Half-year Report

Unaudited condensed Financial Statements for the six months ended 30 September 2022

Investec Bank plc

(Incorporated in England and Wales)

(Company Registration Number: 489604)

Interim Management Report

This Interim Management Report is issued by Investec Bank plc, a subsidiary of the listed entity Investec plc, in accordance with the UK Listing Authority's Disclosure and Transparency Rules and has been prepared in accordance with IAS 34 "Interim Financial Reporting". Unless stated otherwise, comparatives relate to the six month period ended 30 September 2021 (1H2022). Further information is contained in the Investec Bank plc unaudited consolidated interim financial report for the six months ended 30 September 2022 (1H2023). Adjusted operating profit refers to operating profit before amortisation of acquired intangibles, strategic actions and taxation and after non-controlling interests.

Performance overview

The business delivered a solid set of results, with adjusted operating profit up 36.2% against the prior period. Pre-provision adjusted operating profit increased, supported by continued client acquisition resulting in higher average advances, rising interest rates and increased client activity. Fee income in our Wealth & Investment business was negatively impacted by the effects of the market sell off on average funds under management (FUM).

Fixed operating expenditure reflects inflationary pressures and continued investment in technology and people, while variable remuneration increased given improved business performance.

Impairments were driven predominantly by updated forward looking macro-economic scenarios since 31 March 2022.

Investec Bank plc (the bank) reported adjusted operating profit of GBP174.9 million for the six months ended 30 September 2022 (1H2022: GBP128.5 million).

The balance sheet remains strong, supported by sound capital and liquidity ratios.

Key features of the period under review:

• Net core loans increased 6.4% to GBP15.3 billion (31 March 2022: GBP14.4 billion)
• Third party funds under management (FUM) amounted to GBP40.5 billion (31 March 2022: GBP44.4 billion)
• Customer accounts (deposits) increased 2.2% to GBP19.0 billion (31 March 2022: GBP18.6 billion)
• Cash and near cash balances decreased 4.6% to GBP8.5 billion (31 March 2022: GBP8.9 billion)
• Capital ratios* remained sound with the bank reporting a total capital ratio of 17.4% (31 March 2022: 18.2%), a common equity tier 1 ratio of 11.6% (31 March 2022: 12.0%) and a leverage ratio of 8.4% (31 March 2022: 9.3%)
• The annualised credit loss ratio on average gross core loans subject to expected credit losses was 32bps (31 March 2022: 17bps; 1H2022: 10bps).

     *Including the deduction of foreseeable charges and dividends as required under the Capital Requirements Regulation.

Business unit review

Wealth & Investment 

Adjusted operating profit decreased 6.2% to GBP39.5 million (1H2022: GBP42.2 million), reflecting the volatile and uncertain operating environment.

FUM decreased by 8.9% to £40.5 billion impacted by the decline in market levels since 31 March 2022 (31 March 2022: £44.4 billion). Net inflows for 1H2023 were £443 million. The elevated market volatility resulted in subdued client activity and delays in investment decisions, negatively impacting both inflows and commission-based fee income. Revenue was flat, positively impacted by net organic flows in the current period and prior year and base rate increases which were offset by lower fee income due to lower average FUM given the market sell off. Commission based income was also negatively impacted by the market conditions.

Operating costs were up 3.1% due to investment in technology, post-pandemic normalisation in discretionary expenditure and inflationary pressures.

The business reported an operating margin of 22.6% (1H2022: 24.3%).

Specialist Banking

Adjusted operating profit increased by 56.9% to GBP135.4 million (1H2022: GBP86.3 million).

Continued client acquisition supported the annualised loan book growth of 12.8% since 31 March 2022. Operating income growth was underpinned by higher average book, higher fees, rising interest rates and sustained client activity.

Net interest income increased 39.2% driven by higher average interest earning assets, with average lending books up 15.5% relative to 1H2022, and the positive effect of rising global interest rates.

Non-interest revenue increased 21.7% due to:

• Higher fees from increased activity levels in the private equity and power and infrastructure client franchises
• Investment income driven by dividend income and realised gains on disposal of investments.
• Increase in trading income from customer flows supported by higher hedging demand from clients given market volatility
• Trading income from balance sheet management and other trading activities growth was supported by the non-repeat of costs associated with the early redemption of a senior bond in the prior period
  -     offset by:
• Lower fees and trading income from equity capital markets activities given the volatile and uncertain environment

ECL impairment charges totalled £27.9 million, resulting in a credit loss ratio of 32bps (1H2022: 10bps). The increase in ECL charges was driven by the deterioration in forward-looking macro-economic assumptions, updated scenario weightings in ECL models and Stage 3 ECL charges, albeit still below historical experience. This follows limited impairment charges in the prior period given the significant government support available to UK households and companies during the pandemic. The management overlay of £16.8 million was retained to account for the uncertainty that remains in the macro-economic environment, in particular, the ongoing UK political environment and associated market volatility.

The cost to income ratio improved to 63.2% (1H2022: 72.4%). Operating costs increased by 17.1% period-on-period primarily driven by an increase in variable remuneration in line with business performance, inflationary pressures and investment in people and technology.

Net core loans grew by 12.8% annualised to £15.3 billion (31 March 2022: £14.4 billion) driven by residential mortgages and strong demand for corporate credit across multiple portfolios. A portion of the loan growth was the translation effects from the weakening of the Pound Sterling against the US Dollar and Euro during the period.

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

Operational review

Funding and liquidity

As at 30 September 2022, Investec Bank plc had GBP8.5 billion in cash and near cash balances (31 March 2022: GBP8.9 billion), representing 44.5% of customer deposits. The bank continues to maintain a conservative liquidity and funding profile. Loans and advances to customers as a percentage of customer deposits amounted to 80.7% (31 March 2022: 77.5%). The bank comfortably exceeds Basel liquidity requirements for the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR). At 30 September 2022 IBP (solo basis) LCR was 360% and the NSFR was 129%.

Capital adequacy*

Capital remained comfortably in excess of regulatory requirements and the bank continued to meet the Investec group's internal board-approved capital targets. As at 30 September 2022, the common equity tier 1 ratio of the bank was 11.6%, the total capital ratio was 17.4% and the current leverage ratio was 8.4%.

*Including the deduction of foreseeable dividends as required under the Capital Requirements Regulation.

Credit quality and counterparty exposures

The bank lends mainly to high net worth and high income individuals, mid to large sized corporates, public sector bodies and institutions. The majority of the bank's credit and counterparty exposures reside within its principal operating geography, namely the UK.

Expected credit loss (ECL) impairment charges amounted to GBP27.9 million (1H2022: GBP5.0 million). The bank's annualised credit loss ratio for the period was 32bps (31 March 2022: 17bps; 1H2022: 10bps). Since 31 March 2022, gross core loan Stage 3 assets amounted to GBP304 million (31 March 2022: GBP 291 million). Stage 3 assets (net of ECL) as a percentage of net core loans subject to ECL was 1.6% (31 March 2022: 1.6%).

Taxation

The tax charge on adjusted operating profit was GBP40.7 million (1H2022: GBP16.3 million), resulting in an effective tax rate of 23.4% (1H2022: 12.7%).

Outlook

We continue to successfully navigate the uncertain macro backdrop that has persisted since the onset of the pandemic and have made significant progress against the strategic goals outlined at the Investec Group's 2019 Capital Markets Day. We have strong capital and robust liquidity levels, are firmly committed to our medium-term targets and well positioned to pursue identified growth initiatives in our chosen markets.

On behalf of the board of Investec Bank plc

Ruth Leas

Chief Executive Officer

Note to the commentary section

This interim management report includes an unaudited consolidated condensed set of financial statements produced by the bank for the six months ended 30 September 2022, which can be accessed via the following link http://www.rns-pdf.londonstockexchange.com/rns/1200I_1-2022-11-30.pdf. This document is also available on Investec's website at https://www.investec.com/content/dam/investor-relations/financial-information/interim-results/2022/Investec-Bank-plc-website-booklet-Sep-2022.pdf, and via the National Document Storage Mechanism at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism

These unaudited consolidated financial results have been prepared in terms of the recognition and measurement criteria of International Financial Reporting Standards, and the presentation and disclosure requirements of IAS 34, (Interim Financial Reporting).

The accounting policies applied in the preparation of the results for the period to 30 September 2022 are consistent with those adopted in the financial statements for the year ended 31 March 2022. 

Contingent liabilities

The group assessed its exposure to legal proceedings and the appropriateness of related provisions recognised on the balance sheet as at 30 September 2022. It was concluded that the provisions held as at 30 September 2022 reflect our best estimate of the potential financial outflows that may arise. Refer to page 23 of the Investec Bank plc unaudited condensed financial information for the six months ended 30 September 2022 for further detail.

Enquires and further information:

Investor Relations
Investec Bank plc
Telephone: 020 7597 5546 / 020 7597 3593
30 Gresham Street, London, EC2V 7QP
United Kingdom           

INVESTEC BANK PLC

DIRECTORS' RESPONSIBILITY STATEMENT

The directors (the names of whom are set out below) are required to prepare the financial statements on a going concern basis unless it is not appropriate to do so. In making this assessment, the directors have considered information relating to present and future conditions. Each of the directors (the names of whom are set out below) confirm that to the best of their knowledge these condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard (IAS) 34 "Interim Financial Reporting", as adopted by the UK, and that the interim management report herein includes a fair review of the information required by the Financial Conduct Authority's (FCA's) Disclosure Guidance and Transparency Rule (DTR) 4.7.2R and DTR 4.2.8R, namely:

• An indication of important events that have occurred during the six months ended 30 September 2022 and their impact on the condensed consolidated interim financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and
• Material related party transactions in the six months ended 30 September 2022 and any material changes in the related party transactions described in the last annual report

Signed on behalf of the board

Ruth Leas
Chief Executive Officer
30 November 2022

Investec Bank plc board of directors:

Executive directors
Ruth Leas (Chief Executive Officer)
Kevin McKenna (Chief Risk Officer)
Marlé van der Walt (Finance Director)
Fani Titi

Non-executive directors
Brian Stevenson (Chair)
Moni Mannings (Senior Independent Director)
Henrietta Baldock
Zarina Bassa
David Germain
Paul Seward
Lesley Watkins

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