Investec plc · LSE:INVP
Investec — H1 FY2023 Earnings Presentation
47 slides from Investec's earnings presentation, Nov 17, 2022
Slide 1: Interim Results presentation
Interim Results presentation 17 NOVEMBER 2022 Month Year
Slide 2: Agenda
Agenda 01 02 03 Overview Financial review Closing and Q&A Fani Titi Nishlan Samujh Fani Titi Group Chief Executive Group Finance Director Group Chief Executive 2
Slide 3: 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: o changes in the political and/or economic environment that would materially affect the In
Slide 4: In the history of modern capitalism, crises are the norm
“In the history of modern capitalism, crises are the norm, not the exception” Nouriel Roubini 4
Slide 5: Key takeaways
Key takeaways Client franchises Strong capital Earnings generation ROE within target momentum supporting range continued recurring income 1,131 ▲ 47% 959 508 Target Range: 12-16% 414 32.9 13.0% 22.4 10.7% Sep-19 Sep-20 Sep-21 Sep-22 Sep-19 Sep-20 Sep-21 Sep-22 Mar-20 Mar-21 Mar-22 Sep-22 Sep-19 Sep-
Slide 6: Results highlights
Results highlights Adjusted earnings per share Adjusted operating profit Cost to income 32.9p £405.0mn 60.5% (SEP-21: 26.3P) (SEP-21: £325.7MN) (SEP-21: 64.0%) 25.1% AHEAD OF PRIOR PERIOD 24.3% AHEAD OF PRIOR PERIOD Credit loss ratio Return on equity Net asset value per share 15bps 13.0% 507.9p (SEP
Slide 7: Geographic highlights
Geographic highlights Investec Limited • Loan book ▲1.7% annualised to £15.6bn (▲10.3% annualised in Rands) o Supported by strong corporate credit demand • FUM ▼ 3.7% to £20.1bn o Positive net discretionary inflows were offset by market volatility and non-discretionary outflows • Adjusted operating
Slide 8: 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 MINIMAL LENDING TO COAL Net-zero commitments • 0.09% thermal coal exposure as a % of gross core loans at 30 Sept 2022 (Mar-22: 0.10%)
Slide 9: Agenda
Agenda 01 02 03 Overview Financial review Closing and Q&A Fani Titi Nishlan Samujh Fani Titi Group Chief Executive Group Finance Director Group Chief Executive 9
Slide 10: Uncertain macro environment
Uncertain macro environment…. 20 • The South African economy expanded by 4.9% y/y in calendar year 2021, rebounding 10 from the effects of severe COVID-19 South 1 2010-2019 or pre-pandemic Mean: 1.7% lockdown restrictions in 2020 • Q2 2022 saw a contraction of -0.7% quarter Africa (2) on quarter sea
Slide 11: …and volatile financial markets
…and volatile financial markets JSE - LHS FTSE - RHS 1H2023 1H2022 80,000 8,000 75,000 7,500 Markets 70,000 7,000 65,000 6,500 60,000 6,000 55,000 5,500 50,000 5,000 Apr-21 Jun-21 Aug-21 Oct-21 Dec-21 Feb-22 Apr-22 Jun-22 Aug-22 25 1H2022 1H2023 23 Exchange 21 rate ZAR / GBP 19 17 15 Apr-21 Jun-21 A
Slide 12: Global interest rates
Global interest rates USA 10-year treasury bonds (%) 4.0 • Global interest rates reduced in response to the COVID- 19 pandemic and monetary easing 3.0 • Economies have recovered and central banks have tightened policy in response to inflationary pressures 2.0 December 2019 • Looking forward, markets
Slide 13: UK and SA interest rate history
UK and SA interest rate history UK Bank rate (%) SA prime rate (%) 12 30 10.4 10 25 8 20 6 15 9.75 4 10 3.0 2 5 0 0 Jan-92 Jan-96 Jan-00 Jan-04 Jan-08 Jan-12 Jan-16 Jan-20 Jan-92 Jan-96 Jan-00 Jan-04 Jan-08 Jan-12 Jan-16 Jan-20 13 13
Slide 14: Strong earnings generation
Strong earnings generation Adjusted EPS* significantly ahead of the prior period Pence 35 32.9 1.7 30 26.3 24.4 25 2.8 2.0 20 15 31.2 11.2 22.4 23.5 10 1.9 5 9.3 0 Sep-19 Sep-20 Sep-21 Sep-22 Adjusted EPS* Earnings from Ninety One/ WANOS^ MOMENTUM FROM CORE CLIENT FRANCHISES CONTINUED * Adjusted ear
Slide 15: Solid underlying performance
Solid underlying performance Adjusted operating profit largely driven by strong performance from our specialist banking operations £’mn SA^ ▲ 21% (20% in ZAR) UK^ ▲ 29% ▲ 24% 450 44 3 400 3 4 1 9 30 350 300 250 405.0 200 325.7 150 100 ▲ 17% in GBP ▲ 8% in GBP ▲ 89% in GBP ▲ 52% ▼8% ▼ 27% ▲ 16% in ZA
Slide 16: Divisional highlights
Divisional highlights UK & Other | Wealth & Investment SA | Wealth & Investment • FUM amounted to £38.8bn (Mar-22: £42.9bn) • Expanded global investment offerings providing access to a range • Net inflows of £443 million of investment opportunities • Adjusted operating profit down 7.9% to £40.3mn •
Slide 17: Diversified, quality revenue mix across geographies and businesses
Diversified, quality revenue mix across geographies and businesses Geography Division Sep-22 Sep-22 6% 20% Operating 45% income 55% up 18.9% to £1 131mn 74% Wealth & Investment Specialist Bank Group Investments UK and Other Southern Africa Adjusted 8% 13% operating profit* 43% 57% up 24.3% to £405mn
Slide 18: Wealth & Investment SA
Wealth & Investment SA Respectable financial performance in a challenging operating environment SA funds under management Adjusted operating profit Operating margin R’mn R’bn 30% 350 26.1% 27.1% 400 364.6 362.7 301 300 279 350 250 20% 300 162 177 200 250 200 150 10% 150 100 100 188 200 50 50 0% 0 0
Slide 19: Wealth & Investment UK & Other
Wealth & Investment UK & Other Performance better than expected given volatile markets Funds under management Adjusted operating profit Operating margin £’bn £’mn 50 42.9 30% 50 38.8 43.7 26.0% 40.3 40 6.2 23.6% 40 5.2 20% 30 30 20 36.7 20 33.6 10% 10 10 0 0 0% Mar-18 Mar-19 Mar-20 Mar-21 Mar-22 Sep
Slide 20: Specialist Banking SA
Specialist Banking SA Loan growth supported by increased corporate lending Net core loans R’bn 350 • Net core loans up 10.3% annualised to R313.7bn 314 300 298 • Strong growth in corporate lending portfolios driven by increased corporate credit demand 250 • Subdued growth in advances to private clie
Slide 21: Specialist Banking SA
Specialist Banking SA Continued operational momentum from our client franchises Operating income Cost to income R’bn R’bn 8.1 8 7.0 10 55% 8.1 6 8 7.0 50% 49.7% 49.8% 4 6 4.0 45% 2 4 3.5 0 2 40% Sep-21 Sep-22 Sep-21 Sep-22 Net interest income Annuity fees and commissions Operating income Operating c
Slide 22: Specialist Banking UK & Other
Specialist Banking UK & Other Loan growth largely underpinned by sustained client activity across lending books Net core loans £’bn 16 15.3 14.4 14 • Net core loans grew by 12.8% annualised to £15.3bn 12 • HNW mortgage lending is up 15.9% annualised driven by continued client acquisition 10 8 • Lend
Slide 23: Specialist Banking UK and Other
Specialist Banking UK and Other Delivered a solid set of results Operating income Cost to income £’mn £’mn 500 435.7 500 85% 435.7 400 80% 328.7 400 328.7 75% 300 279.2 300 239.4 70% 72.8% 200 64.1% 65% 200 60% 100 100 55% 0 0 50% Sep-21 Sep-22 Sep-21 Sep-22 Net interest income Annuity fees and comm
Slide 24: 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 169 11.6% 10.0% Adjusted operating profit increased by 18.6% to £32.2 mn (Sep-21: £27.2) driven by: IPF 168 8.1% 24.3% • Higher
Slide 25: Solid revenue growth
Solid revenue growth Revenue performance supported by strong and diversified client franchises Operating income Operating income increased 18.9% to £1 131.3mn £'mn 1,500 • Net interest income benefitted from higher average interest earning assets, including loan book growth, and rising interest rate
Slide 26: Operating cost analysis
Operating cost analysis Cost growth reflecting inflationary pressures and investment in people and technology £’mn 1,200 64.0% 1,131 65% 1,000 951 60.5% 800 60% 667 Cost to 600 598 Cost to income ratio improved to 60.5% (Sep-21: 64.0%) income 400 55% • Operating income increased 18.9% • Operating co
Slide 27: Earnings drivers
Earnings drivers Funds under management £’bn • FUM decreased 7.6% to £59.0bn 70 63.8 59.0 60 • Net inflows of £202mn, 50 • Net inflows of £464 million in discretionary and annuity FUM was offset by 40 • Outflows of £261 million in non-discretionary FUM 30 20 • Decline in markets levels negatively af
Slide 28: SA net core loan growth
SA net core loan growth Underpinned by strong growth in corporate client lending HNW & Other Property Corporate & Other lending Private client lending R'bn 100 Mar-22 Sep-22 87 80 72 67 62 SA net core loans increased 10.3% 60 annualised: • Increased corporate credit demand 40 • Modest growth in mort
Slide 29: Strong growth in UK net core loans
Strong growth in UK net core loans Continued growth in HNW & Other Private client lending and increased activity in certain corporate lending portfolios HNW & Other Corporate & Other lending £‘mn Property Private client lending 5,000 Mar-22 Sep-22 4,485 4,500 4,000 3,500 3,000 UK net core loans up 1
Slide 30: Group ECL impairment charges & CLR
Group ECL impairment charges & CLR Total ECL impairment charges £'mn 120 102 100 80 66 60 • ECL impairment charges increased to £30.2mn (Sep-21: £10.2mn) 40 31 33 30 19 • Annualised CLR increased to 15 bps from 7 bps at Sep-21 20 10 (Mar-22:8 bps) below the through-the-cycle (TTC) range of 25- 0 35
Slide 31: Unpacking the credit loss ratio - SA
Unpacking the credit loss ratio - SA Investec Ltd total ECL impairment charges R‘mn 1000 837 800 573 600 400 272 200 108 48 39 • ECL impairment charges on loans subject to ECL decrease 0 resulted in a net recovery of 1bps versus a CLR of 4 bps, driven -45 primarily by: -200 1H2020 2H2020 1H2021 2H20
Slide 32: Unpacking the credit loss ratio - UK
Unpacking the credit loss ratio - UK Investec plc total ECL impairment charges £'mn 60 60 40 40 31 28 20 20 16 5 • Annualised CLR increased to 32 bps (1H2022: 9 bps) 0 • Total ECL charges of £27.9mn (1H2022: £4.9mn) mainly 1H2020 2H2020 1H2021 2H2021 1H2022 2H2022 1H2023 driven by: • Deterioration i
Slide 33: Balance sheet provisions
Balance sheet provisions £’mn R’mn 150 3,000 2,500 73 Investec plc 100 67 ▲ 9.0% Investec Ltd 2,000 1,206 ▲ 28.7% 1,552 balance sheet balance sheet 1,500 620 50 35 38 1,000 ▼10.5% 555 ECL provision ▲ 8.6% ECL provision 500 32 35 869 768 ▲ 9.4% ▼ 11.6% 0 0 Mar-22 Sep-22 Mar-22 Sep-22 Stage 1 Stage 2
Slide 34: ROE and ROTE
ROE and ROTE ROE ROTE Group 13.0% 13.9% Geographic 14.9% 14.8% 12.6% 11.1% Investec Ltd Investec plc Investec Ltd Investec plc Average allocated equity Average allocated tangible equity 49.8% 50.2% 53.0% 47.0% £2 293mn £2 312mn £2 282mn £2 024mn 34
Slide 35: Robust capital and liquidity position
Robust capital and liquidity position Group cash and near cash £‘bn Group liquidity summary 22 • Maintained strong liquidity positions to support growth and navigate uncertain outlook 15.9 • Loans to customers as % of customer deposits of 75.8% (Mar-22: 73.7%) 18 17.2 Capital summary • The Group mad
Slide 36: Committed to medium-term targets
Committed to medium-term targets 1H2023 performance against medium-term targets Medium-term targets 1H2023 performance Long-term value UK South Africa Group UK South Africa Group outcomes ROE 11% to 15% 15% to 18% 12% to 16% 11.1% 14.8% 13.0% Cost to Income <67% 50% to 55% <63% 67.3% 52.0% 60.5% - C
Slide 37: Financial outlook – FY2023
Financial outlook – FY2023 FY2023 – based on current economic forecast and business activity levels WE WILL CONTINUE TO SUPPORT OUR CLIENTS NOTWITHSTANDING THE UNCERTAIN MACRO OUTLOOK • However, slowing global growth poses a downside risk to business momentum • We are well placed to continue our str
Slide 38: Agenda
Agenda 01 02 03 Overview Financial review Closing and Q&A Fani Titi Nishlan Samujh Fani Titi Group Chief Executive Group Finance Director Group Chief Executive 38
Slide 39: Journey to simplify, focus and grow the business
Journey to simplify, focus and grow the business • Demerged Investec Asset Management (now separately listed as Ninety One) in March 2020 Simplify • Exited businesses which were subscale, non-core businesses or fall outside our refined risk appetite • Cumulative value of Ninety One distribution to s
Slide 40: Taking stock
Taking stock We have simplified and focused our business to deliver improved shareholder returns £’mn FY2019 FY2020 FY2021 FY2022 1H2023 Adjusted EPS - pence per 48.7 33.9 28.9 55.1 32.9 1H2023 adjusted EPS showing earnings diversity and share success in strategic execution Total operating income 1
Slide 41: Investec
Investec We seek to Investec is a distinctive We are a people backed business, create enduring bank and wealth manager, our distinction is embodied in our worth – living in, operating in two core entrepreneurial culture not off, society geographies Partner for the long term, guided by Rich heritage
Slide 42: A distinctive banking and wealth management business
A distinctive banking and wealth management business creating sustainable, long-term value for our stakeholders 2 c.8,500 £31.0bn £40.5bn £59.0bn Principal geographies Total Employees Core loans Customer deposits Funds under management Key client groups and our offering Corporate / Institutional / G
Slide 43: Fuelling a disciplined growth agenda
Fuelling a disciplined growth agenda Growth Objectives Further develop connected client Accelerate scale new growth andobjectives eco-systems across business units Growth Continued optimisation of returns & geographies initiatives With a focus on Deepening our entrepreneurial culture (Out of the Ord
Slide 44: In closing
In closing WE HAVE A 45+ YEAR HERITAGE IN SPECIALIST BANKING AND WEALTH MANAGEMENT WE ARE DEDICATED TO OUR PURPOSE OF CREATING ENDURING WORTH - LIVING IN, NOT OFF, SOCIETY OUR CLIENT FRANCHISES HAVE SCALE AND RELEVANCE IN CHOSEN MARKETS STRONG CAPITAL GENERATION TO SUPPORT GROWTH CLEAR SET OF SCALAB
Slide 45: Thank you
o Investec = S > = o = FH AYYNIGYO 3HL JO 1NO
Slide 46: Appendix
Appendix
Slide 47: Macro-economic scenarios – September 2022
Macro-economic scenarios – 30 September 2022 Base case Average 2022-2027 Downside 1 Downside 2 Financial year ending (%) 2022/2023 2023/2024 2024/2025 2025/2026 2026/2027 Upside Base case inflation global shock GDP growth 1.6 0.6 0.9 1.8 1.6 2.5 1.3 0.3 0.4 UK Unemployment rate 3.9 4.6 4.8 4.3 4.3 3