Thursday 21 November 2019 3:34 pm

Investec profit falls amid preparations for asset management demerger

Investec has reported a drop in profit before tax for the first half “against challenging market conditions”, as the Anglo-South African business group prepares to spin off its asset management business next year.

The figures

Pre-tax profit fell just over ten per cent to £349m for the six months to 30 September.

Investec’s return on equity decreased from 14.2 per cent to 13.1 per cent, while its cost to income ratio rose slightly from 67.2 per cent to 67.3 per cent. The company said it was “committed to improving” the ratios.

Read more: Investec warns on profits amid higher costs

The group reported basic earnings per share of 24.7p, down from 27.6p for the same period last year.

Its asset management division generation inflows of £3.2bn during the first half, helping to boost Investec’s third party assets under management 6.4 per cent to £117.9bn.

Investec’s UK specialist bank recorded a 18.9 per cent fall in adjusted operating profit. The company said this was due in part to lower investment banking fees and weaker market conditions, but most of the drop was caused by restructuring and repurchasing of debt in the division last year, which distorted the figures.

The specialist bank division cut just over nine per cent of its operating costs during the period.

Investec announced an interim dividend of 11p per share, the same as the previous year’s figure.

Shares in the group fell slightly following the results, and were trading just over one per cent down at 428.20 by mid-afternoon.

Why it’s interesting

Investec is preparing to demerge its asset management division from its banking business to allow the company to become a “focused, independent asset manager” as well as seeking “better client outcomes and growth”.

 The demerger is set to be completed in the first quarter of 2020. Although the split has gained regulatory approval, it still needs the consent of Investec shareholders. 

The company announced this week that the asset manager would be rebranded as Ninety One once the process closes, which it said “reflects the heritage of the firm” as Investec launched its asset management business in 1991.

What Investec said

“In spite of the challenging economic environment in which we operate, we are pleased to report further growth in assets under management, customer deposits and the loan book,” said chief executives Fani Titi and Hendrik du Toit.

“Profitable and sustainable growth with improved cost control remain priorities. We are committed to our stated objective to simplify, focus and grow for the long term, in the interest of all our stakeholders.”

“The preparations for the demerger of Investec Asset Management (becoming Ninety One) are on schedule,” the pair added. 

Speaking to City A.M. following the results, Titi said Investec hopes to send information about the demerger to shareholders “by the end of next week”, which will be followed by “a shareholder vote in the new year”.

Read more: Investec shareholders protest reappointment of auditors KPMG and EY

“We are hopeful that our shareholders will support a transaction because in essence what we’re doing is separating two businesses that have very little linkages between them.”

“Our shareholders will hold two shares, and their ability to receive dividends will not be diminished in any way because the capacity of the businesses to generate dividends will remain the same and each business will have more focus”.

Main image credit: Getty