Good day, ladies and gentlemen, and welcome to Investec's trading update. All participants will be in listen-only mode. There will be an opportunity to ask questions when prompted. If you should need assistance during the call, please signal an operator by pressing star and then zero. Please note that this conference is being recorded. I'd now hand the conference over to Mr. Fani Titi. Please go ahead, sir.
Hi, good morning. This is Fani Titi, and I'm joined on this call by Hendrik du Toit and Nishlan Samujh. We would like to thank you for joining this conference call to discuss the pre-close statement that was released earlier this morning. I will give you a brief overview of our announcement this morning before opening up for questions. The group remains committed to its objective of simplifying and focusing the business in pursuit of disciplined growth over the long term. The proposed demerger and separate listing of Investec Asset Management is on track, with regulatory approval obtained in August, as we had announced. The bank and wealth business is focused on its strategic priorities. To this end, the following actions have been taken. We have closed Click & Invest, as we announced in May. We sold the Irish wealth and investment business.
We've restructured the Irish branch as a consequence of Brexit, and we are running down the private equity direct investment business in Hong Kong. The above actions, as well as the proposed demerger costs, are anticipated to negatively impact pre-tax earnings for the six months to September by approximately GBP 42 million. This compares to a pre-tax earnings drag of GBP 22 million in the prior period on a like-for-like basis. You will have seen the breakdown in the announcement. After adjusting operating profit in both the current and prior periods for these items, underlying performance of the group is expected to be slightly behind the prior period, although in line on a currency-neutral basis. Adjusted EPS is expected to be approximately 4%-7% lower.
As you know, we've always managed the group on the basis of adjusted EPS, stripping out the effects of activities or events that are not of a long-term nature or that could distort performance. As a consequence of the management actions taken, basic EPS is expected to be approximately 10%-13% behind the prior period. Turning to the divisional overview, starting off with asset management. The asset management business is expected to report adjusted operating profit ahead of the prior period. Earnings have been supported by market levels, currency movements, and net inflows of GBP 3.3 billion to the end of August. The bank and wealth business is expected to report adjusted operating profit behind the prior period. The U.K. specialist banking business is expected to report adjusted operating profit significantly behind.
Market variability and persistent uncertainty relating to Brexit and global trade wars have negatively impacted investment banking fees and trading income. Our lending franchises have continued to perform as expected. The corporate lending and private banking businesses have shown traction in both target client acquisition and loan book growth. The South African specialist banking business is expected to report adjusted operating profit ahead of the prior period. The private banking business has continued to see growth in its client base and a reasonable level of activity. Corporate activity levels have been subdued, affected by weak growth and low business confidence. The wealth and investment business is expected to report adjusted operating profit behind the prior year. While we've seen reasonable net inflows and growth in AUM, results were impacted by higher costs in the U.K. to support technology investment and business growth.
In closing, despite challenging trading conditions, we remain well-positioned for the long term and continue to concentrate on the execution of our strategy of simplification, focus, and disciplined growth. We will now hand back to the moderator to take any questions you might have. Thank you.
Thank you very much, sir. Ladies and gentlemen, at this time, if you'd care to ask a question, you're welcome to press star and then one on your touchtone phone or the keypad on your screen, at which time you'll hear a confirmation tone. Following this process will place you in the question queue. If you decide your question has been addressed and you wish to withdraw your question, you're welcome to press star then two on your touchtone phone to remove yourself from the question queue. Just a reminder, if you'd like to ask a question, you're welcome to press star and then one. The first question comes from Harry Botha of Avior Capital Markets .
Hi. Good morning. Thanks very much for the call. Just two questions, please. The first is just a basic one to confirm your adjusted EPS guidance. Does it exclude the restructuring and once-off costs that you referred to? Was that only excluded from adjusted operating profit? Then just a question around the asset growth that we're seeing in South Africa. You had referred to reasonable activity levels, but obviously asset growth is slower, and we are seeing some reasonable asset growth coming out of your peers. Is this a reflection of protecting margins, the growth that we're seeing come through at Investec? Or do you think it is more just a reflection of the client activity? Thanks.
Yeah. Hi, it's Nishlan. I'll take the first bit of the question. I think as we've highlighted, there were five items that we've treated as, call it non-operational items that could be seen as discontinued for the period. We stuck to reflecting it in adjusted earnings per share. To ensure that we are comparing like with like, we have restated the comparative to remove the GBP 22 million loss that would have been embedded in those numbers. In other words, we've picked up the comparative basic earnings per share in the determination of the negative 4%-7% on adjusted earnings per share basis.
Thank you. On the second question.
Sorry, Harry, are you clear on that answer?
Harry, are you clear on the answer?
Yes. You're saying you have adjusted the base, is that?
That's correct. Yes.
The comparative base number has gone up.
Yes.
If you look at adjusted earnings, it's now GBP 22 million more in the comparative period.
The 4%-7% is off that number.
Yeah.
Okay. Thank you.
On the second question, as indicated in the statement, we have had good client activity and support in the private banking business, in South Africa. The corporate bank, however, has seen lower client activity given the level of confidence in that market. Overall, we've seen a growth in the loan book, more support in the private banking business, lower activity, given issues around economic growth of under 1% in the country and generally, a lack of investor confidence in the country. Really, a tale of two cities. Better support from private clients, more caution from corporate clients.
Okay. I guess from your own perspective, the appetite in these conditions, would you say you're more keen to protect margin or is it still ultimately client-led?
Look, we try to support our clients as we move forward. We've never, as Investec, tried to compete purely on price. We try to look for bespoke solutions for our clients and offer those to them. We will always try to do what is best for our clients and obviously protect the business as far as is possible. The environment where revenues are much tougher to come by is much more competitive, no doubt about it.
Yeah. 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.
Harry, are you the only questioner?
Ladies and gentlemen, just one final 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. We have a question from Edward West of Business Report.
Good morning. I just wondered a little bit of insight in why the changes in the Irish business?
The Irish business.
Yes.
Okay. We did announce previously that we wanted to simplify the business, and we want to run businesses of scale. Thirdly, with respect to the Irish business, there is a Brexit coming. We decided that that business would not have the right scale for us going forward. We decided to exit, firstly, the wealth and investment business, which if you look at the numbers that we have shown, we are expecting a gain out of the sale of that business. We didn't think we would get to scale, and the banking business specifically would be affected by Brexit. We have decided to equally wind that down. As we go forward, we will be in jurisdictions and businesses where we can have scale, and we can be relevant to our clients, and we can compete effectively.
That would be the logic behind the restructure of the Irish business. Hendrik?
I think, Edward, fully agreement with Fani, everything we're doing is in line with the three words we've given you: simplify, focus, and grow for the long term. We're trying to, by the time we're demerging the asset management business, which will hopefully be completed before the end of the financial year. By that time, we will present two very clearly focused, simplified businesses which can scale in their areas they decide to compete in. That's really been the journey or the transition of the last year or so.
Any further questions?
Edward, does that answer your question?
Thank you very much.
Thank you. Ladies and gentlemen, one final reminder. If you care to ask a question, you're welcome to press Star and then One when you touch tone to place yourself in the question queue. Gentlemen, we seem to have no further questions in the queue. Do you have any closing comments?
What I would like just to reiterate again is we are on a journey, as Hendrik indicated, to continue to simplify the businesses, to focus on our core competitive strengths, where we have built client franchises and we have support of our clients. When we do de-merge the two businesses by the end of the first quarter, we do believe that these businesses will have strong trajectories for growth in the long term. As we say, we manage for the long term. In this particular period, as clearly seen in these results, we've had very good growth from asset management. We've had a good performance from our South African business, both the bank and the wealth business. We have had headwinds in the market-facing part of the bank in the U.K., specifically investment banking fees and trading income have been affected.
This is the season we are in, and our peers have been affected similarly. We've seen in the U.K. banking environment, growth in the private bank and growth in the corporate lending book. All in all, a tough season, a tough trading environment, but we are on track in terms of our overall strategic thrust and execution.
100%, Fani. I think we just want to emphasize the two points, that in asset under management across both the asset management wealth platforms, we've grown solidly. In asset creation, i.e., client acquisition or client retention in the banking side, there is a decent story. Hopefully the season will improve and one can then put the scores on the board in the more variable or more volatile parts of the business.
Thank you very much.
Thank you very much, gentlemen. Ladies and gentlemen, at this time, please note that the call has concluded. Thank you for joining us. You may now disconnect your lines.