Investec targets underperformers as earnings fall
Joint CEO Titi targets more cost-savings with the closure of smaller businesses to stem decline
Investec co-CEO Fani Titi announced the closure of several smaller businesses at the group’s interim results presentation on Thursday as the specialist banking group and asset manager saw earnings decline for the six months ended September.
“One of the key things we have done is to look at subscale businesses, and to either sell, close or restructure those, that is the first big thing we are doing,” says Titi in reference to smaller businesses in the portfolio that are finding it challenging to compete and generate adequate returns on investment.
This led to the decision to close UK-based Click & Invest and the direct investments business in Hong Kong. It will also sell its Irish Wealth & Investment business.
Titi also expects the size of Investec’s local direct investments portfolio to shrink to R15bn over the medium term as it disposes of assets, a move which should release capital held as reserves for regulatory purposes on its balance sheet.
The group struggled to generate momentum in its two core operating geographies, the UK and SA, which are both plagued by weak economic growth and depressed business confidence.
Investec’s headline earnings per share for the six months ending September fell 17% to 22.7p per share (about R4.31) while the dividend remained unchanged at 11p per share. While return on equity fell to 13.1% from 14.2%, it remained within the target band of the group.
The same could not be said for costs, which are proving tougher to contain in the weak economic environment, with the group’s cost-to-income ratio at 67.3% above the target of 65%.
Titi has identified cost savings of a further £17.5m with which to improve efficiency.
Titi says the specialist bank and wealth and investment divisions, which he oversees and which will remain under the Investec banner post the demerger with Investec Asset Management, continues to invest in initiatives to unlock growth, notably in a transactional banking platform in the UK that offers mortgages.
“The business is still losing money, but we are gaining traction both in terms of client acquisition and the mortgage book,” says Titi.
The demerger of Investec Asset Management is on track and the publication of a circular on the details of the transaction including the company’s forthcoming listing on the London Stock Exchange is imminent, said Investec co-CEO Hendrik du Toit. The company is to be renamed Ninety One.
The division saw assets under management increase 8.4% to £120.8bn during the period while operating profit grew 6.3% to £97.3m.
While the demerger still requires shareholder approval, Du Toit said the division has undertaken a “socialisation” exercise to familiarise its mostly institutional and intermediary clients with the brand transition.
The division has also concluded a proper transition agreement with Investec, which describes how the demerger process will unfold.
“We have a proper transition agreement in place, we have done our Brexit in a very clear and quick way,” says Du Toit.