Investec plc · LSE:INVP
Investec — H1 FY2024 Earnings Presentation
61 slides from Investec's earnings presentation, November 2023
Slide 1: Creating enduring worth
Creating enduring worth Results presentation for the six months ended 30 September 2023 Month Year
Slide 2: Agenda
Agenda 01 Overview 02 03 04 05 Financial review Geographic review Geographic review Closing and Q&A Fani Titi Nishlan Samujh – UK & Other – Southern Africa Fani Titi Group Chief Group Finance Ruth Leas Richard Wainwright Group Chief Executive Director Investec Bank plc Investec Bank Ltd Executive CE
Slide 3: Overview
Agenda Overview Fani Titi Group Chief Executive 3
Slide 4: Key takeaways
Key takeaways Earnings momentum Deep client franchises, Strong capital Returns to shareholders continues diversified earnings generation firmly within target +18% £'bn Target range: 12 - 16% FUM - SA Loans Deposits Adjusted EPS (p) NAV per share (p) ROE (%) Rathbones Group FUMA: £100.7bn 4
Slide 5: Results highlights
Results highlights Adjusted earnings per share Adjusted operating profit Cost to income 38.7p £441.4mn 53.3% (Sept-22: 32.9p) (Sept-22: £397.1mn) (Sept-22: 55.6%) 17.6% ahead of prior period 11.1% ahead of prior period Up 39.3% in Rands Up 31.7% in Rands Credit loss ratio Return on equity Net asset
Slide 6: Geographic highlights
Geographic highlights Investec plc Investec Limited ▼ 1.3% annualised Loan book £16.3bn ▲ 9.1% annualised £14.7bn (▲ 8.2% annualised in Rands) ▼ 2.0% annualised Deposits £19.9bn ▲ 8.4% annualised £20.0bn (▲ 5.3% annualised in Rands) ▲ 2.0% FUM £100.7bn Rathbones Group plc FUMA* £20.2bn (▲ 5.4% in Ra
Slide 7: Net-zero strategy
Net-zero strategy Published our Scope 3 financed emissions Short-term (0-1 year) Medium-term (1-5 years) Long-term (5-40 years) 2024/25 2027 2030 2035 2050 Targets Set a sustainable finance Investec plc committed to Investec Group No new oil and Investec Group lending target zero coal in their loan
Slide 8: Financial review
Agenda Financial review Nishlan Samujh Group Finance Director 8
Slide 9: Subdued growth environment...
Subdued growth environment... 2010 – 2019 or pre-pandemic Mean: 1.7% • SA economy expected to expand by 0.5% y/y South in calendar year 2023 Africa • Q2 2023 saw expansion of 0.6% quarter on GDP quarter seasonally adjusted as load shedding growth proved less severe than anticipated • GDP growth for
Slide 10: …persistent market volatility...
…persistent market volatility... Markets 1H2023 1H2024 JSE – LHS FTSE – RHS Closing rates Average rates Market indices Sept-23 Sept-22 % change Sept-23 Sept-22 % change JSE All Share 72 383 63 726 13.6% 76 294 68 899 10.7% FTSE All Share 4 127 3 763 9.7% 4 140 4 065 1.8% Dow Jones 33 508 28 726 16.6
Slide 11: …and a weakening GBP / ZAR exchange rate
…and a weakening GBP / ZAR exchange rate Exchange rate GBP/ZAR 1H2023 1H2024 Closing rates Average rates Currency £1.00 Sept-23 Sept-22 % change Sept-23 Sept-22 % change South African Rand 22.99 20.05 14.7% 23.48 19.80 18.6% 11
Slide 12: Global interest rates
Global interest rates USA 10-year treasury bonds (%) • Surging inflation has seen central banks tighten monetary policy • Policy rates expected to be kept at current levels December for some time as inflation remains well above 2019 target in major economies • Rate cuts expected to begin in Q2 2024
Slide 13: UK and SA interest rate history
UK and SA interest rate history Sep 23: 5.25 Sep 23: 11.75 Closing rates Average rates Interest rates Sept-23 Sept-22 Sept-23 Sept-22 SA prime overdraft rate 11.75% 9.75% 11.60% 8.44% UK Base rate 5.25% 2.25% 4.80% 1.29% 13
Slide 14: Strategic execution
Strategic execution Significant strategic actions taken over the past 18 months Completion of combination between Investec Wealth & Disposal of property management companies to Burstone Investment UK ('IW&I UK') and Rathbones Group plc* Group Limited (formerly Investec Property Fund (IPF)) Creating
Slide 15: Earnings drivers
Earnings drivers FUM for IW&I SA Rathbones Group Funds under management - IW&I SA increased 2.0% to FUMA £'bn £20.2bn £100.7bn • Investec holds an • Net inflows of £159mn, economic interest – Net inflows of £261min of 41.25% in discretionary and annuity FUM Rathbones Group partly offset by – Outflow
Slide 16: Solid revenue growth
Solid revenue growth Revenue performance supported by strong and diversified client franchises Revenue increased 8.6% to £'mn £1 043.8mn • Double-digit growth in NII was driven by strong corporate loan growth and rising global interest rates • Increase in non-interest revenue supported by increased
Slide 17: Operating cost analysis
Operating cost analysis Cost growth reflecting inflationary pressures and investment in people and technology Cost to income £'mn Cost to income ratio improved to 53.3% Operating income* (Sept-22: 55.6%) Operating costs • Operating income increased 8.6% Cost to income ratio • Operating costs increas
Slide 18: Group Investments
Group Investments Group Investments pillar consists of equity investments held outside the Group’s banking activities Carrying Income % £’mn value yield Holding Ninety One 159 7.6% 10.0% Burstone Group (formerly IPF) 64 5.4% 24.3% The Bud Group Holdings 196 —% 36.4% (formerly IEP) Equity investments
Slide 19: Solid underlying performance
Solid underlying performance Adjusted operating profit* largely driven by strong performance from our client franchises £’mn SA^ ▼ 11% (▲ 6% in ZAR) UK^ ▲ 41% ▲ 11% ▼ 3% ▲ 15% in GBP ▼ >100% in GBP ▲ 61% ▲ 11% ▼ 48% ▲ 15% in ZAR ▲ 37% in ZAR ▼ >100% in ZAR ROE 16.0% (Sept-22: 14.6%) 13.6% (Sept-22:
Slide 20: Group expected credit loss
Group expected credit loss Asset quality remained solid with exposures covered by collateral Credit loss ratio (core loans) bps Annualised CLR increased to 32 bps (Sept-22: 16 bps), towards the upper end of the through- the-cycle range (TTC) range of 25-35bps Income statement ECL impairment charges
Slide 21: ROE and ROTE
ROE and ROTE ROE ROTE 14.6% Group 16.4% Investec Ltd Investec plc Investec Ltd Investec plc Average allocated equity Average allocated tangible equity 40.7% 59.3% 45.7% 54.3% £1 842mn £2 689mn £1 835mn £2 179mn 21
Slide 22: Net Asset Value
Net Asset Value Underpinned by strong earnings growth and gains from strategic actions Net asset value per share Tangible net asset value per share Pence Pence * Share buy-back 22
Slide 23: Capital and liquidity
Capital and liquidity Group cash and near cash £’bn 16.4bn Group liquidity summary • Strong liquidity positions to support growth Min 11.5bn • Loans to customers as % of customer deposits of 76.9% (Mar 23: 76.1%) Average Max Capital summary 18.0bn • CET1^ ratio above 10% target for Investec plc, and
Slide 24: Geographic review – UK & Other
Agenda Geographic review – UK & Other Ruth Leas Investec Bank plc CEO 24
Slide 25: Strategic positioning
Strategic positioning Building scale & relevance with the client at the centre – creating enduring worth DELIVERING A UNIQUE BREADTH OF CAPABILITIES IN THE UK MID-MARKET “Hi-tech & Hi-touch” Private Private Private Client Companies Equity Enhanced by the strategic partnership with Rathbones Group* L
Slide 26: UK results highlights
UK results highlights Revenue Operating costs Cost to income £595.4mn £320.9mn 53.9% (Sept-22: £480.1mn) (Sept-22: £285.7mn) (Sept-22: 59.5%) 24.0% ahead of prior period 12.3% ahead of prior period Credit loss ratio Adjusted operating profit Return on equity 55bps £235.4mn 13.6% (Sept-22: 32bps) (Se
Slide 27: Total UK adjusted operating profit up 41%
up 41% Total UK adjusted operating profit £235.4mn 1H2023: £166.5mn Adjusted operating profit £'mn Sept-2023 Sept-2022 % change Wealth & Investment 35.9 32.4 11 % Specialist Banking 207.4 128.6 61 % Group Investments 6.2 12.1 (49)% Group costs (14.1) (6.6) 114 % Total Group 235.4 166.5 41 % 27
Slide 28: Specialist Banking UK & Other
Specialist Banking UK & Other Loan growth largely underpinned by client activity across corporate lending portfolios Net core loans Net core loans grew by 9.1% annualised to £'bn £16.3bn • Corporate lending grew 13.0% annualised • HNW mortgage lending reported muted growth of 1.6% annualised driven
Slide 29: Specialist Banking UK and Other
Specialist Banking UK and Other Delivered a strong set of results Revenue 27.0% £'mn increase NII increased 25.0% driven by: • Strong book growth and • Higher interest rates Non-interest revenue increased 32.7% Other* • Higher net fees and commission income from Investment and Associate increased ad
Slide 30: Specialist Banking UK and Other
Specialist Banking UK and Other Fixed operating costs contained £'mn Cost to income ratio improved to 55.4% (Sept-22: 64.1%) Operating costs increased 9.9%: • Increase in variable remuneration Operating Income* • Investment in people and technology Operating costs • Fixed operating costs increased b
Slide 31: Unpacking the UK credit loss ratio
Unpacking the UK credit loss ratio Credit loss ratio (core loans) bps Annualised CLR increased to 55bps (Sept-22: 32bps), above the through-the-cycle range (TTC) range of 30-40bps Income statement ECL impairment charges ECL charges £'mn increased to £39.3mn (Sept-22: £27.9mn) mainly driven by: • Sta
Slide 32: Balance sheet ECL provisions
Balance sheet ECL provisions £'mn 38.7% Stage 3 Stage 2 Stage 1 6.3% 7.7% Mar 2023 Sept 2023 Stage 1 0.29% 0.30% ECL coverage ratio % Stage 2 2.4% 2.6% Stage 3 21.9% 23.4% Total coverage 1.0% 1.1% 32
Slide 33: Wealth & Investment UK adjusted operating profit
Adjusted operating profit Wealth & Investment UK £35.9 million (Sep-22: £32.4 million) Combination with Rathbones 10.8% ahead of prior period 2 1 3 4 Created the UK’s leading The strategic partnership will Focused on continuing Fully committed to the discretionary wealth manager enhance the client p
Slide 34: Growth opportunities
Growth opportunities 1 INCREASE SCALE & RELEVANCE OF OUR ESTABLISHED CLIENT FRANCHISES 2 GROW IN CONTINENTAL EUROPE 3 ADVANCE OUR ALTERNATIVE INVESTMENT FUNDS STRATEGY 4 REALISING THE SCALE BENEFITS OF IW&I UK’S COMBINATION WITH RATHBONES 34
Slide 35: Geographic review – Southern Africa
Agenda Geographic review – Southern Africa Richard Wainwright Investec Bank Ltd CEO 35
Slide 36: Strategic positioning
Strategic positioning A distinctive banking and wealth management business creating sustainable, long-term value for our stakeholders Key client groups and our offering Corporate / Institutional / Government / Intermediary Private Clients (HNW / High Income) / Charities / Trusts Specialist Banking W
Slide 37: SA results highlights
SA results highlights Revenue Operating costs Cost to income R10.5bn R5.5bn 52.5% (Sept-22: R9.5bn) (Sept-22: R4.9bn) (Sept-22: 51.7%) 10.6% ahead of prior period 12.2% ahead of prior period Credit loss ratio Adjusted operating profit Return on equity* 8bps R4.8bn 16.0% (Sept-22: 1bps) (Sept-22: R4.
Slide 38: Total SA adjusted operating profit up 6%
Adjusted operating profit up 6% Total SA adjusted operating profit R4 832mn 1H2023: R4 574mn R'mn Sept-2023 Sept-2022 % change Wealth & Investment 411 301 36.5% Specialist Banking 4 616 4 026 14.7% Group Investments (31) 399 (>100.0%) Group costs (164) (152) 7.9% Total Group 4 832 4 574 5.6% 38
Slide 39: Specialist Banking SA
Specialist Banking SA Loan growth supported by increased corporate lending Net core loans Net core loans R'bn up 8.2% annualised to R338.4bn • Strong growth in corporate lending portfolios across several lending specialisations • Increase in residential mortgages in private client lending • Partiall
Slide 40: Specialist Banking SA
Specialist Banking SA Continued operating income momentum from client franchises R'bn Revenue 14.4% increase • NII increased 14.6% driven by: • Higher average interest earning assets Other* • Positive endowment from higher interest rates Investment and Associate Trading income • Non-interest revenue
Slide 41: Specialist Banking SA
Specialist Banking SA Cost-to-income ratio improved notwithstanding inflationary pressures and investment for growth R'bn Cost to income ratio decreased to 47.7% (Sept-22: 49.5%) Operating costs increased 10.4% • Higher personnel expenses due to annual salary Operating Income* adjustments and increa
Slide 42: Unpacking the SA credit loss ratio
Unpacking the SA credit loss ratio Credit loss ratio (core loans) bps ECL impairment charges on loans subject to ECL increased resulting in a CLR of 8 bps, driven primarily by: • Stage 3 ECL charges on certain exposures Income statement ECL impairment charges • Recoveries on previously impaired loan
Slide 43: Balance sheet ECL provisions
Balance sheet ECL provisions R'mn 27.5% Stage 3 Stage 2 Stage 1 36.3% 1.4% Mar 2023 Sep 2023 Stage 1 0.25% 0.24% Stage 2 3.8% 4.1% ECL coverage ratio % Stage 3 21.3% 18.5% Total coverage 1.01% 1.05% 43
Slide 44: Wealth & Investment SA
Wealth & Investment SA Strong financial performance in a challenging operating environment SA funds under management Adjusted operating profit Operating margin R’bn R’mn Discretionary and annuity Non-discretionary FUM increased by 6.9% to Adjusted operating profit up 36.5% to Operating margin at R46
Slide 45: Growth opportunities
Growth opportunities 1 PRIVATE CLIENT STRATEGY 2 CORPORATE MID-MARKET STRATEGY 3 TRADE AND INFRASTRUCTURE FINANCE OPPORTUNITIES IN CONTINENTAL AFRICA 4 RENEWABLE ENERGY AND THE JUST ENERGY TRANSITION OPPORTUNITY 45
Slide 46: Closing and Q&A
Agenda Closing and Q&A Fani Titi Group Chief Executive 46
Slide 47: Financial outlook – FY2024
Financial outlook – FY2024 Based on current economic forecast and business activity levels ROE to be above the We will continue to support our clients notwithstanding mid-point of the uncertain macro outlook • We have strong capital and robust liquidity levels to navigate the the Group's target curr
Slide 48: In closing
In closing We are a focused We are dedicated Our client franchises business with deep client to our purpose of have scale and franchises and a strong creating relevance entrepreneurial enduring worth in chosen markets culture Clear set of scalable opportunities to Strong capital generation to suppor
Slide 49: Thank you
& Investec Thank you
Slide 50: Appendix
Appendix 50
Slide 51: Proviso
Proviso • Please note that matters discussed in today's presentation 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 In
Slide 52: Macro-economic scenarios – 30 September 2023
Macro-economic scenarios – 30 September 2023 At 30 September 2023 Base case average 2023 – 2028 Downside 1 Downside 2 Macro-economic scenarios % 2023/2024 2024/2025 2025/2026 2026/2027 2027/2028 Upside Base case inflation global shock GDP growth 0.2 0.5 1.8 1.6 1.6 1.7 1.1 (0.1) 0.2 Unemployment rat
Slide 53: Taking stock
Taking stock Consistent execution of our strategy underpinned the achievement of all our medium-term targets in 1H2024 £’mn FY2020 FY2021 FY2022 FY2023 1H2024 Sustained earnings Adjusted EPS - pence per share 33.9 28.9 55.1 68.9 38.7 growth supports higher dividends per share Total operating income
Slide 54: Investec
Investec We seek to create Investec is a distinctive bank and We are a people backed business, enduring worth – living in, wealth manager, operating in two our distinction is embodied in our not off, society core geographies entrepreneurial culture Partner for the long term, guided by Rich heritage
Slide 55: Our strategic objectives
Our strategic objectives Growth Objectives Continued execution with Accelerate and scale new Further develop connected discipline to drive growth initiatives client eco-systems across optimisation of returns business units & geographies Underpinned by Deepening our entrepreneurial culture (Out of th
Slide 56: A distinctive banking and wealth management business
A distinctive banking and wealth management business creating sustainable, long-term value for our stakeholders Funds under management Principal geographies Total Employees Core loans Customer deposits IW&I SA Rathbones Group plc 2 c.7 400+ £31.0bn £39.9bn £20.2bn FUMA: £100.7bn Key client groups an
Slide 57: Sustainability highlights
Sustainability highlights Operate responsibly, finance and invest for a sustainable future, and maintain our competitive ESG position PROGRESS MADE ON OUR IMPACT SDGs SUSTAINABLE FINANCE Net-zero commitments • Continued inflows into Investec Global Sustainable Equity Fund of $50mn (since launch in M
Slide 58: Divisional highlights
Divisional highlights UK & Other Southern Africa Specialist Bank Specialist Bank Loan book Deposits Loan book Deposits grew by 9.1% annualised to grew by 8.4% annualised to up 8.2% annualised to up 5.3% annualised to £16.3bn £19.9bn R338.4bn R460.4bn Continued client acquisition and Adjusted operati
Slide 59: Diversified, quality revenue mix across geographies and businesses
Diversified, quality revenue mix across geographies and businesses Geography Division Sept-23 Sept-23 Operating income^ up 8.6%% to £1 043.8mn Adjusted operating profit* up 11.1% to £441.4mn Southern Africa UK and other Wealth & Investment Specialist Banking Group Investments ^ Total operating incom
Slide 60: Strong growth in UK loan book
Mar-23 Sept-23 £'mn HNW & Other private client lending Property Corporate & Other Lending Strong growth in UK loan book Continued client acquisition and strong demand for corporate lending across multiple asset classes UK net core loans up 9.1% annualised • Good activity in corporate client lending
Slide 61: SA net core loan growth
Mar-23 Sept-23 R'bn HNW & Other private client lending Property Corporate & Other Lending SA net core loan growth Underpinned by strong growth in corporate client lending Net core loans up 8.2% annualised to R338.4bn • Strong growth in corporate lending portfolios driven by increased corporate credi