhance and modernize our platforms. Those are the three areas that we continuously monitor across the business with the cost to income ratio at 51.9 percent. From a technology perspective, one day Lyndon will present this and I'll get over the nervousness. But at the end of the day, it comes back to what we said. We continue to modernize our platforms and a lot of that modernization is actually in the run rate. We've given you a range of our cost to income ratio of between 52 to 54% and we remain confident that we will maintain the run rate around that. We have very low capitalized software. And some may criticize that as the fact that we may be transitioning at a slower pace. And you will see that number pick up as we invest in our platforms. But again, not an overly material number on our balance sheet. Our overall technology spend at 20% of operating expenses, we think, is on par with the market. Yet we continue to invest in our platforms, modernize those, and remain extremely mindful in an environment where AI becomes a lot more relevant. The counterbalances around things like cyber and the rest of it become more acutely important for us to keep a handle on. So getting into the divisional reviews, from a geographic perspective, we have produced 230 million pounds from our UK business for this half. You will see that our contribution from rat bones appears significantly up at 18.2%. And that is a function of the fact that the business has achieved synergies of around about 60 million pounds of run rate in this period. However, if I take you back to markets, we started off with a very weak first quarter. And that was reflected in lower revenue for that particular business in their six months that was reported to the end of June. However, we have increased our accrual on the business because although their total shares in issue, we have effectively around about a 41.25% interest, there's a portion of those shares that are held within Rathwellns that are not yielding dividends and therefore should not be included. In fact, if you take our number of shares and multiply it, operating EPS we get to a cruel rate of around about 43% and we have some catch-up in this period which is accounted for just under around about 4 million pounds in that number the specialist banker will get into some detail net profits really in line with the prior year group investments represents the dividend on the sort of 10% stake that we hold on 91 With 91 effectively combining with the Sunlum platforms, we expect that stake to drop to about 8.5% on the bigger platform itself. That business announced their results recently and have grown their dividends by 11% year on year. Group costs are down. As we indicated, it will reduce to some extent. And we think it's at levels where that probably operates at. Looking at the specialist banking business, yeah, we did see net interest income reduced by 5.8%. That's in the context of strong growth in terms of our lending books, but the decrease in interest rates in the short term will have a negative impact. When you look at the market, some of the banks have defended that well in this particular cycle because of the larger structural hedges that they have in play. But our mix of our deposit base, we are not in a position to have those levels at this particular position. Non-interest revenue grew by 11.4% in the period, really underpinned by strong growth in fees. To some extent, low opportunities from balance sheet management and other trading activities. And again, hopefully you are seeing the introduction of momentum into the business in those lines, as well as seeing higher listed advisory fees in the period. Our cost-to-income ratio is marginally up at 53.3%, with fixed costs growing at 7.3%. As I've indicated, our run costs have probably increased by around about 4.2% to 4.3%, and the differential is the cost that we are incurring as we continue to invest into our platforms. And looking at the credit loss ratio for this period, it's at 56 basis points. We think it will remain in that sort of ballpark as we look forward to the year end, as we still see the impact of interest rates that that has on these higher levels. But as you can see from our staging, the book has remained relatively stable. over the period and have clearly indicated that we see no trending to call out to you guys. I've really unpacked Rathbones from an earlier conversation, but these are some of the key numbers and I think it's worth calling out that the business remains focused on delivering a trajectory towards a 30% operating margin by the end of 2027 financial year. Now moving on to South Africa, here we see total operating profits reducing by 2.6% to 5.7 billion rand. And if I unpack the numbers, you can see where the sensitivity in that reduction is in group investments. And that's really a listed stock that has gone up and down in these markets. Overall, you will see that the group investments layer will continue to be less relevant as we continue to realize at value those remaining investments. The Walton investment business grew by 2.1% and the South African specialist banking business by 2.6% with group costs remaining relatively steady. Unpacking the specialist bank, here we saw net interest income increase by 6.5% in the period, really a function of continuing to challenge the cost of money and the cost of deposits. And to some extent, we are starting to see good momentum in our corporate mid-market deposit gathering. capability, which will continue to enhance the net interest margin in that particular platform, as well as the increase in core loans and advances. But we had to absorb, obviously, lower interest rates on our net surplus cash positions that we hold. Non-interest revenue decreased by 2.1%, and that's really a factor of lower trading income and lower client flow income in this particular period, offset largely by higher fees for reasons that I've already effectively identified, and that is increased activity. in our equity capital markets advisory activity, as well as in the private banking business itself. In this business, investment income has held up relatively strongly. The cost-to-income ratio is also slightly up at 47.4%, but well within the 49 to 52% that we indicate as the long-term sort of level that this business operates at. Year operating costs grew by 10.2%, and from a run perspective, those costs have grown by about 5.8%. absorbing inflation, absorbing a weaker RAND, and the fact that you also do have some foreign-denominated cost in this particular area. The differential, again, being supported by areas of focus on implementation of strategy. The credit loss ratio is at 12 basis points, so it remains relatively low, and that talks to the quality of the book and the experience of the underlying book. Again, if we look at the staging, the fact that we have seen some curing of stage three assets in the current period, talking to the fact that the quality of the book remains very robust. We are very proud of the performance of the wealth business in South Africa. The business continues to have a very strong and high integration with the private banking business in South Africa and that's really our private client offering in that market. Distinctly positioned with our offshore capability and the fact that we are deeply servicing that particular market. I think the operating margin is slightly tighter, but still very healthy at 30.5%. This slide we debated on whether we should pull it, because there's a few red blocks on this slide. But hopefully you can see at the bottom of the first two red blocks, they're actually green in red. And that's really the impact of the slightly weaker exchange rate in the period and group investments will continue to become less relevant but with some volatility because we have a listed position in that. And from a UK perspective, underlying profit growing by 3% and in fact closer to 9% when we factor in tax and the cost of 81 instruments as we've removed some of the double cost that was in the system last year, having redeemed some of those instruments. Return on equity and return on tangible equity remaining market comparably strong across the businesses. This is for one of the analysts that asked us to reconcile operating profit to adjusted earnings. And again, I've called out the factors that apply, so I'm not going to spend too much of time on it. And that's a summary of the numbers that we've spoken about. And you can see that our average allocated equity at five billion pounds. So that's me. Well, one more slide, finally. Two more. Net asset value and tangible net asset value on the next slide, but Fani has gone through that detail. And the last point I'll talk about, Fani, it's now your time, is that capital has remained robust. We have adopted BAL 3.1 in South Africa, and we'll see those capital ratios come down a little bit by about 2028, but we maintain high levels of capital to absorb those, and from a PLC perspective, the ratios are extremely healthy.

Now it's time for you. Thank you, Nish. You can see that Nishlin is playing some games with me. He says he's done, and when I stand up, he says he's not done. I hope in the presentation you have taken away the sense of a business that is performing as we expected in these markets at a headline level as initially indicated. No, no, I'm okay, Q. Thank you. At that level, we have had a relatively strong NIR performance. The effect of lower interest rates and continued investment in our business, as we indicated, to support current revenues, to support the modernization of our estate, and to support the growth initiative. So for us, We feel that we're building for the long term and we're excited about that as a path going forward. So as we look forward to the full financial year, we will expect the performance in the second half to be generally in line with the first half performance that we have reported here. We still operate in a tale of two cities, the South African Economy is in a slightly better state, as Nishlin may have indicated. Growth forecasts are being revised upwards. We've seen a credit rating upgrade, albeit that we are still two notches below investment grade, but the direction is great. We have seen the removal of the country from FATF, the so-called gray list. And as the country hosts the G20, we have seen a greater interest in intra-Africa trade. and the commitment by the leaders to open borders and to facilitate more trade. So that economy is looking a little better. In the UK, while the economy is still constrained, given some of the uncertainty around the fiscal space, and in fact we are waiting with bated breath, the budget speech by Rachel Reeves next week, we still see a higher level of uncertainty. What we need, obviously, will be policies that support growth and investment. And obviously, policies that do not punish those that are successful and are creators of wealth. That is what we would hope for. What we get is that, obviously, is what we're all waiting for. So given that macro... economic picture in the two largest geographies, we do expect that ROE for the full year will be at around 13.7%. As I said, in line with the current ROE, SA will be at around 18.5%. We have a target range of 16% to 20%. For SA, for the group, we have a target range of 13% to 17%. And for the UK, we will expect ROTI to be around 13.6%. Initially, we have spoken quite extensively about costs We do expect that despite the investments we're making, we should still be coming through in the 52% to 54% range. Credit loss ratio still to be within our through-the-cycle range of 25 to 45 basis points. Again, as Nichelin indicated, we would expect this to improve as we rates continue to go down, client activity increases. So essentially in a diversified model where you have net interest headwinds, you would expect over time that client activity should improve and that your credit loss ratio equally should improve. And obviously we have significant wealth businesses that contribute non-capital intensive revenue. So we're well positioned to manage the complex external environment. And in addition, we are committed to supporting our clients as they navigate the uncertainty that is in the economic environment. So in conclusion, we remain excited about how tightly our business is focused in the client segments that we target. We are excited about our continuing entrepreneurial culture where we can flexibly serve our clients in a tight environment. And our clients are resilient. They have scale and, sorry, our client franchises are resilient and they have scale. So as we continue to invest and build, we would expect that we will see even better scale. I spoke about the strong generation of capital to continue to invest in our business and to continue to reward our shareholders with distributions. The presentation that will come shortly is a presentation about the future, about the investments we're making, and about how we're expanding our overall franchise. As Jane Neely said last night when we had a leadership meeting, the business is focused on what we can build. The external environment is what it is. We have to back ourselves to execute on the on the opportunities that we have ahead of us. On that note, that's the presentation. We're happy to take questions. I think we will start off here in London. Is that the way we do with Q? Q has been conducting how we go about, so I have to look at him for instruction. Any question from London? Okay, seems like we don't have a question here. So we'll go to Johannesburg where Kumesh is holding fort. Kumesh has been whining and dining precedence and the high heels. So Kumesh, if you can be with mortals like us for about 40 minutes or so. Any questions from Joburg?