Annual Report 2 Investec Strategic Report
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A R | 2 0 1 7 V.1 Investec strategic report incorporating governance, sustainability and the renumeration Annual Report 2 Investec strategic report 01 incorporating governance, corporate responsibility and the remuneration report 7 Volume 1 Specialist Banking Asset Management Wealth & Investment he 2017 integrated T annual report covers the period 1 April 2016 to 31 March 2017 and provides an overview of the Investec group. This report covers all our operations across the various geographies in which we operate and has been structured to provide stakeholders with relevant financial and non-financial information 1 2 3 Volume 1 Volume 2 Volume 3 STRATEGIC REPORT RISK AND BASEL PILLAR III ANNUAL FINANCIAL INCORPORATING GOVERNANCE, DISCLOSURES STATEMENTS CORPORATE RESPONSIBILITY AND REMUNERATION REPORT Investec integrated annual report 2017 1 Ongoing and statutory information Statutory information In order to present a more meaningful • The results of the businesses sold in the view of our performance, the results are 2015 financial year, i.e. Investec Bank is set out in volume presented on an ongoing basis. This (Australia) Limited, the UK Kensington three. The sale of information is only set out in volume one of business and the Start (Irish) mortgage our integrated annual report. The additional business; and businesses during the information presented on an ongoing basis • The remaining legacy business in the UK excludes items that, in management’s 2015 financial year (as set out on page 83). view, could distort the comparison of (as explained on page 26) performance between periods (for both This basis of presentation is consistent with had a significant effect on current and historical information). Based the approach adopted for the year ended on this principle, the following items are 31 March 2016. the comparability of the excluded from underlying statutory profit A reconciliation between the statutory and (for both current and historical information, group’s financial position ongoing income statement is provided on where applicable) to derive ongoing page 71. All information in our integrated and results, particularly operating profit: annual report comprising volumes one, in financial year 2015 two and three are based on our statutory and 2016. accounts unless otherwise indicated. Cross reference tools 1 2 3 4 5 Audited information Page references Website Sustainability Reporting standard Denotes information Refers readers to Indicates that additional Refers readers to further Denotes our in the risk and information elsewhere in information is available information in our consideration of a remuneration reports this report on our website: sustainability report reporting standard that forms part of the www.investec.com available on our website: group’s audited annual www.investec.com financial statements Feedback We value feedback and invite questions and comments on our reporting. To give feedback or request hard copies of our reports, please contact our Investor Relations division. For queries regarding information in this document Investor Relations Telephone (27) 11 286 7070 (44) 20 7597 5546 e-mail: [email protected] Investor Relations www.investec.com/en_za/#home/investor_relations.html 2 Investec integrated annual report 2017 Contents Overview of the year Highlights 5 About the Investec group 12 Our strategic focus 14 Our operational structure 17 Our operational footprint 18 Operational and strategic report 22 01 Financial review 26 Divisional review Group divisional structure 85 Asset Management 86 Wealth & Investment 93 02 Specialist Banking 100 Corporate governance and corporate responsibility Corporate governance 112 Shareholder analysis 150 Communication and stakeholder engagement 155 03 Corporate responsibility 156 Remuneration report Remuneration report 185 Definitions 227 04 Corporate information 231 Investec integrated annual report 2017 3 01 Overview of the year Highlights 01 Overview of the year Strong client activity levels supporting underlying performance • Strong performance against a backdrop • The Specialist Banking business • The group has successfully leveraged its of continued macro uncertainty and reported results ahead of the prior year ability to provide clients an international volatility in the group’s key operating supported by sound levels of corporate offering, increasing its client base and geographies. and private client activity. deepening its core franchise. • The Asset Management and Wealth & • Growth in costs primarily reflects Investment businesses have benefited planned investment in growing the client from higher funds under management franchise businesses. supported by rising market levels. Statutory financial performance • The legacy portfolio 2017 2016 reduced from £583 million at 31 March 2016 to £476 million £599.1mn £505.6mn through asset sales, Operating profit* increased 18.5% redemptions and write-offs. (increase of 8.0% on a currency • The legacy business neutral basis) reported a loss before taxation of £64.6 million (2016: £78.3 million) with 2017 2016 We continued to impairments on the legacy £434.5mn £359.7mn actively manage portfolio reducing 20.3% from £68.1 million to £54.3 million. Adjusted attributable earnings^ down the UK legacy increased 20.8% (increase of 9.9% on a currency neutral basis) portfolio… 2017 2016 48.3p 41.3p 2017 2016 Adjusted earnings per share^ 23.0p 21.0p increased 16.9% (increase of 6.3% on a currency neutral basis) Dividends per share increased 9.5% * 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. Investec integrated annual report 2017 5 01 Highlights (continued) Overview of the year Solid performance from We have a diversified business model… the ongoing business % contribution of operating prot before taxation of 2017 2016 the ongoing business (excluding group costs)* £663.7mn £583.9mn Percentage Percentage 100 100 Operating profit* increased 13.7% (increase of 4.2% on a 80 80 currency neutral basis) 60 60 40 40 2017 2016 20 20 £487.1mn £423.1mn 0 0 Adjusted attributable earnings^ 12 13 14 15 16 17 12 13 14 15 16 17 increased 15.1% (increase of 5.3% UK and Other Specialist Banking on a currency neutral basis) Southern Africa Wealth & Investment Asset Management We continued to grow our key earnings drivers… 2017 2016 54.1p 48.6p Funds under management increased 23.9% to £150.7 billion – an increase of 14.8% on a currency neutral basis Adjusted earnings per share^ increased 11.3% (increase of 1.9% Funds under management** on a currency neutral basis) £‘billion 200 2017 2016 72.0% 71.8% 150 Recurring income as a % of total 100 operating income 50 0 2017 2016 0.29% 12 13 14 15 16 17 0.26% Asset Management Wealth & Investment Other Credit loss charge as a % of average Customer accounts (deposits) increased 21.1% to £29.1 billion – an gross core loans and advances increase of 5.5% on a currency neutral basis Core loans and advances increased 26.8% to £22.2 billion – an increase of 8.5% on a currency neutral basis Customer accounts (deposits) and loans ongoing business** £‘billion Percentage 30 120 25 100 20 80 15 60 10 40 5 20 0 0 12 13 14 15 16 17 Customer accounts Core loans and advances to customers Loans and advances to customer deposits * 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. ** Trends in these graphs are shown on a currency neutral basis using the Rand: Pounds Sterling exchange rate applicable at 31 March 2017. 6 Investec integrated annual report 2017 Highlights 01 (continued) Overview of the year Supporting growth in operating Marginal increase in impairments… income… Total operating income ongoing business Impairments £’million £’million 2 400 400 2 200 2 000 1 800 300 1 600 1 400 1 200 200 1 000 800 600 100 400 200 0 0 12 13 14 15 16 17 12 13 14 15 16 17 Trading income Annuity fees and commissions UK legacy business and businesses sold** Investment and associate income Net interest income Southern Africa Other fees and other operating income Total operating income on a currency neutral basis* UK and other ongoing business * The trend for this line is shown on a currency neutral basis using the ** Refers to the remaining UK legacy business and group assets that were Rand: Pounds Sterling exchange rate applicable at 31 March 2017. sold in the 2015 financial year. Costs increased largely due to planned investment across the business… Operating costs increased reflecting: planned spend on IT infrastructure and headcount across divisions to support increased activity levels and growth initiatives (notably the build out of the UK private client offering); additional UK premises expenses; an increase in variable remuneration given improved profitability across the group. Jaws ratio for the group (ongoing business)^ Headcount^^ £’million Number 2 500 10 000 Operating income up 18.1% to £2 286mn 2 000 8 000 1 500 6 000 1 000 4 000 Operating costs up 18.1% to £1 503mn 500 2 000 0 0 12 13 14 15 16 17 12 13 14 15 16 17 Operating income Asset Management Operating costs Wealth & Investment Specialist Banking ^ Trends in this graph are shown on a currency neutral basis using the ^^ Permanent headcount and includes acquisitions. Rand: Pounds Sterling exchange rate applicable at 31 March 2017. Investec integrated annual report 2017 7 01 Highlights (continued) Overview of the year Resulting in a solid performance from our ongoing business… Operating prot* – Asset Management £‘million 180 164.8 160 140 120 100 80 60 40 20 0 12 13 14 15 16 17 Operating prot* – Wealth & Investment £‘million 100 93.2 90 80 70 60 50 40 30 20 10 0 12 13 14 15 16 17 Operating prot* – Specialist Banking ongoing business £‘million 500 454.4 450 400 350 300 250 200 150 100 50 0 12 13 14 15 16 17 Progress made on our financial targets..