Investec plc · LSE:INVP
Investec — FY2004 Earnings Presentation
62 slides from Investec's earnings presentation, 2004
Slide 1: Investec year end results presentation 2004
Investec year end results presentation 2004
Slide 2: Summary of results
Summary of results @ Investec
Slide 3: Snapshot of results - UK GAAP
Snapshot of results - UK GAAP 31 Mar 31 Mar % 2004 2003 Change Operating profit before goodwill 132 139 85 762 54.1 amortisation and exceptional items (£’000) Earnings before goodwill amortisation 106 082 89 668 18.3 and exceptional items (£’000) EPS before goodwill amortisation and 103.7 96.1 7.9 e
Slide 4: Restatement to the weighted average number of shares in issue
Restatement to the weighted average number of shares in issue (“wanos”) Historically, shares that were not entitled to dividends were not included in the wanos. In order to match the wanos to the group’s pro rata share of income associated with such schemes the wanos has been increased by the weight
Slide 5: Snapshot of results - UK GAAP
Snapshot of results - UK GAAP 31 Mar 31 Mar % 2004 2003 Change Dividends per share (pence) 58 54 7.4 Return on average equity 16.0 13.1 - shareholders’ funds (%) Return on average tangible equity 27.5 26.0 - NAV (%) Cost to income ratio (%) 72.7 80.0 - Total assets under administration 47 805 40 559
Slide 6: Summary of the year
Summary of the year • Leaner, more focused organisation and improved market environment benefited most of Investec’s businesses. – Strong performances from the group’s Investment Banking and Private Banking operations. – Profitability of the UK operations was restored with the Treasury and Specialis
Slide 7: Summary of the year
Summary of the year • Investec Limited concluded the empowerment shareholding transaction. • Investec was recognised by BusinessMap as the “Most Progressive Established Company of the Year” for its black empowerment and transformation initiatives in SA.
Slide 8: Summary of the year
Summary of the year • Improved the capital structure: – Successfully placed a £200 million 12-year subordinated note in the UK market to a well-diversified range of investors. – Issued R1.5 billion (£127.5 million) non-cumulative, non- redeemable and non-participating preference shares.
Slide 9: Geographic overview
Geographic overview @ Investec
Slide 10: Operating profit by geography
Operating profit* by geography (UK GAAP) 140 132.1 120 100 85.8 69.5 77.4 £ million 80 54.7 60 40 16.3 20 0 Southe rn Africa UK and Othe r** Total group M ar-03 M ar-04 *Before taxation, exceptional items and amortisation of goodwill **Including Europe, Australia, Israel, US and Discontinued Operati
Slide 11: Assets by geography
Assets by geography (UK GAAP) 4.7% 0.2% 5.5% 0.2% 3.1% 2.0% 54.8% 59.5% Mar-04 Mar-03 £15.4 bn £14.9 bn 32.5% 37.5% Southern Africa UK and Australia Israel US and Other Europe
Slide 12: Southern Africa
Southern Africa • Mixed performances from the SA businesses: – Operating profit before exceptional items and amortisation of goodwill increased 11.4% to £77.4 million. – Consistently good performance from the Private Banking operation. – Strong performance from the Investment Banking division. – Wea
Slide 13: UK and Europe
UK and Europe • Commendable turnaround in UK performance: – Operating profit before exceptional items and amortisation of goodwill increased 71.7% to £38.7 million. – Strong results from Private Banking and the Treasury and Specialised Finance operations. – Improved performance from the Investment B
Slide 14: Australia
Australia • Strong performance from the Australian business which experienced solid activity levels. – Operating profit before exceptional items and amortisation of goodwill increased 62.5% to £9.6 million. – The business is well on the way to meeting its mission to be a successful specialised partn
Slide 15: Israel
Israel • Operating profit before exceptional items and amortisation of goodwill increased 69.3% to £5.9 million despite performance reported in nominal terms being weakened by negative inflation. • The Israeli operation benefited from the cost cutting initiatives taken in the previous period and the
Slide 16: US
US • Operating profit before exceptional items and amortisation of goodwill of £0.4 million. • The heavily reduced ongoing operations in the US, consisting of several fixed income trading operations and a small equities trading desk supporting Investec Israel’s clients. • The fundamental restructuri
Slide 17: Divisional review
Divisional review @ Investec
Slide 18: Operating profit by business
Operating profit* by business UK GAAP (£ million) 31 Mar 31 Mar 2004 2003 Private Client Activities 53.9 34.0 Investment Banking 37.7 13.5 Treasury and Specialised Finance 35.8 20.2 Asset Management 24.6 17.7 Assurance 4.5 26.9 Group and Other Services (24.4) (9.8) Discontinued Operations - (16.7) T
Slide 19: Operating profit by business
Operating profit* by business (UK GAAP) 2.9% 15.7% 23.9% 34.4% 30.3% Mar-04 Mar-03 £156.6 mn £112.3 mn 22.9% 15.8% 24.1% 12.0% 18.0% Private Client Activities Treasury and Specialised Finance Investment Banking Asset Management Assurance *Excluding Discontinued Operations and Other Activities and be
Slide 20: Group Services and Other - operating profit
Group Services and Other - operating profit* UK GAAP (£’000) 31 Mar 31 Mar 2004 2003 International Trade Finance 2 725 978 Property Worldwide 10 125 5 413 US Continuing businesses 178 970 UK Traded Endowments (3 279) (8 945) 9 749 (1 584) Central Funding (8 463) 7 161 Central Costs (25 726) (15 414)
Slide 21: Central Funding
Central Funding UK GAAP (£’000) 31 Mar 31 Mar 2004 2003 Net interest income (excl. interest on sub debt 10 989 21 749 and debentures) Return on shareholders funds in long term 24 122 15 551 assurance Other income 13 276 6 558 48 387 43 858 Interest paid on sub-debt and debentures (45 105) (25 090) A
Slide 22: Private Client Activities
Private Client Activities • The Private Banking operations performed particularly well with solid loan portfolio growth: – UK: £1 062 million (Mar 03: £925 million) - up 14.7%. – SA: R22.5 billion (Mar 03: R17.8 billion) – up 26.4%. – Australia: A$543 million (Mar 03: A$422 million) – up 28.7%.
Slide 23: Private Client Activities
Private Client Activities • Improved performance from Private Client Portfolio Management and Stockbroking: – Carr Sheppards Crosthwaite improved performance with net inflows of £360 million. Funds under management increased 25.5% to £5.9 billion (March 03: £4.7 billion). – Poor stock market volumes
Slide 24: Investment Banking
Investment Banking • The SA business benefited from a significant improvement in the performance of its direct investment and private equity portfolios. • In the UK, a major turnaround was achieved as a result of improved stock market conditions and a reduced cost base. • Investec Wentworth in Austr
Slide 25: Investment Banking statistics
Investment Banking statistics Number of transactions Value of transactions Mar 2004 Mar 2003 Mar 2004 Mar 2003 South Africa Corporate finance 93 55 R20.0 bn R56.0 bn Sponsor broker 82 45 R17.5 bn R57.8 bn UK and Europe M&A 18 13 £960 mn £826 mn Fund raising 13 10 £173.6 mn £449 mn* Australia M&A 15
Slide 26: Treasury and Specialised Finance
Treasury and Specialised Finance Banking Activities: • UK: Strong growth with several transactions concluded. • SA: Performance was subdued by the general slow down in infrastructural finance and the margin squeeze, although there was good growth in structured finance fees. Trading Activities: • UK:
Slide 27: Asset Management
Asset Management Solid performance from a resilient SA business: • Strong franchise developing in specialist products. • SA business generated net inflows of R4.4 billion excluding the structural outflows from the Fedsure book. • The investment administration function was outsourced during the perio
Slide 28: Asset Management – investment performance
Asset Management – investment performance • Excellent SA specialist investment performance (Plexus award for best mutual fund company and dominating specialist surveys) • SA balanced investment performance – Long term (13 years) Excellent, second since inception – Medium term (3-5 years) Not yet out
Slide 29: Asset Management – funds under management
Asset Management – funds under management (£ million) 31 Mar 31 Mar % 2004 2003 Change Institutional 14 930 12 478 19.7 Retail 5 638 4 350 29.6 20 568 16 828 22.2 South Africa 12 255 9 330 31.4 UK and Other 8 313 7 498 10.9 20 568 16 828 22.2
Slide 30: Financial performance
Financial performance @ Investec
Slide 31: Salient Balance Sheet features
Salient Balance Sheet features UK GAAP (£ million) 31 Mar 31 Mar % 2004 2003 Change Total assets (including core loans 15 361 14 914 3.0 and advances) Core loans and advances 5 060 3 909 29.4 Total liabilities 14 015 13 956 0.4 Total capital resources 1 346 958 40.5 Shareholders’ funds 809 640 26.4
Slide 32: Income Statement
Income Statement UK GAAP (£’000) 31 Mar 31 Mar % 2004 2003 Change Net interest income 105 663 110 701 (4.6) Net non-interest income 455 070 408 566 11.4 Operating income 560 733 519 267 8.0 Administrative expenses (395 188) (400 780) (1.4) Depreciation (12 448) (14 417) (13.7) Bad debt provision (20
Slide 33: Return
Return (UK GAAP) 30 26.0 27.5 25 20 16.0 15 13.1 10 5 0 ROE Return on tangible NAV (%) M ar-03 M ar-04
Slide 34: Quality of earnings
Quality of earnings 0.9% 4.3% 5.3% 3.0% 18.8% 44.8% 44.7% 21.3% Mar-04 Mar-03 £560.7m £519.3m 31.3% 25.6% Annuity Income / Annuity Income / Total Income: 67.8% Total Income: 69.1% Annuity Income Other Income Net annuity fees and commissions Dealing profits, dividend income, other operating income, d
Slide 35: Quality of earnings
Quality of earnings UK GAAP (£’000) 31 Mar 31 Mar % 2004 2003 Change Net interest income 105 663 110 701 (4.6) Fees and commissions receivable 318 373 276 191 15.3 Dealing profits 91 015 57 668 57.8 Income from long-term assurance 5 082 27 779 (81.7) business Investment activities 40 600 46 928 (13.
Slide 36: Amortisation of goodwill
Amortisation of goodwill • The charge for goodwill amortisation and impairment decreased significantly from £122.3 million to £50.6 million. • The prior year figure included £49.6 million relating to additional impairments of the business acquired from Fedsure Holdings Limited. • Included in the cur
Slide 37: Asset Quality
Asset Quality 6000 1.75 2.0 1.52 5000 1.5 £ millions 4000 5060 3000 3909 1.0 (%) 2000 0.5 1000 0 0.0 Mar-03 Mar-04 Total core loans and advances to customers (lhs) Gross non-performing loans as % of core loans and advances to customers (rhs)
Slide 38: Asset Quality
Asset Quality 1.34 1.5 400 1.14 (%) 300 338.1 354.6 1.0 200 (%) 0.5 100 0 0.0 Mar-03 Mar-04 Total provis ions as a % of ne t non-pe rform ing loans (lhs ) Ge ne ral provis ions as a % of ne t loans and advance s to cus tom e rs (rhs )
Slide 39: Cost to income
Cost to income 100 88.1 92.9 95.6 82.9 80.0 76.4 72.7 70.4 63.5 64.8 62.3 61.7 60 (% ) 20 A u s tra lia Is ra e l g ro u p SA USA E u ro p e T o ta l UK & -20 Mar-03 Mar-04
Slide 40: Administrative expenses
Administrative expenses UK GAAP (£’000) 31 Mar 31 Mar % 2004 2003 Change Staff costs 265 234 265 437 (0.1) Premises (excl. depreciation) 26 248 22 303 17.7 Equipment (excl. depreciation) 22 838 25 569 (41.6) Business expenses 65 924 74 628 (11.7) Marketing expenses 14 944 12 843 16.4 Administrative
Slide 41: Taxation
Taxation • The operational effective tax rate of the group (excluding the tax effect on exceptional items) increased from 6.3% to 21.6%. Effective tax rate (%) 31 Mar 31 Mar 2004 2003 Southern Africa 21.0 14.3 UK and Europe 16.3 (60.7) Australia 29.4 41.4 Israel 58.7 12.2 Total group 21.6 6.3
Slide 42: Exceptional items
Exceptional items • Losses on termination of the group’s operations in the US amounting to £5.1 million. • Profit of £13.7 million on disposal of group operations largely relating to the sale of the companies, 100 Grayston Drive Property (Pty) Limited and Block E Power Station Properties (Pty) Limit
Slide 43: Capital adequacy
Capital adequacy 31 Mar 31 Mar 2004 2003 Consolidated under SARB rules Investec Limited 15.1% 12.2% Investec Bank Limited 19.9% 21.0% Consolidated under FSA rules Investec plc 17.3% 14.2% Investec Bank UK 19.3% 22.2%
Slide 44: Employees
Employees UK GAAP 31 Mar 31 Mar % 2004 2003 Change SA and Other 2 627 2 897 (9.3) UK and Europe 1 431 1 509 (5.2) Australia 112 103 8.7 USA 75 131 (42.8) Israel 213 234 (9.0) Total number of employees 4 458 4 874 (8.5)
Slide 45: Outlook
Outlook @ Investec
Slide 46: The past year
The past year • The operational health of the group’s activities is sound with significant measures taken to address the non-performing elements of the business, and through the vigilant management of costs.
Slide 47: The past year
The past year • The group is now leaner and more focused and in a better position to deal with external market and economic conditions which remain uncertain.
Slide 48: What are we?
What are we? • The group recently undertook a significant internal process which resulted in a revision of the mission statement: “Investec strives to be a distinctive specialist banking group driven by commitment to our core philosophies and values.”
Slide 49: Why can we compete?
Why can we compete? UK, Australia and other: • Niche specialist bank. • Concentrate on high net worth and entrepreneurial corporates with ability to punch above our weight where expertise and skill is available internally. • Avoid businesses where it is difficult to get scale. South Africa: • Full s
Slide 50: Investec positioning
Investec positioning SA Corporate Finance • Dealmakers Magazine Survey for 2003: – 1st in M&A by volume. – 2nd in General Corporate Finance by volume and value. • Ernst &Young Survey for 2003: – 1st in M&A for highest value. – 2nd in M&A for highest volume. UK Investment Banking and Securities • UK
Slide 51: Investec positioning
Investec positioning Private Client Activities • SA Private Bank – Ranked number one private bank for the fourth consecutive year in the PriceWaterhouseCoopers SA Banking Survey (2003). – Ranked Best Private Bank in South Africa by Euromoney (2004). • Carr Sheppards Crosthwaite – Commendation in the
Slide 52: Investec positioning
Investec positioning Asset Management • Global Investor’s Firm to Watch 2004. • Runner-up, European specialist manager of the year, Financial News. • Best all rounder over the last three years, Professional Adviser. • Financial Adviser/LIA five star service award. • SA fund manager of the year, Plex
Slide 53: Where to from here?
Where to from here? Thinking about our future, the following four questions arise: People • How do we build and retain distinctive human talent? Role in society • How can integrity and morality in business practices act as a source of distinction? Values • What are the values that will make us truly
Slide 54: Distinctive results
Distinctive results Rewarding stakeholders: • ROE in excess of 20%. • Cost to income ratio of less than 65%. • Long term growth (inflation + 10%). • Building sustainable business model.
Slide 55: ROE – peer comparatives
ROE – peer comparatives 30 25 22.3 20.2 20 16.0 15.0 (%) 15 12.2 10 5.0 5 0 Goldman Julius Macquarie Stearns Brothers Investec Baer Sachs Bear Close Source: Most recent statutory accounts
Slide 56: Cost to income – peer comparatives
Cost to income – peer comparatives 100 77.9 80 72.7 71.2 70.4 70.2 66.8 60 (%) 40 20 0 Julius Brothers Investec Stearns Goldman Macquarie Baer Close Sachs Bear Source: Most recent statutory accounts
Slide 57: Staff costs to operating income – peer comparatives
Staff costs to operating income – peer comparatives 60 52.0 49.6 48.0 47.3 50 46.2 40.8 40 (%) 30 20 10 0 Goldman Julius Macquarie Stearns Brothers Investec Baer Sachs Bear Close Source: Most recent statutory accounts
Slide 58: Strategic focus
Strategic focus • Remain entrepreneurial. • Ensure all offerings are distinctive. • Get maximum leverage off a moderate cost base. • Increase client focus and revenue generation. • Organic rather than acquisitive growth.
Slide 59: Strategic focus
Strategic focus • Strategy in our industry is not about a 5-year plan, but rather like a video game. What is important is having the right people and culture that can identify and take advantage of the opportunities in a volatile and ever changing environment.
Slide 60: Strategic focus
Strategic focus • “The only constant in our business is that everything is changing. We have to take advantage of change and not let it take advantage of us. We have to be ahead of the game.” • Michael S. Dell, Chairman and CEO, Dell Computer Corporation
Slide 61: Questions
Questions ay Oo Investec
Slide 62: Investec year end results presentation 2004
Investec year end results presentation 2004