Investec plc

It's a pleasure to welcome you to this results presentation. We're coming to you today from London offices and we're really looking forward to presenting our business to you. Just as I start, it is clear that we are operating in a very challenged environment. geopolitics has dominated markets for quite some time. We also know that we are in a period where there is substantial change that is occasioned by artificial intelligence. we see great volatility and yet our business has been able to produce resilient results. So I'm really grateful to my colleagues for the work that they have done over the last period. In terms of volatility, it is important that we hold high levels of capital and high levels of liquidity. Liquidity may be expensive, but it is important that we continue to be conservative in our positioning. This enables us, firstly, to continue to support our clients, but also to reinvest in the business. As indicated from last year, we are in a heightened investment period, choosing to have faith in the future by investing today for a larger, better business for our clients. So we've been making steady progress on our investment program and later today we will give you a peek into our private lines business and importantly we also will give you a brief update on our corporate mid-market business and the progress we have made since we made the announcement last year. We look forward to do that in the second half of the day. As we indicated in our announcement, we're very confident that from 2028, the investment program will begin to show very positive results, and that will result in an inflection in our growth and an inflection in our returns. to shareholders. As we announced last year and the year before, we remain committed to reaching ROEs of 16% by financial year 2030 and 18% ROTE by that time. These are returns that we're committed to, we're on track to achieving, but importantly, these returns are a consequence of what we do for our clients. It is really important for us in the business not to lose sight of what we mean to our clients, how we serve them, how we support them through very difficult times, and how we continue to be their trusted partner throughout their life cycles. Now turning to the results, we see adjusted earnings per share increasing by 4.8%, as I said, in a very challenged environment. We have seen, if you look at key drivers of performance, a double digit growth. in funds under management. That really is pleasing in an environment that is so volatile and quite tough. We also see a high teens increase in loans and advances and similarly a high teens increase in deposits. That tells us that our clients continue to trust us and continue to see us as a preferred provider to them. If you look at the third block, in terms of our net asset value, that has increased over the prior year by 8.3%. That means we're generating substantial capital that allows us, as I said earlier, to reinvest in our business, but also to reward the providers of capital. Looking at the last graphic on this chart, we see that return on equity is at 13.6%. And if you look at that graph, it looks flat. But I have to remind you that in September 2023, we concluded a combination of our IW&I business with Rathbones, and that increased our capital base. So the return that you see there on a like-for-like basis is 1.2 percent higher compared to the 23 and 24 number that you see there. So steady progress in delivery of returns to our shareholders. Nicholin will unpack the numbers much more a little later. Just a number of comments on this slide. We see our cost-to-income ratio being at 52.9, which is in the middle of our 52 to 54 percent guided range. Cost discipline continues, although I must point out that because we're making significant investments and we are capitalizing a very small portion of that investment, clearly there is an impact on our profitability. As I said earlier, we are focused on the future and we will take the pain in the short term. We see our credit loss ratio improving slightly from 38 basis points to 36 basis points, so credit quality continues to be good. Clearly, interest rates have not come down to the extent we had expected. And if we do get to that period, which at the moment looks a bit far given the impact of the closure of the state of Hormuz and the war in the Middle East, inflation may be higher for longer. So we may not see the expected reduction in interest rates, but very pleased with the credit loss ratio and asset quality in general. If you look at our tangible net asset value at 553.1p, that is an increase of 9.2% relative to the prior year. So very happy with the performance of the business in that regard. The board declared a final dividend. That takes our total dividend for the year to 38.5p, representing an increase of 5.5% over the prior period. We're also pleased that we've completed the share buyback that we announced at this time last year, that we would return to our shareholders about 110 million pounds or 2.5 billion rand per share. in terms of the buyback. So really pleased that that has been completed. We always manage our capital dynamically. The first call is to reinvest in the business. Obviously to the extent that we do not have enough investment, we would then return capital in special dividends. Our dividend policy remains unchanged, so we continue to be quite predictable in terms of returning capital to our shareholders. We also have indicated that we remain open to potential opportunities, particularly in the wealth space where we would like to continue to make inroads and to increase the share of our capitalized revenues. Later today, we will talk about our private land business as I've said, and you will see what plans we have to boost the revenues that come from that segment of our client franchises. Moving along, while we obviously pursue profits as we do, and we do so in service of our clients, we also are very mindful of our responsibility to make sure that we are a positive contributor, both to society and that we also do make sure that we reduce our impact on the environment. So we've continued to meet our fossil fuel requirements and commitments. We also are driving quite hard throughout the businesses our targets and activities related to sustainable and transition finance. We last year announced a target of 18 billion pounds or so, we were able to achieve our first year target of over 3 billion pounds. We continue to do a lot of work in helping our clients, firstly, to understand what is required in terms of transition and climate, and obviously then advocating and helping them to have their own plans. So as we continue to report on our scope three, emissions, this is quite important, the advocacy, helping our clients and making them really come along the journey, as it were, over time. So we continue to be very pleased with our progress towards our commitments to net zero by 2050. On that note, I'm going to ask Nishlin to go a little deeper into the numbers. Nish?

Thanks, Fani. It's always a privilege to stand up in front of you. So if I get into the numbers, I think just a little bit on the context. The macroeconomic environment actually in this period that we're reporting was improving from a year-to-year perspective, and we've seen GDP growth improvement in both markets that we operate in, and in fact across the geographies that we do. You do see an outlook there, which seems to indicate that there might be a bit of tempering, and from a South African perspective, possibly higher achievement. However, that's at risk. I think if we look at the impacts that have come through in the first quarter, and to some extent, the fact that inflation and the impact of inflation is still in the system, and the constraints of supply are still in the system. So I think at the end of the day, let's hope we can get there. From an interest rate perspective, again, we were in this period in a reducing interest rate cycle, and we've seen average interest rates drop over the period from South Africa from about 11.5% to 10.5%, and from a PLC perspective from 4.95% to 4.04%. To some extent, we will continue to see the drop-off as that average in effect comes out of the system. However, the outlook for interest rates is definitely changing. So to an extent, our economic outlook was for interest rates to actually reduce by about 50 to 75 basis points over this financial year. The reality is we see these rates remaining at least steady for most of this financial year with some risk to the extent that you may see some lift up depending on inflation outlook. From a market's perspective, we do report in sterling. And the contribution from the South African balance sheet is stronger in this period, given the fact that the closing exchange rate has actually improved by just over 4%, well, close to 5%. Interestingly enough, the average exchange rate for the period is actually identical year on year. So there's very little income statement noise. And similarly, from market's perspective, I mean, if you look at this chart, we probably think the world is pretty rosy out there because markets have improved quite strongly. Actually, in April 25, we did see quite a sharp drop off. And to some extent, that influenced AUM as well as fees in the first quarter of this financial year, but quite a sharp recovery as we looked forward. I think as we get into March, markets have reacted to the war, have reacted to some of the constraints at play, but not significantly overall. And that brings us to the drivers, and I think I'm quite pleased for reports. I mean, growth of 15.4% or 10.5% in neutral currency of FUM with very strong net inflows. We also did have an acquisition in this period bolstering our activity in Switzerland, which has added just over 300 million pounds. of AUM and net inflows of around about 23 billion rand into our discretionary portfolio in South Africa. Similarly, we've seen core loans grow by 9.6% and in fact in our private client portfolios in both South Africa and in the UK, we saw growth of over 10% in terms of lending activity. Not all of that is beneficial to the same extent to the bottom line because in a highly competitive environment, margins continue to be under pressure. Now, if we look at the group performance, the blank pages so that I can introduce an income statement in a way that we can just follow the dots, okay, so bear with me. At the very bottom, we had adjusted operating profit growing by 3.4% in the period from 920 to 951 million pounds, with total revenue growing by 4.2% over the period. Net interest income reduced by 1.6%, and for our business, lower interest rates results in lower earnings for our endowment capital. We have very little impact on structural hedges, but that has had some impact in terms of protecting margin from a UK perspective. But we continue to improve the cost of money and the cost of deposits by continuing to focus on the growth of our retail deposit base, as well as the strong growth in our loan books, which has helped to effectively neutralize the impact of low interest rates. Not interest income grew strongly over the period, growing by 13.6%, supported across the business by increased activity with our clients, by realizations of some of our exposures in a positive manner, and at the end of the day, really driven by core activity driving fees across the business. Our expected credit loss, as Fani had indicated, remained at about 36 basis points. It's, in fact, fairly comparable year on year. To some extent, we had lower recoveries, and therefore that does mask the fact that actually there was actually a better improvement in the overall experience in terms of credit loss ratio. But you would see from an asset quality perspective pretty much comparable year on year. And then operating costs did increase by 4.7%. And in fact, fixed costs are up over inflation in both geographies. And I'll unpack some of the investment activity that's going through the income statement as we look forward. Cost to income ratio at 52.9%, again, within the 52% to 54% guidance that we have provided. Now, if we get into some of the aspects, if I look at, in particular, IT spend, that remains at about 20% of our overall cost base with total expenditure in this period of 246 million pounds. But what I will draw to your attention is the bar chart on the right-hand side, where you see within this financial year, we actually spent around about 50% of that on areas of growth and enhancing our platforms. And that includes implementation of new age technology into the organization, as well as modernization of our platforms. Some of those are still in play, but we do have delivery that comes online within the next year and the following financial year, which is going to bring significant change. You know, I think, like all of us did see with Mythos coming out three weeks ago, we are not in a static world. AI continues to develop at a pace and continues to have an influence. And in fact, if any of you have picked up our analyst booklet, that booklet was reviewed by one of our agents. And if you pick up an error, please ask the computer, OK? So if you look at our organization, we have 7,777 permanent employees in the organization, but we also have 800 agents that are now running deeply into the organization. And to some extent, we're starting to see benefit, but it is still early to measure where that leads to. I think our commitment to you is that we see ourselves continuing to operate within our cost-to-income ratios of 52 to 54, because on the flip side, there is a cost to implementing technology, and from our organization perspective, we will continue to stay as close as possible to development. I think from a cyber perspective, we remain highly vigilant. We are close to new age development and have access in the right places, which we will continue to develop. But our responsibility is also to make sure that we have the right ways to deploy. And at the end of the day, you are going to need to be able to check and understand what has been deployed. So it's not just easy accepting code because it's been written. by a machine, you have the responsibility to make sure that that code is actually deployed correctly. Now, on the very bottom right-hand side, our cloud modernization, when we first start speaking to you guys, that was at about 8%. Last year, we reported it at 48%, and this year, we're at 58%, and we expect that to continue to increase dramatically. And why that is fundamental is because we shift into, again, the new age world where, at the end of the day, we leverage the capability that is out there rather than simply sitting with the capability being developed internally. All of this is done with protecting our balance sheet. So to date, we have capitalized 20.5 million pounds of software relative to a significant balance sheet that remains insignificant overall. In fact, in the next sheet, you will see that since 2025 into 2028, we actually deploying around about 282 million pounds in investing in our platforms. Now, this will include capability that humans bring into play as well as software capability, but that influences our mid-market strategy, it influences our private client strategies. as well as new platforms that we're bringing into play. In fact, some of the technology that we've seen on the deployment of our new finance platforms and the built-in capability that is coming from our service providers is hell of exciting because we can see the transformation. And in some places, some of our research teams tells us that implementations that took months are now being measured in days and weeks because of what's been deployed. Part of what we've got to do is to make sure that we drive it deeply into the organization. And that's really where the effort is right now. But this investment is significant. It's 282 million pounds. And for South Africans, that's 6.3 billion rand. And if you look at this chart, you will see that the majority of that cost on an annual basis is expensed and carried in our income statement with a small element that is capitalized as we see it come through. The majority of this on early stage is actually operating on a cost-to-income ratio greater than 100%. So when we get to a later stage, this will bring in and come into our 52% to 54% as revenue starts kicking in. And we see that really happening from FY28. So if I get into our divisional reviews, from a UK perspective, overall operating profit increased by 1.3% to 462.7%. The contribution from Walton Investments, so that's our share of Rathbones' earnings, actually grew by 17%. In the year to December, Rathbones reported a growth in earnings of just over 4%. And some of that differential is that we actually accruing at 43 rather than 41.25%, given the level of treasury stock that is held within that particular business. Our banking business reported just over 400 million or close to 402 million pounds from 410 million pounds, absorbing lower interest rates and greater activity countering that. Group investments is really our return on our investment in 91, which sits at about 9.2%. following their combination activity with Sunlum, and that's really dividend flow that comes in, giving us a return on equity of about 18% on that investment. Group investments, I mean group costs, we continue to manage tightly. Looking at the mix of earnings, I think I've covered this in some detail. Some weakness in NII really absorbing lower interest and a highly competitive market offset by book growth and strong fee generation and other non-interest revenue growth in the period. The cost-to-income ratio at 54%, again, is influenced by some of those investments that I've indicated that has been charged through the income statement. But cost-to-income is a function of revenue and costs, and I've unpacked some of that detail. Now, if we look at impairments, again, the overall credit loss ratio improving from 60 basis points to 57 basis points, but still at the high end of our guided credit loss ratio. With interest rates having come down to some extent, and us seeing that it may plateau at these levels at this stage, we don't necessarily see a let up in this area in the short term, but our overall guided levels we still remain pretty comfortable with. I think if we look at the staging and the quality of the book, there is nothing to call out. We see no deteriorating trends in any of our portfolios. Obviously, we will continue to pursue recoveries where we can. But at the end of the day, the trending between stage one and stage three, we remain pretty comfortable with. While an investment from a UK perspective is purely a story of rat bones, and I think they've provided a coarsely update to the end of March reporting AUM of 113.6 billion pounds, rat bones remains committed to enhancing the operating margin to 30%, having reported a margin in total for the period of 25.2%, closer to 20% towards the end of the year. Their view is that they anticipate getting to a 30 percent margin by the end of the quarter of the financial year ended 31 December 2026. I think there's been strong implementation of combining these businesses. There's a lot of complexity in bringing together these business platforms. And at the end of the day, delivering 76 million pounds of achieved synergies is well ahead of what was communicated at the time of the execution of the transaction. Shifting to South Africa, operating profit increased by 5.2% with our wealth and investment business generating an 8.2% growth in operating profit. The banking business, 6%. Group investments will continue to reduce. It may remain volatile because there are some elements that are held at fair value. but we continue to realize these portfolios for value, and therefore that line will continue to become less relevant. Again, group costs are up in the period, but as you would see from a combined group perspective, well-managed. Again, looking at the split of earnings, in South Africa, we did see NRI grow, and that's notwithstanding lower interest rates. Obviously, the base is very different from a UK and a South African perspective. And again, growing our retail deposit base and enhancing our margin through the cost of funding, noting that our business and commercial banking elements still has very little influence in the overall cost of money in both jurisdictions. Again, NIR up by 11.3% in the period, strongly supported by growth in fees. The overall cost-to-income ratio for the specialist bank at 48.6%, I think, is a strong base, and the costs are well managed across the business. I think across both South Africa and the UK, we saw headcount increase by 2.8%, but that has been very specifically focused on areas of growth. We look at the credit loss ratio in South Africa. It's 14 basis points. Last year, it was 15 basis points. And again, there's nothing much to call out in terms of changes to the book and behavior of the overall book itself. Obviously, in both South Africa and the UK, to the extent that we reached the end of March, some of the economic outlook did worsen. To an extent, we picked up about 9 million pounds of impairments across South Africa and UK for the change that we had to absorb given the conflict and the constrained environment. Looking at wealth and investment, I think Hubert is sitting here and smiling because these numbers are strong. AUM or FOM growing by 9.8% to $609.6 billion. This business did replatform its underlying platform and has implemented new systems with significant capability for internationally active clients. And all of that had gone live in April and to a great extent has been absolutely successful. Operating margin at 29.6%. Again, given the nature of the business, I think that is hell of a strong. And that brings us to the overall picture for the group. I'm not going to repeat the numbers. I think we've got a lot of the detail across and our returns on equity achieved in the period. I think it's worth noting that that return on equity is also absorbing growth in capital that had to be deployed in the period. This is in particular for Chris Stewart because he did ask me to please explain how does 3.5% result in 4.7% growth in adjusted earnings. And there's a couple of other things that move other than the profitability. Number one is the cost of additional capital instruments, our AT1 and perpetual preference shares. And in fact, in this period, that cost reduced by 6.9% as we had some pre-issued instruments, the older instruments, falling off over the period. And some of that double count is now out of the system. We also managed to issue instruments at better pricing in this period. Taxes obviously followed profitability, and the impact of buybacks is to reduce revenue as we lose the interest on that capital, but the ultimate benefit coming through with lower weighted average number of shares in issue. which closed at 850.3 million shares. And in fact, if we fast forward to the next year, that full weighting should take that number on an equalized basis down to about 840 million shares. I've spoken about our return on equity and where we are right now. This sheet also gives you some idea of where the capital is deployed across the group, noting that from a UK perspective, a large portion is deployed in our investment in rat bones and therefore the differential between tangible and intangible. A recon of our net asset value will indicate a period in which it's really driven by profitability, net of distributions, including buybacks that were executed, as well as a stronger RAND, to some extent, positively contributing. The difference between net asset value and tangible net asset value is really the goodwill and intangibles that arises on our investment in the world business. And in fact, if I strip that out, the tangible net asset value is actually around about 625 million pounds. Looking at capital and liquidity, we remain fairly defensive from a balance sheet perspective and will continue to do so. So you see high levels of cash and near cash. Overall CET1 ratios are strong at 13% from a UK perspective. Now, to some extent, you see South Africa dropping from 14.8 to 13.6. That's absolutely expected. And the drivers for that is, to some extent, the buyback has been skewed to South Africa, as well as the fact that a capital flaw has now come into play, which means that when we calculate risk-weighted assets, we are actually calculating and carrying capital at a higher level because there's a capital flaw which in our book limits some of the benefit of a much higher collateralized and lower risk book itself. That will introduce another shock absorber and another buffer into the capital ratio, specifically pointed at credit risk-weighted assets. Mr. Titi, it's over to you.

Thank you, Nish. I think Nish gave us a really good feel of how the numbers come together over this period. I'm not going to look ahead a little bit. And as I do so, let me just say that our client franchises are very defensive within an environment that is very volatile. We have private clients that are generally more resilient than normal retail clients. And in bet times, like the times we're in where uncertainty is high, volatility can be unnerving, these clients are durable. Whether you talk about our world's clients, our private banking clients, and obviously we do serve corporate clients that have a level of resilience as well. So this gives us the confidence that over varying environments and economic cycles our business model should remain resilient. We also have very deep client relationships that help us in times of difficulty that we can be close to our clients, we can support them, help them through these times. So they continue to lean on us quite heavily because our view is that of being a long-term partner to our clients. We are less transactional, we are more relationship-based in the long term. And as I said, we are also making investments that will support our ability to expand our client ecosystems and client franchises, do more for our clients, and as a consequence, get more from them, but in a win-win situation. So while the environment looks tight, we remain comfortable that our model is resilient in the long term. That's why we are happy to again commit and tell you that we are on track to reaching our 2030 targets. Nishal gave you a sense of the quantum of the investments We have been making it. We are pleased that we are now getting this year, this financial year, to the peak of that investment cycle. He also indicated that we expense a large portion of those investments. So a combination of a peaking of investment and the starting of revenues coming through makes a big difference for us. In 2028, we indicate that our corporate mid-market proposition in South Africa should meaningfully impact on our earnings. So we do see an inflection point in our return from 28. And the other investments in the UK, both in corporate mid-market and private client, and the expanded offering in private lines in South Africa should lead to a much more enhanced set of returns for us in 2030. So because 2030 is a bit far, we thought to give the market a sense of what we think the path towards 2030 is. That's why we have given you a mid-term report about our expectations in 2028. Again, as a consequence of the success of the investment we have made in the afternoon, we will give you a bit more color on the delta that we expect from our private lines businesses. Last year we gave you a sense of the delta in profits and returns that we expect from our corporate mid-market business. So in the Immediate term volatility is high in particular in the UK where you also have a political Situation that is uncertain while we have seen our clients do more for instance in the last quarter of the year the first quarter of the calendar year We were participant alongside our clients in some of the larger capital raises in the UK. But the environment is such that decisions are now being delayed a bit because there is a level of volatility. Who comes in as prime minister and when do they come in? What type of policies will they have? So short term a bit more. uncertain in the UK, so we're guiding for next year that we expect ROE of between 13 and 14%, largely in line with where we are this year, and from 2028, 13.8 to 14.2%, picking up to our long-term outlook. We're also guiding that South African business will continue to be at the top end of its performance range. Obviously, the bank continues to perform well there. And you saw the strong numbers from our wealth and investment So we are getting returns at the top end of the market if you look at South African operations. Again, this underlines the fact that our clients are resilient. They continue to be opportunity focused even in tough markets. And it really is important to choose your clients carefully because if you get that right and you can get the service model right and the relationships are long-term, you are likely to do better in the long-term. In the UK, given the fact that the short-term has a higher level of... of uncertainty, Nish showed you the retention of capital within our UK business. And as we said, we continue to invest. We see returns at the lower end through the cycle, a range of 13% to 17%. But again there, we are quite comfortable and confident that the investments we are making will bear fruit. initially indicated that we're comfortable with asset quality of our business. So as we look forward, we see the credit loss ratio being within the target range that we have indicated, 25 to 45 bps. We came in at the center of that at 36 this year. Asset quality, as I say, remains particularly positive. So as we look out in terms of our businesses, we have people that are quite passionate about our clients, a commitment to those clients, and we can only be thankful for the quality of clients we have and for the support that they have given us. The markets are competitive, particularly in low growth scenarios, the fight for clients is quite fierce. And that we have been able to continue to depend on the custom of our clients is really particularly pleasing. So as we look forward, Our business remains focused. We do fewer things for the people that we have chosen to work for in terms of our client pools. Our business continues to enhance scale. And with scale comes a level of efficiency. And we remain particularly relevant to our clients. If we are not relevant to clients, we generally do pack our bags because we are really not adding much to them. We don't want to be a price taker. As such, we want to be a value-adding partner to our client and to be rewarded accordingly for the value that we add. So scale and relevance are important. Strongly capitalized, as Nish indicated, despite the flaws reducing a little bit our capital levels in South Africa. Liquidity remains high. These are uncertain times, so we have to be conservatively capitalized and liquidity has to be conservative as well. Because we generate strong capital, we are able to reinvest in the business. We are able to continue to reward our shareholders with steady dividends in terms of our dividend policy. And where we have excess capital, we do return that capital to our shareholders as such. The opportunities for growth are significant. Ours is a of well-defined opportunities on which we are executing. I've given you a sense of the progress we're making in South Africa. I've given you a sense that we are hiring in the UK for our corporate mid-market this afternoon. We'll give you, or later this morning, we'll give you a sense of the scale of the opportunity, but the credibility of our ability to deliver into those opportunities. So we look forward with confidence. And as I said earlier today, we are up. dedicated to making sure that we deliver enduring worth to our clients, to our colleagues inside of our business. If our colleagues are happy and looked after internally, they are in a much better position to continue to support our clients. We are a positive contributor to society where we do operate. I live in South Africa, as most people will know, but when I'm here and Ruth takes us through a lot of the work that we do, in our communities, we are filled with pride that we are a positive contributor to society. We talked about our sustainability targets, and we continue to be a responsible corporate citizen, and making sure that the endowment we have in our planet, we can hand over to the next generations, and we have not been a negative impact to those. At this juncture, then, we will go into questions. I don't even remember how we go into it. We start in the room. Thank you. The order is always important. Any questions from inside this room? Okay, no questions. I'm sure Stephen Kossoff is listening in from Sydney. He says if you don't get questions, just move on. So I will move on to Johannesburg. I've got Donald with a big smile. Danny? We have an echo. If we could fix the echo, please.