Conference Call Transcript 21 May 2020 2020 ANNUAL RESULTS - PDF document

Conference Call Transcript 21 May 2020 2020 ANNUAL RESULTS PRESENTATION Fani Titi Ladies and gentlemen, good morning and welcome to our financial year 2020 results presentation. I’m joined by Nishlan Samujh, our Finance Director, and Kieran Whelan, the Chief Executive of our Wealth & Investment business in the UK. We have an apology from Richard Wainwright who is joining a meeting with the president to discuss the reopening of the economy. As you know Richard is the incoming Chairman of the Banking Association of South Africa, so he is representing the Banking Association. We are also joined from their homes in London by Ruth Leas, the Chief Executive of the bank in the UK, and David van der Walt, our Group Executive Director. Our Chairman, Perry Crosthwaite, and the directors have joined us from their homes around the globe. This morning we address you from a rather empty auditorium in our offices in Sandton. We hope that you can watch this webcast safely from your homes as we battle the pandemic that is COVID-19. In a matter of months our lives have been disrupted irreversibly. So let me start the presentation by reading out a quote from Nassim Taleb, the author of The Black Swan. The system delivers these events with regularity – in other words disruptive events. The problem we have today is that these events are delivered so much faster. So the effects of the pandemic on human life have been devastating, and it has scarred our sense of personal safety, our national security and mental wellbeing. Its effects on the world economy have been unprecedented in both scale and speed. As Nassim said in the quote, the issue is how much faster the impacts unfold. So how have we responded as Investec to this pandemic and the crisis? First and foremost, we focussed on the safety and wellbeing of our colleagues, providing them a safe environment to work from and supporting their general wellbeing. We have transitioned into an agile and a digitally enabled workforce to provide an uninterrupted service to our clients. We have provided relief to those clients in need and to the businesses that we needed to enable them to weather this particular storm. In this time of crisis we use our creativity to provide innovative solutions to our clients and helping some of them to restructure their affairs or their businesses or to raise debt or equity capital where appropriate. We have moved swiftly to support those communities hardest hit by the pandemic, providing support ranging from food relief to education. You can see on the screen the activities that we have supported. In total we have committed over £3 million or R71 million in relief, supporting hundreds of thousands of our fellow citizens in desperate need. Our global executive team and then board have heeded the call to make a solidarity contribution of 30% of salary for three months to charity. The profits we are reporting today will naturally be lower given the environment, but this moment in my view may yet be Investec’s finest hour because of how we have responded to the crisis. I’m hugely impressed by the response of our people to this crisis and I’m proud of every one of our 8,500 colleagues around the world. I know they will be disappointed by the much lower 1

bonuses given, the performances and the environment, but we can be proud of the contribution that we are making to society. It has obviously been a very difficult year and a difficult trading environment through the course of the year. And this was then exacerbated by the advent of COVID-19. Despite the impact of COVID-19 on the results – and we will go through that in some detail – I do hope that you will take away from the results the following five messages. One, our client franchises have proved very resilient. This is borne out by the increase in core loans and advances of 9.2% in neutral currency, the increase of 12.6% in customer deposits to £32 billion, and the funds under management recording net inflows of £599 million. Two, we have robust levels of capital and liquidity with which to weather the crisis. Let me add that we will quickly and prudently put this capital and liquidity to work to support our clients in the real economy. Three, we have provided prudently for expected credit losses. Nishlan will take you through the substantial increases in the credit loss ratios as a consequence of COVID-19. So, we are comfortable with our loan book exposures. Four, good progress has been made with our previously announced strategic initiatives. We de- merged Ninety One in March. Operating costs were significantly reduced, being 7% down on last year, and bold actions were taken in dealing with non-core and subscale areas, as will be evidenced later. And lastly, while we look ahead with caution we remain confident in the long-term opportunities for Investec. We are committed to making a positive difference in society through the work that we do. Before we get into the numbers it is worth remembering that both our home markets were already facing headwinds pre COVID-19. I know the results are generally coloured by COVID-19, but even before that we had some headwinds, the Brexit related malaise in the UK through most of 2019 and a recessionary environment in South Africa. Since then both economies have been tipped in a deep, sharp recessionary shock and the global world economy as well has been hard hit. Both economies continue to be under substantial lockdowns and forced to combat COVID-19. That is why we are presenting to an empty auditorium this morning. We are now expecting unprecedented reductions in GDP in 2020 in both markets. We have assumed peak to trough GDP contractions of 9.4% and 10.9% in the UK and South Africa respectively. As Nishlan will explain later, this is factored into our outlook and forms the basis of our provisioning charges taken at the year end. This is an area of great interest to the market I’m sure. Have we been prudent in our assumptions and stringent enough? Now moving to the numbers. Since we updated the market at the pre-close on the 20 th March, which is just two months ago, the severity of the COVID-19 crisis has deepened very considerably. The impact on our business is much more significant. We estimate an impact of £105 million on adjusted operating profit. In Rands this impact is about R2.3 billion. Nishlan will go through this in some detail shortly. As a result we have come in slightly below the bottom of our guided range. Adjusted operating profit per share of 46.5 cents was 23.6% lower than the prior period, thus narrowly missing the bottom end guided of 23%. While overall this is a disappointing outcome, we are clearly in exceptional times and there are a few points to highlight with these numbers. Adjusted operating profit was down some 17% to £609 million after absorbing the £105 million COVID-19 impact mentioned previously. This was achieved despite a significant increase in the credit loss ratio to 52 basis points, this compared to 31 basis points in the prior year. The result in part reflects the careful management of 2