Good day, ladies and gentlemen, and welcome to the Investec pre-close trading update. All attendees 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 event is being recorded. I would now like to hand the conference over to Mr. Fani Titi. Please go ahead, sir.
Thank you, Delaney, and good morning, all. Thank you for joining us at this pre-close trading update. I will ask our Group Finance Director, Nishlan Samujh, to lead the call this morning. Nish, over to you.
Thanks, Fani, and we're also joined this morning by Ruth Leas, our CEO of the Investec Bank plc, and Richard Wainwright, CEO of Investec Bank. Today's update is based on the financial performance for the five months ended 31 August 2023. The earnings guidance for the six months ended 30 September 2023 is based on the year-to-date performance. I am pleased to report that the group has continued to deliver a solid performance, despite the difficult macroeconomic backdrop, which was characterized by high inflation and rising global interest rates. In the past 18 months, we executed several strategic actions in line with our objectives to simplify, focus, and grow our business.
These include the combination of our U.K. Wealth business with Rathbones, which was successfully completed yesterday, the share buyback program, and the distribution of our 15% shareholding in Ninety One, our orderly exit from the Bud Group Holdings, formerly known as Investec Equity Partners, and the disposal of the property management companies to Investec Property Fund. Turning to the underlying performance, our diversified business model and strong balance sheet have enabled us to support clients through challenging market conditions. Revenue growth has been supported by continued success in our client acquisition strategies, a higher interest rate environment, and balance sheet growth. This was partially offset by the effects of some of the strategic actions described above. The cost-income ratio improved as revenue grew ahead of cost and is expected to be below 60%.
Fixed operating expenditure growth was driven by continued investment in people and technology, as well as inflationary pressures. Variable remuneration grew in line with profitability. Looking at the fundamentals for our core franchises, within Specialist Banking, core loans grew by 8.3% annualized on a neutral currency basis, driven by corporate lending in both geographies. Customer deposits increased by 9.3% annualized in neutral currency. Within the Wealth and Investment business, funds under management increased by 1.3%, up to GBP 61.3 billion, with positive net inflows of GBP 325 million in market conditions that continued to be challenging. Our South African business reported strong inflows. Approximately ZAR 7.5 billion of net inflows in discretionary funds was partially offset by approximately ZAR 1.9 billion net outflows in non-discretionary funds.
We had muted net inflows in the U.K. Wealth business, given the persistent economic uncertainty. For the six months ended 30th of September 2023, we expect group-adjusted earnings per share to be between GBP 35.5-GBP 37.5, or 8%-14% ahead of the prior period. Adjusted operating profit before tax of between GBP 428.7 million-GBP 449.6 million, compared to GBP 405 million in the prior period. Adjusted operating profit for the U.K. business to have, be at least 25% higher than the prior period, which was GBP 174.4 million. Our Specialist Bank is expected to be at least 40% higher than the prior period.
Adjusted operating profit for the Southern African business to increase by at least 5% on the prior period figure of ZAR 4.6 billion. Our Specialist Bank is expected to be at least 12% higher than the prior period in rands. ROE to be around the midpoint of the group's targeted range of 12%-16%. A group credit loss ratio close to the upper end of the through-the-cycle, 25-35 basis points. The expected credit loss experienced to date reflects the higher interest rate and inflationary environment. We have seen idiosyncratic client stresses with no evidence of trend deterioration in the overall credit quality of our books. The year-to-date average rand-pound sterling exchange rate depreciated by approximately 19%, reflected in the sterling earnings guidance provided above.
Obviously, for a rand shareholder, this will result in a significant increase in the period. Investec made further progress on its capital optimization strategy. Our announced share buyback program is progressing well and is expected to be completed in the current financial year. We continue to make progress in the realization of the remaining assets to facilitate our orderly exit from the Bud Group Holdings. The group remains well capitalized, with strong liquidity and well-positioned to continue supporting its clients as they navigate the uncertain and complex operating environment. I will now turn the call over to questions. Please note that this is a trading update, so there's only a certain amount of detail we can provide at this stage. Our results for the six months ending 30th of September, 2023, will be published on Thursday, 16th November, 2023.
Thank you very much, sir. Ladies and gentlemen, if you'd like to ask a question, please press star then one on your telephone keypad or the keypad on your screen. A confirmation tone will indicate that your line is in the question queue. You may press star two to exit 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 Anchor Stockbrokers. Please go ahead.
Hi, good morning. Thanks very much for the opportunity and the trading update. Just would like to get a sense of the fee income growth trends in the Specialist Bank . If you could possibly give us some guidance on that. And then, just if you could, update us on the interest rate sensitivity as well for the South African and U.K. banks.
Sure. I think obviously fees are dependent on a couple of factors. I think we've seen very good, transactional activity on behalf of our clients in the Private Banking business in South Africa. Fees across the board remain challenged in terms of, you know, slower economic activity and, overall advisory, albeit that we have seen pockets starting to come through. And from our Wealth businesses, I would say that, you, you know, to the extent that we do have, quite a significant portion of our Wealth business in South Africa that has, offshore funds under management, the weaker rand has actually had a positive impact on, fees overall.
With regard to lending, you know, from a private client extension perspective, there has been a slowdown in activity, and that obviously has a bit of a negative impact in terms of fee generation. We've also seen a degree of a pickup in corporate activity across both geographies. In terms of interest rate sensitivity, I think, you know, interest rates have continued to be a net positive impact on earnings. I think we've seen some positive moves yesterday. I think it's still early to judge the overall trend, as inflation still remains a concern across the geographies in which we operate. Across the U.S., U.K., and South Africa, we saw a pause in the increase in interest rates.
In terms of sensitivity, I would say our U.K. bank, it's around about GBP 9 million-GBP 10 million for every 25 basis points. In South Africa, between ZAR 60 million-ZAR 80 million for every 25 basis points. Thanks, Harry. Hopefully, that answers your questions.
Yes, thank you.
Thank you. The next question comes from Alexander Bowers of Berenberg. Please go ahead.
Good morning. Just two questions from me. Just starting with loan growth. I think it was sort of 3.5% on a neutral currency basis across the group in the period. Would you just be able to give us a view on your expectations for growth in H2? And then sort of secondly, on credit loss ratio, you mentioned South Africa was at the lower end of guidance, with the U.K. above the upper end of its range. Could you give us a bit of color on what you are seeing in terms of credit quality in each region, and how you expect this to evolve over the course of the year? Thanks.
Hi, Alex, thanks for those questions. I think in terms of loan growth, we've definitely seen, you know, activity in terms of corporate, but in a challenging environment. I think credit extension for private clients will continue to be under pressure as we move through this financial year. That being said, you know, we do operate in the high net worth and high net income bracket of the market. So to the extent that opportunities arise, we anticipate that our clients will remain active. I think the overall growth, you know, annualized at about just over 8.3%, probably in line with expectation as we move forward in this year.
With regards to credit loss ratio, I think in SA, the ratio remains positively impacted by higher levels of recoveries. And you know, in both South Africa and the U.K., we have seen some increases in default. That being said, again, no pointers to any deterioration signs in any particular sector or any particular area of the book. In the U.K., we have an Asset Finance book, which operates with a higher credit loss ratio through the cycle. The mix in terms of... And you know, the higher end of the loss ratio, I don't think, again, points to anything specific, but we tend to operate at a higher level in the U.K. market.
Thank you.
Alex, does that conclude your questions?
Yeah, that's all from me. Thank you very much.
Thank you. Ladies and gentlemen, just a reminder, if you'd like to ask a question, you're welcome to press star then one to place yourself in the question queue. The next question comes from Stephan Potgieter of UBS. Please go ahead.
Good morning. Thanks for the call. Just a question on the effective tax rates. Obviously, U.K. tax rates increasing quite a lot. Is that new higher tax rates in for the full period? Could you provide, provide some indication of the overall effective tax rate?
Yeah, I think, you know, we pointed to the fact that, tax rates have increased from a, from a market perspective in the U.K. From a bank, I think there's a 3% surcharge on the 25% base rate for corporates in the U.K., and we're pointing to an effective tax rate, that, you know, is maybe a couple of points below that, at around about 26%. So the blended tax rate, for the overall group will pick up from the prior year, primarily driven by higher rates in the U.K.
Thanks very much. Just on the, if I may, Investec Property Fund, so is that fully deconsolidated for this period, so there's no minority interest coming through on that?
Yeah. Yeah, you will have a period, because the deal was effective early July. So we would've consolidated for a period and then deconsolidated from that point. What you will see in our half-year results in November is that we will split it out between continued and discontinued. So there'll be a clarity of disclosure for you to be able to track through the go-forward picture.
Thanks very much. That's it from me.
Thank you.
Thank you.
Ladies and gentlemen, just a further reminder, if you'd like to ask a question, you're welcome to press star and then one. The next question comes from Chris Steward of Ninety One. Please go ahead.
Morning, gentlemen, and thanks very much for the opportunity. I'll keep it a very simple question this morning. If you could just give some degree of indication, given the extent and timing of share buybacks, as to what you would expect your weighted average number of shares in issue for the period to be, please?
Sure, Chris. I think last year we closed at a weighted average of around about 905 million. We've indicated that we've purchased circa 64 million shares. The majority of those acquired up to March 2023, so a large portion of that will be reflected in the weighted average number of shares. We'll give you the absolute number in the November results.
Sure. Okay. Right, so ZAR 64 million of buybacks, which, yeah, as you indicated, I think ZAR 5.5 billion of that had been done by financial year-end, if I remember correctly, ZAR 5.5 billion rand's worth of the buyback. So, so the bulk of that was done-
Correct.
and therefore would be excluded over this period, and the balance would obviously be partially excluded over the period. Thank you. Got you.
Thank you.
Thank you. It appears we have no further questions in the question queue. I will now hand back for closing remarks.
Well, thanks to all of you for your time this morning. If you have any further questions, please do not hesitate to contact and get in touch with our team. All the very best, and guys, enjoy the long weekend and the rugby.
Thank you, sir. Ladies and gentlemen, that concludes today's event. Thank you for joining us, and you may now disconnect your lines.