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Investec Profit Drops on Impairments, Rand, Rising Costs

Nov. 15 (Bloomberg) -- Investec Plc, which owns a bank and money manager in South Africa and the U.K., said first-half profit fell 5 percent amid loan impairments, rising costs and a weaker rand.

Net income dropped to 168.5 million pounds ($267 million) in the six months ended Sept. 30 from 179 million pounds a year earlier, the London- and Johannesburg-based lender said in a statement today. Adjusted earnings per share fell to 19.7 pence from 20.6 pence last year, missing the 19.9 pence mean estimate of two analysts surveyed by Bloomberg.

The operating environment is expected to be “challenging” in the next six months, Chief Executive Officer Stephen Koseff said in a presentation today. The company incurred 115.6 million pounds in impairments on loans and advances in the period, while interest income fell 4 percent to 1.13 billion pounds. Investec has been hurt by a stagnant U.K. economy and impaired mortgages in Australia, while a series of acquisitions have increased the company’s cost base.

“The results are all about bad debt impairments and there is no top line growth,” Patrice Rassou, head of equities at Sanlam Investment Management in Cape Town, said in an e-mailed response to questions. “They have not cut headcount aggressively, which could be the next area of focus.”

The shares closed 1.6 percent higher at 53.16 rand in Johannesburg, reversing an earlier 3.2 percent decline. Investec’s South African shares have gained 21 percent this year, compared with the 19 percent average increase of the six-member FTSE/JSE Africa Banks Index.

Return on Equity

Having made three all-stock acquisitions in Britain in a decade, including brokerage Evolution Group Plc and investment manager Rensburg Sheppards Plc, Investec’s return on equity fell below its South African peers. First-half return on equity was 9.3 percent, Koseff said in the presentation today.

“Driving the growth in return on equity remains our main focus,” he said in the statement. Investec plans to improve efficiency by eliminating duplication and taking on more clients, he said.

The company said today it would “consolidate gains” in asset management and “broaden the distribution of the wealth management offering.”

Investec Asset Management recorded net inflows of 1.5 billion pounds in the period, taking total funds under management to 62.4 billion pounds. That’s less than the 65.6 billion pounds the company said it managed a year earlier.

Investec’s reported earnings have shrunk as the rand declined against the pound. South Africa’s currency has lost 11 percent against sterling this year, dragged down by a slowing economy and slump in mining output following labor unrest. Investec, which was founded in Johannesburg in 1974, listed its shares in London in 2002.

“The volatile global economic environment and some unresolved macro risks remain a significant feature,” Investec said today.

The company’s dividend was unchanged at 8 pence a share.

To contact the reporter on this story: Renee Bonorchis in Johannesburg at rbonorchis@bloomberg.net

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net

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