Unaudited condensed Financial Statements for the six months ended 30 September 2023

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 (the Bank), 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 2022 (1H2023). Further information is contained in the Investec Bank plc unaudited consolidated interim financial report for the six months ended 30 September 2023 (1H2024). Adjusted operating profit refers to operating profit before amortisation of acquired intangibles, strategic actions and taxation and after non-controlling interests.

Basis of presentation

The comparability of the Bank's total period on period performance is affected by the financial effects of the combination of Investec Wealth & Investment UK (IW&I UK) with the Rathbones Group. IW&I UK is reflected as a discontinued operation in line with applicable accounting principles, notwithstanding the strategic shareholding in Rathbones which will be equity accounted for as an associate going forward.

Performance overview

The business delivered a strong set of results, with total Bank adjusted operating profit up 56.1% against the prior period. Pre-provision adjusted operating profit increased due to continued client acquisition resulting in higher average advances, rising interest rates and increased client activity. Fee income growth benefitted from increased advisory and lending activity.

The cost to income ratio improved to 54.0% (1H2023: 63.8%) as revenue grew well ahead of costs. Total operating costs grew by 8.4% period-on-period primarily driven by an increase in variable remuneration in line with business performance. Fixed operating costs growth was well contained at 0.5%, notwithstanding the inflationary pressures and continued investment in people and technology.

Expected credit loss (ECL) impairment charges totalled £39.3 million, resulting in an annualised credit loss ratio of 55bps (1H2023: 32bps) above the through-the-cycle (TTC) range of 30bps to 40bps. Impairments were driven predominantly by Stage 3 ECL charges on certain exposures. We have seen idiosyncratic client stresses with no evidence of trend deterioration in the overall credit quality of our books.

The Bank reported adjusted operating profit of £273.0 million for the six months ended 30 September 2023 (1H2023: £174.9 million).

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

Key features of the period under review:

·      Net core loans increased by 9.1% annualised to £16.3 billion (31 March 2023: £15.6 billion)

·      Rathbones Group Plc, of which Investec owns a 41.25% economic interest, had Funds under management and Administration (FUMA) of £100.7bn on 30 September 2023

·      Customer accounts (deposits) increased 3.9% to £20.0 billion (31 March 2023: £19.3 billion)

·      Cash and near cash balances increased 1.8% to £8.7 billion (31 March 2023: £8.6 billion)

·      Capital ratios* remained sound with the Bank reporting a total capital ratio of 18.0% (31 March 2023: 18.5%), a common equity tier 1 ratio of 12.6% (31 March 2023: 12.7%) and a leverage ratio of 9.3% (31 March 2023: 9.8%)

·      The annualised credit loss ratio on average gross core loans subject to ECL was 55bps (31 March 2023: 37bps; 1H2023: 32bps).

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

Business unit review

Specialist Banking

Adjusted operating profit increased by 65.0% to £223.4 million (1H2023: £135.4 million) driven by strong revenue growth across our key client franchises as we continued to successfully execute our client acquisition strategies to build scale and relevance in the UK market.

Continued client acquisition supported the annualised loan book growth of 9.1% since 31 March 2023.

Operating income growth was underpinned by higher average book, rising interest rates and sustained client activity.

Net interest income increased by 25.7% benefitting from a larger book built over the past four years as we focused our client franchises to provide optimal client solutions and the successful execution of a targeted high net worth private client strategy. Higher global interest rates also supported the net interest income growth.

Non-interest revenue increased 33.5% due to:

·      Higher arrangement fees from transactions in Power and Infrastructure Finance, Aviation and Real Estate. Listed companies' advisory fees increased relative to prior period. Activity levels in equity capital markets remain muted given the challenging macroeconomic environment

·      Trading income from customer flow increased by 61.9% over the period driven by increased facilitation of hedging for clients by our Treasury Risk Solutions area, increased client flow trading income in our ECM activities, as well as positive risk management gains from hedging the reduced financial products run down book

·      Trading income from balance sheet management and other trading activities increased significantly as a result of unwinding certain interest rate swap hedges as part of the implementation of the structural interest rate hedging programme

-     Partly offset by:

·      Lower investment income due to fair value adjustments on investments and lower dividend income.

ECL impairment charges totalled £39.3 million, resulting in an annualised credit loss ratio of 55bps (1H2023: 32bps) above TTC range of 30bps to 40bps. The increase in ECL charges was largely driven by Stage 3 ECL charges on certain exposures. We have seen idiosyncratic client stresses with no evidence of trend deterioration in the overall credit quality of our books. The updated forward-looking macroeconomic scenario weightings resulted in an in-model release of £3.6million of ECL charges.

The cost to income ratio improved to 53.6% (1H2023: 63.2%). Operating costs increased by 8.4% period-on-period primarily driven by an increase in variable remuneration in line with business performance. Fixed operating costs growth was well contained at 0.4%, well below the UK inflation rate and in line with Bank's focus on cost efficiency.

Net core loans grew by 9.1% annualised to £16.3 billion since 31 March 2023 driven by continued client growth, strong demand for Corporate credit across multiple portfolios. The residential mortgage lending book reported muted growth of 1.6% annualised as interest rate rises adversely affected demand for mortgages in the market and resulted in increased redemptions.

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.

Wealth & Investment UK - presented as discontinued operations

The all-share combination of IW&I UK and Rathbones Group Plc was successfully completed in the period under review to create the UK's leading discretionary wealth manager with c.£100bn in Funds under management and administration (FUMA).

The IW&I UK business generated adjusted operating profit of £47.8million, 18.3% above the prior period in an uncertain economic and operating environment.

Operating income was driven by higher net interest income from rising global interest rates. Net fee and commission income decreased by £0.1 million (0.1%) notwithstanding the lower average market levels at the key quarterly billing dates in the period under review (MSCI PIMFA Balanced Index down 2.4% from prior period).

Operating costs were well contained, despite the inflationary backdrop, demonstrating a continued cost discipline. Overall costs increased by 1.4%, largely driven by non-recurring costs related to the business combination with Rathbones and the integration of the Murray Asset Management (MAM) business acquired in the prior period. Excluding these non-recurring costs, operating costs decreased by 0.7% reflecting lower FSCS costs in the current period which were partly offset by inflationary cost increases.

Operational review

Funding and liquidity

As at 30 September 2023, the Bank had £8.7 billion in cash and near cash balances (31 March 2023: £8.6 billion), representing 43.5% 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 81.4% (31 March 2023: 80.9%). The Bank comfortably exceeds Basel liquidity requirements for the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR). As at 30 September 2023 IBP (solo basis) LCR was 407% and the NSFR was 141%.

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 2023, the Common Equity Tier 1 ratio of the Bank was 12.6%, the total capital ratio was 18.0% and the leverage ratio was 9.3%.

*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.

ECL Impairment charges amounted to £39.3 million (1H2023: £27.9 million). The bank's annualised credit loss ratio for the period was 55bps (31 March 2023: 37bps; 1H2023: 32bps). Stage 3 exposures total £445 million at 30 September 2023 (31 March 2023:  £343 million). Stage 3 assets (net of ECL) as a percentage of net core loans subject to ECL was 2.2% (31 March 2023: 1.8%).

Taxation

The tax charge on adjusted operating profit from continuing operations was £51.9 million (1H2023: £32.8 million), resulting in an effective tax rate of 22.8% (1H2023: 24.6%).

Outlook

We are well positioned to continue supporting our clients, notwithstanding the uncertain macroeconomic outlook. The completion of the all-share combination of IW&I UK with Rathbones has created a scalable platform that will power future growth for the Group in the attractive UK wealth segment. We have strong capital and robust liquidity levels, are firmly committed to our medium-term targets and are 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

Date: 30 November 2023

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 2023, which can be accessed via the following link http://www.rns-pdf.londonstockexchange.com/rns/2813V_1-2023-11-30.pdf. This document is also available on Investec's website at https://www.investec.com/content/dam/investor-relations/financial-information/interim-results/2023/Investec-Bank-plc-Web-Booklet-Sep-2023.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 2023 are consistent with those adopted in the financial statements for the year ended 31 March 2023. 

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 2023. It was concluded that the provisions held as at 30 September 2023 reflect our best estimate of the potential financial outflows that may arise. Refer to page 26 of the Investec Bank plc unaudited condensed financial information for the six months ended 30 September 2023 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           

Date: 30 November 2023