Morning, ladies and gentlemen. In London, we're in 30 Gresham Street, in Johannesburg, we're in our Grayston offices. I can't see you, but I presume everyone is there. My name is Hendrik du Toit, on behalf of myself and Fani Titi, I welcome you to our interim results presentation for the 2019 financial year. Before we start, I'd like to say a short word of thank you. Thank you firstly, to our predecessors, Stephen Koseff, Bernard Kantor, who are both here. Bernard, in spite of having had an operation, made the effort to come and listen and make sure Fani and I make no mistakes. We will try our best. Thank you for the help in the transition. Thank you for the support you gave us up in preparing for today.
Our Chairman, Perry Crosthwaite, many of our board members and colleagues from senior management, but most importantly, the 10,000 people who made this result, the 10,000 people who serve our clients, who are busy working as we speak to build the Investec business. Thank you very much for what you've achieved during the transition period and also putting our business on the right footing for growth, because that's the story Fani and I want to share with you. I'm going to ask Fani to do most of the presentation. I'd just like to say very simply, in a nutshell, our business has good momentum in spite of pretty tough macro conditions. We're lifting return on equity. We're concentrating on it. Our asset and wealth management businesses are gathering significant net flows and growing.
I think what's really important, the people in Investec are also ready for the major strategic move we announced, namely the demerger, which is all about focus, simplicity, and setting up the platform for growth for the long term. It's my privilege to ask my Joint CEO and partner, Fani Titi, to do most of the presentation today. I'll take some difficult questions at the end. Fani.
Thank you, Hendrik. Good morning, ladies and gentlemen. As you can see, we are a tag team, so I'll do a bit of the lifting this morning. I'm going to try work both my iPad and the screen. Warrie, just check on me if I don't move the screen over there. As Hendrik indicated, we are quite privileged and honored to be presenting the results and to be leading the business. We believe the results do reflect a very sound financial performance. Hendrik has spoken about the fact that the ROE of the group is increasing. At March 2018, our ROE was at 12.1%. We are now at 13.4%. We are making progress in the execution of our strategy. As Hendrik indicated, again, these are solid flows in asset management and in the wealth business, about GBP 4.8 billion in total.
The specialist bank in the U.K. has done particularly well, in fact, just about doubling profits in the period. If we go forward, because I don't want to repeat what Hendrik said, as we go forward, our concentration and our focus will be on revenue growth, on capital allocation, and on cost discipline. These results have been achieved despite very tough economic and market conditions. In South Africa, where we have a substantial operation, the South African economy has been particularly weak given the lack of confidence that is occasioned by political uncertainty. We will generally see that the performance of both the bank in South Africa and the wealth and investment business will be muted. Although there was an increase in rand, but it is a very tough market overall. In the U.K., as we all know, Brexit has been the key issue of concern.
Lately, there's been some progress, but we don't know whether that is real progress or not, but we shall see as time unfolds. The impact of that ongoing uncertainty is that both corporate and consumer confidence is affected. If we look at equity markets, we all know that we are in a period where liquidity is being drained out of the global financial system, so U.S. interest rates are going up. There is a threat, as you know, of some trade wars, and overall, what has been a very synchronized world economic growth is beginning to stutter. The effect is that we have significant market volatility and uncertainty. In particular, the effect on emerging markets has been particularly strong.
If we look at this snapshot of the results, growth in operating profit and adjusted EPS is recorded at 14.2%, and growth in, sorry, in operating profit, 14.2%, growth in adjusted EPS at 6.4%. We will unpack the difference in growth rates a little later. Again, as we said, significant flows in asset management and wealth of GBP 4.8 billion, taking total assets under management to GBP 166.5 billion. In the specialist bank, one of the key drivers has been a substantial reduction in impairments as a consequence of us having largely dealt with the legacy portfolio. We did nuance the significant impact of the reduction in impairment. We did see revenue growth. We also had a reasonable level of activity supporting earnings and revenue. The cost-income ratio has improved slightly. It is still above our target range of under 65%, but we are beginning to see revenue grow faster than cost.
Revenue growing at 7.6% while costs are growing at 7.2%. We have been investing quite significantly, particularly in the U.K. Hendrik and the asset management team have been investing over a period of time. Now that is the job of Mimi and John, but there is significant investment in the base, so as we go forward, we should reap the benefit of that investment, but also reap the benefit of scale as our revenues continue to improve. We have a solid base of annuity income, which supports earnings as we go forward. Annuity income comprises, in these results, 76% of income. Just to show you the results with a waterfall graph, you will see that we started with GBP 314.6 million and that we've had significant improvement of 14% in asset management in the U.K. and other regions.
That we've had a significant increase of 96% in the specialist bank in the U.K. That is not only a consequence of the reduction in impairment. There has been improvement in the underlying business as well. You will know that when markets are this choppy, that your investment income, both in listed equity and unlisted equity, will generally be impacted negatively. The story is not just about the reduction in impairments. There has been fundamental improvement in the underlying performance of the business. The asset management business in South Africa is up 9% in rand, a creditable performance given the tough market and economic backdrop. The wealth and investment business in the U.K. is largely flat, down about 7% or so. It really is a cost story there because we've had to make investments in IT people, we've had regulatory costs as well.
We know about MiFID, we know about GDPR. In essence, there was an improvement in operating income. Let us say there's been a cost issue there. In general, good performance in the business, helped largely by the asset management business in the U.K. and the specialist banking business in the U.K. as well, but solid performance and resilient performance, in fact, by the businesses that are affected by the market. We have benefited from consistent contribution across geographies and businesses. If you look at geographic diversity, the combined U.K. and other regions business grew up by 40.2% in pounds. That really is quite impressive growth in profits. If you look at South Africa, we have growth of 5% in rand. As I said, that economy has been buffeted by a number of headwinds, that performance, in my view, is resilient given the environment.
We have also seen an improved geographic balance in that profit from South Africa versus non-South Africa regions has improved from 35%- 42% of total profit. There's a better balance in terms of profit contribution from the regions. If you look at business diversity, you will see a consistent contribution over a long period of time and with the contribution from capital light businesses at 36%. If you look at growth in key earnings drivers, starting with third-party assets under management, I have already indicated that we have assets under management of GBP 166.5 billion. On a currency neutral basis, the increase is 7.2% as opposed to the pounds' increase of 3.7%. If you look at customer accounts and loans and advances, customer accounts decreased by 2.1%. Again, there is a currency impact there.
On a currency neutral basis, customer accounts would have increased by 4.3%. If we look at core loans and advances, a decrease of 3.7% in pounds, but on a currency neutral basis, an increase of 2.4%. If we look at the loans to deposit ratio, it has been consistent in the high 70s. In this reporting period, it is at 78.2%. If you look at this movement in key earnings drivers, you can see that the engine room is running in a disciplined manner. The operating income was up 7.6% to GBP 1.3 billion. Again, if you look at where we were in September 2017, you will see that net interest income has increased quite significantly at 11%, with net annuity fee income up at 2%. We have seen the operating income up 17%, and I would like to mention that the corporate advisory business in the U.K. performed particularly well.
You will see that the investment and associate income line was significantly affected. You see a reduction of 27% there. As I indicated earlier, when markets are this difficult and this choppy, you will always see an impact in, or weaker performance in listed and unlisted equities. That was the key driver of that particular reduction in performance on that line. Looking at operating income, I have already indicated that our recurring income as a percentage of total income is consistently large at about 76%. Looking at the balance in the business model, over the period that Stephen and Philip and Glynn have been running the business, you will know that strategically we wanted to increase the contribution of capital light activities. You can see now that in this reporting period, that comes in at 55%, and we are quite pleased with the trend over the last five years.
I have mentioned that we are beginning to see the jaws widening. The efficiency of the business and the scale that comes, the efficiency that comes out of the scale is beginning to show results. If you look at costs, just to give you a bit of color around costs, you will see that premises went up 14%. As you know, both the bank here and the asset management business have been in the process of moving premises. We've had some additional costs there. Business expenses have gone up 18%. Again, that is driven largely by regulatory costs. I spoke about MiFID earlier, and I spoke about GDPR. Those costs would have affected asset management. It would have affected also the wealth and investment business and the bank also.
You will see the personnel costs went up 6%. We've added about 180 people between the two periods, and the majority of those 180 would have gone into a regulatory area. The regulatory burden, unfortunately, is not lightening up at all. Just to get back to impairments. As you can see in the graph there, the light gray bar has largely disappeared because we have dealt with the legacy portfolio. There is still a small residual of about GBP 189 million. As we go forward, we take it that the legacy issue has been dealt with. We are reporting simply on a statutory basis and not looking at ongoing and statutory, because we have dealt with the issues of the past. In summary, if you look at our operating profit for the period, started at GBP 315 million, ended at GBP 359 million. Strong growth in operating income.
As I said, the engine room is ticking on nicely. We've had the benefit of a reduction in impairment of GBP 29 million. We've had operating expenses as I have explained in the previous slide, and you will see there that there was an 86% increase in non-controlling interest, driven largely by IPF, Investec Property Fund earnings growth. We consolidate it at the top, obviously we take minorities out. That partly explains some of the differences in the growth in operating profit. When you look at the growth in attributable profit, that is 8.2%. That's part of the difference. When you look at growth in EPS, adjusted EPS, that growth is 6.4%.
The tax in this period is lower than it was last year, and we also have had an increase in shares issued. If we go to the next page looking at the performance again, I will just talk about the dividend. Oh, Stephen, I see what you meant. I needed to move the screen forward. What did you say?
Tax was higher in that period. That's what I meant.
Oh, thank you. You see, we still have the old master here. By the way, Stephen picked up an error in some of the numbers yesterday, and there was a big argument in the business yesterday whether a particular number was correct or not. You have to give your due to the old lions, as Stephen called the group that's going up. On this slide, I would just like to highlight the fact that we have a dividend growth of 4.8% in pounds against a growth in adjusted EPS of 6.4%. In rands, that growth in the dividend will be 3% because the rand is stronger now than it was in November last year. Those who live in South Africa know that in November last year, the political and economic outlook was quite significantly concerning.
If we look at performance against financial targets, our ROE is at 13.4% as I said, against a target of 12%-16%. What is impressive here is that the ROE trend has been upwards over a number of years. We will see the relevant graph in a minute or so. I have talked about the cost-to-income ratio improving a little bit, still outside of target, but we are hopeful that we can get into target. The dividend cover at 2.6x is in the middle of the range. As you can see, at September 2017, it was also at about 2.5x. Generally, at interim, that's where we normally are. We will see what we do at final. If we go to the next slide, you can see there the trend in ROE growth that I referred to.
A consistent improvement over time, given some of the key decisions that have been taken over the last few years and given the execution on the strategic decisions taken the last few years. As we go forward, we hope to continue to see improvement based on growing the underlying client franchises, being disciplined around costs and optimizing capital allocation. If we look at a certain aspect of the balance sheet, the balance sheet is sound. The business is well capitalized, lowly leveraged with strong liquidity. I'm going to go into a quick review of the different divisions, starting with asset management. As we have announced, there is a capital markets day on Tuesday, where we will go into significant detail into the asset management business.
We will just go through quickly over this because we do have a big day coming on Tuesday, where the team will go into the detail of the business. We've seen growth of 10% in net operating profit to GBP 91.5 million. The operating margin is 31.4%. We've seen a slight compression in the margin. At September 2017, the margin was 31.8%, but fair enough. We continue to invest in key strategic growth areas. The AUM over the reporting period increased 5.1% to GBP 109 billion. We have indicated a substantial net inflows of GBP 4.1 billion. If we just look briefly at the two priorities of this business. The business is managed for the long term, the focus is never short term, and we look to attain sustainable growth.
We will be looking to concentrate our effort on our existing offerings where we are differentiated and we have the form. We're not going to try to be all things to all people. Only where we're differentiated and we have the form, that's where we will continue to spend our efforts. We will continue to look for scale through our global distribution model, with specific aims into the institutional and advisor channel that we have been targeting and growing over the years. We must capture the next wave of growth, specifically the resiliency in the North American institutional market. We also position ourselves for the future in that we do believe Asia in the long term is an area of significant opportunity. We will obviously continue to do hard work in the remaining markets that we have done well in over time.
As always, we will continue to discipline and strengthen our investment and client capabilities. This business is about being relevant to clients and the creation of value, and shareholder value specifically, in the long term. If we look at the wealth and investment business. As I indicated, we had an increase in operating income of 4.4%, we've had some cost issues that I have talked about already. Increase in income, significant increase in costs. Again, we've been investing significantly in this business for future growth. Some of you will know about our digital platform in the wealth business called Click. In the South African business, in conjunction with the private bank, we have One Place. Investment in building platforms is one of our key strategic focus areas as we go forward.
The asset under management grew by 4.5% in local currency, representing a net flow of GBP 650 million. These performances are consistent with the industry, given just how difficult operating conditions are. The business will continue to focus on internationalization. The business will also continue to focus on enhancing their range of services and products to their clients. I've already spoken about the need to invest in building our capabilities, and specifically click in South Africa, One Place, with the integration of the South African wealth business or the collaboration between the South African wealth business and the Private Bank. We will also focus in particular in the U.K. market on financial planning. If I move to the specialist bank, firstly, globally, an increase in profits of 18.8% to GBP 235 million. We've spoken about the increase in the profitability of the specialist banks in the U.K.
We've also indicated the resilient performance of the South African specialist bank, even though earnings are up by 4.2% only because that market has been particularly tough. The cost-to-income ratio of the specialist banking business globally is now at 60%. Operating income going up at 7.1% and costs up at 5.6%. You will remember that we have been investing pretty significantly in the Private Bank in the U.K. That is largely done now. That cost is in the base. We would expect as we go forward to gain some benefit out of that. I have already indicated growth in core drivers of the business in customer accounts and in loans and advances. With respect to customer accounts, we saw in this period a significant increase in retail deposits. Therefore the quality of our liabilities has increased.
If we dig a little deeper into the specialist banking business in the U.K. and other regions, net interest income up 18.7%, net fees up 14%. What is really important on this particular slide is the history more than just the numbers for the period. If you look over a five-year period, you can see consistent increase in net interest income. You can see increases in net fees. You can see contribution in investment and associate income. This is not just a one reporting season issue. We have been growing the business consistently. The franchise is growing. If we look at the return on equity, we can see that for this period, return on equity is at 9.2%. We were at 3.2% at March. There has been a significant increase in return on equity.
Our objective would be to have a double-digit return on equity as we go forward. I think we are not too far from there. Hopefully, this is the last time we are seeing that black line that says ongoing, because those were the issues of the past. We are now reporting on a statutory basis. If we look at the South African banking business, I've indicated that it has been affected by a tough operating environment. We've seen softening book growth, client flow trading has decreased as well, as well as investment income. This is an resilient business. We have a premium position in the South African banking market. Our clients are very resilient as well. We have also been investing in new areas of growth in the South African banking business. We have aggressively invested in Investec Life.
We have recently reorganized our business offering to the mid-market investor base, we will be launching transactional services in that market. That business is resilient, we are looking at new ways to grow revenue, but more importantly, to serve the client base. Just looking at the return on equity. The return on equity for this particular period is 12.4%. Obviously, the business has a large equity portfolio that in this period returned 6.9%, we generally do judge the performance of the investment portfolio on the basis of the internal rate of return.
If you see that ROE, the [audio distortion]- bear in mind that there is a much investment portfolio there. The bank and wealth business in South Africa is quite integrated as well. If you estimate those businesses together, you will see that the performance on an ROE basis is quite encouraging. We would, in the nine months, be looking at returns in the South African business banking and wealth business of over 15%. If you look at the strategic priorities of the bank and wealth business post de-merger, we will not have access to the earnings impact from asset management. You would see ROE still being significantly higher than where we would fall if we simply stripped out asset management. We'd be looking at a target range of between 11% and 15% post de-merger. Sorry?
11% - 15%.
11%- 15%. Okay. Oh, 14%. [audio distortion] . Thank you. Because you know they are caught by a young lion, taking its own life. Thank you. Our concentration as we go forward will be to grow the underlying client franchise. This is what this business is about. Client acquisition and deepening of existing client relationships. We will be looking to continue the progress that has been made in the U.K. private bank. We will also have indicated the investing in technology platforms, spoke about the One Place in South Africa we can invest here, and generally other investment in technology to improve efficiency, to improve client experience, and then improve client acquisition. We believe technology is important, so we generally will be high tech, but we will remain high touch as well, because we believe personal service is absolutely critical as we go forward.
I've indicated that we've invested a lot, that because investment is in the base, revenue is beginning to grow, and we have a disciplined cost approach that we would look to improve the jaws ratio. We will also look to manage our capital base. Specifically, we would be looking at efficient capital allocation. We would look to address in future the dilution that has been caused by issues of shares to the share scheme. The philosophy will be to buy back shares as opposed to issue them. We will give you more detail on that particular aspect later on. We intend to have a Capital Markets Day for the bank and wealth business on the 26th of February. This business is about clients. This business is about the people that work in it.
If we concentrate on clients, if we create an environment that motivates the people that Hendrik spoke about, the 10,000, we should be able to create value in the long term. Hendrik, do you want to conclude with this slide or should I just take it?
I think you take it.
Should I take it? Okay. In conclusion, we are a team.
You're on a roll. Carry on.
In conclusion, we are committed to stakeholder value. Oh, the slide. Thank you. I'm supposed to be one of the most technologically savvy members of the board, but I'm struggling. In conclusion, we're committed to shareholder value. We have indicated that we are going to look to simplify the business, to sharpen our focus as we grow and do so in a disciplined manner. Post de-merger, we will release two independent businesses that are poised for lasting growth and value creation. Thank you very much. Hendrik, will you take the questions?
There we are. Yeah. There we are. Go on. Any questions? Shall we start with Johannesburg? Let's be democratic. While the other guys are deciding on Brexit, we go to Johannesburg.
Are we on?
Yes, Ciaran. You're on.
Is there any questions here?
See, the group is not there. No questions?
We have one. We have one, Hendrik.
Yeah.
Good morning. My name is Tiseke. I'm from Reuters. I just have a question for Fani. Discovery and three new banks are coming to town. Do you lose any sleep over that? Thank you.
Fani, do you want me to answer that seeing as it's a South African issue mainly?
I'll pass the opportunity to you, Ciaran.
Okay. First of all, there is a lot of competition in our market in South Africa. It's not just Discovery. The second point, I think that there are many other financial services organizations in South Africa who should be a lot more worried about Discovery coming in than ourselves. We are a very niched organization. We provide wealth and investment, wealth and banking services, both locally and offshore. That is a key part of our offering to a very select niche target market base.
Yes, everyone says you welcome competition. Well, I'll say that with a smile on my face. Competition is good because it is good for the market. We wish Discovery well, and also the other organizations that are coming now to do well because that will maintain the integrity of the financial service system, which is very important.
Thanks, Ciaran. Ciaran is the Global Head of the Private Bank. Believe in you, Ciaran, who will be the Head of Risk. Let's see what Discovery has to offer. Competition is good, sharpens our game, beneficial to clients. We welcome it.
Do we have another question here?
Morning, guys. Congratulations on the results. It's Banky from Merrill Lynch. Just one quick question. Your ROE improved to 13.4%. Could you just please tell us what the impact of IFRS 9 was on your ROE?
Fani will deal with that. You've done them, Nishlan, do you want to talk about it? In essence, the impact was about 250. Those guys down the back lines now the hard part comes up. Nishlan is our CFO.
All right. I think the impact of IFRS 9, obviously, opening reserves were adjusted. There was about GBP 265 million. That would have added about 0.4% to the underlying ROE number. The income statement effect of IFRS 9 has been fairly muted because we haven't really seen any key change from a modeling perspective. I think fundamentally, you see the growth in ROE in the current period really supported by the underlying fundamentals of the business.
Thank you.
As we have said, on the ROE type of thing, it is an over time metric, and it's an over time consistent metric. To get too hung up about a particular number at a point in time defocuses you. You've got to look at the trends, and I think that's why Fani tried to show you the trend. While Actually, I won't be here. Fani will be explaining to you that the ROE of over 15% is a waste of time. I don't hold him to any targets. That really is the point.
I can't believe that.
Exactly. He's quoted that. That's why I said it in quite some time. Any other questions?
Any questions here in Johannesburg? That's it. Over to you, Fani.
Thank you, Ciaran.
In London? [audio distortion] mic is not working here.
A question around post demerger from Bank Group. Will Investec report around the current dual-listed company structure or that stays as is?
That will stay as is. We want to be quite clear about it. While there is complexity, we do believe that in the long term, this is the right structure. We've considered the issue, but we're quite clear that it's the structure that we will have going forward. I think it will be a problem trying to take the South African business into the U.K. market, if you wanted to call it this way. I don't think we can get regulatory approval for that. Similarly, trying to take the U.K. bank to be owned by the South African business would not work commercially. We are quite definitive about a business structure for the foreseeable future. Obviously, it's exactly the opposite for the asset management business. It's a simple business.
It's not a capital market dependent business. I think that would be a move away from DLC to LSE, subject, of course, to regulatory approval and ultimately shareholder approval.
Thank you.
Any other questions?
We have no question from the line.
I think Maybe almost tea time, Fani. Thank you very much for supporting us today and being here, and we look forward to your attendance at the capital market day coming up. Of course, we'll be back after what is probably a slightly tougher macro environment in the second six months of the year. We hope.