Investec Regulatory News (INVP)

Investec plc and Investec Limited - Reviewed combined consolidated financial results for the six months ended 30 September 2020

Basis of presentation

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 2020 (1H2021). Following the group's demerger of Investec Asset Management (now Ninety One) in March 2020, the group's results for the six months ended 30 September 2019 have been restated to reflect the asset management business as a discontinued operation. Unless stated otherwise, comparatives relate to the group's continuing operations for the six-month period ended 30 September 2019 (1H2020). The comparability of 1H2021 to the prior period is impacted by the economic effects of COVID-19 which prevailed over the period under review.

Fani Titi, Chief Executive commented:

"The first half of the financial year has been characterised by difficult and volatile market and economic conditions attributed primarily to COVID-19. As a result, group adjusted operating profit of £142.5 million was 48.4% behind the prior period and adjusted basic earnings per share of 11.2p was 50.0% behind the prior period, albeit ahead of pre-close guidance. We are encouraged by the resilience of our loan book, the performance of our core franchises against a tough backdrop and progress made on our strategic objectives. Tangible net asset value per share increased by an annualised 10.4% and a dividend of 5.5p has been declared.

I would like to thank my Investec colleagues for their commitment through the first half of an unprecedented year - all have risen to the challenge, shown resilience, and continued to deliver the same high level of client engagement and service for which Investec is well known. We also thank our clients for their continued support as well the members of our communities on the frontlines for their efforts in curtailing the impact of the pandemic.

We entered this crisis from a position of strength and continue to have a strong capital, funding and liquidity position, leaving us well placed, both operationally and financially, to navigate this evolving environment for the benefit of our clients and other stakeholders."

Financial performance

Over the period, we operated within a challenging economic backdrop, impacted by COVID-19 and associated lockdowns particularly in the first three months. This resulted in reduced economic activity and increased market volatility. Interest rates were sharply lower, client activity declined, and the average Rand against the Pound Sterling depreciated 20.6% compared to the prior period.

• Resilient client franchises: Wealth & Investment reported net inflows of £336 million and growth in funds under management (FUM) of 14.9% since 31 March 2020 to £51.1 billion. The Specialist Banking business saw good client acquisition in both geographies. Net core loans grew 1.0% since 31 March 2020 to £25.2 billion, with strong loan book growth in the UK Private Banking business offset by subdued corporate lending activity in both geographies and higher repayments. Our client engagement has been consistent and proactive, leveraging off the various digital platforms at our disposal.

• Operating income: Total revenue declined by 24.0% (17.8% in neutral currency) compared to 1H2020. Net interest income decreased by 15.6% impacted primarily by lower interest rates. Non-interest revenue declined by 30.7% impacted by lower lending fees, subdued client transactional activity, and lower investment and associate income. Risk management and risk reduction costs related to hedging our structured products book resulted in trading income declining by 100.6%. We have and will continue to take active steps to de-risk the profile of this book.

• Costs: Operating costs decreased by 14.0% (8.1% in neutral currency) driven by headcount containment, lower variable remuneration and a reduction in discretionary expenditure. Notwithstanding this reduction in costs, we continued to invest in growth initiatives and in technology.

• Asset quality: The group's annualised credit loss ratio (CLR) increased from 0.23% (1H2020) to 0.47% (1H2021), below the annualised 2H2020 CLR of 0.74%. Increased CLRs were largely model-driven with an absolute expected credit loss (ECL) impairment charge of £66.0 million (1H2020: £31.0 million).

• Operating profit: Adjusted operating profit was down 48.4% to £142.5 million (1H2020: £276.3 million).

• Earnings per share: Adjusted basic earnings per share decreased by 50.0% to 11.2p (1H2020: 22.4p) and basic earnings per share declined by 49.5% to 9.6p (1H2020: 19.0p).

• Return on Equity (ROE): The group generated an ROE of 5.3% (1H2020: 10.7%) and a return on tangible equity (ROTE) of 5.8% (1H2020: 11.8%).

• Robust capital and liquidity: At 30 September 2020, the common equity tier 1 (CET1) capital and leverage ratios were 11.6% and 7.0% respectively for Investec Limited (FIRB approach) and 10.7% and 7.8% respectively for Investec plc (standardised approach). Cash and near cash was £12.9 billion at 30 September 2020, representing 39.5% of customer deposits. Capital, leverage and liquidity ratios remain ahead of both internal board-approved minimum targets and regulatory requirements.

• Growth in net asset value: At 30 September 2020, net asset value (NAV) per share increased by 4.6% to 433.5p (31 March 2020: 414.3p) and tangible NAV (TNAV) per share increased by 5.2% to 397.4p (31 March 2020: 377.6p).

Supporting our people, clients and communities

As a group, we have taken decisive action in supporting our stakeholders through the economic and social impact of the pandemic.

With a large proportion of staff continuing to work from home, we are prioritising staff wellbeing and encouraging a flexible approach to working.

We have provided various forms of relief to our clients. Currently 6.3% of UK and 2.2% of South Africa's loans are under some form of relief. At the peak, this was 13.7% and 23.0% respectively. In addition, through the income generated in our Private Client Charitable Trusts, we have facilitated over R20 million in donations on behalf of clients.

For our communities, we have committed £3.6 million (64% allocated to date) to support the communities we live in with food security, economic continuity, healthcare, education and anti-gender-based violence-related assistance.

Dividend

The group endorses the objectives of guidance note G4/2020 from the Prudential Authority (PA) in South Africa and the recommendations of the UK Prudential Regulation Authority (PRA) in relation to the preservation of capital. The group did not declare a final divided in relation to the March 2020 financial year. Having considered the objectives of guidance note G4/2020 and ensuring prudence in terms of capital retention in our banking businesses, the group has declared an interim dividend of 5.5p (49.1% payout ratio).

Outlook and guidance

We expect the overall performance in 2H2021 to be ahead of the first half; underpinned by improving revenue trends relative to 1H2021 as client activity levels improve and liability repricing aids net interest income. Trading income from client flow will continue to be negatively impacted by risk management and risk reduction costs on hedging our structured products book. Costs are expected to decline by mid to high single digits for the full 2021 financial year compared to the prior year. Assuming no further deterioration in the macro-economic variables applied, we expect to report lower ECL provisions for the remaining six months of the year.

This guidance is subject to assumptions, which if altered, may result in a different financial performance compared to management expectations.

While the impact of COVID-19 has been felt across our business and the outlook is still uncertain, we remain confident in the fundamentals of our business and in our long-established client relationships. We have continued to make progress against our strategic objectives, positioning the business for growth in the long term, and expect to substantially complete our simplification process by the end of the financial year. As previously communicated, FY2022 targets remain under review.

1. Refer to the Notes for definitions. Continuing operations excludes the results of the asset management business (which was demerged in March 2020) from the comparative period, but includes the equity accounted earnings of the group's 25% retained stake in 1H2021.

2. The 1H2020 dividend per share and dividend payout ratio reflected above were prior to the demerger of the asset management business (Ninety One).

3. Current Leverage ratios calculated on an end quarter basis.

Enquiries

Investec Investor Relations

Results: Carly Newton: +44 (0) 20 7597 4493General enquiries: +27 (0) 11 286 7070 or +44 (0) 20 7597 5546

Brunswick (SA PR advisers)

Graeme CoetzeeTel: +27 11 502 7419 / +27 63 685 6053 (mobile)

Lansons (UK PR advisers)

Tom BaldockTel: +44 (0) 20 7566 9716 / +44 (0) 78 6010 1715 (mobile)

Presentation/conference call details

A presentation on the results will commence at 9:00 UK time/11:00 SA time on 19 November 2020. Viewing and telephone conference options as below:

• A live and delayed video webcast at www.investec.com

• Telephone conference:

• SA participants: 010 201 6700/011 535 3500/0 800 203 599

• UK participants: 0 333 300 1417

• Rest of Europe and other participants: +27 11 535 3500/+27 10 201 6700

• Australian participants: 02 8015 2168

• North American participants: 1 508 924 4325

Alternatively, participants can pre-register for the conference call using the following link: www.investec.com/call

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 approximately 8,500 employees.

In 2002, Investec implemented a dual listed company structure with listings on the London and Johannesburg Stock Exchanges. In March 2020, the group successfully completed the demerger of Ninety One (formerly known as Investec Asset Management), which became separately listed on 16 March 2020. Investec's current market capitalisation is approximately £2.0 billion.

Johannesburg and LondonSponsor: Investec Bank Limited

Business overview

The commentary and trends that follow relate to Investec's continuing operations for the six months ended 30 September 2020 (1H2021). Unless stated otherwise, comparatives relate to the group's continuing operations for the six-month period ended 30 September 2019 (1H2020). The comparability of 1H2021 to the prior period is impacted by the economic effects of COVID-19 which prevailed over the period under review.

Giving consideration to the group's investment in Ninety One and other significant investments (previously included as a subset of the Specialist Bank) and in an effort to provide enhanced disclosure, the group's business segments have been revised to reflect each of the following as reportable segments across the UK & Other and Southern African geographies: Specialist Banking, Wealth & Investment, Group Investments and Group Costs.

Operating environment

At the onset of the COVID-19 crisis, we witnessed a proactive response from the South African government including the decision to implement one of the strictest lockdowns globally. This, coupled with decades-low interest rates (300bps rate cuts since January 2020), had a considerable impact on the South African business' financial performance. The South African economy also saw little equity capital market activity relative to its developed counterparts. In addition, rising debt to GDP, lack of structural reform, policy uncertainty, and resultant depressed business confidence continue to be headwinds, making for a challenging operating environment.

In the UK, at the group's financial year end we reported that Brexit, heightened UK political uncertainty and geopolitical tensions sparked by US trade wars had adversely impacted activity levels, making the operating environment very challenging. In addition, at that time, the UK was in the grips of a national lockdown imposed because of the COVID-19 global pandemic. Over the past six months, these difficulties have persisted; exacerbated by the economic crisis resulting from COVID-19 containment measures.

Segmental performance

Specialist Banking

Adjusted operating profit from the Specialist Banking business decreased by 52.9% to £105.8 million (1H2020: £224.8 million).

Totals and variance determined in £'000.

Southern Africa Specialist Banking

The South African business reported a decrease in adjusted operating profit of 22.9% in Rands. Client engagement has been proactive, resulting in good client acquisition across both our private and corporate client business over the period. While client activity was significantly impacted in the first quarter during the hard lockdown, in the second quarter, as lockdown measures eased, we saw increased point of sale and stockbroking activity along with a marked pick-up in demand for residential mortgages.

Notwithstanding this, net interest income decreased by 6.9% in Rands driven by the 300bps rate cut since January 2020 and assets repricing at a faster rate than liabilities. Non-interest revenue declined 13.7% in Rands. An increase in trading income was offset by subdued lending and transactional activity compared to the prior period and lower investment income as a result of lower realisations, dividend income and negative fair value adjustments given the prevailing economic backdrop.

ECL impairment charges increased, resulting in an annualised CLR of 0.35% (1H2020: 0.18%), below the annualised 2H2020 CLR of 0.55%. The increase since 31 March 2020 was driven primarily by updated assumptions applied in our models to capture the deterioration in macro-economic variables since year end.

Operating costs reduced by 6.0% in Rands period on period reflecting lower variable remuneration and cost containment across the business. However, a decline in revenues resulted in a cost to income ratio of 55.4% (1H2020: 53.8%).

Net core loans decreased by 1.6% since year end to R284.4 billion (31 March 2020: R288.9 billion). Private client lending held steady compared to 31 March 2020 while the corporate client lending book declined due to higher repayments and lower net new originations as corporates remained cautious.

Against this challenging backdrop, the business achieved an ROE and ROTE of 9.1% and 9.2% respectively relative to 13.5% and 13.6% at 30 September 2019.

UK & Other Specialist Banking

Adjusted operating profit for the overall UK & Other Specialist Bank declined by 83.8% to £12.9 million (1H2020: £79.4 million). Increased equity capital markets activity and good levels of lending turnover across private client and certain corporate client lending areas was offset by hedging costs related to our structured products book. These hedging costs contributed £53 million to the profit reduction of £66.5 million.

Our client franchises have shown resilience notwithstanding the two months of hard lockdown at the start of the reporting period. The private client banking business saw good origination and client acquisition. The mortgage book ended the half year on £2.8 billion, an increase of 10.8% since 31 March 2020. Net new client origination was c.8%, moving us closer to our target of at least 6,500 high net worth clients by March 2022 (c.5,400 clients at 30 September 2020).

Net interest income declined by 2.1% with growth in average core loans offset by lower interest rates. Non-interest revenue decreased by 43.5% as the recovery in equity capital market fees and an improvement in investment income was offset by lower lending fees and risk management and risk reduction costs associated with hedging our structured products book following market dislocation and dividend cancellations. We anticipate a similar level of risk management and risk reduction costs in the second half of the 2021 financial year in particular, as we continue to reduce the risk on the book. Risk reduction costs include the purchase of protection against a repeat of the severe market moves experienced in March and April 2020. For the 2022 financial year we expect risk management and risk reduction costs to be less than half of that anticipated in the current financial year, and progressively reducing in the 2023 financial year. This guidance is subject to assumptions, which if altered, may result in a different outcome to management expectations.

ECL impairment charges increased, resulting in an annualised CLR of 0.60% (1H2020: 0.28%), below the annualised 2H2020 CLR of 0.97%. The increase since 31 March 2020 was driven primarily by updated assumptions applied in our models to capture the deterioration in macro-economic variables since year end.

Operating costs decreased by 12.0% period on period primarily reflecting lower variable remuneration and a strong focus on cost discipline. As indicated in our pre-close trading announcement, we are enhancing efficiencies by more closely integrating business-enabling functions, resulting in a proposed headcount reduction in the UK banks' London office by approximately 210 roles or 13%.

Net core loans grew by 0.9% to £12.0 billion (31 March 2020: £11.9 billion) with strong growth in mortgages and other high net worth lending offset by a net book reduction in corporate and other lending. While there was good activity in some parts of the corporate space, particularly in fund finance, redemptions largely offset this.

The cost to income ratio of 80.7% (1H2020: 72.5%), ROE of 0.7% (1H2020: 9.0%) and ROTE of 0.8% (1H2020: 9.1%) were impacted by the foregoing factors.

Wealth & Investment

Adjusted operating profit from the Wealth & Investment business decreased by 8.2% to £40.8 million (1H2020: £44.5 million).

Totals and variance determined in £'000.

Southern Africa Wealth & Investment

Adjusted operating profit increased by 2.3% in Rands.

The South African business achieved net inflows of R478 million (R3.0 billion of discretionary and annuity inflows and non-discretionary custody asset outflows of R2.5 billion), which, together with favourable market movements, contributed to a 16.2% growth (in Rands) in FUM since year end. Revenue was supported by higher average discretionary and annuity FUM and increased levels of trading activity in the first quarter. Operating costs remained flat period on period translating to a lower cost to income ratio of 67.2% (1H2020: 67.7%).

UK & Other Wealth & Investment

Adjusted operating profit declined 5.2% to £28.9 million (1H2020: £30.5 million).

The UK Wealth & Investment business continued to report positive net organic growth in FUM over the period, with an annualised rate of growth of 1.9% - in line with the first half of the prior period. Net inflows of £315 million, along with favourable market movements and investment performance, contributed to FUM increasing by 13.4% since the start of the financial year. Operating income, down 4.4% on the prior period, was impacted by lower FUM at key billing dates relative to the prior period, the sale of the Irish wealth business in 2H2020 as well as lower interest rates; partly offset by an increase in transaction volumes.

Operating costs reduced by 4.3% or £5.6 million to £126.2 million, despite incurring once-off headcount reduction related costs and a £2.3 million increase in the Financial Services Compensation Scheme (FSCS) levy (1H2020: £3.8 million). The cost to income ratio was 81.4% (1H2020: 81.2%).

Group Investments

Group Investments represents assets held by Investec to create value over the medium term as opposed to trading assets. We have separated these assets from our core banking activities in order to make a more meaningful assessment of the underlying performance and value of the franchise businesses, and at the same time providing transparency of the standalone values of the assets classified as Group Investments.

They include the group's 25% holding in Ninety One, 47.4% stake in the IEP Group, 24.31% held in the Investec Property Fund (IPF), 9.1% holding in the Investec Australia Property Fund (IAPF) and some historical unlisted equity investments.

Adjusted operating profit from Group Investments decreased 56.3% to £13.2 million (1H2020: £30.3 million).

Totals and variance determined in £'000.

The positive impact from the inclusion of the equity accounted earnings from the group's 25% stake in Ninety One and the mark-to-market on the group's holding in IAPF was offset by:

• muted rental collections and a decline in investment property valuations (particularly in the South African portfolio) experienced by IPF

• a reduction in the share of post taxation profit from IEP as some of its subsidiaries were unable to trade during the COVID-19 hard lockdown and a realisation in the prior period was not repeated

• negative mark-to-market adjustments on interest rate hedge positions in IPF and currency hedges related to the group's investment in IAPF.

Group Investments reported an ROE of 5.6% (1H2020: 13.5%).

Group Costs

Group costs decreased by 25.5% to £17.3 million (1H2020: £23.3 million). As indicated at year end, we expect group costs in FY2021 to be below £35 million.

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

Performance by geography

Overview of financial performance

Total operating income before expected credit loss impairment charges

Total operating income before expected credit losses decreased 24.0% to £729.0 million (1H2020: £959.3 million) pointing to the impact of the economic challenges driven by COVID-19.

• Net interest income decreased 15.6% to £359.4 million (1H2020: £425.6 million) impacted by the endowment effect from interest rate cuts, assets repricing ahead of liabilities and limited loan book growth which remains below pre-COVID-19 levels. This resulted in a reduction in net interest margin of 41bps to 1.60% for the South African business and 25bps to 1.77% for the UK business.

• Net fee and commission income declined 17.9% to £324.8 million (1H2020: £395.7 million). Fees in the Wealth & Investment business declined moderately by 3.5% impacted by the sale of the Irish wealth business in 2H2020, lower UK FUM at key billing dates and Rand weakness (fees in the South African business were up in Rands but down in Pounds Sterling on the prior period). Fees in the Specialist Banking business were impacted primarily by lower lending and transactional activity, while Group Investment fees reflected lower rental income from IPF.

• Investment income decreased 70.5% to £16.9 million (1H2020: £57.1 million) primarily reflecting the negative impact of COVID-19 on investment property valuations in IPF.

• Share of post taxation profit of associates and joint venture holdings of £16.3 million (1H2020: £17.8 million) was positively impacted by the inclusion of associate earnings from the group's 25% holding in Ninety One, offset by lower earnings from the IEP Group due to lockdown and the non-repeat of a realisation in the prior period, as well as negative fair value adjustments in IPF's UK associate investment.

• Trading income arising from customer flow netted a loss of £8.5 million relative to a profit in the prior period of £62.8 million. Risk management and risk reduction costs on hedging our structured products book following the market dislocation and dividend cancellations was the major driver of the loss.

• Trading income arising from balance sheet management and other trading activities increased from a loss of £2.3 million in 1H2020 to a profit of £8.1 million for the period under review. The gain was driven primarily by the UK Specialist Bank where asset values improved following the extreme COVID-19 related volatility in the last quarter of FY2020.

• Other operating income of £12.0 million (1H2020: £2.6 million) primarily reflects the fair value movements of the Ninety One shares held in the group's staff share scheme as a result of the demerger and separate listing of Ninety One, whereby shareholders received one Ninety One share for every two Investec shares held. These shares are reflected on the group's balance sheet in Other assets. The equal and 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

Impairments increased to £66.0 million (1H2020: £31.0 million) and the annualised CLR was up from 0.23% for 1H2020 to 0.47% in the current period. The increase was primarily driven by updated macro-economic scenarios applied in our models. The group revised its macro-economic assumptions during the period with material downward revisions to key forecasted economic variables.

As mentioned earlier in the announcement, we have provided various forms of relief on request from some of our clients. At 30 September 2020, 9.0% of UK and 3.3% of South Africa's loan book was under some form of relief.

In South Africa, the Stage 1 coverage ratio increased to 0.5% (31 March 2020: 0.4%) driven by a higher forward-looking IFRS 9 provision build. Stage 2 and Stage 3 coverage ratios declined to 2.4% (31 March 2020: 2.8%) and 33.0% (31 March 2020: 42.1%) respectively. The decrease in Stage 2 coverage was driven primarily by certain counterparties with a high coverage ratio which migrated to Stage 3, while the decrease in Stage 3 coverage relates to the mix impact of some deals written off and some highly secured counters moving into Stage 3.

In the UK, the Stage 1 coverage ratio reduced to 0.3% (31 March 2020: 0.4%). The Stage 2 coverage ratio reduced to 3.4% (31 March 2020: 5.4%) as a significant proportion of the exposures that migrated into Stage 2 were from lower risk exposures, transferred into Stage 2 based on the deteriorating forward-looking view on their credit performance under current macro-economic expectations rather than specific credit concerns. The Stage 3 coverage ratio also declined to 26.7% (31 March 2020: 28.2%), and similarly to South Africa, related to the mix impact of deals written off relative to a few new highly collateralised deals migrating from Stage 2.

Operating costs

In line with our strategic objective to contain costs, management reduced the cost base for the six months ended 30 September 2020 by 14.0% to £535.8 million (1H2020: £623.1 million), driven by headcount containment, lower variable remuneration and a reduction in discretionary expenditure. However, due to lower revenues the cost to income ratio increased to 72.0% (1H2020: 67.0%).

Taxation

The taxation charge on adjusted operating profit from continuing operations was £20.9 million (1H2020: £41.5 million), resulting in an effective tax rate of 18.8% (1H2020: 14.4%). The increase was due to normalisation of the effective tax rate in South Africa.

Profit or loss attributable to other non-controlling interests

The loss attributable to other non-controlling interests of £15.3 million (1H2020: profit of £28.9 million) relates to the loss attributable to non-controlling interests in IPF.

Discontinued operations

There were no discontinued operations in the first half of the 2021 financial year. Discontinued operations in the comparative period reflect the asset management business which was demerged and separately listed as Ninety One in March 2020.

Basic EPS from continuing and discontinued operations was 9.6p, down 61.1% on the prior period (1H2020: 24.7p).

Earnings from the group's 25% holding in Ninety One in the current period have been equity accounted and included in share of post taxation profit of associates and joint venture holdings within continuing operations.

Balance sheet analysis

Since 31 March 2020:

• Ordinary shareholders' equity increased by 4.7% to £4.0 billion, mainly due to an increase in retained earnings.

• NAV per share increased 4.6% to 433.5 pence and TNAV per share (which excludes goodwill, software, and other intangible assets) increased 5.2% to 397.4 pence.

• The group's ROE decreased from 10.7% in 1H2020 to 5.3% and ROTE from 11.8% in 1H2020 to 5.8%.

• Net core loans and advances growth was muted, up 1.0% to £25.2 billion since year end. The South African book declined 1.6% in Rands to R284.4 billion, while in the UK, net core loans grew 0.9% to £12.0 billion.

Funding and liquidity

Customer deposits grew 1.0% to £32.6 billion (31 March 2020: £32.2 billion). Cash and near cash of £12.9 billion (£6.2 billion in Investec plc and R143.2 billion in Investec Limited) at 30 September 2020 represents 39.5% of customer deposits. Loans and advances to customers as a percentage of customer deposits remained at 76.4%.

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 2020 with the three-month average of its LCR at 164.1% and an NSFR of 113.9%. 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 2020 was 335% and the internally calculated NSFR was 126% at 30 September 2020.

Capital adequacy and leverage ratios

The group maintained capital and leverage ratios ahead of both internal board-approved minimum targets and regulatory requirements. Capital ratios for Investec plc and Investec Limited are summarised in the table below.

The group targets a minimum CET1 ratio above 10%, a tier 1 ratio above 11% and a total capital adequacy ratio range of 14% to 17% on a consolidated basis for each of Investec plc and Investec Limited, respectively.

Investec Limited's application for conversion to the Advanced Internal Ratings Based (AIRB) approach remains under review by the South African Prudential Authority. Approval has been granted for Investec Limited to commence with its six month parallel run for certain AIRB models. Full conversion to AIRB is expected to result in a circa 2% uplift to the CET1 ratio.

1 The capital adequacy disclosures follow Investec's normal basis of presentation to show a consistent basis of calculation across the jurisdictions in which the group operates. For Investec plc this does not include the deduction of foreseeable charges and dividends when calculating CET1 capital as required under the Capital Requirements Regulation and European Banking Authority technical standards. The impact of this deduction totalling £18 million for Investec plc (31 March 2020: £0) would lower the CET1 ratio by 12bps (31 March 2020: 0bps).

2 Investec Limited's capital information includes unappropriated profits. If unappropriated profits are excluded from the capital information, Investec Limited's CET1 ratio would be 36bps (31 March 2020: 24bps) lower.

3 The CET 1 fully loaded ratio and the fully loaded leverage ratio assume full adoption of IFRS 9 and full adoption of all CRD IV rules or South African Prudential Authority regulations, as applicable in the relevant jurisdictions. As a result of the adoption of IFRS 9 Investec plc and IBP elected to designate its subordinated fixed rate medium-term notes due in 2022 at fair value. By the time of full adoption of IFRS 9 in 2023, these subordinated liabilities will have reached final maturity and will be redeemed at par value. The remaining interest rate portion of the fair value adjustment at 30 September 2020 of £6 million (post-taxation), has therefore been excluded from the fully loaded ratios as it will be released into profit and loss over the remaining life of the instrument.

4 Investec plc is not subject to the UK leverage ratio framework, however for comparative purposes this ratio has been disclosed. This framework excludes qualifying central bank balances from the calculation of the leverage exposure measure.

Remuneration targets 

Investec remains committed to setting stretching yet attainable targets, particularly in the current economic environment. In the group's 2020 integrated annual report it was noted that the group intended publishing the remuneration targets for the 2020 Long-Term Incentive award and the 2021 Short-Term Incentive ahead of the group's 2020 annual general meeting (AGM).

However, given the continuing uncertainty at that time, and in line with the guidance from the Investment Association, on 24 July 2020 the group announced its intention to delay the setting and disclosing of remuneration incentive targets until its interim results announcement for the six months ending 30 September 2020. The group consulted with shareholders on this matter.

Whilst there is still a high level of uncertainty relating to the full impact of COVID-19, the Committee has set what it believes are stretching yet attainable targets as outlined in the group's 2020 interim report.

On behalf of the boards of Investec plc and Investec Limited

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 International Financial Reporting Standards (IFRS), 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.

Unless the context indicates otherwise, all comparatives included in the commentary above relate to the six months ended 30 September 2019.

Amounts represented on a neutral currency basis for income statement items assume that the relevant average exchange rates for the six months to 30 September 2020 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 2020 remain the same as those at 31 March 2020.

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 issued a limited assurance report in respect of the neutral currency information. The report 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 position of the 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:

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 International Financial Reporting Standards, and the presentation and disclosure requirements of IAS 34, "Interim Financial Reporting".

The accounting policies applied in the preparation of the results for the six months to 30 September 2020 are consistent with those adopted in the financial statements for year ended 31 March 2020.

The effective date of the demerger of the asset management business was 13 March 2020 and admission of the Ninety One Limited shares and the Ninety One plc shares to the Johannesburg Stock Exchange and London Stock Exchange was effected on 16 March 2020. The global asset management business has been disclosed as a discontinued operation and the income statement for the prior period has been appropriately re-presented. Refer to the discontinued operations note for further detail.

Interest Rate Benchmark Reform (IBOR reform) Phase 2 amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Phase 2 of the IASB's IBOR project addresses the wider accounting issues arising from the IBOR reform. This was published in August 2020 and is awaiting endorsement. The amendments are effective for annual reporting periods beginning on or after 1 January 2021 with early application permitted. Conversion from LIBOR to alternative risk-free rates (RFRs) is expected to increase as RFR-based products become more widely available and key market-driven conversion events occur.

The combined consolidated financial results for the period ended 30 September 2020 have been reviewed by Ernst & Young LLP &

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 at www.investec.com

The financial results have been prepared under the supervision of Nishlan Samujh, the Group Finance Director. The financial statements for the six months ended 30 September 2020 are available on the group's website: http://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 18 November 2020.

• The information in the group's announcement for the six months ended 30 September 2020, which was approved by the board of directors on 18 November 2020, does not constitute statutory accounts as defined in Section 435 of the UK Companies Act 2006. The 31 March 2020 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:http://www.investec.com

Definitions

• Total group represents the group's results including the results of discontinued operations in the prior period.

• 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. Trends within the divisional sections relate to adjusted operating profit before group costs. Adjusted operating profit is considered an important measure by Investec of the profit realised by the group in the ordinary course of operations. In addition, it forms the basis of the dividend payout policy. Non-IFRS measures such as adjusted operating profit are considered as pro-forma financial information as per the JSE Listings 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 issued a limited assurance report in respect of the pro-forma financial information. The report is available for inspection at the registered office of Investec upon request.

• Adjusted earnings attributable to shareholders is defined as earnings attributable to shareholders before goodwill, acquired intangibles and strategic actions and after the deduction of 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.

• 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 and advances as a percentage of average gross core loans and advances 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 and advances is defined as net loans and advances to customers plus net own originated securitised assets.

• NCI is non-controlling interests.

Financial assistance

Shareholders are referred to Special Resolution number 3, which was approved at the annual general meeting held on 6 August 2020, 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 2020 to 30 September 2020 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 depreciated by 20.6% against the comparative six month period ended 30 September 2019, and the closing rate has appreciated by 2.6% since 31 March 2020. The following tables provide an analysis of the impact of the Rand on our reported numbers.

* Restated to reflect continuing operations.

^ For income statement items we have used the average Rand: Pound Sterling exchange rate that was applied in the prior period, i.e. 18.28.

^^ For balance sheet items we have assumed that the Rand: Pound Sterling closing exchange rate has remained neutral since 31 March 2020.

Condensed combined consolidated income statement

* Restated to reflect continuing operations.

^ Depreciation on operating leased assets of £0.4 million (30 September 2019: £0.8 million; 31 March 2020: £1.4 million) which was previously reported as a separate line item, has been included in operating costs. The prior period has been restated to reflect the same basis.

Consolidated statement of total comprehensive income

* Restated to reflect continuing operations.

^ These amounts are net of taxation expense/(credit) of £22.3 million Six months to 30 September 2019: (£1.5 million); year to 31 March 2020: (£55.8 million).

Condensed combined consolidated balance sheet

* Software of £13.0 million (31 March 2020: £14.6 million; 30 September 2019: £18.5 million), which was previously reported within intangible assets, is now reported as a separate line item. The prior periods have been re-presented to reflect the same basis. Perpetual preference share premium of £172.3 million (31 March 2020: £168.5 million; 30 September 2019: £195.1 million), which was previously reported within share premium, is now reported within perpetual preference share capital and premium. The prior periods have been re-presented to reflect the same basis.

Condensed consolidated statement of changes in equity

Condensed consolidated cash flow statement

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).

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.

* Restated to reflect continuing operations.

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

^ In terms of IFRS 8 Operating segments, management concluded that key operating decision makers of Investec currently reviewed the operating results of the following operating segments:

• Investec Specialist Bank

• Investec Wealth & Investment

• Group Investments

• Group costs

Accordingly, the results of Group Investments have been disclosed as a separate segment for the first time in the 30 September 2020 half year results. Group Investments was previously presented as a subset component of the Investec Specialist Bank.

Net fee and commission income

Included in Specialist Banking corporate and institutional and advisory services is net fee income of £32.7 million (2019: £36.2 million) for operating lease income which is out of the scope of IFRS 15 - Revenue from contracts with customers.

Discontinued operations

Asset Management business

During the prior financial year on 13 March 2020, the group successfully completed the demerger of Ninety One (formerly known as Investec Asset Management), which became separately listed on 16 March 2020. The loss of control of Investec Asset Management was effected through the distribution of Ninety One shares to shareholders.

The table below presents the income statement from discontinued operations included in the total group income statement for the six months to 30 September 2019 and the year to 31 March 2020.

Combined consolidated income statement of discontinued operations