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Government must help business drive the bus – Koseff

Investec chief highlights opportunity in healthcare, private school tourism.
Investec CEO, Stephen Koseff.

JOHANNESBURG – Investec CEO, Stephen Koseff says that government must create an enabling environment for business, which in turn must “drive the bus”.

“We’re in a tough space at the moment. I just think there are areas where we can convert our economy to be vibrant and growth-orientated, but we need some policy framework that is different to what we’ve got,” Koseff, whose business manages some R2.4 trillion in third-party assets, said. 

“If business grows and we grow and develop entrepreneurs as a society, then you will see a lot of job creation.”

Koseff highlighted tourism – including healthcare and private school tourism – as areas in which South Africa can compete on a solid footing. “We should be the head office for organisations advancing into Africa, because we have a very strong professional services industry,” he added.

Koseff was speaking after an investor pre-close briefing – for the six months to September 2015 – at Investec’s Sandton office.

The group’s Specialist Banking business is expected to deliver results “substantially ahead” of the prior year, Koseff said.

“Recent currency and equity market volatility, if sustained, is likely to create headwinds in our Wealth and Investment and Asset Management businesses,” Koseff said.

From March to August 2015, third-party assets under management fell 2% on a currency neutral basis to £116.2 billion (R2.4 trillion).

Market and currency volatility, as well as lower performance fees in South Africa, impacted earnings in Investec’s Asset Management business, with net inflows falling 4% on a currency neutral basis to £1.5 billion (R31.2 billion) at August 2015.

Weaker equity markets had a negative impact on its Wealth and Investment Business too, which achieved inflows marginally ahead of the previous period at £1.1 billion (R22.8 billion).

“Adjusted operating profit will be comfortably ahead of the prior year,” Koseff noted.

Losses from Investec’s legacy portfolio continue to narrow, with group impairments expected to be 20% lower. “Impairments in South Africa are expected to be in line with the previous year. We have not yet seen the consequence of a weak economy on impairment levels, but we expect them to be in line,” Koseff said, noting that a “slight uptick” is possible going forward.

“Clearly there’s been a bit of a shake-out in markets over the past few months, which can have an impact on activity levels going forward. Notwithstanding the volatile conditions, we are well placed to manage and navigate any volatility that comes our way. We’ve had a decent trading period and will see good growth in bottom line numbers,” commented Koseff.

Moving away from a founder culture

Now 64, Koseff has been with Investec since the late 1980s and said that a new leader for the specialist bank (currently himself) will be appointed “in time”, as he transitions into a less operational role, but remains CEO.

Ultimately, Koseff and Investec’s London-based MD, Bernard Kantor (also a founding executive) will begin to move into strategic roles, keeping the “key people together” and maintaining the firm’s relationships and values, Koseff said.

“The issue is to navigate from a founder culture to a corporate culture,” he added, noting that Investec has an able “next generation” of leaders.

Analyst at Avior Research, Harry Botha, said Koseff and Kantor have already started to hand over some control to divisional heads. “This points to the likelihood that one of the divisional heads will take over as CEO,” Botha said.

Among the potential candidates are Cieran Whelan, head of Investec’s private banking activities; Glynn Burger, the group’s finance director; and Hendrik du Toit, head of Investec Asset Management.

“It [the CEO succession plan] is a longer-term concern for investors, but it’s about how they manage that transition and communicate it to the market. If they announced reasonably in advance who it was and it was someone who has been in the business and worked their way through the ranks, I don’t think it’s a huge issue,” commented a Cape Town-based analyst.

The analyst, who remained anonymous in line with company policy, said that the specialist bank was showing positive momentum, but the quality of its recently boosted earnings is unclear. “The investments and trading business did well, but this is not annuity income. It depends on how markets do and what investments you sell, which is not necessarily repeatable.”

Investec Ltd closed up 1.26% on Thursday at R110.48 a share.

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