South Africa beating the UK for Investec

Investec’s credit loss ratio continues to be better in Southern Africa than in the United Kingdom, according to its results for the year ended 31 March 2025.

“We are pleased to report a strong performance in a volatile operating environment, with the Group generating a Return on Equity of 13.9%,” said CEO Fani Titi.

“Pre-provision adjusted operating profit grew 7.8%, surpassing £1 billion (R24 billion) for the first time in our history, demonstrating the underlying strength of our differentiated client franchises.”

He added that the group maintained robust capital and liquidity levels, positioning it well to drive sustainable growth.

Revenue also grew by 5.0% against an operating cost of 2.8%, resulting in a positive jaws ratio.

The group’s revenue was supported by client acquisition and ongoing entrenchment strategies, strong net inflows from discretionary and annuity funds under management, and average interest-earning assets.

Net interest income (NII) also benefited from higher average lending books and lower funding costs in South Africa. Still, it was partly offset by the effects of deposit repricing in the United Kingdom.

Non-interest revenue (NIR) growth also reflected strong growth in fees from its South African Wealth and Investment business and improved fee income from its Banking businesses.

Investment income also contributed positively to NIR growth and was driven by net fair value gains and dividends received.

The cost-to-income ratio improved to 52.6% (FY2024: 53.8%), with revenue growing ahead of costs.

The group’s credit loss ratio on core loans increased from 28 basis points in FY2024 to 38 basis points. However, this is still within the group’s through-the-cycle range of 25 bps to 45 bps.

The expected credit loss impairment charges increased from £79.1 million (R1.9 billion) in FY2024 to £119.2 million (R2.8 billion). 

The group benefited in FY2024 from the net recoveries from previously impaired exposures in South Africa. It noted that the overall credit quality remained strong, with no signs of trend deterioration.

Notably, the South African credit loss ratio only stood at 15bps for the year, while the credit loss ratio in the United Kingdom stood at 60bps.

The UK’s gross core loan book of £17 billion (R410 billion) also outwighs Southern Africa’s £15.7 billion (R378 million), meaning that a relatively large amount of the group’s biggest loan books are being impaired.

The group’s credit loss ratio is also expected to be within the through-the-cycle (TTC) of 25bps to 45bps.

Although the South African credit loss ratio is expected to be around the lower end of the TTC range of 15bps to 35bps, the UK & Other are expected to remain around FY2025’s level of 60bps.

Drop in profit

The group’s Return on Equity declined from 14.6% to 13.9%, which is at the lower end of its medium-term target range of 13% to 17%.

“We expect to generate incremental returns of c.200bps over the next five years, resulting in a ROE around the upper end of the upgraded medium-term target range,” said Titi.

The group’s profit after tax from continuing operations increased from £651 million to £693  million (R15.7 billion to R16.7 billion),

However, the group’s total profit after tax dropped from £941 million (R22.7 billion) to £693 million (R16.7 billion).

This is because the group had two significant strategic actions in FY2024, now classified as discontinued operations.

This includes the combination of Investec Wealth & Investment Limited and Rathbones Group Plc, where the group deconsolidated its 100% holding in Investec Wealth & Investment Limited.

In return, the group acquired a 41.25% interest in Rathbones Group Plc, which was accounted for as an equity investment.

Moreover, the company sold the Investec Property Fund (IPF) management companies, in which it deconsolidated its existing c.24.3% investment in IPF.

The Investec Wealth & Investment business and IPF have thus been disclosed as discontinued operations.

When not including the adjusted figures, the group’s basic earnings per share declined by 32.5% to 72.8p (R17.57) per share, 

The group’s headline earnings per share dropped by 0.3% to 72.6p (R17.52) per share.

Despite the overall drop in earnings, the board still upped its final dividend to 20.0p (R4.83) per share. This comes after the group increased its total payout ratio from 44.2% to 46.1%, with the total dividend increasing to 36.5p.

This aligns with the group’s 35% to 50% payout policy. In other returns to shareholders, the group also plans to execute a share buy-back programme of R2.5 billion over the next 12 months. 

Outlook

Looking ahead, the group said its momentum is expected to be underpinned by book growth, stronger client activity levels and success in its acquisition and entrenchment strategies.

The group expects Group ROE to be around 14.0%, with the following area breakdown:

• Southern Africa is expected to report ROE of c.18.5%, within the target range of 16.0% to 20.0%
• UK & Other is expected to report ROTE of c.14.0%, within the target range of 13.0% to 17.0%

Overall costs are expected to be well managed in the context of inflationary pressures and continued investment in the business, with the cost-to-income ratio around 52.0% to 54.0%

Looking to the medium-term financial targets, the group has a strategy to advance its ROE towards the upper end of the target range by FY2030. ROE expansion will be underpinned by:

• Continuing to build scale and leverage our existing client franchises to generate higher returns,
• Executing specific growth initiatives to enhance our current specialisations and drive incremental returns,
• Managing capital optimally