Investec Limited · JSE:INL
Investec — FY2003 Earnings Presentation
47 slides from Investec's earnings presentation, 2003
Slide 1: Investec Year End Results Presentation – 2003
Investec Year End Results Presentation – 2003
Slide 2: Summary of Results
2 Investec Summary of Results
Slide 3: Snapshot of results – UK GAAP
Snapshot of results – UK GAAP 31 Mar 31 Mar % 2003 2002 Change Earnings before goodwill amortisation and exceptional items (£’000) 88 684 127 613 (30.5) Headline earnings (£’000) 82 611 115 777 (28.6) EPS before goodwill amortisation and exceptional items (pence) 97.6 139.8 (30.2) Headline EPS (penc
Slide 4: Snapshot of results – UK GAAP
Snapshot of results – UK GAAP 31 Mar 31 Mar % 2003 2002 Change Return on average shareholders’ funds (%) 12.4 19.4 Return on average tangible net asset value (%) 23.8 37.3 Cost to income ratio (%) 79.8 72.0 Total assets under administration (£ mn) 40 604 44 219 (8.2)
Slide 5: Snapshot of results – SA GAAP
Snapshot of results – SA GAAP 31 Mar 31 Mar % 2003 2002 Change Headline earnings (R mn) 1 461 1 506* (3.0) Headline EPS (cents) 1 489.5 1 645.9* (9.0) Headline return on average tangible shareholders’ funds (%) 24.2 24.7 - Total capital resources (R mn) 13 468 17 498 (23.0) Total assets under admini
Slide 6: Summary of the year
Summary of the year • It has been a particularly difficult and challenging year for Investec • The depressed environment internationally was not very conducive for investment banks • Significant steps were made from a strategic point of view
Slide 7: Summary of the year
Summary of the year • In July 2002, Investec became the first South African group to list in both London and Johannesburg by means of the Dual Listed Companies Structure • Substantial progress was made on the transformation front with a significant empowerment transaction recently announced • The gr
Slide 8: Global Positioning and Review
Global Positioning and Review
Slide 9: Operating profit by geography
Operating profit* by geography £ mn 180 158.5 160 140 120 100 81.8 84.7 80 68.5 64.8 60 40 22.3 20 9.1 3.5 1.2 6.0 1.9 1.1 -0.3 0 -20 -16.7 -40 Southern UK and Australia Israel US Discontinued Total group Africa Europe Operations March-02 March-03 *Before taxation, exceptional items and amortisation
Slide 10: Assets by geography
Assets by geography 31 March 2003 31 March 2002 5.4% 0.3% 3.7% 5.5% 2.0% 1.1% 37.4% 46.6% 43.1% 54.9% Southern Africa and Other UK and Europe Australia Israel USA
Slide 11: Southern Africa
Southern Africa • Mixed performance from the Southern African businesses • Solid performance from Private Bank, Assurance and Property divisions • Negative contribution from the Traded Endowments business • Weaker performance from Investment Banking and Treasury and Specialised Finance businesses
Slide 12: UK and Europe
UK and Europe • Strong performance from the Private Banking business • Equities related businesses were severely impacted by the adverse market conditions • Significant rationalisation of certain businesses e.g. Investment Banking and Trading Activities
Slide 13: Australia
Australia • Overall performance from the Australian business improved substantially • Significant steps were taken during the period under review to establish Investec’s business in the Australian market: – Granted a banking licence in August 2002 – Solid growth in loan portfolio and deposit base –
Slide 14: Israel
Israel • Reasonable performance against the backdrop of a fragile geopolitical situation, a volatile shekel and poor domestic capital markets • Overall results were negatively impacted by margin compression and a significant fall-off in capital market activity • Mutual funds under custody substantia
Slide 15: US
US • Business particularly vulnerable to weak equity markets • The US business was dramatically restructured: – Sold the Private Client Stockbroking business and the Clearing Division – Closed the research, equity sales and trading businesses of PMG • Losses on these discontinued operations of £16.7
Slide 16: Divisional Review
2 Investec Divisional Review
Slide 17: Operating profit by business
Operating profit* by business 200 £ mn 158.5 150 84.7 100 40.9 42.4 51.8 46.3 31.1 27.8 50 27.9 17.3 20.9 19.5 -0.3 0 -50 -33.7 -32.0 -16.7 Investment Services & Private Client Total group Assurance Specialised Discontinued Management Treasury & Operations Banking Finance Activities Group Other Asse
Slide 18: Private Client Activities
Private Client Activities • Solid performance from the Private Banking operations • Growth in profitability has been achieved through asset creation as well as increased non-interest income • Loan portfolio details: – SA: R17.2 billion (Mar 02: R13.8 billion) – UK: £925 million (Mar 02: £790 million
Slide 19: Investment Banking
Investment Banking • In South Africa, results declined largely as a result of the lack of realisation opportunities in the direct investments portfolio • The UK business was severely impacted by the decline in corporate advisory and capital market activity • UK Private Equity benefited from a signif
Slide 20: Treasury & Specialised Finance
Treasury & Specialised Finance • Banking Activities: – UK: Relatively new banking activities performed well – SA: Suffered as a result of the low appetite of corporates for structured deals and a provision required by the Project Finance division • Trading Activities: – UK: Closing down the interest
Slide 21: Asset Management
Asset Management • This was a year of consolidation in SA – Transition from balanced to specialist house achieved – Disappointing performance against peer group in SA balanced funds – Excellent South African specialist performance – Successful year for SA Personal Investments • Significant progress
Slide 22: Financial Performance
2 Investec Financial Performance
Slide 23: Balance Sheet
Balance Sheet 31 Mar 31 Mar % UK GAAP, £’000 2003 2002 Change Assets 14 959 16 957 (11.8) Core loans and advances 4 006 3 314 20.9 Liabilities 13 946 15 998 (12.8) Total capital resources 1 013 958 5.7 Shareholders’ funds 696 968 734 302 (5.0)
Slide 24: Income Statement
Income Statement 31 Mar 31 Mar % UK GAAP, £’000 2003 2002 Change Net interest income 131 466 163 830 (19.8) Net non-interest income 378 483 454 841 (16.8) Operating income 509 949 618 671 (17.6) Administrative expenses (392 466) (428 510) (8.4) Depreciation and amortisation (14 417) (16 926) (14.8)
Slide 25: Reconciliation of Earnings – UK GAAP
Reconciliation of Earnings – UK GAAP 31 Mar 31 Mar UK GAAP, £’000 2003 2002 Attributable earnings (64 019) 13 545 Amortisation of goodwill 122 302 98 435 Profit on disposal of subsidiary undertakings (5 800) (1 363) Discontinued operations 9 437 4 339 Impairment of goodwill on discontinued operation
Slide 26: Return
Return (UK GAAP) 40 37.2 35 30 23.8 25 19.4 20 15 12.4 10 5 0 (%) March 2002 March 2003 ROE Return on tangible NAV
Slide 27: Quality of earnings
Quality of earnings 26.3% 23.3% 5.4% 5.0% Mar-03 Mar-02 £509.9m £618.7m 25.8% 45.5% 26.5% 42.2% Annuity Income / Annuity Income / Total Income: 71.3% Total Income: 68.7% Annuity Income Other Income Net annuity fees and Dealing profits, deal income and commissions other income Net interest income Inc
Slide 28: Quality of earnings
Quality of earnings 31 Mar 31 Mar % UK GAAP, £’000 2003 2002 Change Net interest income 131 466 163 830 (19.8) Dividend income 3 597 2 081 72.8 Fees and commissions receivable 276 607 341 247 (18.9) Dealing profits 45 231 49 485 (8.6) Income from long-term assurance business 27 779 31 079 (10.6) Oth
Slide 29: Income from Assurance Activities
Income from Assurance Activities 31 Mar 31 Mar % 2003 2002 Change Operational earnings 51 714 15 516 - Value of in-force (23 935) 15 563 - Income from long-term assurance business 27 779 31 079 (10.62)
Slide 30: Income from Assurance Activities
Income from Assurance Activities • Operational earnings positively influenced by further restructuring of the business and its investment portfolios particularly in the first half of the year • However these results were offset by a negative adjustment in the value of in-force • Post interims, a dea
Slide 31: Amortisation of goodwill
Amortisation of goodwill • The charge for goodwill amortisation and impairment (excluding exceptional items) increased by 24.2% from £98.4 million to £122.3 million, of which £116.6 million relates to continuing operations • Included in this amount is £49.6 million relating to additional impairments
Slide 32: Asset Quality
Asset Quality 5000 2.0 4000 1.5 £ millions 3000 1.0 (% ) 2000 0.5 1000 0 0.0 March 2002 March 2003 Total core loans and advances to customers (lhs) Non-performing loans as % of core loans and advances to customers (rhs)
Slide 33: Asset Quality
Asset Quality 200 1.4 150 1.3 (% ) 100 1.2 (% ) 50 1.1 0 1.0 March 2002 March 2003 Total provisions as a % of gross non-performing loans (lhs) General provisions as a % of net loans and advances to customers (rhs)
Slide 34: Cost to income
Cost to income 120 88.2 89.1 82.5 76.4 79.8 79.8 77.4 72.0 80 62.6 64.5 58.2 57.9 (%) 40 0 Australia Israel Europe group USA SA Total UK & March 2002 March 2003
Slide 35: Administrative expenses
Administrative expenses 31 Mar 31 Mar UK GAAP, £’000 2003* 2002 Staff costs 233 106 275 232 Premises (excl. depreciation) 19 296 25 855 Equipment (excl. depreciation) 19 877 31 980 Business expenses 63 214 79 717 Marketing expenses 12 661 15 726 Administrative expenses 348 154 428 510 *Continuing op
Slide 36: Taxation
Taxation • The taxation charge has decreased significantly to £5.4 million largely as a result of recoverable tax charges and deferred tax assets raised in the UK operations • Declined from 27.0% to 15.4% in South Africa, mainly because of the losses brought forward in the long-term assurance busine
Slide 37: Exceptional items
Exceptional items • £9.4 million - relating to the provision for losses on termination and disposal of discontinued operations • £19.0 million - goodwill written-off in respect of discontinued operations • £5.8 million - negative goodwill released in relation to the termination of SIB operations • £
Slide 38: Capital adequacy
Capital adequacy 31 Mar 31 Mar 2003 2002 Consolidated under SARB rules Investec Limited 12.2% - Investec plc 14.7% - Investec DLC 12.6% 13.1% Investec Bank Limited – solo 21.0% 20.1% Consolidated under FSA rules Investec plc 14.6%* - Investec Bank UK – solo 22.2% 18.9% *This calculation is under UK
Slide 39: Employees
Employees 31 Mar 31 Mar % 2003 2002 Change SA and Other 2 935 3 009 (2.5) UK and Europe 1 471 1 510 (2.6) Australia 103 84 22.6 USA 131 688 (81.0) Israel 234 238 (1.7) Total number of employees 4 874 5 529 (11.9)
Slide 40: Looking Forward
2 Investec Looking Forward
Slide 41: Continuing operations
Continuing operations 31 Mar 31 Mar £ millions 2003 2002 Administrative expenses 348.2 428.5 31 Mar Projected over 2003 4-6 months Headcount 4 874 +/- 4 300
Slide 42: Looking forward
Looking forward • Lessons we have learnt: – Avoid niche revenues with bulge bracket costs – Can’t be all things to all people – Need to get back to basics – Concentrate in areas of core competence
Slide 43: Looking forward
Looking forward • Investec will continue to build well-defined businesses focused on serving the needs of select market niches where the group can compete effectively
Slide 44: Looking forward
Looking forward • The business has been streamlined and rationalised recognising that weak market conditions could remain for some time • Significant strategic impediments have been eliminated: – The London listing gives access to international capital markets – Recent empowerment deal ensures Inves
Slide 45: Looking forward
Looking forward • The group is still too exposed to equity markets in its UK activities and will concentrate on building critical mass in its banking activities to balance its UK business model • Will continue to drive the business organically, both in South Africa and Australia recognising that not
Slide 46: Looking forward
Looking forward • With the refocus of the group and significant restructuring that has taken place in the past financial year we believe that the group has created a solid platform to cope with weak conditions which may exist for some time to come
Slide 47: www.investec.com
2 Investec www.investec.com