Good day, ladies and gentlemen, and welcome to Investec's trading update conference call. All attendees will be in a only listen mode. There will be opportunity to ask question imported If you should need assistance during the call please signal the operator by pressing star then zero. Please note that this event is being recorded. I'd now like to hand the conference over to the Group Chief Executive, Mr. Fani Titi. Please go ahead, sir. Thank you, Judith. Good morning, ladies and gentlemen. This is Fani Titi, Group Chief Executive of Investec. I'm joined this morning by Nishlan Samujh, Group Finance Director, and a number of our executives are also on the call with me. Thank you all for taking the time to join us on this call to discuss our pre-close trading update, which covers the guidance for the six months ending on the 30th of September 2021. Please note that our half-year results will be announced on the 18th of November 2021. We'll take a few minutes to talk through some key highlights today, and we'll then take some questions. First, a few general comments on our overall performance. The period was characterized by good growth in revenue and lower impairments. The group's trading performance is substantially ahead of the same period last year, and in line with the pre-COVID-19 competitive period ended on the 31st of August 2019. This recovery in performance underscores the resilience of our client franchises, supported by improved economic conditions. For the six months ending on the 30th of September 2021, the group expects adjusted operating profit before tax to be significantly ahead of the prior period, between 86% and 106% up from the GBP 142.5 million that was reported last year. In addition, based on the current business momentum, we have raised our expectations for adjusted earnings per share for the year to March 2022. We expect this to be above the upper end of the GBP 0.36-GBP 0.41 range that we guided in May 2021. Looking by geography, adjusted operating profit for the South African business is expected to be at least 50% ahead in ZAR for the period, compared to last year's first half results of ZAR 2.184 billion. Adjusted operating profit for the U.K. business is expected to be at least 125% higher than the prior period's GBP 43.4 million. Looking at the key drivers. Revenue benefited from increased client activity across the business and the geographies. Funding costs were lower, and in contrast to recent periods, risk management and risk reduction costs associated with the U.K. structured products book were immaterial. Expected credit loss charges were also lower, aided by limited specific impairments and certain recoveries, particularly in South Africa. It is also important to note that the group has retained its COVID-19 related overlays in order to account for the uncertainty that still remains in the economic environment. Lastly, while operating costs grew in line with increased activity and revenue levels, efficiency ratios have improved as revenue increased at a faster rate than costs. Turning to divisional performance. The wealth and investment business grew funds under management by 9.9% to £63.8 billion, supported by net inflows of GBP 1.4 billion, favorable market movements, and investment performance. Operating margins were higher in the U.K., while South Africa was broadly flat. In the South African business, funds under management increased by 9.5% to ZAR 364.5 billion, with net inflows of ZAR 16.7 billion. In the U.K. business, funds under management increased by 9% to GBP 45.4 billion, with net inflows of GBP 0.6 billion. Adjusted operating profit for the first half is expected to be ahead of the prior period in both South Africa and the U.K. Moving on to the specialist banking business. Core loans grew by 6.5% to GBP 28.2 billion, given increased activity levels and good client acquisition within the private banking business across both geographies. The U.K. experienced increased demand for corporate credit across a number of our portfolios, while SA corporate credit demand remains largely muted. For both South African and U.K. specialist banks, adjusted operating profit for the first half is expected to be higher than the competitive period. Last month, we were very proud to learn that The Banker had recognized Investec as the best performing bank in South Africa for the second year running, and the best performing bank in the U.K. In summary, the group has capitalized on opportunities arising from continued economic recovery and achieved encouraging results year to date. Our client franchises have shown their resilience, and we have good momentum as we move forward. Investec remains well capitalized and has strong liquidity, and both these are above board-approved minimums. The business continues to focus on its commitment to clients, offering them innovative solutions and an out-of-the-ordinary service experience. The changes made to simplify and focus the group are bearing fruit, positioning the group well for sustainable long-term growth. Finally, I would like to thank my colleagues across the globe who have displayed extraordinary resilience supporting our clients and communities during what continues to be an uncertain operating environment. As COVID-19 restrictions ease, we look forward to growth alongside our clients and to increased face-to-face engagement, which is core to our values and culture. Thank you for joining the call. I would now like to open the line for questions. Thank you very much, sir. Ladies and gentlemen, at this time, if you'd like to ask a question, you're welcome to press star and then one on your touch tone keypad on your screen. If you decide to withdraw your question, you're welcome to press star then two to exit the question queue. Just a reminder, if you'd like to ask a question, you're welcome to press star and then one. We will pause a moment while we wait for the question queue to build. The first question comes from Michelle Donner of Ninety One. I wonder if that's me. Am I live? Yeah, you are. We can hear you loud and clear. How are you, sir? Fani, it's Chris. I'm not quite sure why it's coming through as Michelle Donner. My apologies. I thought it was a French Michel. M-I-C-H-E-L. Hi, Chris. I can be Michelle for you if you'd like, Fani. That's fine. Thank you, Michelle. Just a couple of questions for you, if I may, please. Can you just give us a sense of the You talked to the non-recurrence of losses in the U.K. structured products book. I imagine the environment has been favorable for unwinding some of that risk. Are you out of the woods there yet, or is there still the potential for residual costs on that book to come through? Is the first question. Just the second question, could you possibly just unpack the nature of the flows into the South African wealth management business? Looks like the net inflows have been quite positive. Looking at the disclosures, it looks that might have been in the non-discretionary area, which is an area where, I guess, we haven't become accustomed to big net flows in recent years. It's been traditionally into the discretionary side of the business. Maybe you can unpack that a little bit, please. Yeah. Thanks, Chris. Let me start with the structured product book. As we say in the announcement, we are pleased that the costs are immaterial. We continue to look for opportunities to take off risk. We still have a book, and we still look to manage that book as we go and take opportunities in the market to reduce the size of the book. Also, depending on where market levels are, some of the book will roll off. We are pleased with the progress we have made, both in how we have managed the risk. Going forward, if there are opportunities to reduce the book faster, we are always on the lookout for that. It is not something that is worrying us at the moment. The costs have been immaterial. On the second issue relating to flows in wealth management, we've had flows in the U.K. and in S.A., and we've indicated a number of about approximately ZAR 16.7 billion. That, you're right, covers both discretionary and non-discretionary. We've seen significant inflows in both categories. I don't know whether Nishlan wants to add any more flavor to that. Yeah. You've had flows of about GBP 8.7 billion into the discretionary portfolio and the rest of the GBP 16.7 billion into non-discretionary. I think what we are quite pleased of is the nature of the flows and the underlying clients and what that holds into the future. Great. Okay. Gentlemen, thank you very much, and congratulations on what looks like a pretty solid trading update. Thank you. Thanks, Michelle. Thank you very much, Chris. Ladies and gentlemen, just a reminder, if you'd like to ask a question, you're welcome to press star and then one to place yourself in the question queue. The next question comes from Bonolo Madikela of BSA Securities. Morning, everyone. Thanks for the opportunity. Just a quick question from my side. Probably has two parts, I guess, though. First is that you're indicating your full year performance is likely to be better than or towards the top end of your range. When do you think you'll be able to give us a sense of a new range? Number one. Number two, I guess, is there anything in your first half performance that you are cautious or concerned about that may not repeat in the second half or that might give base effects or headwinds in the second half? Those are just my questions. Thank you very much. Thank you. I'll ask Nishlan to answer your questions. What we said in the Statement is that on current momentum, we expect to be above the range, not in the top half of the range, but above the range. It's important just to clarify that. I'll ask Nishlan to deal with the rest of the question. Nish? Yes. I think two things. In November, I think we'll give you a lot more color once we finalize the close of this particular period. That really deals with the second question in terms of whether there are anything. I think fundamentally, as we've indicated in this update, the key drivers has really been a return of momentum into the business as we've seen in a pre-COVID-19 environment. I think that's very pleasing and positive in terms of the outlook, as well as the fact that there has been lower impairments in the period, rather than being driven by release of overlays throughout, that it's driven by recoveries in the period. I think when we do provide some color, you will factor that into your thinking into the full year. Bonolo Madikela, does that conclude your questions? Yes. Thank you very much. Thank you. The next question comes from Mark du Toit of Oyster Catcher Investments. Hi, good morning, everyone. Mark. Morning. I wonder if you could give us some comments around the difference in the recovery between South Africa and the U.K. I'm particularly interested in the corporate lending behavior. Are we seeing SA corporate starting to lend again? Is it a similar experience across SA and U.K.? Just some kind of general comment on the differences in the environment would be helpful for me. Thanks. Thank you. May I ask my colleagues, we've got Richard Wainwright here, who runs the bank in SA, to give you a bit more color, and Ruth Leas on the U.K. side, to give us a bit more color. Rich? Thanks, Fani. Morning, Mark. It's Richard Wainwright here. I'll talk about South Africa. We're still seeing a reluctance of corporates in South Africa, generally, to borrow. The investment activity across the corporate sector is muted. The corporate growth that we're seeing here is very much in line with what we've seen with our peers, which is a muted performance. A lot of our book growth in South Africa is coming through our private client franchise, which is much stronger than in the corporate franchise. The recoveries area that Nishlan was talking about is also more in our private client franchise than it is in our corporate area. A lot more resilience and activity through our private client franchise as opposed to our corporate here in South Africa. Ruth? Thanks, Rich. Hi, Mark. In the U.K., we have seen strong demand for credit across both our private client activities and our corporate client activities. I would say that last year, we did have demand for corporate credit, but it was isolated to certain areas and not across the board, and we were seeing very strong redemptions at the beginning of the COVID-19 period. We did see strong mortgage growth due to the changes to stamp duty, which have now come to an end. We still have a strong pipeline, and we expect that to slow down a little, but still to be ahead of the levels at which we were originating mortgages pre-COVID-19. We are seeing a good of corporate demand across multiple business activities, leading to the levels of growth that you see in the numbers before you. The U.K. has grown strongly over this period. It is now hitting a patch of slower growth, inflation concerns, and various things ongoing related to Brexit and energy, et cetera. We'll need to see what the next period brings, but at this point in time, momentum is strong and continuing. Perfect. Thank you so much. Yeah, as always, we hope to outperform the macro. We think our position within the corporate banking space remains very strong, it's just that there's muted growth. We're seeing some activity, but we also seeing redemptions in the South African space. In the U.K. space, it's also that there's been a lot more activity. The latest print in terms of economic growth in both geographies has been rather muted. The trend, the U.K. remains positive given the level of reopening of their economy on the back of a high level of vaccination. In South Africa, economic uncertainty, political uncertainty will continue to be the affairs against a far more robust growth in this country and corporate. They are much more cautious than would individual retail client to uncertainty. We remain hopeful that we will continue to hold our market share, if not increase our share. Okay. Thanks a lot. Next question comes from Mark Chester of Nedgroup Investments. Good afternoon, guys, and thanks for the opportunity. Just two from my side. I was wondering, Nishlan, if there's been any progress in the last number of months in terms of getting yourselves to a position with the regulator where you can adopt the advanced approach in potentially improving your reported capital ratios? Maybe Fani from your side, how are you thinking, or has there been any progress in terms of realizing various assets, private equity assets that are dragging down your returns? How are you thinking about all of that at the moment, if I may? Mark Fromson, just answering the first question, I think we've made good progress in this period. There's one more model that's left with the regulators, which is our income-producing real estate model. The key debate point is the fact that we do have a bit of a lower loss experience in those models, and therefore, it's really about calibration. We've resubmitted to the regulators based on feedback. These processes do take time, and to be definitive, I think will be a little bit presumptuous. The positive momentum and the desire to complete exists on both sides. Thanks, Nish. On the second question, we remain committed to optimizing our capital. Specifically, we would like to reduce our investment portfolio as stated previously. The environment has been much tougher given COVID in terms of valuations, and we have generally looked to realize assets at reasonable prices. We've been deliberate in the realization of assets. Obviously, that portfolio is much larger than just private equity assets. I think when we report in November, we will give you a much better feel of the progress we're making and the moves that we would like to make with respect to that. We committed to that as part of the number of initiatives that we undertook to improve overall value. Operationally, making good progress, but we continue to increase the level of capital that we have, and that can have a dampening effect on returns. We have to deal with the issue as a matter of priority. Maybe just to be clearer, Fani, when you report, might we expect you to sort of signal that you are making progress or at least the strategy is being sort of narrowed down and refined? Certainly, the issues around COVID, I think are all fully understood. It's not an easy time, but I think there's certainly amongst investors, a sense of urgency that people are hoping to see progress there. How do you feel the last number of months have gone? Are you progressing? Look, realizing assets is not a quick thing to do. We think we're making progress. This is a trading update, so I don't want to get into the detail of the assets as such. Let's just hang 10. It's a huge priority for us, as I said earlier on today. If we don't address our capital stack, we will not make the progress that we want to make with respect to getting to higher returns to cover our cost of capital. It is as urgent a matter for you as it is for us as a management team, really high on our priority list. Please, if you could just allow us to report in full in November. Great. Thanks very much, guys. Thank you. Ladies and gentlemen, just a reminder, if you'd like to ask a question, you're welcome to press star and then one on your touchtone phone to place yourself in the question queue. If it is not a free question, you're welcome to press star then two to exit the question queue. The next question comes from Meghna Makana of Benguela Global Fund Managers. Hi there. Yes, thanks. My question is just around the strong growth in the U.K. loans. I just want to know, are you able to give us a bit of guidance in terms of what's happening with the NIMs in the U.K. with the strong loan growth? Hi there. Here's Ruth in the U.K. We have also seen a positive trajectory in reduction in our cost of funds coming through at the same time that we are seeing this strong growth in the books. Yes, an improvement in our NIM at this point in time. If you think back to last year, we needed to run very liquid towards the beginning of COVID-19, as everybody did, and maintain very high levels of liquidity. The trend in the market for lower rates has really helped us to bring down our cost of funds while maintaining the volume of deposits we need to fund our asset growth. We have seen an improvement in the NIM as indicated in the statement. Thanks. Meghna, does that conclude your questions? Yes. Thank you. Thank you. We have a follow-up question from Chris from Ninety One. Right. Hey, Chris. Thank you. Sorry, can you hear me? Yeah, we can hear you. Thank you. Yeah. Just a quick question. I was going to ask you about the investment portfolio, but I think you've answered that very comprehensively. The other question I wanted to ask is just perhaps a comment on, with the robust asset growth you're seeing in the U.K. banking operations. Just what is happening with risk-weighted asset growth in that space? Are you confident you can continue to pay out the sort of dividends you've been paying out, whilst growing your balance sheet and risk-weighted assets as you are, particularly in that jurisdiction, please? I think a couple of points. Number one is you do have strong growth in mortgages. From a risk weight perspective, that's much lighter. We are quite comfortable with the growth, and as we've indicated with regard to capital, we're operating well above regulatory minimums and above our desired minimums. Fairly comfortable with the buffers that are in the capital base. Sorry, Chris, can you just repeat the second question? Dividends. On the dividends, yeah. Again, the guidance we've provided, which is a 30%-50% payout ratio, I think is well considered in terms of the cycles, and we are quite comfortable. Just to add, Chris, I've indicated that we've been accumulating capital over this period. That gives you a sense that we will have capacity to pay dividends within that range, probably more towards the higher end of it. With respect to growth in the U.K. and growth generally of loan books, we've talked about the adequacy of capital to fund that growth. We've talked about the impact on dividends, that we are comfortable that we can continue to pay dividends at the appropriate level. The third element of it is always risk. With that growth, what is the risk profile of the book, in particular on the mortgage book? We are very comfortable with our experience, given the quality of client that we have. On both capital risk and dividends, we're very comfortable that we are in a good space. Thanks, Chris. Super. Thank you. The next question comes from Stephan Potgieter of UBS. Good morning. Thanks very much for the update. A very good performance. A question on your credit quality and credit loss trends. You mentioned some recoveries bringing down the credit loss charge for the period. Just in terms of the trends both in South Africa and the U.K., you mentioned you're also still hanging onto coverage. Do you still expect in the U.K. to have some uplift in credit losses as the sort of furlough schemes come to an end, some of the macro issues start to impact in the U.K.? You could maybe just give some color on that. Thank you. Yeah, sure. Thanks for the question. I think we've indicated that there's been no real pressure in terms of new impairments arising, which I think talks to the quality of the book, the level of recoveries that have been experienced, and the fact that you don't have pressure from a modeling perspective or from a specific name-by-name perspective. I think all of that gives a real positive outlook in terms of underlying quality of the book, which we've been quite pleased with in terms of behavior. With regard to overlays, both in South Africa and the U.K., we remain cautious. At the end of the day, it's not at the level that you've seen in the retail banks. There are provisions on the balance sheet. We think that it gives us good coverage for some of the risks that lay out there. With regard to the unfolding of the relief aspects, particularly in the U.K., we remain cautious around the outlook around that. What's most important for us is that behaviorally, from a client perspective, there are really no signs at this stage of any concerns. Ruth, do you want to give any more color on the U.K.? I think Stephan had an interest in the U.K., the furlough schemes and the other bills. Thanks, Fani. I think that Nishlan answered that comprehensively. We are watching to see the impact of the removal of the furlough scheme. The government has been seeking to manage a soft landing as it withdraws from some of these programs and replaces with others. As Nishlan says, there is a fair amount of unpredictability and uncertainty still surrounding us in the system, and that is why we are being cautious. Not a reflection of our own asset quality, but just in terms of the unpredictability of the macro environment as we look at it today, with rising inflation, slightly slowing growth, and the impacts from Brexit. In the areas and sectors which we've been operating in, we've been very comfortable thus far and are not seeing signs of stress at this stage. Thanks very much. Very clear. Sure. Thank you. Ladies and gentlemen, just a final reminder. If you'd like to ask a question, you're welcome to press star and then one. The next question comes from Waleed Mohsin of GS. Good morning. Thank you much for the call. A couple questions from my side. Perhaps if you could talk a little bit about the underlying cost trends. Obviously pleasing to see the improvement in cost-to-income ratio. Perhaps you could talk about some of the cost initiatives you've been taking and how they've been bearing fruit in this period. Secondly, good deposit growth. If you could just talk about the type of deposits and the flows into both South Africa and the U.K. business on the deposit side. Thank you. It's Nishlan here. If I take the cost base, I think, at the end of the day, there were quite a few initiatives that were executed on in the prior year, and we are seeing the benefits of those come through, particularly around our fixed cost base. Across the businesses, we continue to see ourselves operating at well below inflation with regard to fixed costs. When you look at momentum, obviously there's an element of variable that will follow improved underlying performance of the businesses, and we will really unpack the specifics around those when we get into the actualities of the results. Ruth, I don't know if you want to touch base on the deposit base on the U.K. bank. Thanks, Nish. Sure. Hi, Waleed. In terms of deposits in the U.K., what we saw last year is as rates came down, we brought our rates down, and we're flooded with high levels of deposits coming towards us. We are substantially retail funded, as you know, and the Investec credit has strong traction in this market. We were able to build the deposit base while reducing our overall cost of funds. Given that we are seeing a pickup in demand for credit across the market, I would say that that reduction in rates has reached a trough, and we're starting to see a slight turn towards increasing retail rates in the market as lenders are now seeing stronger demand for credit. We have really used this period of time also to implement a technological infrastructure behind our deposit raising, the back end or the plumbing, so to speak, to be straight through processing to really help us with the actual manufacturing cost of these deposits, which has come through very nicely as well. Moving a lot more of that into a digital solution. Very comfortable with the level of our retail deposits and the overall cost of funds we've been able to achieve throughout this period. Yeah. If I may just go back to the cost question just to add color. We've obviously made certain key decisions over the last two years to increase scale and critical mass. That has a structural benefit to cost. We've also looked at operating leverage in that between bank and wealth. Between South Africa and the U.K., we've had certain initiatives that increase operating leverage. As we go forward, we look to much more contained fixed costs. As performance and revenue improves, you obviously will see a higher degree of variability in the income that is linked to those revenue, essentially variable remuneration. That is the way we want our business model to work. We're pleased with the changes we have made structurally, and we're pleased with the level of containment of costs, and we are also pleased that we have the level of variability in costs, particularly employment costs, linked to the performance of the business at a revenue level. Got it. Thank you so much. That's very helpful. Thank you. We don't seem to have any further questions on the lines. I will now hand over back to Mr. Fani Titi for closing comments. Thank you, Judith. Just in closing, we are pleased with this performance, and we look forward to unpacking more of the detail in November. We are pleased also that we are now tracking a pre-COVID, 2019 environment and that all our businesses are performing well. We have both wealth business performing well, both bank businesses are performing well, costs well maintained. As discussed earlier, we continue to put significant focus on the reduction of the investment portfolio and the optimization of our capital. Thank you for your interest, and we look forward to a much more detailed interaction in November when we announce the interim results. Thank you again. Thank you. Ladies and gentlemen, that concludes today's event. Thank you for joining us. You may now disconnect your lines.