Investec Limited Incorporated in the Republic of South Africa Registration number 1925/002833/06 JSE share code: INL NSX share code: IVD BSE share code: INVESTEC ISIN: ZAE000081949 LEI: 213800CU7SM6O4UWOZ70

Investec plc Incorporated in England and Wales Registration number 3633621 LSE share code: INVP JSE share code: INP ISIN: GB00B17BBQ50 LEI: 2138007Z3U5GWDN3MY22

 

Reviewed combined consolidated financial results for the six months ended 30 September 2021

 

Highlights for 30 September 2021 (1H2022) compared to 30 September 2020 (1H2021)

•   Revenue grew 30.5% supported by the strength of our client franchises and improved market conditions.

•   Adjusted earnings per share increased 134.8% to 26.3p (1H2021: 11.2p), ahead of comparable pre-COVID levels (September 2019).

•   Wealth & Investment funds under management (FUM) increased 8.6% to £63.0 billion (31 March 2021: £58.0 billion) underpinned by net inflows of £1.5 billion, market recovery and good investment performance.

•   Loan books within Specialist Banking grew 7.2% to £28.3 billion (31 March 2021: £26.4 billion) given increased activity levels and continued client acquisition in both geographies.

•   The cost to income ratio improved to 64.0% (1H2021: 72.0%), with operating costs increasing 11.7%. Fixed operating expenditure increased 3.3% reflecting continued cost discipline.

•   Pre-provision adjusted operating profit increased 61.2% to £336.0 million (1H2021: £208.5 million), 9.3% ahead of September 2019.

•   Expected credit loss (ECL) impairment charges were 84.5% lower, resulting in a credit loss ratio (CLR) of 7bps (31 March 2021: 35bps; 1H2021: 47bps), reflecting strong asset quality and higher recoveries.

•   Return on equity (ROE) was 11.2% for the period (1H2021: 5.3%) and return on tangible equity (ROTE) was 12.1% (1H2021: 5.8%).

•   Tangible net asset value (TNAV) per share increased 10.2% (annualised) to 445.2p (31 March 2021: 423.6p). Net asset value (NAV) per share increased 9.3% (annualised) to 479.2p (31 March 2021: 458.0p).

•   Maintained strong capital, funding, and liquidity positions.

•   The Board has proposed an interim dividend of 11.0p (1H2021: 5.5p) resulting in a payout ratio of 41.8%.

•   The Board has further resolved to distribute a 15% holding in Ninety One to shareholders.

 

Updated guidance for 31 March 2022 (FY2022)

•   Updated FY2022 adjusted earnings per share guidance of between 48p and 53p (Range guided in May 2021: 36p - 41p).

 

Fani Titi, Group Chief Executive commented:

"The group delivered a strong first half result, underpinned by resilient client franchises, strong revenue momentum and sound asset quality - resulting in adjusted earnings per share of 26.3p, ahead of comparable pre-COVID levels.

I am pleased to share that the Board has proposed an interim dividend of 11.0p relative to 5.5p in 1H2021.

Further, in line with our strategy to optimise the allocation of capital, the Board has resolved to distribute a 15% holding in Ninety One to our shareholders.

I am grateful for the hard work and commitment of my colleagues, which has enabled us to deliver this solid result.

The strength of the relationships we have built with our clients is reflected in the trust they have continued to place in our people and our organisation. The changes made to simplify and focus the group are bearing fruit, positioning us well for the future. Our resilient business model and strong balance sheet will support our drive to achieve sustainable long-term value and growth for our colleagues, clients, shareholders, and societies in which we live."

Key financial data

This announcement covers the results of Investec plc and Investec Limited (together "the Investec group" or "Investec" or "the group") for the six months ended 30 September 2021 (1H2022). Unless stated otherwise, comparatives relate to the group's operations for the six-month period ended 30 September 2020 (1H2021). The average Rand/Pound Sterling exchange rate appreciated by 9.6% relative to 1H2021.

Performance	1H2022		1H2021		Variance		% change		Neutral currency % change
Total operating income before expected credit losses (£'m)	951.1		729.0		222.1		30.5	%	24.8	%
Operating costs (£'m)	598.5		535.8		62.7		11.7	%	7.8	%
Adjusted operating profit (£'m)	325.7		142.5		183.2		128.6	%	116.9	%
Adjusted earnings attributable to shareholders (£'m)	242.3		104.4		137.9		132.2	%	121.2	%
Adjusted basic earnings per share (pence)	26.3		11.2		15.1		134.8	%	123.2	%
Basic earnings per share (pence)	25.0		9.6		15.4		160.4	%	146.9	%
Headline earnings per share (pence)	24.7		9.2		15.5		168.5	%	154.3	%
Dividend per share (pence)	11.0		5.5
Dividend payout ratio	41.8	%	49.1	%
CLR (credit loss ratio)	0.07	%	0.47	%
Cost to income ratio	64.0	%	72.0	%
ROE (return on equity)	11.2	%	5.3	%
ROTE (return on tangible equity)	12.1	%	5.8	%

 

Balance sheet	1H2022		FY2021		Variance		% change		Neutral currency % change
Funds under management (£'bn)	63.4		58.4		5.0		8.5	%	8.4	%
Customer accounts (deposits) (£'bn)	36.4		34.4		2.0		5.5	%	5.3	%
Core loans and advances (£'bn)	28.3		26.4		1.9		7.2	%	7.0	%
Cash and near cash (£'bn)	13.9		13.2		0.7		5.4	%	5.3	%
NAV per share (pence)	479.2		458.0		21.2		4.6	%	4.3	%
TNAV per share (pence)	445.2		423.6		21.6		5.1	%	4.8	%

 

Performance, capital and leverage by geography	1H2022		1H2021		Variance		% change		Neutral currency % change
Investec Limited (Southern Africa)
Adjusted operating profit (£'m)	191.9		99.1		92.8		93.6	%	73.5	%
Cost to income ratio	52.5	%	58.7	%
ROE	12.0	%	8.1	%
ROTE	12.0	%	8.1	%
CET1	13.9	%	12.2	%
Leverage	7.6	%	7.6	%
Investec plc (UK & Other)
Adjusted operating profit (£'m)	133.8		43.4		90.4		208.6	%	n/a
Cost to income ratio	73.3	%	81.1	%
ROE	10.5	%	2.8	%
ROTE	12.2	%	3.3	%
CET1	11.1	%	11.2	%
Leverage	7.8	%	7.9	%

 

Interim dividend

The Board has proposed an interim dividend of 11.0p (1H2021: 5.5p), translating to a 41.8% payout ratio, within the group's 30% to 50% payout range.

Distribution of 15% holding in Ninety One

Given the group's strong capital generation; capital optimisation strategy; and in line with previous communication that 15% of Ninety One is surplus to our capital requirements, the Board has resolved to distribute the 15% holding to shareholders whilst retaining an approximate 10% interest.

The distribution will be subject to regulatory, shareholder and other approvals.

Announcements will be made in due course updating shareholders on the distribution terms and process.

Outlook

Based on the group's performance to date, we have updated our FY2022 adjusted earnings per share guidance to between 48p - 53p (Range guided in May 2021: 36p - 41p). We will provide further guidance in our March 2022 pre-close briefing.

The macro-economic environment is improving; however, global recovery remains uneven. Underlying consumer and business confidence in our core markets will continue to be tested by the ongoing presence of COVID-19, along with the consequences of Brexit in the UK and the slow progress in implementing economic reforms in South Africa.

Enquiries

Investec Investor Relations

Results: Qaqambile Dwayi
Tel: +27 (0) 83 457 2134 (mobile)

General enquiries:
Tel: +27 (0) 11 286 7070 or investorrelations@investec.com

Brunswick (SA PR advisers)

Graeme Coetzee
Tel: +27 (0) 63 685 6053 (mobile)

Lansons (UK PR advisers)

Tom Baldock
Tel: +44 (0) 78 6010 1715 (mobile)

Presentation/conference call details

Investec management will host its interim results presentation on Thursday 18 November at 11:00 (SA) / 09:00 (UK).

A live video webcast of the presentation will be available on www.investec.com

About Investec

Investec partners with private, institutional, and corporate clients, offering international banking, investments, and wealth management services in two principal markets, South Africa, and the UK, as well as certain other countries. The group was established in 1974 and currently has 8,200+ employees.

Investec has a dual listed company structure with primary listings on the London and Johannesburg Stock Exchanges.

Johannesburg and London
Sponsor: Investec Bank Limited

 

Group financial performance

Overview

Our performance reflects higher income levels and significantly lower impairment charges, partly offset by increased operating costs. The group's underlying client franchises showed resilience with continued momentum in client acquisition in both geographies which underpinned loan and deposit growth within banking, and net inflows in wealth management.

The prior period was negatively impacted by the effects of general economic contraction brought on by COVID-19 related lockdowns which affected transactional levels, net interest margins, valuations, and impairments. In this reporting period, we have experienced the positive effects of higher client activity, favourable liability repricing and sustained market improvement. Additionally, risk management and risk reduction costs associated with the UK structured products book were immaterial in the current period.

Pre-provision adjusted operating profit increased 61.2% to £336.0 million (1H2021: £208.5 million).

 

Revenue increased 30.5% to £951.1 million (1H2021: £729.0 million)

Net interest income increased 29.7% to £459.8 million (1H2021: £354.4 million) driven by higher average lending books and lower funding costs across the group as liabilities repriced and as the UK business grew into the elevated liquidity built up in the early months of the pandemic.

Non-interest revenue (NIR) increased by 31.2% to £491.4 million (1H2021: £374.6 million).

•   Net fee and commission income increased by 18.6% to £391.2 million (1H2021: £329.8 million) driven by improved client activity across the specialist bank and higher average FUM in Wealth & Investment.

•   Investment income decreased by 79.3% to £3.5 million (1H2021: £16.9 million) due to the non-repeat of realisations in the prior period.

•   Share of post-taxation profit of associates and joint venture holdings increased 155.1% to £41.5 million (1H2021: £16.3 million) due to improved performance across the Group Investments' portfolio.

•   Trading income arising from customer flow was £65.1 million compared to a loss of £8.5 million in the prior period as risk management and risk reduction costs associated with the UK structured products book were c.£52 million lower than the prior period (underpinned by risk mitigation strategies implemented on the book and improving markets). We expect these costs to remain immaterial should markets remain stable.

•   Trading income arising from balance sheet management and other trading activities cost £18.5 million compared to income of £8.1 million in the prior period, mainly resulting from currency and interest rate hedges on the balance sheet.

•   Other operating income of £8.5 million (1H2021: £12.0 million) reflects the fair value movements of the Ninety One shares held in the group's staff share scheme. These shares are reflected on the group's balance sheet in other assets. The corresponding liability is reflected in other liabilities with changes in the value of the liability expensed through staff costs in operating costs.

Expected credit loss (ECL) impairment charges decreased by 84.5% to £10.2 million (1H2021: £66.0 million) resulting in a credit loss ratio of 7bps (31 March 2021: 35bps; 2H2021: 24bps; 1H2021: 47bps)

Overall, the group has maintained prior period post-model adjustments and in certain instances, introduced further adjustments following model driven provision releases given improved macro-economic factors. The post-model adjustments account for risks which management believe are not reflected in the models.

Operating costs increased 11.7% to £598.5 million (1H2021: £535.8 million) driven by higher variable remuneration

The cost to income ratio improved to 64.0% from 72.0% in the prior period. Operating costs increased by 11.7%, with fixed costs increasing 3.3% in the period.

Taxation

The taxation charge on adjusted operating profit was £63.7 million (1H2021: £20.9 million), resulting in an effective tax rate of 21.2% (1H2021: 18.8%).

In the UK, the lower effective tax rate of 11.0% (1H2021: 18.5%) was driven by higher deferred tax assets arising from enacted higher tax rates. We anticipate this effect to reduce in the second half as the enacted bank surcharge reduces from 8% to 3%. The surcharge is levied on bank profits in addition to the UK corporation tax.

In SA, the higher rate of 27.1% (1H2021: 18.9%) was influenced by one-off adjustments to certain deferred tax assets.

The effects of the above largely offset each other.

Profit or loss attributable to other non-controlling interests

The profit attributable to other non-controlling interests was £16.7 million compared to a loss of £15.3 million in the prior period. This relates to the profit and loss attributable to non-controlling interests in the Investec Property Fund (IPF).

Funding and liquidity

Customer deposits grew 5.5% to £36.4 billion (31 March 2021: £34.5 billion). Cash and near cash of £13.9 billion (£7.3 billion in Investec plc and R134.6 billion in Investec Limited) at 30 September 2021 represents 38.4% of customer deposits.

The group comfortably exceeds Basel liquidity requirements for the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR).

•   Investec Bank Limited (consolidated group) ended the period to 30 September 2021 with the three-month average of its LCR at 158.0% and an NSFR of 110.6%.

•   For Investec plc, the LCR and NSFR are calculated using the relevant EU regulation, applying our own interpretations where required. The LCR reported to the PRA at 30 September 2021 was 284% and the internally calculated NSFR was 127% at 30 September 2021.

Capital adequacy and leverage ratios

Capital and leverage ratios remain sound, ahead of Board-approved minimum targets and regulatory requirements. The CET1 and leverage ratio were 13.9% and 7.6% for Investec Limited (partial AIRB) and 11.1% and 7.8% for Investec plc (standardised approach) respectively.

Segmental performance

 

Wealth & Investment

Adjusted operating profit from the Wealth & Investment business increased by 41.4% to £57.7 million (1H2021: £40.8 million).

Wealth & Investment	Southern Africa										UK & Other
	1H2022		1H2021		Variance						1H2022		1H2021		Variance
	£'m		£'m		£'m		%		% in Rands		£'m		£'m		£'m		%
Operating income	49.4		36.5		12.9		35.4	%	22.6	%	173.9		155.1		18.8		12.1	%
Operating costs	(33.8)		(24.5)		(9.3)		38.0	%	24.9	%	(131.7)		(126.2)		(5.5)		4.4	%
Adjusted operating profit	15.6		12.0		3.6		30.1	%	17.8	%	42.2		28.9		13.3		46.1	%

Totals and variance determined in £'000 which may result in rounding differences.

Southern Africa Wealth & Investment (in Rands)

Adjusted operating profit for SA Wealth & Investment increased 17.8% (1H2021: R264 million).

The SA business reported 11.7% growth in FUM to R372.1 billion (31 March 2021: R333.0 billion) supported by R10.1 billion of discretionary and annuity net inflows (non-discretionary net inflows of R6.8 billion), strong investment performance and favourable market conditions.

Revenue grew by 22.6% supported by sustained inflows into our offshore product range and higher average discretionary and annuity assets.

Operating costs increased 24.9%, driven by higher variable remuneration and increased average headcount of investment specialists, wealth managers and information technology (IT) personnel. The cost to income ratio increased to 68.5% (1H2021: 67.2%).

UK & Other Wealth & Investment

Adjusted operating profit for UK & Other Wealth & Investment increased 46.1% to £42.2 million (1H2021: £28.9 million).

The business achieved record FUM during the period, reporting £44.7 billion at 30 September 2021 (31 March 2021: £41.7 billion), supported by net inflows of £627 million.

Revenue grew by 12.1% supported by higher market levels, positive net organic growth in FUM of 3.0%, as well as favourable investment performance. Commission income returned to normalised levels as the exceptionally high trading volumes seen at the onset of COVID-19 were not repeated.

Operating costs were higher by 4.4% driven by continued investment in technology, increased discretionary expenditure as COVID-19 related restrictions eased and the normalisation of variable staff compensation in line with business performance. One-off costs in the base of c.£3.5 million (relating to headcount reduction) were not repeated.

The UK domestic business (which accounts for 97.1% of FUM) reported an operating margin of 26.0% (1H2021: 20.5%), while a combined operating margin for UK & Other of 24.3% (1H2021: 18.6%) was achieved.

Specialist Banking

Adjusted operating profit from Specialist Banking increased 143.8% to £257.9 million (1H2021: £105.8 million).

Specialist Banking	Southern Africa										UK & Other
	1H2022		1H2021		Variance						1H2022		1H2021		Variance
	£'m		£'m		£'m		%		% in Rands		£'m		£'m		£'m		%
Operating income	352.7		262.8		89.9		34.2	%	21.6	%	328.7		273.8		55.0		20.1	%
ECL impairment charges	(4.0)		(24.2)		20.2		(83.5	%)	(84.8	%)	(4.9)		(39.9)		35.0		(87.8	%)
Operating costs	(175.6)		(145.6)		(29.9)		20.5	%	9.1	%	(239.4)		(221.5)		(17.9)		8.1	%
Loss attributable to NCI	0.3		-		0.3		100.0	%	100.0	%	-		0.5		(0.5)		(100.0	%)
Adjusted operating profit	173.4		92.9		80.5		86.7	%	69.1	%	84.5		12.9		71.6		554.8	%

Totals and variance determined in £'000 which may result in rounding differences.

Southern Africa Specialist Banking (in Rands)

Adjusted operating profit for the SA bank increased 69.1% to R3 460 million (1H2021: R2 046 million).

Strong revenue growth of 21.6%, was positively impacted by recovery in NIR as the bank saw increased client activity levels across the board, liability repricing, lower impairments, higher average loan balances and good client acquisition. This was partly offset by higher investment write-downs on certain portfolios in the current period, mark-to-market (MTM) losses in balance sheet management and the non-repeat of prior period gains from hedging non-ZAR investments. 

Net interest income increased 17.4% driven by lower funding costs and higher average lending books (particularly within the private bank).

Non-interest revenue increased 33.1% driven primarily by higher fee income on the back of higher lending and forex (FX) turnover, increased structuring fees and recovery in point-of-sale relative to the prior period. Client flow trading income increased as equity derivatives, FX and interest rate trading desks took advantage of favourable market movements in a more predictable trading environment.

Expected credit loss impairment charges decreased 84.8% to R81 million, resulting in a CLR of 4bps (31 March 2021: 18bps; 1H2021: 35bps). The decline was mainly driven by higher recoveries in the period and lower specific impairments. Modelled impairments (stage 1 and 2) reduced given the improved economic outlook. Post-model overlays were retained given the uncertainty that remains.

The cost to income ratio was lower at 49.7% (1H2021: 55.4%) given continued cost discipline and higher revenues. Total operating costs increased 9.1%, with fixed costs increasing by 3.7%.

Net core loans grew by 3.4% to R297.1 billion (31 March 2021: R287.3 billion) driven primarily by the private clients' loan book. Strong growth in corporate lending turnover was offset by elevated repayment rates as clients used excess liquidity to pay down facilities.

UK & Other Specialist Banking

Adjusted operating profit for the UK bank increased substantially to £84.5 million (1H2021: £12.9 million).

Revenue grew by 20.1% influenced by lower cost of funds, increased loan origination, FX flows, reduced structured products book costs, and client acquisition within Private Banking. Corporate lending activity increased across portfolios supported by new client acquisition.

Net interest income increased 24.6% driven by lower cost of funding and higher average lending books, partially offset by the impact of the disposal of the Australian corporate book in March 2021.

Non-interest revenue increased 10.9% mainly attributable to:

•   Lower risk management and risk reduction costs associated with the UK structured products book (£1.2 million in 1H2022 vs £53.0 million in 1H2021), offset by

•   Decreased investment income due to lower net realisations in the current period, and

•   Reduced balance sheet management and other trading activities, driven by costs associated with the early redemption of a senior bond and interest rate hedges on the balance sheet.

Expected credit loss impairment charges decreased 87.8% to £4.9 million, resulting in a credit loss ratio of 9bps (31 March 2021: 56bps; 1H2021: 60bps). Specific impairments in the period and run-rate ECL charges on the performing book totalled £8.1 million and the effect of updated macro-economic scenarios together with the new management overlay and in-model adjustments resulted in an ECL release of £3.2 million.  This includes an increase in post-model ECL overlay provisions of £5.0 million to £21.0 million, taking into consideration the uncertainties that management believe remain in the environment.

Operating costs increased 8.1% driven by higher variable remuneration and discretionary spend in line with revenue growth. The increase was offset by cost savings from reduced headcount across the business. Fixed costs were well contained, declining 3.5% over the period. The cost to income ratio reduced to 72.8% (1H2021: 80.7%).

Net core loans grew by 11.0% (12.4% excluding Australia) to £13.7 billion (31 March 2021: £12.3 billion) driven by strong private clients book growth (up 19.6%) in the period and continued client acquisition. Demand for corporate credit was strong across several portfolios with book growth of 7.8% (9.5% excluding Australia) since year end.

Group Investments

Group Investments includes the group's 25% holding in Ninety One, 47.4% stake in the IEP Group, 24.31% held in the Investec Property Fund (IPF) and some other equity investments.

 

Group Investments	Southern Africa										UK & Other
	1H2022		1H2021		Variance						1H2022		1H2021		Variance
	£'m		£'m		£'m		%		% in Rands		£'m		£'m		£'m		%
Operating income (net of ECL charges)	28.6		(12.7)		41.3		325.1	%	306.3	%	16.5		11.8		4.7		39.9	%
Operating costs	(0.9)		(0.6)		(0.3)		60.8	%	44.6	%	-		-		-		-
(Profit) /loss attributable to NCI	(17.0)		14.7		(31.7)		(215.5	%)	(206.8	%)	-		-		-		-
Adjusted operating profit	10.7		1.4		9.2		647.5	%	643.7	%	16.5		11.8		4.7		39.9	%

Totals and variance determined in £'000 which may result in rounding differences.

Adjusted operating profit from Group Investments increased by 105.5% to £27.2 million (1H2021: £13.2 million) driven by:

•   improved performance in the underlying investee companies within IEP,

•   growth in earnings from Ninety One in the period under review, and

•   lower negative fair value adjustments in the property portfolio and the non-repeat of prior period losses in IPF's UK associate investment.

Group Costs

Group Costs decreased by 1.7% to £17.0 million (1H2021: £17.3 million).

Further information

Additional information on each of the business units is provided in the group interim report published on the group's website: http://www.investec.com.

On behalf of the boards of Investec plc and Investec Limited

Philip Hourquebie		Fani Titi
Chair		Group Chief Executive
17 November 2021

 

Notes to the commentary section above

Presentation of financial information

Investec operates under a Dual Listed Companies (DLC) structure with primary listings of Investec plc on the London Stock Exchange and Investec Limited on the JSE Limited.

In terms of the contracts constituting the DLC structure, Investec plc and Investec Limited effectively form a single economic enterprise in which the economic and voting rights of ordinary shareholders of the companies are maintained in equilibrium relative to each other. The directors of the two companies consider that for financial reporting purposes, the fairest presentation is achieved by combining the results and financial position of both companies.

Accordingly, these interim results reflect the results and financial position of the combined DLC group under UK adopted International Financial Reporting Standards (IFRS) which comply with IFRS as issued by the International Accounting Standards Board (IASB), denominated in Pounds Sterling. In the commentary above, all references to Investec or the group relate to the combined DLC group comprising Investec plc and Investec Limited.

Following a review of the liquidity, capital position, profitability, the business model and operational risks facing the business including the ongoing impact of the COVID-19 pandemic, the directors have a reasonable expectation that the Investec group will be a going concern for a period of at least 12 months. The results for the six month period ended 30 September 2021 has accordingly been prepared on the going concern basis.

Unless the context indicates otherwise, all comparatives included in the commentary above relate to the period ended 30 September 2020.

Amounts represented on a neutral currency basis for income statement items assume that the relevant average exchange rates for the period ended 30 September 2021 remain the same as those in the prior period. Amounts represented on a neutral currency basis for balance sheet items assume that the relevant closing exchange rates at 30 September 2021 remain the same as those at 31 March 2021.

Neutral currency information is considered as pro-forma financial information as per the JSE Listings Requirements and is therefore the responsibility of the group's board of directors. Pro-forma financial information was prepared for illustrative purposes and because of its nature may not fairly present the issuer's financial position, changes in equity, or results of operations. The external auditors performed a review of the pro-forma financial information and the opinion is available for inspection at the registered office of Investec upon request.

Foreign currency impact

The group's reporting currency is Pounds Sterling. Certain of the group's operations are conducted by entities outside the UK. The results of operations and the financial condition of these individual companies are reported in the local currencies in which they are domiciled, including Rands, Australian Dollars, Euros and US Dollars. These results are then translated into Pounds Sterling at the applicable foreign currency exchange rates for inclusion in the group's combined consolidated financial statements. In the case of the income statement, the weighted average rate for the relevant period is applied and, in the case of the balance sheet, the relevant closing rate is used.

The following table sets out the movements in certain relevant exchange rates against Pounds Sterling over the period:

	Six months to		Year ended		Six months to
	30 September 2021		31 March 2021		30 September 2020
Currency	Closing	Average	Closing	Average	Closing	Average
per GBP1.00
South African Rand	20.29	19.94	20.36	21.33	21.58	22.05
Australian Dollar	1.86	1.85	1.81	1.82	1.80	1.85
Euro	1.16	1.16	1.17	1.12	1.10	1.12
US Dollar	1.35	1.39	1.38	1.31	1.29	1.27

Profit Forecast

The following matters highlighted in this announcement contain forward-looking statements:

•   Adjusted EPS is expected to be between 48p and 53p in FY2022

The basis of preparation of this statement and the assumptions upon which it was based are set out below. This statement is subject to various risks and uncertainties and other factors - these factors may cause the group's actual future results, performance or achievements in the markets in which it operates to differ from those expressed in this Profit Forecast.

Any forward looking statements made are based on the knowledge of the group at 17 November 2021.

This forward looking statement represents a profit forecast under the Listing Rules. The Profit Forecast relates to the year ending 31 March 2022.

The financial information on which the Profit Forecast was based is the responsibility of the Directors of the group and has not been reviewed and reported on by the group's auditors.

Basis of preparation

The Profit Forecast has been properly compiled using the assumptions stated below, and on a basis consistent with the accounting policies adopted in the group's 30 September 2021 reviewed interim financial statements, which are in accordance with IFRS.

Assumptions

The Profit Forecast has been prepared on the basis of the following assumptions during the forecast period:

Factors outside the influence or control of the Investec Board:

•   There will be no material change in the political and/or economic environment that would materially affect the Investec group.

•   There will be no material change in legislation or regulation impacting on the Investec group's operations or its accounting policies.

•   There will be no business disruption that will have a significant impact on the Investec group's operations, whether for COVID-19 or otherwise.

•   The Rand/Pound Sterling and US Dollar/Pound Sterling exchange rates and the tax rates remain materially unchanged from the prevailing rates detailed above.

•   There will be no material changes in the structure of the markets, client demand or the competitive environment.

Estimates and judgements

In preparation of the Profit Forecast, the group makes estimations and applies judgement that could affect the reported amount of assets and liabilities within the reporting period. Key areas in which judgement is applied include:

•   Valuation of unlisted investments primarily in the private equity, direct investments portfolios and embedded derivatives. Key valuation inputs are based on the most relevant observable market inputs, adjusted where necessary for factors that specifically apply to the individual investments and recognising market volatility.

•   The determination of ECL against assets that are carried at amortised cost and ECL relating to debt instruments at fair value through other comprehensive income (FVOCI) involves the assessment of future cash flows which is judgmental in nature.

•   Valuation of investment properties is performed by capitalising the budget net income of the property at the market related yield applicable at the time.

•   The group's income tax charge and balance sheet provision are judgmental in nature. This arises from certain transactions for which the ultimate tax treatment can only be determined by final resolution with the relevant local tax authorities. The group recognises in its tax provision certain amounts in respect of taxation that involve a degree of estimation and uncertainty where the tax treatment cannot finally be determined until a resolution has been reached by the relevant tax authority. The carrying amount of this provision is often dependent on the timetable and progress of discussions and negotiations with the relevant tax authorities, arbitration processes and legal proceedings in the relevant tax jurisdictions in which the group operates. Issues can take many years to resolve and assumptions on the likely outcome would therefore have to be made by the group.

•   Where appropriate, the group has utilised expert external advice as well as experience of similar situations elsewhere in making any such provisions. Determination of interest income and interest expense using the effective interest rate method involves judgement in determining the timing and extent of future cash flows.

Accounting policies, significant judgements and disclosures

These reviewed condensed combined consolidated financial results have been prepared in terms of the recognition and measurement criteria of the presentation and disclosure requirements of IAS 34, "Interim Financial Reporting" and IFRS as adopted by the UK which comply with IFRS' as issued by the IASB. At 30 September 2021, UK adopted IFRS are identical in all material respects to current IFRS applicable to the group, with differences only in the effective dates of certain standards. 

The accounting policies applied in the preparation of the results for the six months ended 30 September 2021 are consistent with those adopted in the financial statements for year ended 31 March 2021.

The combined consolidated financial results for the period ended 30 September 2021 have been reviewed by Ernst & Young LLP and Ernst & Young Inc., who expressed an unmodified review conclusion. A copy of the auditors review opinion is available for inspection at the company's registered office together with the financial statements identified in the auditors report or on our website.

The financial results have been prepared under the supervision of Nishlan Samujh, the Group Finance Director. The interim financial statements for the six months ended 30 September 2021 are available on the group's website:

www.investec.com

Proviso

•   Please note that matters discussed in this announcement may contain forward-looking statements which are subject to various risks and uncertainties and other factors, including, but not limited to:

-   changes in the political and/or economic environment that would materially affect the Investec group

-   changes in the economic environment caused by the resulting lockdowns and government programmes aimed to stimulate the economy

-   changes in legislation or regulation impacting the Investec group's operations or its accounting policies

-   changes in business conditions that will have a significant impact on the Investec group's operations

-   changes in exchange rates and/or tax rates from the prevailing rates outlined in this announcement

-   changes in the structure of the markets, client demand or the competitive environment.

•   A number of these factors are beyond the group's control.

•   These factors may cause the group's actual future results, performance or achievements in the markets in which it operates to differ from those expressed or implied.

•   Any forward-looking statements made are based on the knowledge of the group at 17 November 2021.

•   The information in the group's announcement for the six months ended 30 September 2021, which was approved by the board of directors on 17 November 2021, does not constitute statutory accounts as defined in Section 435 of the UK Companies Act 2006. The 31 March 2021 financial statements were filed with the registrar and were unqualified with the audit report containing no statements in respect of sections 498(2) or 498(3) of the UK Companies Act.

•   The financial information on which forward-looking statements are based is the responsibility of the directors of the group and has not been reviewed and reported on by the group's auditors.

This announcement is available on the group's website:
www.investec.com

Definitions

•   Adjusted operating profit refers to operating profit before goodwill, acquired intangibles and strategic actions and after adjusting for earnings attributable to other non-controlling interests. Non-IFRS measures such as adjusted operating profit are considered as pro forma financial information as per the JSE Listing Requirements. The pro forma financial information is the responsibility of the group's Board of Directors. Pro-forma financial information was prepared for illustrative purposes and because of its nature may not fairly present the issuer's financial position, changes in equity or results of operations. The external auditors performed a review of the pro-forma financial information and the opinion is available for inspection at the registered office of Investec upon request.

•   Adjusted earnings is calculated by adjusting basic earnings attributable to shareholders for the amortisation of acquired intangible assets, non-operating items including strategic actions, and earnings attributable to perpetual preference shareholders and other additional tier 1 security holders.

•   Adjusted basic earnings per share is calculated as adjusted earnings attributable to shareholders divided by the weighted average number of ordinary shares in issue during the year.

•   Headline earnings is adjusted earnings plus the after tax financial effect of strategic actions and the amortisation of acquired intangible assets. Headline earnings is an earnings measure required to be calculated and disclosed by the JSE and is calculated in accordance with the guidance provided in Circular 1/2021.

•   Headline earnings per share (HEPS) is calculated as headline earnings divided by the weighted average number of ordinary shares in issue during the year.

•   Basic earnings is earnings attributable to ordinary shareholders as defined by IAS33 Earnings Per Share.

•   Dividend payout ratio is calculated as the dividend per share divided by adjusted earnings per share.

•   The credit loss ratio is calculated as expected credit loss (ECL) impairment charges on gross core loans as a percentage of average gross core loans subject to ECL.

•   The cost to income ratio is calculated as: operating costs divided by operating income before expected credit loss impairment charges (net of operating profits or losses attributable to other non-controlling interests).

•   Return on average ordinary shareholders' equity (ROE) is calculated as adjusted earnings attributable to ordinary shareholders divided by average ordinary shareholders' equity.

•   Return on average tangible ordinary shareholders' equity (ROTE) is calculated as adjusted earnings attributable to ordinary shareholders divided by average tangible ordinary shareholders' equity.

•   Core loans is defined as net loans to customers plus net own originated securitised assets.

•   NCI is non-controlling interests.

Financial assistance

Shareholders are referred to Special Resolution number 30, which was approved at the annual general meeting held on 5 August 2021, relating to the provision of direct or indirect financial assistance in terms of Section 45 of the South African Companies Act, No 71 of 2008 to related or inter-related companies. Shareholders are hereby notified that in terms of S45(5)(a) of the South African Companies Act, the boards of directors of Investec Limited and Investec Bank Limited provided such financial assistance during the period 1 April 2021 to 30 September 2021 to various group subsidiaries.

Johannesburg and London

Sponsor: Investec Bank Limited

Exchange rates between local currencies and Pounds Sterling have fluctuated over the period. The most significant impact arises from the volatility of the Rand. The average Rand: Pound Sterling exchange rate over the period has appreciated by 9.6% against the comparative six-month period ended 30 September 2020, and the closing rate has appreciated by 0.3% since 31 March 2021. The following tables provide an analysis of the impact of the Rand on our reported numbers.

	Results in Pounds Sterling									Results in Rands
	Six months to 30 Sept 2021		Six months to 30 Sept 2020		% change		Neutral currency^ Six months to 30 Sept 2021	Neutral currency % change		Six months to 30 Sept 2021	Six months to 30 Sept 2020	% change
Adjusted operating profit before taxation (million)	£326		£142		128.6	%	£308	116.9	%	R6 496	R3 143	106.7	%
Earnings attributable to shareholders (million)	£250		£109		129.4	%	£236	117.4	%	R4 977	R2 405	106.9	%
Adjusted earnings attributable to shareholders (million)	£242		£104		132.2	%	£230	121.2	%	R4 832	R2 309	109.3	%
Adjusted earnings per share	26.3	p	11.2	p	134.8	%	25.0p	123.2	%	524c	248c	111.3	%
Basic earnings per share	25.0	p	9.6	p	160.4	%	23.7p	146.9	%	499c	212c	135.4	%
Headline earnings per share	24.7	p	9.2	p	168.5	%	23.4p	154.3	%	494c	213c	131.9	%

 

	Results in Pounds Sterling									Results in Rands
	At 30 Sept 2021		At 31 March 2021		% change		Neutral currency^^ At 30 Sept 2021	Neutral currency % change		At 30 Sept 2021	At 31 March 2021	% change
Net asset value per share	479.2	p	458.0	p	4.6	%	477.9p	4.3	%	9 723c	9 326c	4.3	%
Tangible net asset value per share	445.2	p	423.6	p	5.1	%	443.9p	4.8	%	9 033c	8 624c	4.7	%
Total equity (million)	£5 514		£5 312		3.8	%	£5 503	3.6	%	R111 880	R108 161	3.4	%
Total assets (million)	£53 454		£51 512		3.8	%	£53 356	3.6	%	R1 084 593	R1 048 867	3.4	%
Core loans (million)	£28 336		£26 438		7.2	%	£28 284	7.0	%	R574 951	R538 320	6.8	%
Cash and near cash balances (million)	£13 949		£13 229		5.4	%	£13 926	5.3	%	R283 028	R269 364	5.1	%
Customer accounts (deposits) (million)	£36 353		£34 449		5.5	%	£36 284	5.3	%	R737 610	R701 446	5.2	%
Funds under management (million)	£63 419		£58 436		8.5	%	£63 352	8.4	%	R1 286 775	R1 189 872	8.1	%

^       For income statement items we have used the average Rand: Pound Sterling exchange rate that was applied in the prior period, i.e. 22.05.

^^     For balance sheet items we have assumed that the Rand: Pound Sterling closing exchange rate has remained neutral since 31 March 2021.

 

Condensed combined consolidated income statement

£'000	Six months to 30 Sept 2021		Six months to  30 Sept 2020^		Year to  31 March 2021
Interest income	985 473		1 009 374		1 922 299
Interest expense	(525 699)		(654 971)		(1 144 193)
Net interest income	459 774		354 403		778 106
Fee and commission income	414 181		349 668		791 153
Fee and commission expense	(22 966)		(19 842)		(42 275)
Investment income	3 491		16 859		32 002
Share of post-taxation profit of associates and joint venture holdings	41 502		16 272		42 459
Trading income/(loss) arising from
- customer flow	65 141		(8 527)		35 566
- balance sheet management and other trading activities	(18 452)		8 144		(18 903)
Other operating income	8 461		11 983		22 953
Total operating income before expected credit loss impairment charges	951 132		728 960		1 641 061
Expected credit loss impairment charges	(10 237)		(65 974)		(99 438)
Operating income	940 895		662 986		1 541 623
Operating costs	(598 453)		(535 755)		(1 164 513)
Operating profit before goodwill, acquired intangibles and strategic actions	342 442		127 231		377 110
Impairment of goodwill	-		-		(11 599)
Impairment of associates and joint venture holdings	-		-		(16 773)
Amortisation of acquired intangibles	(7 773)		(7 603)		(15 287)
Amortisation of acquired intangibles of associates	(4 628)		(4 625)		(9 268)
Closure and rundown of the Hong Kong direct investments business	(596)		(2 158)		7 386
Profit before taxation	329 445		112 845		331 569
Taxation on operating profit before goodwill, acquired intangibles and strategic actions	(63 720)		(20 892)		(74 539)
Taxation on acquired intangibles and strategic actions	620		1 558		1 712
Profit after taxation	266 345		93 511		258 742
Loss/(profit) attributable to other non-controlling interests	(16 712)		15 255		472
Loss attributable to non-controlling interests relating to impairments of associates	-		-		9 126
Earnings attributable to shareholders	249 633		108 766		268 340

^       Restated as detailed below.

Earnings per share

	Six months to 30 Sept 2021		Six months to  30 Sept 2020		Year to  31 March 2021
Earnings per share - pence	25.0		9.6		25.2
Diluted earnings per share - pence	24.4		9.5		24.9

 

Consolidated statement of total comprehensive income

£'000	Six months to 30 Sept 2021		Six months to  30 Sept 2020		Year to  31 March 2021
Profit after taxation	266 345		93 511		258 742
Other comprehensive income:
Items that may be reclassified to the income statement
Fair value movements on cash flow hedges taken directly to other comprehensive income^	(5 822)		(4 427)		242
Fair value movements on debt instruments at FVOCI taken directly to other comprehensive income^	4 004		84 566		152 355
Gain on realisation of debt instruments at FVOCI recycled through the income statement^	(847)		(1 446)		(717)
Foreign currency adjustments on translating foreign operations	14 903		17 837		111 779
Items that will never be reclassified to the income statement
Effect of rate change on deferred taxation relating to adjustment for IFRS 9	1 049		828		380
Fair value movements on equity instruments at FVOCI taken directly to other comprehensive income^	1 043		736		1 778
Remeasurement of net defined benefit pension liability	-		(32)		(39)
Net gain/(loss) attributable to own credit risk^	4 928		(1 725)		(850)
Total comprehensive income	285 603		189 848		523 670
Total comprehensive income attributable to ordinary shareholders	247 456		171 379		448 637
Total comprehensive income/(loss) attributable to non-controlling interests	18 780		(1 159)		37 846
Total comprehensive income attributable to perpetual preferred securities	19 367		19 628		37 187
Total comprehensive income	285 603		189 848		523 670

^       Net of taxation of £3.4 million (30 September 2020: £22.3 million; 31 March 2021: £38.5 million).

 

Combined consolidated balance sheet

At £'000	30 Sept 2021		31 March 2021		30 Sept 2020^
Assets
Cash and balances at central banks	3 957 654		3 517 100		2 477 636
Loans and advances to banks	2 602 105		2 699 317		3 079 807
Non-sovereign and non-bank cash placements	475 875		439 841		363 350
Reverse repurchase agreements and cash collateral on securities borrowed	3 820 376		3 575 713		4 964 729
Sovereign debt securities	3 837 115		3 711 623		4 264 692
Bank debt securities	1 440 998		1 121 730		590 173
Other debt securities	1 246 231		1 364 235		1 427 174
Derivative financial instruments	1 206 299		1 714 743		1 885 399
Securities arising from trading activities	1 085 375		1 024 671		658 552
Investment portfolio	928 741		909 050		994 543
Loans and advances to customers	27 966 330		26 041 087		24 855 877
Own originated loans and advances to customers securitised	372 602		401 912		307 532
Other loans and advances	109 006		102 135		100 659
Other securitised assets	133 690		140 087		122 892
Interests in associated undertakings and joint venture holdings	695 756		679 157		722 227
Current taxation assets	38 141		60 325		61 523
Deferred taxation assets	216 290		246 622		256 581
Other assets	1 733 188		2 165 438		1 850 502
Property and equipment	344 729		329 972		341 343
Investment properties	788 540		832 061		799 588
Goodwill	259 842		259 805		270 991
Software	11 363		12 574		13 045
Other acquired intangible assets	51 700		58 968		66 224
Non-current assets classified as held for sale	75 752		51 783		87 248
	53 397 698		51 459 949		50 562 287
Other financial instruments at fair value through profit or loss in respect of liabilities to customers	56 662		52 405		37 178
	53 454 360		51 512 354		50 599 465
Liabilities
Deposits by banks	2 294 873		2 403 712		3 319 727
Derivative financial instruments	1 973 996		2 190 487		1 727 813
Other trading liabilities	225 498		326 189		577 821
Repurchase agreements and cash collateral on securities lent	1 179 581		1 003 312		1 692 050
Customer accounts (deposits)	36 353 007		34 449 430		32 551 697
Debt securities in issue	1 971 123		1 892 319		1 815 257
Liabilities arising on securitisation of own originated loans and advances	155 200		160 646		73 042
Liabilities arising on securitisation of other assets	104 215		108 281		109 107
Current taxation liabilities	54 104		78 790		95 940
Deferred taxation liabilities	19 448		40 333		50 727
Other liabilities	2 116 098		2 013 003		2 025 931
	46 447 143		44 666 502		44 039 112
Liabilities to customers under investment contracts	54 018		49 798		34 494
Insurance liabilities, including unit-linked liabilities	2 644		2 607		2 684
	46 503 805		44 718 907		44 076 290
Subordinated liabilities	1 436 763		1 480 951		1 447 948
	47 940 568		46 199 858		45 524 238
Equity
Ordinary share capital	247		247		247
Ordinary share premium	1 517 852		1 517 852		1 517 852
Treasury shares	(296 714)		(267 508)		(261 729)
Other reserves	(767 299)		(788 222)		(910 668)
Retained income	3 939 028		3 772 628		3 699 652
Ordinary shareholders' equity	4 393 114		4 234 997		4 045 354
Perpetual preference share capital and premium	174 579		174 053		172 349
Shareholders' equity excluding non-controlling interests	4 567 693		4 409 050		4 217 703
Other Additional Tier 1 securities in issue	373 705		335 111		296 809
Non-controlling interests	572 394		568 335		560 715
- Perpetual preferred securities issued by subsidiaries	73 006		72 750		71 106
- Non-controlling interests in partially held subsidiaries	499 388		495 585		489 609
Total equity	5 513 792		5 312 496		5 075 227
Total liabilities and equity	53 454 360		51 512 354		50 599 465

^       Restated as detailed below.

Condensed consolidated statement of changes in equity

£'000	Six months to 30 Sept 2021		Six months to  30 Sept 2020		Year to  31 March 2021
Balance at the beginning of the period	5 312 496		4 897 632		4 897 632
Total comprehensive income	285 603		189 848		523 670
Share-based payments adjustments	9 515		18 353		19 121
Dividends paid to ordinary shareholders	(72 361)		-		(53 346)
Dividends paid to perpetual preference shareholders included in non-controlling interests and Other Additional Tier 1 security holders	(19 367)		(19 628)		(37 187)
Dividends paid to non-controlling interests	(14 721)		(11 029)		(32 385)
Redemption of perpetual preference shares	-		-		(6 274)
Issue of Other Additional Tier 1 securities in issue	38 294		-		35 508
Net equity impact of non-controlling interest movements	-		1 687		(6 128)
Movement of treasury shares	(26 718)		(1 861)		(10 161)
Net equity movements of interests in associated undertakings	1 051		225		(17 954)
Balance at the end of the period	5 513 792		5 075 227		5 312 496

Condensed consolidated cash flow statement

£'000	Six months to 30 Sept 2021		Six months to  30 Sept 2020^		Year to  31 March 2021
Net cash inflow/(outflow) from operating activities	551 100		(2 250 741)		(557 837)
Net cash inflow/(outflow) from investing activities	35 705		(6 967)		1 414
Net cash outflow from financing activities	(204 181)		(65 532)		(134 626)
Effects of exchange rates on cash and cash equivalents	6 554		49 930		146 030
Net increase/(decrease) in cash and cash equivalents	389 178		(2 273 310)		(545 019)
Cash and cash equivalents at the beginning of the period	6 551 511		7 096 530		7 096 530
Cash and cash equivalents at the end of the period	6 940 689		4 823 220		6 551 511

Cash and cash equivalents is defined as including: cash and balances at central banks, on demand loans and advances to banks and non-sovereign and non-bank cash placements (all of which have a maturity profile of less than three months).

^       Restated as detailed below.

 

Combined consolidated segmental analysis

Segmental geographical and business analysis of adjusted operating profit before goodwill, acquired intangibles, non-operating items, taxation and after other non-controlling interests.

			Specialist Banking^
	Private Client
For the six months to 30 September 2021	Wealth & Investment		Private Banking		Corporate, Investment Banking and Other		Group Investments		Group costs		Total group		% change		% of total
£'000
UK and Other	42 175		11 290		73 205		16 490		(9 339)		133 821		208.6	%	41.1	%
Southern Africa	15 559		100 735		72 644		10 674		(7 703)		191 909		93.6	%	58.9	%
Adjusted operating profit	57 734		112 025		145 849		27 164		(17 042)		325 730		128.6	%	100.0	%
Non-controlling interest*											16 712
Adjusted operating profit before non-controlling interests											342 442
% change	41.4	%	170.6	%	126.6	%	105.5	%	(1.7	%)	128.6	%
% of total	17.7	%	34.4	%	44.8	%	8.3	%	(5.2)	%	100.0	%
Total assets £'mn	1 369		14 970		35 293		1 822		-		53 454

 

			Specialist Banking^
	Private Client
For the six months to 30 September 2020^	Wealth & Investment		Private Banking		Corporate, Investment Banking and Other		Group Investments		Group costs		Total group			% of total
£'000
UK and Other	28 877		(3 148)		16 051		11 791		(10 208)		43 363			31.8	%
Southern Africa	11 960		44 550		48 320		1 428		(7 135)		99 123			68.2	%
Adjusted operating profit	40 837		41 402		64 371		13 219		(17 343)		142 486			100.0	%
Non-controlling interest*											(15 255)
Adjusted operating profit before non-controlling interests											127 231
% of total	28.7	%	29.0	%	45.2	%	9.3	%	(12.2)	%	100.0	%
Total assets £'mn	1 332		12 332		34 941		1 994		-		50 599

*        Profit/(loss) attributable to other non-controlling interests predominantly relates to the Investec Property Fund Limited.

^       The results of Investec Private Banking and Investec Corporate, Investment Banking and Other were disclosed as separate segments for the first time in the 31 March 2021 results. Investec Private Banking and Investec Corporate, Investment Banking and Other were previously presented as components of the Investec Specialist Bank. Comparatives have been restated.

 

Net fee and commission income

For the six months to 30 September 2021 £'000	UK and Other		Southern Africa		Total
Wealth & Investment net fee and commission income	173 045		47 494		220 539
Fund management fees/fees for funds under management	152 287		27 354		179 641
Private client transactional fees	21 103		20 978		42 081
Fee and commission expense	(345)		(838)		(1 183)
Specialist Banking net fee and commission income	57 982		87 167		145 149
Specialist Banking fee and commission income^	64 916		100 154		165 070
Specialist Banking fee and commission expense	(6 934)		(12 987)		(19 921)
Group Investments net fee and commission income	-		25 527		25 527
Group Investments fee and commission income	-		27 389		27 389
Group Investments fee and commission expense	-		(1 862)		(1 862)
Net fee and commission income	231 027		160 188		391 215
Annuity fees (net of fees payable)	159 969		123 067		283 036
Deal fees	71 058		37 121		108 179

^       Included in Specialist Banking  is fee income of £40.2 million (2020: £32.7 million) for operating lease income which is out of the scope of IFRS 15 - Revenue from contracts with customers.

 

Income statement restatements

Interest income and fee and commission income restatement

For the six months to 30 September 2020, management identified that revenue relating to services rendered to customers (for the facilitation of import and export transactions) was previously reported within interest income rather than within fee and commission income.

As a result, interest income and fee and commission income for the prior period have been restated. The restatement has no impact on total operating income in the income statement, headline earnings, the statement of cash flows and the balance sheet.

The impact of the restatement on the 30 September 2020 income statement is:

	Six months to 30 Sept 2020 as previously reported		Reclassification		Six months to 30 Sept 2020 restated
£'000
Interest income	1 014 392		(5 018)		1 009 374
Fee and commission income	344 650		5 018		349 668

Balance sheet restatements

 

Current taxation assets and other assets

At 31 March 2021, current taxation assets,  which were previously reported within other assets, were reported as a separate line item in accordance with IAS 1 Presentation of Financial Statements. As at 30 September 2020, current taxation assets of £61.5 million have been re-presented to reflect the same basis.

Gilts and total return swaps reclassification

As at 31 March 2021, amounts previously reported within sovereign debt securities, derivative financial instruments and securities arising from trading were corrected to present them as reverse repurchase agreements and cash collateral on securities borrowed. This change in accounting treatment has been made where sovereign debt securities have been purchased at the same time as total return swaps with the same counterparty, such that the combined position has the economic substance of secured lending. The prior year balance sheet has been restated to reflect the same basis.  This change has no impact on the income statement.

The impact of this change on the 30 September 2020 balance sheet is:

	At 30 Sept 2020 as previously reported		Reclassification		At 30 Sept 2020 restated
£'000
Assets
Reverse repurchase agreements and cash collateral on securities borrowed	4 124 591		840 138		4 964 729
Sovereign debt securities	4 898 936		(634 244)		4 264 692
Derivative financial instruments	1 885 922		(523)		1 885 399
Securities arising from trading activities	929 143		(270 591)		658 552
Total assets	50 664 685		(65 220)		50 599 465
Liabilities
Derivative financial instruments	1 793 033		(65 220)		1 727 813
Total liabilities	45 589 458		(65 220)		45 524 238

 

Cash flow statement restatements

As at 31 March 2021, amounts previously reported within loans and advances to banks were correctly presented as cash and cash equivalents. This change has been made to include items previously reported as loans and advances to banks identified as short term in nature, with a maturity date of less than three months, which therefore meet the definition of cash and cash equivalents.

The prior year has been restated as follows:

	Six months to 30 Sept 2020 as previously reported		Restatement		Six months to 30 Sept 2020 restated
£'000
Net cash outflow from operating activities	(3 038 706)		787 965		(2 250 741)
Net cash outflow from investing activities	(6 967)		-		(6 967)
Net cash outflow from financing activities	(59 855)		(5 677)		(65 532)
Effects of exchange rate changes on cash and cash equivalents	41 935		7 995		49 930
Net (decrease)/increase in cash and cash equivalents	(3 063 593)		790 283		(2 273 310)
Cash and cash equivalents at the beginning of the period	6 193 708		902 822		7 096 530
Cash and cash equivalents at the end of the period	3 130 115		1 693 105		4 823 220

In addition to the above, we have also re-presented the operating section of the cash flow statement in our preliminary financial results as the disaggregation between operating assets and operating liabilities does not provide additional meaningful information to users.

Contingent liabilities

The group assessed its exposure to legal proceedings and the appropriateness of related provisions recognised on the balance sheet as at 30 September 2021. It was concluded that the provisions held as at 31 March 2021, in relation to the matters set out in Note 54 of the Annual Financial Statements, continue to reflect our best estimate of the potential financial outflows that may arise.