Integrated Annual Report 2015
VOLUME 1

Integrated Annual Report
2015

VOLUME 1

Investec strategic report incorporating governance, sustainability and the remuneration report

Zebra

Highlights

Delivering on our strategic objectives – continued to grow core franchises and simplified the Specialist Banking business through restructuring and sales

Statutory financial performance

We continued to actively manage down the UK legacy portfolio…

  • The legacy portfolio reduced from £3.4 billion at 31 March 2014 to £0.7 billion largely through strategic sales, redemptions, write-offs and transfers to the ongoing book on the back of improved performance in these loans
  • The legacy business reported a loss before taxation of £107.7 million (2014: £69.1 million) as the group accelerated the clearance of the portfolio, which resulted in an increase in impairments on these assets
  • The group posted a non-operating net loss after tax of £113.7 million on the sale of businesses.





* Before goodwill, acquired intangibles, non-operating items, taxation and after other non-controlling interests.
^ Before goodwill, acquired intangibles, non-operating items and after non-controlling interests and deduction of preference dividends.

 

Solid performance from the ongoing business

We have a diversified business model…

We continued to grow our key earnings drivers…

Funds under management up 13.7% to £124.1 billion
   

Customer accounts up 7.3% to £22.6 billion

Core loans and advances up 15.4% to £16.5 billion
   

* Before goodwill, acquired intangibles, non-operating items, taxation and after other non-controlling interests.
** Trends in these graphs are done on a currency neutral basis using the Rand: Pounds Sterling exchange rate applicable at 31 March 2015.

Supporting growth in operating income…

^ Where annuity income is net interest income and annuity fees.

Impairments continue downward trend…


Fixed costs marginally up…

Asset Management

  • Headcount increased: 93 people to support growth
  • Investment in distribution platforms
  • Operating margin: 34.2% (2014: 34.7%)

Wealth & Investment

  • Headcount increased: 161 people
  • Investment in IT, online infrastructure and experienced portfolio managers
  • Operating margin: 25.2% (2014: 22.9%)

Specialist Banking

  • Headcount down: 152 people
  • Cost to income ratio ongoing business: 60.9% (2014: 62.4%)
^ Where annuity income is net interest income and annuity fees.
   

* Permanent headcount and includes acquisitions.
** Trends in these graphs are done on a currency neutral basis using the Rand: Pounds Sterling exchange rate applicable at 31 March 2015.

Resulting in increased operating profit* from all three of our businesses…

Progress made on our financial targets...

    Ongoing Statutory
   Target March 2015  March 2014  March 2015  March 2014 
ROE (post tax)  12% – 16% over a rolling five-year period 13.8%  13.1%  10.6%  10.0% 
Adjusted* EPS growth  Target: 10% > UKPRI 10.2%  n/a  4.0%  5.0% 
Cost to income  Target: < 65% 66.5%  67.5%  67.6%  67.6% 
Dividend cover (times)  Target: 1.7x – 3.0x n/a  n/a  2.0x  2.0x 
* Before goodwill, acquired intangibles, non-operating items, taxation, group costs and after other non-controlling interests.
** Trends in these graphs are done on a currency neutral basis using the Rand: Pounds Sterling exchange rate applicable at 31 March 2015.

Maintained a sound balance sheet…

Target Total capital adequacy: 14.0% – 17.0%
Common equity tier 1 ratio: > 10.0% by March 2016
Total tier 1 ratio: > 11.0% by March 2016
Leverage ratio: > 6.0%
   
Note: Refer here for detailed definitions and explanations.

Sound capital and liquidity principles maintained

Continue to focus on:

  • Maintaining a high level of readily available, high-quality liquid assets targeting a minimum cash to customer deposit ratio of 25.0%
  • Diversifying funding sources
  • Maintaining an appropriate mix of term funding
  • Limiting concentration risk.

The intimate involvement of senior management ensures stringent management of risk and liquidity.

A well-established liquidity management philosophy remains in place.

The group's loan to deposit ratios are as follows:

  • Investec Limited: 78.6% (2014: 72.9%)
  • Investec plc: 68.5% (2014: 71.0%)

Liquidity remains strong with cash and near cash balances amounting to £10.0 billion (2014: £9.1 billion).

Capital remained well in excess of current regulatory requirements.

Our banking subsidiaries meet current internal targets.

Investec Limited should achieve a common equity tier 1 ratio above 10% by March 2016, and Investec plc already achieves this target.

We are comfortable with our common equity tier 1 ratio target at a 10% level, as our leverage ratios for both Investec Limited and Investec plc are well above 7%.

The value we've added

Contributing to society, macro-economic stability and the environment

For further information download the sustainability report available on our website.

For Investec, sustainability is about building our businesses to ensure we have a positive impact on the economic and social progress of communities and on the environment, while growing and preserving clients and stakeholders' wealth based on strong relationships of trust. This commitment to sustainability means integrating social, ethical and environmental considerations into our day-to-day operations. A key element of this is solid corporate governance that ensures sustainable management with a long-term vision.


Value added statement

   
£’000  31 March 
  2015 
31 March 
  2014*
Net income generated    
Interest receivable 1 790 867  1 905 383 
Other income 1 292 617  1 267 405 
Interest payable (1 155 890) (1 253 704)
Other operating expenditure and impairments on loans (422 829) (476 905)
  1 504 765  1 442 179 
     
Distributed as follows:    
Employees 614 363  637 399 
Salaries, wages and other benefits    
Government 488 189  409 295 
Corporation, deferred payroll and other taxes    
Shareholders 204 913  183 865 
Dividends paid to ordinary shareholders 168 486  150 053 
Dividends paid to preference shareholders 36 427  33 812 
Retention for future expansion and growth 197 301  211 620 
Depreciation 26 264  34 750 
Retained income for the year 171 037  176 870 
     
  1 504 765  1 442 179 
* Restated.

Recognition

Recognition

  • Promaths received the Mail & Guardian's 2014 Investing in the Future Award
  • Investec won the Business Charity Award for Community Impact in the UK for our partnership with the Bromley by Bow Beyond Business incubator
  • Investec has been voted one of the most attractive employers in South Africa through the Universum survey. Investec won Best Bank by both professionals and graduates
  • Investec Gresham Street was a runner‑up in the 2014 Clean City Awards Scheme
  • The Gresham Street office was awarded ISO 14001 certification and the Energy Reduction Verification (ERV) Kitemark
  • Investec South Africa completed its BEE verification and achieved a level 2 rating.

 

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