Good morning, ladies and gentlemen, and welcome to the Investec Pre-Close Conference Call. All participants will be in listen-only mode. There will be an opportunity to ask questions later during the conference. If you should need assistance during the call, please signal an operator by pressing star, then zero. Please note that this call is being recorded. I would now like to turn the conference over to Group Chief Executive Fani Titi. Please go ahead, sir.
Thank you, Dina, and good morning, all. Thank you for joining us for our pre-close trading update. This update reflects the financial performance of the 11 months ended 28 February 2025 and the expected results for the year to 31 March 2025. I'm joined this morning by Nishlan Samujh, our Group Finance Director, Ruth Leas, the CEO of our U.K. Business, and Cumesh Moodliar, the CEO of our South African Business. We are pleased with the performance of our underlying client franchises, which continue to report progress against our strategic priorities and support revenue growth in a challenging environment. The group maintains strong capital and liquidity levels, which allowed us to continue supporting our clients in the current environment and achieve results within our financial target ranges.
Turning to the underlying performance for the 11 months ended 28 February 2025, higher revenue was supported by continued client acquisition, stronger inflows of discretionary and annuity funds under management in the current and prior period, as well as higher average advances. The cost-to-income ratio improved as revenue grew ahead of costs. Fixed operating expenditure reflected continued investment in people and technology for growth, as well as inflationary pressures. Looking at the underlying drivers of our client franchises, net core loans from our banking businesses increased by 4.7% annualized to GBP 32.2 billion, driven by private client lending in both geographies and corporate lending in South Africa. Customer deposits increased by 4.8% annualized to GBP 31.2 billion. Funds under management in our South African Wealth and Investment business increased by 14.5% to GBP 24 billion. We saw strong inflows in discretionary funds, which were partly offset by outflows in non-discretionary funds.
For the year ending 31 March 2025, we expect to report the following: Pre-provision adjusted operating profit to be ahead by 5%-12% relative to the prior year. Adjusted earnings per share to be between 4% behind to 4% ahead of the prior year. Cost-to-income ratio to be below the 53.8% reported in the prior period. The trade loss ratio to be within the through-the-cycle range of 25 to 45 basis points. Overall, the credit quality remains strong. Group ROE to be between 13%-14% within the group's medium-term target range of 13%-17%. Lastly, Group ROTE to be between 15.5%-16.5%, this being within the 14%-18% medium-term range. Our diversified business model and strong balance sheet position us well to navigate the current environment and execute on our strategic priorities as we look forward.
I will now turn the call over to questions. Thanks, Dina.
Thank you, sir. Ladies and gentlemen, at this stage, if you would like to ask a question, please press star and then one. If you decide to withdraw the question, please press star and then two. If you would like to ask a question, please press star and then one. The first question we have comes from Harry Botha of BofA Securities. Please go ahead.
Hi, good morning, Fani and team. Thanks for the updates. Could you provide some insight into the slightly lower guidance on the South Africa ROE compared to the previous 19% level that you were looking for? Is it related to revenues or cost of credit impairments? Could you also give us some insights on the South African NIMS, how the deposit optimization plans being playing out compared to some of the deposits pricing pressures that we've seen in the market?
Sure. Harry, I think Cumesh will start off on the SA ROE guidance. Cumesh?
I think just some context there, Harry, to it is that in the first half, we did have a large gain in investment income, which related to Burstone and gains in the balance sheet management, which not repeating in H2.
Okay, sorry, Harry, what is the second question?
It's just related to the South African NIMs, how they've been progressing in the second half of the year. You had been looking for an uptick based on the deposit optimization side, and I think we have seen from some other banks some deposit pricing pressure.
Yeah, I think overall, in the short term, there continues to be slight pressure, but I would say that our NIM has actually held up reasonably well over the period. We will continue to optimize the deposit base, but that is much more a medium to longer-term strategy that is executed. We do see positive contribution from that effort in the current period, and we expect to see material contribution as we move further in time.
Thank you.
Thanks, Harry.
Thank you. The next question we have comes from Alexander Bowers of Berenberg. Please go ahead.
Morning. Just had a question around loan growth. It looks like U.K. loan growth sort of slowed in H2, whilst in South Africa, I think you've got a bit of a pickup versus H1. Could you just sort of explain some of the dynamics behind that and sort of what the current outlook is for both businesses? Thanks.
Yeah, just to give a high-level view, as we had indicated in November at our interim results presentation, South African activity had been pretty muted given the uncertainty around the election. Then we had a Government of National Unity that came in, and a level of confidence returned into the economy and the market, and we saw some improvements. In fact, Cumesh spoke of investment income benefiting from asset price increases at that time as a consequence of the confidence that returned, and we have continued to see some improvement in activity. Hence, for our South African business, we have seen on a year-to-year basis some commendable increase in the loan book given what happened in the first half. Clearly, the U.K. environment has been somewhat different.
The Autumn Statement, as you know, Alex, was received quite negatively by the market, and I think there was general concern amongst, in particular, business people about the impact of some of the policy pronouncements. The adjustment to that environment took a bit longer than would have otherwise been the case. Ruth can talk about some of the activity on the ground and some of the elements of that loan growth as we try to explain in the statement, but I'll leave that to Ruth to expand.
Good morning, Alexander. Looking forward, we do see growth momentum building, and we have seen growth picking up in our mortgage lending as rates have been trending downward. On the corporate side, we did see growth originations keep up with the levels they were at the previous year, but what we saw coming through in recent months was a much higher level of redemptions, and that is what has brought the level of loan growth down. We look forward to more growth as we head forward into the current financial year.
Thank you.
Thank you, sir. Ladies and gentlemen, just a reminder, if you would like to ask a question, please press star and then one now. The next question we have comes from Chris Stewart of Ninety One. Please go ahead.
Thanks very much. Good morning, Fani. Good morning, Nishlan. I've got two questions, if I may. The first question, I guess, is that clearly there's a number that seems to be a little bit disappointing relative to market expectations. It's hard to pin exactly why you're pointing to continuation of positive jaws. There doesn't appear to be any credit quality blowout. Net flows within your South African wealth management business seem pretty decent. Still a slight slowdown from the first half, but pretty good. Still, write-downs have come in as expected. It does appear to be a sort of slightly disappointing performance from a revenue perspective across probably the two specialist banking operations. Ruth has just touched on a slightly improved outlook for the year.
Maybe you could just give us a sense of whether the current, if you like, soft patch continues into the new financial year or whether you are slightly more optimistic that you can see a turnaround therein. That's the first question. The second question with the stock trading, and maybe this is linked to the first question, with the stock trading comfortably below book value, with the South African return on equity between 17.7-18.7%, comfortably ahead of cost of capital, and in the U.K. between 13.5-14.5%, again comfortably ahead of cost of capital. South African common equity Tier 1 at 14.8%, U.K. at 12.3%, both comfortably ahead of board target ranges. I mean, what are the plans in order to continue to add shareholder value from a capital management perspective?
Thank you very much, Chris. That second question was quite telegraphed in your comments, but let's take the first question first. As indicated in my answer to Alexander's question, we have seen good activity continue within our South African business given the nature of the loan growth. As we look forward, obviously, this is a pre-close trading statement. I do not want to go into too much detail around our expectation, but I would say that we would be positive around loan growth into the new period, simply given the momentum that we have seen now. Ruth also indicated that while for the period that we indicated, there was a rather restricted growth in the loan book, there has been activity, but higher redemptions as it were.
Remember that also within our U.K. business, we also originate and distribute some of the risk we cannot keep on our balance sheet given some of our size limitations. Our outlook for loan growth and activity in both markets would be positive. We will be able to unpack our outlook a lot more in detail as we announce our results sometime in May. On the second question, you are correct that we continue to generate capital ahead of risk-weight growth. In South Africa, as indicated, we have a pretty elevated CET1 ratio. As before, at the end of the year, we will look again at the growth outlook in terms of our loan books, one, because that is the first order of priority in terms of capital. Second, we will obviously look at any other opportunity that may be out in the market.
We have indicated strategically in the past that we would desire to increase over time the contribution of capital-led businesses to the overall mix of revenues, so we will continue to explore that particular strategic objective. Of course, it remains to us, assuming that we funded all our growth and we've looked for any opportunity strategically, that we would return excess capital. Obviously, the amount of capital that we have now is much higher than our guided optimal capital levels in South Africa of 11.5%-12.5% before all the regulatory changes come through, of course. At 14.8%, it's simply quite elevated, and we will make some decisions around that when we announce our final results by or in late May.
Thank you, Fani. That's very clear indeed. Thank you.
Thanks, Chris.
Thank you. Ladies and gentlemen, just another reminder, if you would like to ask a question today, please press star and then one now. The next question we have is a follow-up from Harry Botha. Please go ahead.
Thanks very much. Just two follow-ups from me, if possible, please. Just to go right, if you can possibly indicate the second half versus first half investment income and trading income trend, you noted the lower trend in South Africa. What is it like on investment income in the U.K. and the trading income as well, if possible, please? And then on the tax rates, is there anything to consider in the second half of the year compared to the first half?
We obviously would like not to go into too much detail on the results as this is a trading update, but I'll ask Nish to talk about the question and the second question relating to the tax rate, Nish.
Yeah, I would say that investment income, the broad answer is that it is lighter than the first half, and that's really coming from South Africa, as we indicated the valuation movements on Burstone in the first half and a bit of softness into the second half. I think the rest we'll unpack with the results as we get into it.
Excellent.
The tax rate, I would say, is fairly similar. We have been absorbing a higher tax rate from a U.K. perspective, with that tax rate now at 25% overall, but no real material movement in the tax rate. I think one other item to be aware of is the higher cost for our AT1 instruments. We did redeem some of the instruments that were previously in issue in December, so we will see that benefit come through late in the quarter and then into the next financial year.
Thank you.
Thanks, Harry.
Thank you. Ladies and gentlemen, just a final reminder, if you would like to ask a question, please press star and then one now. We'll pause a moment to see if we have any further questions. At this stage, there are no further questions on the conference call, sir. Would you like to make any closing comments?
Thank you all for your time this morning and your continued interest in our business. As usual, if you have any further questions that you may want to ask or get further clarification on, please do not hesitate to get in touch with our team. Again, I thank you.
Thank you very much, sir. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.