Investec plc (IVTJF) Q4 2019 Results - Earnings Call Transcript

About: Investec plc (IVTJF)
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Earning Call Audio

Investec plc (OTCPK:IVTJF) Q4 2019 Earnings Conference Call May 16, 2019 4:00 AM ET

Company Participants

Richard Wainwright - Chief Executive Officer, South Africa

Fani Titi - Joint Chief Executive Officer

Nishlan Andre Samujh - Chief Financial Officer

Hendrik du Toit - Joint Chief Executive Officer

Steve Elliott - Global Head, Wealth and Investment

Ian Kantor - Founder

Conference Call Participants

Bankole Ubogu - Bank of America/Merrill Lynch

Fani Titi

Good morning, everyone and welcome to this presentation of the annual results of Investec for the year ended 30 March 2019. I will start off by giving a broad overview of the results. Thereafter, Nishlan will take you through the detail of the results and Hendrik and myself will come back to give you a brief update on the businesses and review of the past year. After that, we will be ready to take your questions.

I am just trying to navigate this. Okay, there we go. So all of us are aware that we are in the process of implementing a strategy to focus the business and to simplify it as we go forward and this strategy entails a planned de-merger and separate listing of the Asset Management business on the one hand and, on the other, the repositioning of the Bank and Wealth business for a sustained growth over the long-term.

So if we look at the results very briefly, operating profit increased by 9.4% to £664.5 million. Thank you. Adjusted earnings per share increased by 3.6% to 51.1p. Dividend per share grew by 2.1% to 24.5p. ROE improved from 12.1% to 12.9%., and capital ratios remained sound in both South Africa and the UK. And I wish to highlight that the group has received approval to go to FIRB in South Africa, and this result in a pro forma co-equity Tier 1 ratio of 11.6%. This solid performance was supported by substantial net inflows of £6.1 billion in the Asset Management business, really great performance, and this led to higher average funds under management and annuity fees. Secondly, we saw good client acquisition and loan book growth in the banking businesses with very pleasing increases in net interest income. The loan book grew to £24.9 billion. We saw a significant improvement in the performance of the UK. Specialist Bank with impairments significantly down as we have now dealt with the legacy book.

Within the Wealth business, we saw positive discretionary inflows with total net inflows of £366 million. This performance was offset, on the other hand, by weaker market and deal-driven income, reflecting the tough environment in which we operate. In the investment – in the banking business, we saw investment income being significantly lower than the previous year. In the Wealth & Investment business, there was a non-recurrence of investment gains in the Wealth & Investment business in the prior year, which we did disclose. And in the current year, we had a write-down of the Click&Invest capitalized software development as we have decided to discontinue the Click platform.

So if you look at these ones-off items around the Wealth business, the core Wealth business actually recorded earnings growth in the year. It really is important to give that context to the Wealth business. While our operating costs were up ahead of the revenue for the full year, we have, as you probably know, committed to a program of cost-containment and revenue growth as we go forward. So we’re confident that we will be able to meet the cost-to-income targets that we have communicated to the market. These results, in our view, were achieved within the backdrop of challenging operating environment with both the two core markets, being the UK on one hand and South Africa on the other, experiencing significant weak economic growth. And as you know, the equity markets were very mixed as well.

Before I go there, let me just give you a bit of a perspective on where we are since we announced the de-merger, because it is important that we take into cognizance the fact that the group is in transition, but in the meantime, we operate as one group and we are making some progress. With respect specifically to the de-merger, you may recall that the de-merger was announced on the 14th of September last year. And at that time, we did announce that we expected that we would be able to complete the process of de-merging Asset Management within a year. At the moment, we are still on track to achieving that de-merger by the end of September. So we are on track. Secondly, you will know that the group has gone through a leadership transition. That transition have I got the right slide on the board? Okay, sorry, there we go. So that transition happened both at the group with respect to the founding executives retiring but also inside of a number of the divisions.

Most specifically, I would like to announce again that we have appointed Ruth Leas as Chief Executive of the bank here in the UK. We are quite excited about that. Along with Ruth, we make an appointment, as an example, Ciaran Whelan will be the Chief Operating Officer of the Bank and Wealth business and David van der Walt, who was CEO of the bank here in the UK, will become Chief Risk Officer of the group. Lyndon Subroyen will head our Global – will be the Global Head of Technology and Digitization. So even as we discontinue Click, our commitment to digitalization and to technology remains particularly strong. The Wealth business will be run by Henry Blumenthal and Jonathan Wragg as Steve Elliott will be retiring at the end of the current financial year, that is March 2020, Steve, thank you very much for your great service to this business.

The selected growth initiatives that we are pursuing are on track. As an example in the private bank, we are seeing great traction with respect to client acquisition. And in other areas where we have indicated we are pursuing growth, we are seeing traction. We can talk about that a little bit later. We have in the meantime also taken a number of actions as we proceed to simplify and focus the business. As an example, we have disposed of our Irish Wealth business as we did not have the sufficient scale in that market. Similarly, we have restructured our prime broking business in Ireland. As indicated earlier, we discontinued our Click&Invest platform because after review of the market opportunity and the relative cost of operating Click, we decided that we will discontinue Click. We will, however, continue to invest quite strongly in digital platforms across the group. Further simplification has occurred with us winding down the Hong Kong non-core investment portfolio. Just to be clear, our Asset Management business continues to operate within the Asia region. I did indicate that our cost-to-income ratio remains elevated. At the moment, I’m sure if you look at the results, you will see that we have begun to make some inroads into group costs with the reduction in this period of £4 million.

And as I indicated at the Capital Markets Day presentation, we have identified more savings as we go. We continue to focus on capital allocation and improving shareholder returns, and we remain confident that we will achieve the performance targets that we have communicated to the market. We have positioned our businesses to ensure that they meet growth objectives and deliver long-term shareholder returns. Nish, over to you.

Nishlan Andre Samujh

Thank you, Fani. Let me get into the financial review for the last year. And just as a reminder, this is the entire group. I think the first contextual area to look into is the backdrop of the economic environment. And in particular, if I look at the equity markets, I draw your attention to the third quarter of last year where we had seen quite a significant drop-off on markets, which would have had an impact on, effectively, the momentum on revenue both across some of the businesses. The exchange rates remained volatile over the period, and we saw political uncertainty in the two key geographies that we’ve operated in, resulting in market volatility that impacts the results.

I think if we look at the overall results, however, our return on equity for the combined group at 12.9%, improving from 12.1% at the end of last year. Our cost-to-income ratio at 69.9% is higher than our target of 65%. And I draw your attention to the point that I made on revenue in the period. In fact, if I look at the underlying cost base, the Bank and Wealth grew its cost base by 2.4% in the current period, notwithstanding certain benefits in the prior year. The Asset Management business grew its cost base by 8.9% in the period, reflecting investments in the platforms as well as implementing MiFID and various other regulatory requirements in the current period. Our capital ratios remained healthy across the businesses. Fani has mentioned that we have adopted FIRB, which is effectively a risk-based measurement for capital in South Africa. That adoption is – our permission applies from 1 April. So we have presented pro forma numbers and it will be the measurement basis for capital going forward for the South African business. The UK business continues to measure capital on the standardized basis. The adoption of FIRB has added just over 1% to the capital ratio for South Africa with the CET1 ratio at 11.6% and the plc at 10.8%. Based on our final dividend of 24 – or our total dividend for the period of 24.5p, our overall dividend coverage ratio is about 2.2x.

If we have to unpack operating profit, which grew from £607.5 million to £664.5 million, you would see that, overall, the UK business grew operating profit by 36.1% over the period and South Africa grew operating profit by 1.8% over the period. If we have to further unpack that in terms of businesses, the specialist banking businesses saw good loan book growth across the geographies. It was a significant impairment reduction in the UK business as legacy has now been dealt with fully. And we have, across both geographies, low investment income, given the economic environment and that extends across our unlisted and listed portfolios as well as our property portfolios in the group.

Our Wealth & Investment businesses experienced positive net inflows, particularly within the discretionary funds. We did have a reduction in some of the nondiscretionary funds with elements of that intentional. However, the earnings were impacted by nonrecurring items, in particular, again in the prior year on a realization of investment and in the current year, additional software rights also for roundabout £6 million with relation to the Click platform. The Asset Management business experienced substantial net inflows of £6.1 billion over that period, and that has resulted in growth in AUM and annuity fees. However, market volatility would have impacted the volume growth on – over the – particularly from the third quarter and lower performance fees in the current period as well as the increased cost base that I mentioned earlier.

Specialist Bank in the UK grew profits by £78.6 million, in South Africa, a growth of 2% in rand terms. The Wealth businesses, as I’ve mentioned, down during the period. Group costs, we have reduced it by £3.2 million over the period, and I’ve discussed the Asset Management businesses. In terms of the core drivers, I think it’s important to contextualize that the rand had depreciated by 13.1% over the period. So that has an impact on the closing balance sheet and closing FUM numbers. However, notwithstanding that, FUM has grown to a record level of £167.2 billion across the book with a growth of 4.1% and net inflows experienced in the period of £6.5 billion. Customer accounts and core loans and advances growing by 1% and core loans dropping by 0.8%. In neutral currency, core loans was up by 6.8% with the Specialist Bank in the UK experiencing a growth of about 8.5% over the period, supported by both corporate lending as well as private client lending over the period. In South Africa, the book growth was 5.8% over the period.

In terms of operating income, operating income grew from £2.44 billion to £2.49 billion over the period. Net fees which makes up about £1.4 billion of that number, in the period growing by 1%. So if we had to just unpack some of the key line items, net interest income grew by 7% over the period, supported by the book growth that I mentioned in the current period and the prior period as well as a positive endowment effect resulting from higher interest rates that have been applicable net fee income growing by 1%. In fact, if you had to unpack that number, the annuity fees had good growth over the period offset by a reduction in performance fees, brokerage fees and transactional fees earned within our Wealth businesses as clients effectively slowed down their activity levels.

The investment and associate income line item dropping by 33%, and if you had to unpack that, a higher level of associate income as our investment in IEP had experienced good realization in the period and lower net investment income, given the market environment that we faced, trading income increasing by 21% or £29 million. That does have a currency impact, which, to some extent, is related with our investment portfolio. And customer flows slightly down in the current period. Our jaws ratio with the higher cost-to-income ratio has tightened slightly over the period with operating income growing by 1.8% and operating costs growing by 3.8% over the period. As Fani has iterated, the group remains committed to revenue growth and cost containment over the next while. Well, in fact, that’s embedded into the business.

From a cost perspective, I think there is two key lines to talk about, which is our premises cost, which is up 31% in the period or up by £18.7 million. We had a combination of asset management moving into new premises, and there’s an element of double rental, a concept that you would’ve heard of last year as we shifted our Specialist Banking business in the UK into new premises. We do anticipate some of those costs reducing in the next financial year. And the other line is business expenses which was up by 8% or £15.2 million in the period and that really represents the change in the regulatory landscape as we implemented it across the businesses. I also draw your attention to the fact that personnel costs was up 2% over the current period. Depreciation as well up by 47%. That really represents a shift from premises cost to – sorry, it actually is the investment in our platforms as well as that includes the additional £6 million of write-off that we had processed on software in the current period.

From an expected credit loss perspective, and if we spoke about this last year, it’s incurred loss, and the new IFRS 9 terminology expected credit loss. The reality is it’s all got to do with impairments at the end of today. Our impairments have dropped from £148.6 million to £66.5 million, and you see the drop-off of the gray bar as the bulk of the legacy book, which closed the year at about £130 million from dropping about £125 million since the end of March last year, the credit loss ratios across the book remaining relatively at our lower end of the cycle at 31 basis points for the overall group. I think it’s worth also noting that our Stage 3 book reduced by 29% over the period, and that is about £520 million reduction. And when I refer to Stage 3, that’s really what we call the default book as you would have understood it in the past call. And that makes up about 1.3% of our overall book.

If you analyze equity, equity has dropped from £4.2 billion at the end of March to $4.1 billion at the end of March ‘19. We had already communicated one element of that drop as we adopted IFRS 9, which reduced equity by £260 million. And the other negative impact in the period would have been the 13% depreciation in the rand. Notwithstanding those movements, we’ve had good retention across the businesses and maintaining a dividend payout ratio of about 44% in this period, our earnings per share of 55.1p against 53.2p last year with a dividend payout ratio of 2.2x and a final dividend, I mean a total dividend of 24.5p for the period.

From a capital perspective, I think we’ve been through these numbers. I’m not going to reiterate any of them. I think capital remains sound across all of the balance sheets and geographies, and we’ve maintained our target ratios. Obviously, with the adoption of FIRB, we will shift those targets ratios, and we’ve indicated that, that will be in the region of 11% going forward. Our solid leverage ratios, across the balance sheet, is well represented. Liquidity levels with cash in year cash at £13.3 billion for the group. And I think that’s the numbers. You obviously have a detailed book.

So I will stop there for now and hand over to Fani again.

Fani Titi

Thanks, Nish. I hope you don’t have to upload again when I get off the stage, because I am going to be back and Nish will be back a little later. I was remiss in not saying that Nish has been appointed as our Finance Director to replace Glynn. This is the first set of results where Glynn is not Finance Director, well done, Nish. What do we have on the screen? Nish, you are going to have next time to help me. Okay, there we go. Okay. Next slide, current slide, you can see why you need a younger Finance Director. He can show us the values a little bit how to use technology.

So we are going to look at specifically at the bank and wealth group. Nish, what’s happened here? Have I clicked too many times, okay and what do I do now? Come help me. Nish may have to stand here and help me out. Okay. Where are we? Please come help me operate this thing. Okay, yes, I have some special notes on this one. So I operate both of them. Where are we? Okay, let’s go back, 23. I want to go back to that slide. Okay, thank you.

We are going to go through both the Asset Management business and to the Wealth business. But a lot of what Nish has discussed in the detail will also relate to the Bank and Wealth business. I’m not going to go over all the detail that you may see on the slides. So I’ll try to go through fairly quickly as we go through the presentation. The bank and wealth business has a balanced mix of income across both geographies business lines and income streams. So operating income was marginally up to £1.9 billion. Operating profit was up 13% to £485 million. Operating profit in South Africa was up 1.8% in rands. That operating environment there was very tough. So the results you see are – I’m really very proud of because it was a tough environment to operate in. In the UK, the business showed an increase in operating profit of 36.1%, so a well-balanced mix of income as I said when I started.

Looking at the wealth and investment business, again, Nishlan has covered most of the key issues here, being that we had an increase in funds under management. We saw an increase in discretionary funds under management and this was partially offset by discontinued non-core, non-managed UK services. The operating profit seems to be down substantially as we explained before at 16.2% down to £82 million. But below those results, the headline results, we saw a pleasing growth in annuity of revenue. And similarly, the performance of the underlying Wealth business was particularly strong, given where the markets have been and the economy is at the moment. I’m not going to go over the two issues that affected that business we have mentioned them, the investment gain in the prior period and the write-down in Click. The operating margin was at 20.6%, reflecting the impact of the losses in Click that we have disclosed in our results.

Moving to the Specialist Bank and we will start off with a Specialist Bank in the UK. Revenue was supported by a client activity with core loans up 8.5% to £10.5 billion as Nishlan indicated. Good growth in the high net worth mortgage book. And for those who doubted our strategy around investing in the UK private bank, that strategy is beginning to pay and you are beginning to see the impact of it. We also have very diversified corporate line book. When we had our CMD presentation in February, David was able to show the distinctive positioning of our corporate bank and the fact that we actually have franchises that have developed over time. So we begin to see a good growth in that diversified corporate loan book. As I said, we have had good client support, both in the private bank and in the corporate bank.

Now turning to operating income, net interest income was up with solid lending activity, endowment impact. As Nishlan explains, we had weaker performance in the investment portfolio. I am not going to go into the cost-to-income ratio. I think Nishlan went into that and gave us practically what the movements were there. Needless to say, yes, he said, we are committed for the bank and wealth business to achieving a cost-to-income ratio by 2022 of below 63%. So if you see where it is now at 70% and in the next 2 to 3 years, we expect that to be at 63%. That will be a consequence of both revenue growth, stopping losses in certain areas like, for instance, as we have talked about the momentum that the private bank is gaining. So we are quite confident that we can get there in the time that we have indicated.

Looking at the specialist bank in South Africa, the only point I will highlight here is that we had good growth in the private bank there. We saw good private client activity and muted growth in our corporate business. If we look at the operating income, again a growth in the private client interest and fee income, we have seen weaker performance, as Nishlan indicated, in our equity and property portfolios. And the cost-to-income ratio in the South African bank is already within the band that we have announced for 2022. The target there is 49% to 52%. So, we are already within that particular target.

Just moving on, this is an interesting slide as we look at the ROE trend within the Bank and Wealth business. Our medium term targets are 12% to 16%. Remember that our current targets with Asset Management in the business are 12% to 16%. So the improvement in performance post de-merger that we expect will be significant because we have very strong franchises and we have specific things that we can do to improve performance. So at March ‘19, our ROE was 10.4%. In February, we announced specific actions that we will take, and largely, the enhancement will come out of revenue growth initiatives that are very targeted. It will come out of discipline around costs. I’ve already indicated some of the ratios that we intend to achieve with respect to cost to income. We will be optimizing capital allocation, and I will give you an example, I think, in the next slide of the impact of capital allocation. And we will be looking to offer our clients across Bank and Wealth and across north and south products and services that the whole group offers so that we can capture a bigger proportion of their wallet. This is what we call One Investec, where we bring all the products and services and the power of the platform to our clients. So in terms of cost to income, I am not going to repeat what we have said already.

If we go into Slide 25, this is really an important slide because it tries to tell you why we believe the targets that we’re looking at are achievable, if you look at the Bank and Wealth cost-to-income ratio of 70% going to 63% and if you look at the ROE of the business going from 10.4% to 12% to 16%. So I’m getting deal specifically with ROE. If we start off on the left, looking at the South African Specialist Bank where the reported performance is 12.8% and I have mentioned that we have a low-performing investment portfolio there, which is returning 8.1%. The client franchises within the Specialist Bank in South Africa are already returning 14.2%. So, the target for the SA Specialist Banking business is an ROE of 14% to 16%. So, as we reshape the investment portfolio by exiting at certain paths that are non-core and as we reduce the overall size of that portfolio and reinvest into the client franchises, we will see the increase in performance in terms of ROE, so we know where the drags are and we are dealing with them.

Look at the UK Specialist Banking business, the overall business returned 8.1% as reported. But if you exclude the investment we have decided to make in the private banking platform, remember, I told you that we have seen significant loan growth and a lot of that came from private banking platform that we have great support from our high net worth individuals, this is the piece that is still making a loss. You can see there, Nishlan indicates a return on equity there of minus 41.8%. We are on track with our strategy ahead in terms of reducing those losses and in terms of – on track in terms of client acquisition. So when we get to breakeven and profitability there, you can see the overall business, except for that platform, is already making 10.5%. Our target for the UK Specialist Bank is 10% to 13%. That’s why we believe that the platform is strong. Performance will be there. We have identified what we need to specifically. And in the long-term, obviously, we have got to grow revenue, we have got to serve our clients and we have got to be competitive within the market.

So if we go to outlook we have very strong and leading market positions in terms of our client franchises and we are really positioned for long-term value creation despite markets being challenging. We look at value creation for our clients. We look at value creation for our staff, we look at value creation for the communities in which we operate and we look for value creation for our shareholders, importantly. So we will also continue to focus on our clients, our people and our distinctive entrepreneurial culture, what makes us different and what makes us special to our clients as we have been because our clients love who we are and what we do and how we do it. So our culture is particularly important as we move forward.

Lastly, to repeat, we are committed to achieving our performance targets in the short to medium term. What are our strategic priorities? And I am not going to go through all this again because we have a very detailed Capital Market presentation, which you can find on our website, and we have very specific actions and activities that we will be engaged in. What I can say is with respect to capital discipline, we are already seeing certain benefits with the in terms of repositioning of in particular, the investment portfolio.

With respect to building momentum in selected growth initiatives, I’ve spoken about the private banking platform in the UK. I can talk about the progress we’re making in Investec for business, which is our mid-market corporate offering in South Africa. I can talk about the progress we’re making in the life business in South Africa, and there are many identified activities that are tangible that we are pursuing. Cost management, we’ve spoken about, and we also have spoken about our commitment to deliver a shared value proposition to our clients across Bank and Wealth as well as across geographies. And consequently, that will enable us to capture more value. And we continue to invest in technology because we do believe that it’ll enhance client experience, it’ll leverage efficiencies and it’ll enhance innovation. So, we think the business is well positioned. We have a clear path forward in terms of delivery to shareholders. Hendrik, over to you. Thank you. I’m going to be coming back. So, no applause, please.

Hendrik du Toit

You articulated the Bank and Wealth very, very clearly and the strategic priorities. Now I hope to do the same for the Asset Management business. Since you’re on overview basis, we’ve been pushing forward is the summary because pretty tough markets in the second half of the year, started with Q3, and then improved conditions towards the end of financial year, which obviously results into a revenue line which was slightly disrupted. But we’re at record levels in assets under management, £111 million, so AUM up 7.3% over the period. We’ve had operating profit growth, again inching forward but at a high historic high and an operating margin in line with reported at half year really challenged to an extent by specific expenditure, such as double premises, MiFID expenditure and of course continued investment because this is a growth business and we’re positioning it for growth. And we had some performance fees which, in comparison with previous years, didn’t come through which may recur or may come through in future, again depending on how we deliver, but essentially, a very healthy and robust platform looking ahead and in growth mindset.

Just to remind you about the business positioning, more than half, almost 60% of in the high 50s of assets, and it changes daily. What we run is invested in emerging markets. We haven’t changed that. I remember a few years ago when emerging markets were down, people said, what’s your change in strategy? Well, there is no change in strategy. Strategy is clear. We are in line with the investable universe of the world, and we’re pursuing that and doing it properly, the, a substantial developed markets investment portfolio and business, which is driven around global investing as opposed to in-country investing, and a strong, well-established client reach in all the major pools of capital. And so, you see this year, the net flows which were which recorded £6.1 billion, which, in industry context, I think, is pretty decent, those net flows came from different parts of the world. And last year, I mean the stars this year were our European and Africa platforms, European including UK. UK did particularly well, and of course the African business did very well. But we have different we can reach different client basis, depending on appetite, and provide them with relevant offering.

So, from an outlook point of view, we think the long-term growth fundamentals of the Asset Management business are a great deal better than the current narrative, simply because of the volume growth in the market and the need for investment return. Of course, there are some headwinds and challenges in a maturing industry, which we need to manage. Our business has positive momentum, and we’re I can still report and I can report, as I’ve done many years in the past, that we have a very motivated and stable staff complement, well-supported by a strong and established culture, which can carry us through tough times.

Concluding with strategic priorities, I am and I have specifically mentioned priorities in the context of the articulation of the broad, long-term priorities at the pre-results update, and I remind you of those. Our long-term priorities are to concentrate our efforts on our existing offering. No change, no M&A, none of those things. Deepen and strengthen investment and client capabilities for the long term, that’s what we do as a business every day. Scale our offering through our global distribution model, very, very simple. We’ve got an offering we’ve got £111 billion. We can run significantly more of our platforms and we will ensure that our offerings are client-relevant and therefore can grow over time with our clients. And this business is positioned for growth.

In the context of that, what are we focusing on? We’re focusing on growing our adviser business. Why adviser business? This is professionally intermediated adviser business through bank and insurance platforms as well as in our core regions, financial and independent financial advisers. Because discretionary savings pools are growing, because of the move from DB to DC in the pension game, people have to provide for their own retirement and of course wealth businesses are growing clients of ours. Continue to invest in our investment platform, particularly multi-asset, which is an opportunity for this discretionary savings pool, and of course China. Asia is really important in all our lives. We know Asia will dominate the economic center of gravities, moving by the day to the East. We know the large the China opportunity. Initially, it’s an investment opportunity. Later, it is a money-raising opportunity. But a significant new universe will be coming into the index. It’s edging into the indices we are measured against. And if China is fully into the emerging market index, we will completely dominate it. And you have to be prepared and we have relevant and good investment product we are building and growing by the day and that is a longer term thing. Of course, the North America institutional business is the opportunity for the next few years. We’ve invested significantly in that capacity in terms of reaching that market, and we hope to that, that bears fruit over the next few years.

We also know business and the Investec group is ready for it. But particularly, the Asset Management business can avoid or should not embrace the trend toward sustainability. Also, as for investment opportunities, more and more capital wants, to be allocated to this huge opportunity, growth opportunity in the world, transitioning the world to a clean and green economy, but also because our clients require it because our clients care about their children and the future. So that’s an important trend we’ll talk about. It’s not a near-term commercial opportunity, but it’s very relevant in our strategic thinking. And finally, we need to achieve a successful de-merger and listing of Investec Asset Management. And as Fani said, we’re on track to doing that. But noting and again coming back to what Fani presented, everything we do is for the long term and in the interest of our clients. We’re not running these businesses for annual earnings or 6 monthly earnings. What we’ve done over the last few months and the last year since we’ve taken leadership of this group is to think really long term, and we are confident that, that will pay off in future. And that’s really what we’re about.

So now, I’d like to close. Thank you very much for listening to us as I also get a hand. Thank you, Fani. We are here to take questions. Shall we start, as usual, with Johannesburg, Fani? Is that alright with you or you want to say something else.

Fani Titi

No, no, no, let’s start with Johannesburg, yes?

Hendrik du Toit

Okay, because they are normally...

Richard Wainwright

Good morning, gentlemen.

Fani Titi

They have been listening for a long time.

Richard Wainwright

Can you hear us?

Hendrik du Toit

Yes. Richard, are you talking? Now I see. Okay, there you are. You are there. You are looking neat.

Richard Wainwright

Are there any questions from Johannesburg? Sure. It’s very quiet here, Fani.

Hendrik du Toit

Unbelievable. Ruby is...

Fani Titi

I think everybody’s...

Hendrik du Toit

And the numbers right.

Richard Wainwright

I see them in the audience.

Fani Titi

Okay. Rich, I think let’s pivot to London. We will give you another chance. Any questions from the floor here in London? Hendrik, what did we do? No questions.

Hendrik du Toit

Well, Fani, I don’t think I want to ask you a question. Steven, you must ask us questions?

Steve Elliott

I can’t ask you a question.

Hendrik du Toit


Fani Titi

No, No, no. Ian?

Question-and-Answer Session

A - Hendrik du Toit

This is our Founder, Ian Kantor. Ian is not allowed to ask question.

Fani Titi

He is not allowed to ask a few questions. Sorry, Ian.

Hendrik du Toit

But you can go for it, Ian. Go for it, Ian. There’s a use the mic.

Ian Kantor

Sorry. I mean the talk is good on sustainability. What does that mean to me in practice?

Hendrik du Toit

It means that firstly, you must get your firstly, the organization as a whole should take notice of what society expects, and that means the way we engage. We have the way we live, the way we operate this business, the way we measure ourselves. And hopefully, you’ll see over the next few years, in both businesses, much improved disclosure and reporting to our stakeholders. But that’s not the only thing. There are opportunities because if you know the commission that, amongst others, I served on and was led by Paul Polman, identified a $12 trillion new economy. That’s the size of China. That’s the transition toward sustainability. And we in the Asset Management business, in particular Bank has already been involved in clean energy for years. But in the Asset Management business, we’re starting to launch specific investment offerings to people who want to participate in that growth opportunity. And in fact, we launched 2 very specific funds earlier this year, and I think that is an opportunity. But I was very clear to say this is not only because you can raise a few more dollars to manage. This is because your communities expect and there’s an inherent liability if you don’t think very deeply on these issues. And that means engaging with not only the – our clients, but also the companies we invest in, in a proper way and understanding what they do and fulfilling our stewardship role. And similarly, as a lender, we have to be we have to think about these issues. So, this is big story. It’s not an earnings driver for the next year. That right, Fani?

Fani Titi

Yes, absolutely. Any further questions? I took the mic away from Ian. Thanks, Ian. I think let’s go back to Johannesburg in case there is a question from there. Any question from Johannesburg, Rich?

Richard Wainwright

Let’s see now. Anyone brave enough?

Fani Titi

Still none.

Richard Wainwright

Yes, yes, yes. We have someone.

Fani Titi

There is, okay. Almost [indiscernible].

Richard Wainwright

Hold on one second for me.

Bankole Ubogu

It’s Bankole Ubogu from Bank of America/Merrill Lynch. Just two questions from me. If we look at the performance of your investment income that was down call it, 50%. Were there any specific counters there that we should look out for? That’s the first. And then the second question would be, if you’re looking to potentially reduce your investment portfolio over the next 3 years, are there going to be any potentials for accelerated write-offs kind of before you get that off your books or it is your size to a more sustainable level?

Fani Titi

Okay. Let me start with the second question. We’ve been very clear that we will reduce the portfolio in a responsible manner. We are in the business of creating value and not destroying value. That’s why we’ve given ourselves about 3 years or so to reshape that particular portfolio. We have identified a number of specific areas where we need to take action, and work is on the go there. So, we’re not going to try to exit stupidly. And exits are also dependent on markets. In the current environment and market, it’ll be very difficult to accelerate exits. But we are exiting for value, not the other one. This first question which is where there specific write-offs? Of course, in a portfolio, you will have both gains and losses. In particular, in an equity portfolio, there is a level of volatility. One of the reasons we have decided to pivot slightly away from proprietary investment is that over the life of our investing in this area, we’ve done very well but there are times when you get significant realizations, and there are times when you can get some knocks. That volatility, we do not like as a principle. Second, we want to invest behind our clients so that we can support our clients as they grow. And thirdly, we want to be granular as opposed to taking big strategic positions. So yes, there were certain specific write-offs as there were realizations. I think you talked, Nishlan, about a realization in IEP, which was particularly significant. So yes, there has been some specific ones. But that is the nature of the portfolio of that nature.

Richard Wainwright

Any further questions? I think we are all good here. Fani?

Fani Titi

Thanks, Rich. Any last questions from London before we close? Okay, thank you. I think what I would like to do is just say a few words to thanks, in particular, Jane, who has run Click&Invest and built a platform over the last for years, a platform that works. As I said, the market position for Click is not the opportunity rather is not where we had hoped it would be. We have a number of our colleagues who have been very good and loyal to Investec, and we’ve had to take a tough decision. Jane and the team have been absolutely professional, and we would like to recognize you. As we go through this process, we obviously will treat our partners and colleagues with dignity and fairness, and we will go through that process carefully. So, thank you, Jane.

And generally, to the people of Investec, it’s been tough, the last 12 months or so, there’s been the de-merger that we are in the process of executing, thank you for concentrating on our clients over this period. It would be very easy for us to look internally, concentrate on our own issues and neglect our clients. Thank you for being long term in your view. Thank you for carrying as you do, for our clients, these results I’m very proud of and I’m sure Hendrik is very proud of, given how tough the environment has been, have been. But going forward, we obviously have to continue to do what we have done: look after our clients, care for each other, care for our societies and environment and produce returns in the long term for our shareholders. So, thank you so much for the work that you have done. Hendrik, do you want to say anything?

Hendrik du Toit

Fani, I just want to go to the final point. I think it is important that you take note of the fact that we have now shaped 2 independent businesses ready for long-term growth and value creation, and we’ve done that in a period while we kept our eye on the ball. When next we stand here, we’ll probably have different presentations. But you will be the owners of 2 businesses which are more, simple, highly focused and ready to grow. So, thank you very much for your support.

Fani Titi

Thank you.

Richard Wainwright

So, ladies and gentlemen that concludes the presentation. Please join myself and some of our colleagues. I see Henry Blumenthal has arrived. He runs our Wealth & Investment business here in South Africa. So please join us for some tea and coffee and something to eat. Thanks very much for coming.