Investec Plc · LSE:INVP
Investec — FY2001 Earnings Presentation
94 slides from Investec's earnings presentation, 2001
Slide 1: Investec Group Limited Analyst Presentation 2001
Investec Group Limited Analyst Presentation 2001
Slide 2: Summary of Results
Summary of Results
Slide 3: Investec Group… 2001 Results in a Snapshot
Investec Group… 2001 Results in a Snapshot 31 March 31 March % 2001 2000 Change Headline Attributable Earnings 1 314 1 047 25.5 (R’mn) Headline EPS (cents) 1 628.2 1 300.9 25.2 DPS (cents) 750 620 21.0 Return on Equity (%) 28.6 24.3 Cost to Income Ratio (%) 63.2 61.9 Assets Under Administration 514
Slide 4: Headline & Attributable Earnings
Headline & Attributable Earnings 31 March 31 March R’mn 2001 2000 Headline Earnings 1 314 1 047 Headline Adjustments (468) (229) Share of Associates Exceptional Items (156) (64) Goodwill Amortised (315) (195) Discount on Fair Value of Acquisitions 3 30 Attributable Earnings 846 818
Slide 5: Headline EPS, DPS and ROE
Headline EPS, DPS and ROE DPS Headline EPS ROE 1800 30% 1600 10 Year CAGR: Headline EPS: 30.1 % 25% 1400 DPS: 29.6% 1200 20% 1000 800 15% 600 10% 400 200 5% 0 0% 1991 1993 1995 1997 1999 2001
Slide 6: Impact of Changes in Accounting Policy – AC 102
Impact of Changes in Accounting Policy { AC 102 • New South African standard relating to the disclosure of taxation • Certain tax-related charges to be reclassified into expenses • No resulting effect on after-tax income
Slide 7: Impact of Changes in Accounting Policy – Assurance Assets
Impact of Changes in Accounting Policy { Assurance Assets • Assets and liabilities previously treated as off balance sheet items are reflected on balance sheet • Increase in total assets, in the prior year, of R7 865bn • No effect on the income statement
Slide 8: Impact of Changes in Accounting Policy – AC 133
Impact of Changes in Accounting Policy { AC 133 • Partial implemetation > No effect on the income statement
Slide 9: Global Positioning and Review
GlobalPositioning Global Positioningandand Review Review
Slide 10: Strategy today is nothing without passion and vision (quote)
“Strategy today is nothing without passion and vision from the people creating and implementing it” - Harvard Business Review, January 2001
Slide 11: Strategy
Strategy • Our goals and objectives continue to be motivated by the desire to become one of the world’s leading specialist banking groups
Slide 12: Operating Environment
Operating Environment • Our financial results reflect: > The impact of difficult world equity markets - particularly hindering the performance of our US and Israeli businesses > Problems encountered at Fedsure which is equity accounted until all approvals are granted
Slide 13: Operating Environment
Operating Environment • Notwithstanding, the majority of our businesses achieved solid results • Our performance underscores the value of our diversified portfolio of international businesses and strong annuity income base
Slide 14: Integrated Global Management Structure
Integrated Global Management Structure • Global integrated model • Enables the Group to respond to local and global challenges • Leverage resources and core competencies • Exploit synergistic benefits • Common brand, culture and values ensures co- operation and collaboration is maintained and encour
Slide 15: Global Positioning and Review
GlobalPositioning Global Positioningandand Review Review
Slide 16: Geographic Review
Geographic Review Pre-Tax Post-Tax • UK & Europe Ï 26.3% Ï 35.0% • USA Ð 62.5% Ð 55.9% • Israel Ð 25.3% Ð 28.6% • Southern Africa & Other Ï 53.4% Ï 43.2%
Slide 17: Assets by Geography
Assets by Geography USA Israel 4.5% 5.8% SA & Other UK & 31.3% Europe 58.4%
Slide 18: Tangible NAV by Geography
Tangible NAV by Geography Israel 8.1% USA 9.2% UK & Europe 44.0% SA & Other 38.7%
Slide 19: Headline Income Before Tax by Geography
Headline Income Before Tax by Geography Israel USA 3.5% 5.0% SA & Other 38.6% UK & Europe 52.9%
Slide 20: UK & Europe
UK & Europe • Solid performance with noteworthy achievements from IHC and Private Banking • Continued to enhance profile through significant awareness campaign • Critical mass enhancing acquisitions > Radcliffes and Theodores
Slide 21: Ireland
Ireland • First full year of integrated Investec Gandon • Enhanced Investec platform in Ireland, focusing on building a niched business > Leveraged off the Group’s international product set and skills > Expanded activities to include private banking, investment banking and asset management • Will lo
Slide 22: Salient Financial Features - UK & Europe
Salient Financial Features - UK & Europe 31 March 31 March 2001 2000 Assets (R’bn) 113 100 Headline NIBT (R’mn) 965 764 Headline NIAT (R’mn) 825 611 Staff 1 432 1 319 Return on Tangible NAV (%) 29.4 21.5
Slide 23: USA
USA • Performance dependent on transactional activity - lagged as a result of weak equity markets • Select acquisitions: > Private client and clearing arm of Herzog Heine Geduld > PMG - platform for investment banking operations (subject to regulatory approval)
Slide 24: Salient Financial Features - USA
Salient Financial Features - USA 31 March 31 March 2001 2000 Assets (R’bn) 9 12 Headline NIBT (R’mn) 91 243 Headline NIAT (R’mn) 56 127 Staff 859 661 Return on Tangible NAV (%) 8.9 53.9
Slide 25: Israel
Israel • Notwithstanding the political environment the Israeli operations performed well in the first three quarters of the year • Counterparty loss negatively impacted earnings • Refined investment banking and private banking to Investec’s model • Continued to adapt business structure to enable max
Slide 26: Salient Financial Features - Israel
Salient Financial Features - Israel 31 March 31 March 2001 2000 Assets (R’bn) 11 9 Headline NIBT (R’mn) 65 87 Headline NIAT (R’mn) 40 56 Staff 242 221 Return on Tangible NAV (%) 4.3 10.4
Slide 27: Southern Africa & Other
Southern Africa & Other • Notwithstanding difficult market conditions, the Southern African operations enjoyed a successful year • Noteworthy performances from the treasury and finance group, private banking, property group • Appointed a new management structure to provide focus to the SA businesses
Slide 28: Australia
Australia • Appointed new MD • Acquisition of Wentworth Associates (March 2001) > Provides a strong platform for the establishment of Investec’s specialised investment banking activities • Appointed structured finance team • Melbourne office opened • Looking to bolster activities through select acqu
Slide 29: Salient Financial Features - Southern Africa & Other
Salient Financial Features - Southern Africa & Other 31 March 31 March 2001 2000 Assets (R’bn) 61 52 Headline NIBT (R’mn) 704 459 Headline NIAT (R’mn) 583 407 Staff 2 303 2 240 Return on Tangible NAV (%) 33.3 26.6
Slide 30: Acquisition of Fedsure
Acquisition of Fedsure • Not a bancassurance deal • We see it as a critical mass enhancing deal • Two new businesses to manage: > Employee Benefits > Traded Endowments in the UK • Rest of businesses integrated into existing infrastructure, sold or closed down • Costs will be reduced significantly
Slide 31: Fedsure Adjusted Income Statement
Fedsure Adjusted Income Statement R’mn Life Financial International Total Business Services Revenue: 2000 I/S 1 154 339 160 1 653 Revenue Adjustment (400) 50 30 (320) Revised Revenue 754 389 190 1 333 Revised Costs (315) (162) (70) (547) Actual Cost (655) (267) (115) (1 037) Cost Savings 340 105 45
Slide 32: Fedsure Head Count
Fedsure Head Count South Africa International Total Initial Head Count 2 628 153 2 781 Pre Completion 627 9 636 Corporate Action Sales 691 18 709 Post Deal 373 373 Rationalisation Head Count Absorbed 937 126 1 063 by Investec
Slide 33: Divisional Review
Divisional Review © Investec
Slide 34: Divisional Review
Divisional Review • Difficult year for Investment Banking Ï 9.7% but overall performance credible • Strong performance from Private Client Ï 37.9% Group • Strong performance from Treasury and Ï 26.8% Finance Group, particularly in South Africa • Credible financial performance by Ï 27.4% Asset Manage
Slide 35: Move Towards Integrated Global Product Structure
Move Towards Integrated Global Product Structure • Investment Banking partial integration • Private Banking partial integration • Private Client Stockbroking geographic • Treasury & Finance Group integrated • Asset Management integrated
Slide 36: Contribution Analysis
Contribution Analysis { % of Headline NIBT (excluding “other” activities) Asset Management 12.3% Investment Banking 34.2% Private Client Activities 21.6% Treasury & Finance Group 31.9%
Slide 37: Investment Banking
Investment Banking { Includes: Corporate Finance, Institutional Stockbroking, Private Equity, Direct Investments 31 March 31 March % 2001 2000 Change Net Operating Income (R’mn) 1 021 912 12.0 Operating Expenses (R’mn) 388 335 15.8 Headline NIBT (R’mn) 633 577 9.7 Cost to Income Ratio (%) 37.4 36.6
Slide 38: Investment Banking - Developments
Investment Banking - Developments • Global investment banking activities undermined by weak conditions in equity capital markets • Notwithstanding - strong results generated in: > The M&A advisory business > The UK small-mid cap IPO market particularly in the first half of the year • Made great stri
Slide 39: Investment Banking - Developments
Investment Banking - Developments • SA Corporate Finance - experienced satisfactory results in a challenging operating environment • IHC - record year with net income up 75% • Ireland - Establishment of a satellite stockbroking function for the distribution of IHC’s products into the Irish market •
Slide 40: Investment Banking - Developments
Investment Banking - Developments • Israel - Building integrated investment banking operation • Institutional Stockbroking - negatively impacted by depressed trading volumes and turnover • SA Private Equity - Newly established team still largely in investment phase
Slide 41: Investment Banking - Looking Forward
Investment Banking - Looking Forward • Prospects are inevitably closely tied to the performance of the stock markets • However we are assured a certain annuity stream as a result of our large corporate client list • Continue to leverage off Group capabilities
Slide 42: Treasury and Finance Group
Treasury and Finance Group { Includes: majority of the Group’s Financial Markets, Deposit-Taking, Corporate Lending and Structuring Activities 31 March 31 March % 2001 2000 Change Net Operating Income (R’mn) 1 006 786 28.0 Operating Expenses (R’mn) 415 320 29.7 Headline NIBT (R’mn) 591 466 26.8 Cost
Slide 43: Treasury and Finance Group - Developments
Treasury and Finance Group - Developments • Solid performance, with almost all units contributing to the success of the division • Characterised business units as financial market activities or banking activities - 8 key businesses, integrated across the globe • Broadening of the Group’s range of ac
Slide 44: Treasury and Finance Group - Looking Forward
Treasury and Finance Group - Looking Forward • Well represented in South Africa - among the top three in our respective markets • Challenge is to maintain this position and develop offshore activities • Continued emphasis on value added lending as vanilla lending is the preserve of the high street b
Slide 45: Private Client Activities
Private Client Activities { Includes: Private Banking, Private Client Portfolio Management and Stockbroking 31 March 31 March % 2001 2000 Change Net Operating Income (R’mn) 1 585 1 183 34.0 Operating Expenses (R’mn) 1 185 893 32.7 Headline NIBT (R’mn) 400 290 37.9 Cost to Income Ratio (%) 70.3 71.1
Slide 46: Private Banking
Private Banking • Comprehensive international investment, banking and advisory service and offering > Ability to leverage products, skills, systems and infrastructure • Continued product innovation • Strengthened capability through a number of “in-fill” acquisitions • Global private banking advances
Slide 47: Private Client Stockbroking
Private Client Stockbroking • Market conditions resulted in poorer trading volumes • “On-line” businesses have had little impact - unsustainable on a stand-alone basis • Relationship-based portfolio management still key • Global FUM > R115bn
Slide 48: Private Client Stockbroking
Private Client Stockbroking • First full year integration of the private client business of HSBC • Acquisition of Quyn Martin Asset Management in SA • Continued penetration of the “smaller charities” sector in the UK • Depressed margin balances in the USA
Slide 49: Asset Management
Asset Management { Includes: Institutional, Retail and Investment Trust Asset Management and Linked Product Provider Business 31 March 31 March % 2001 2000 Change Net Operating Income (R’mn) 881 726 21.3 Operating Expenses (R’mn) 653 547 19.4 Headline NIBT (R’mn) 228 179 27.4 Cost to Income Ratio (%
Slide 50: Asset Management
Asset Management • Solid profit growth • New business growth in targeted areas • Resilience during a time of weak market performance • Global building phase near completion • FUM > R160 bn
Slide 51: Asset Management - Highlights
Asset Management - Highlights • SA Institutional - net inflows R800 mn • SA Retail - net outflows R1 bn • S&P Award for the best unit trust performance over 5 years
Slide 52: Asset Management - Highlights
Asset Management - Highlights • UK Fixed Income and Money Market - net inflows R4.5 bn • UK - two new trusts raising R2 bn • UK Unit Trust - net inflows R1.4 bn • Offshore Funds - net inflows R1.5 bn • Lipper Award - overall fund group in the UK over 12 months ended 31 March 2001
Slide 53: Other Business Lines
Other Business Lines { Includes: Property Group, Clearing and Execution Business in USA, Reichmans, Share Capital and Centralised Funding, Central Services 31 March 31 March % R’mn 2001 2000 Change NIBT – Property Group 81.0 64.1 26.4 NIBT – International Trade Finance 65.0 47.5 36.8
Slide 54: Group Performance
Group Performance
Slide 55: Salient Financial Features
Salient Financial Features { Balance Sheet (R’mn) 31 March 31 March % 2001 2000 Change Shareholders’ Funds 8 672 7 604 14.1 Total Capital Resources 10 884 7 895 37.9 Total Assets 194 532 174 243 11.6 Advances 38 062 33 034 15.2 Advances excluding US 35 294 27 801 27.0 margin lending Third Party FUM
Slide 56: Salient Financial Features
Salient Financial Features { Income Statement (R’mn) 31 March 31 March % 2001 2000 Change Net Interest Income 1 878 1 398 34.3 Provision for Bad & Doubtful 198 211 (6.2) Debts Other Income 3 621 3 230 12.1 Operating Expenses 3 476 2 864 21.4 Net Income before Taxation 1 825 1 553 17.5 Headline Earni
Slide 57: Growth in Net Tangible Asset Value Per Share
Growth in Net Tangible Asset Value Per Share Rands 70 60 50 10 Year CAGR: 24.2% 40 30 20 10 0 1991 1993 1995 1997 1999 2001
Slide 58: Growth in Total Assets
Growth in Total Assets R’bn 200 180 160 10 Year CAGR: 52.4% 140 120 100 80 60 40 20 0 1991 1993 1995 1997 1999 2001
Slide 59: Growth in Assets under Management
Growth in Assets under Management R’bn 500 450 400 10 Year CAGR: 54.1% 350 300 250 200 150 100 50 0 1991 1993 1995 1997 1999 2001
Slide 60: Operating Income by Type
Operating Income by Type { For the year ended 31 March 2001 12.2% Commission & Fees - Recurring Margin Income 12.0% 44.1% Principal Transactions & Trading income Commission & Fees - Once Off 31.7%
Slide 61: Annuity as a % of Total Income
Annuity as a % of Total Income Percent 90 80 83.2 81.1 77.4 70 70.7 76.1 73 60 69 60 50 40 30 20 10 0 1994 1995 1996 1997 1998 1999 2000 2001
Slide 62: Organic Growth in Income
Organic Growth in Income R’mn 19.2% 5000 29.7% 4000 3000 37.3% 2000 32.2% 34.7% 1000 41.3% 30.7% 18.8% 0 1994 1995 1996 1997 1998 1999 2000 2001
Slide 63: Organic Growth in Expenses
Organic Growth in Expenses R’mn 3500 20.4% 3000 27.9% 2500 2000 1500 35.6% 1000 20.1% 28.1% 500 15.3% 16.6% 38.2% 0 1994 1995 1996 1997 1998 1999 2000 2001
Slide 64: Organic Growth in Net Income
Organic Growth in Net Income R’mn 2000 16.9% 33.0% 1500 54.9% 1000 71.3% 46.2% 500 58.9% 60% 57.6% 0 1994 1995 1996 1997 1998 1999 2000 2001
Slide 65: Looking Forward
Looking Forward • Profitability levels will continue to affected by challenging market conditions • The fundamentals of our business however remain sound • Successful integration of Fedsure will further improve the quality of income and decrease cost to income ratio
Slide 66: Operational Issues
Operational Issues
Slide 67: Risk Management
Risk Management • Implementation of Global Risk Management Matrix - standardised processes • Created Global Compliance Role • Process in place to comply with Turnbull Commission
Slide 68: Risk Management
Risk Management • Systems and infrastructure in place > Allows automatic and consistent integration of risks > Readily take on new products • Adequately equipped to deal with risks facing the Group’s international operations
Slide 69: Overall quality of loan portfolio continues to improve...
Overall quality of loan portfolio continues to improve... { Bad Debt Charge as a % of Average Advances 1.2 1 1.13 0.8 0.8 0.75 0.6 0.71 0.58 0.53 0.54 0.4 0.2 0 1995 1996 1997 1998 1999 2000 2001
Slide 70: Overall quality of loan portfolio continues to improve...
Overall quality of loan portfolio continues to improve... { Gross NPLs as a % Total Loans & Advances 3.5 3 3.0 2.5 2.6 2.7 2 2.1 2.0 1.5 1.8 1.65 1 0.5 0 1995 1996 1997 1998 1999 2000 2001
Slide 71: Capital Philosophy
Capital Philosophy • Introduced capital committee in preparation for new Basle Capital Accord in 2004 • Reviewed Group capital allocation model to reflect appropriate required return by product and geography • Realignment of EVA incentive model with capital allocation model • Significant increase in
Slide 72: Capital Adequacy
Capital Adequacy R’mn 31 March 31 March 2001 2000 Tier 1 7 022 6 136 Tier 2 – Permanent 2 783 2 302 Tier 2 – Redeemable 1 945 - Total 11 750 8 438 Capital Reserved for Trading (1 516) (814) Impairments (3 226) (2 804) Net Qualifying Capital 7 008 4 820 Net Qualifying Capital as a % of RWA 14.6% 11.9
Slide 73: Deploying Capital Productively
Deploying Capital Productively 31 March 31 March 2001 2000 Return on Equity (%) 28.6 24.3 Return on Investment (%) 18.3 16.4 Return on RWA (%) 3.0 2.8
Slide 74: Costs
Costs • Continued development of organisation increased the cost base without a concomitant increase in revenue • Increase in the cost to income ratio: > Changes in accounting policy for tax-related charges > Significant investments made in marketing, equipment and human resources > Scale enhancemen
Slide 75: Cost management measures are still in place but business development takes priority...
Cost management measures are still in place but business development takes priority... 31 March 31 March % 2001 2000 Change Premises 256 231 10.8 Personnel 1 860 1 532 21.4 Equipment 467 323 44.6 Business Expenses 691 637 8.5 Marketing Expenses 202 141 43.3 Total 3 476 2 864 21.4
Slide 76: Operational Cost to Income by Geography
Operational Cost to Income by Geography Percent 90 84.2 80 70 66.2 62.4 61.4 59.5 60 56.9 54.3 54.7 2000 50 2001 40 30 20 10 0 SA & UK & USA Israel Other Europe
Slide 77: Companies can have their assets devalued (quote)
“Companies can have their assets devalued or their ideas stolen, but as long as they possess the ability to innovate and develop people, they will always remain one jump ahead of their competitors” - Arie de Geus, extracts from ‘Planning as Learning’
Slide 78: Organisational Development & Human Resources
Organisational Development & Human Resources • Key to the future success of Investec is the perpetuation of our culture and value system • Investec has reached a stage in its growth where meeting the imperative of the Investec culture and values is no less critical than meeting the demands imposed b
Slide 79: People
People 5000 4836 4441 4500 4000 3721 3500 3000 2706 2500 2238 2000 1659 1500 1345 1067 1000 704 806 826 500 0 1991 1993 1995 1997 1999 2001
Slide 80: Headline Earnings per Employee
Headline Earnings per Employee R’000 360 320 280 240 200 160 120 80 40 0 1994 1995 1996 1997 1998 1999 2000 2001
Slide 81: Image and Corporate Citizenship
Image and Corporate Citizenship • Consistent presentation of the Investec brand has been made possible by the creation of detailed brand management controls • The positioning of Investec as Out of the Ordinary is based on a brand essence of creativity, performance, passion and focus • We are continu
Slide 82: Slide 82
Slide 83: Image and Corporate Citizenship
Image and Corporate Citizenship • Distinct approach to Corporate Social Investment • Investec business principles apply (focus, innovation and ROI for recipients) • Long-term, philosophical approach • Concentrates on entrepreneurial and educational projects that are sustainable, innovative, empoweri
Slide 84: Image and Corporate Citizenship
Image and Corporate Citizenship • Linked closely to a focused internal employment equity programme and empowerment drive (procurement, private equity investments, advice and partnering) • Achievements during the past year: > Business Place > CIDA City Campus
Slide 85: Systems and Infrastructure
Systems and Infrastructure • The bursting of the Internet Bubble during the past year reinforced the view expressed last year that Investec operated in a New Economy mindset • We therefore felt no need to create a separate entity to conduct this business • This has allowed us to digitise our busines
Slide 86: Systems and Infrastructure
Systems and Infrastructure • Investec continues to equip its legacy applications, where appropriate, with an e- commerce capability • This strategy allows for the appropriate roll-out of the Group’s internet technologies and applications • A number of significant e-commerce projects launched
Slide 87: Systems and Infrastructure
Systems and Infrastructure • Focused on IT Governance and Business Resumption and DRP • Installed: > Global Treasury System and Global Unit Trust System > Roll-out of CRM systems
Slide 88: Looking Forward
Looking Forward
Slide 89: Looking Forward
Looking Forward • A combination of organic as well as acquisitive growth continues to drive our business • Continue to enhance critical mass within our core areas of focus leveraging off existing platforms
Slide 90: Looking Forward
Looking Forward • Remain opportunistic -and focused avoiding niche revenues with bulge-bracket costs • Adapt our business style to the new environment without losing our entrepreneurial flair > Winning the war for talent and building brand recognition
Slide 91: Looking Forward
Looking Forward • Continue to drive our growth and development internationally without losing our positioning in our home markets
Slide 92: Looking Forward
Looking Forward • Creating the right corporate structure that maximises the exploitation of international capital markets
Slide 93: Follow the herd? Never.
Follow the herd? Never. Out of the Ordinary an “* Investec
Slide 94: Investec Group Limited Analyst Presentation 2001
Investec Group Limited Analyst Presentation 2001