Investec plc · LSE:INVP
Investec — FY2008 Earnings Presentation
49 slides from Investec's earnings presentation, 2008
Slide 1: Results presentation
Results presentation For the year-ended 31 March 2008 1
Slide 2: Snapshot of the year
Snapshot of the year o Investec 2
Slide 3: Summary
Summary • Good operational performance – Diversity of income streams – Strong risk management processes – Senior management “hands-on” culture • Met four of the five financial objectives • Balanced portfolio of businesses showing resilience • Very tough trading environment impacting the financial ma
Slide 4: Difficult operating environment
Difficult operating environment Equity markets remain volatile Financial tsunami 120 100 90 110 Rebased to 100 80 100 70 90 60 80 50 Mar 07 May 07 Jul 07 Sep 07 Nov 07 Jan 08 Mar 08 Mar 07 May 07 Jul 07 Sep 07 Nov 07 Jan 08 Mar 08 JSE All Share FTSE All Share Australia All Ordinaries ABX 06-1 AAA AB
Slide 5: Difficult operating environment
Difficult operating environment 12 Rising 11 interest rates 10 9 (%) 8 7 6 5 4 Mar 07 May 07 Jul 07 Sep 07 Nov 07 Jan 08 Mar 08 JIBAR (3 mo) LIBOR (3 mo) Australian interbank (3 mo) Weak Rand Strong Euro Strong AUD Rand/£ Rand/£ Euro/£ 2.55 A$/£ 1.60 2.55 16.60 2.45 2.45 1.50 15.70 2.35 2.35 1.40 14
Slide 6: Breadth and diversity of businesses
Breadth and diversity of businesses % contribution to operating profit* 100 Property Activities: 7.2% 80 Investment Banking: 15.5% Capital Markets: 23.1% 60 Asset Management: 15.4% 40 20 Private Client Activities: 38.8% 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 *Excluding Group Services and Oth
Slide 7: Resulted in solid performance
Resulted in solid performance 31 Mar 31 Mar % Change 2008 2007 Operating profit before tax* (£’000) 537 671 466 585 15.2% Attributable earnings* (£’000) 344 695 300 704 14.6% Adjusted EPS* (pence) 56.9 53.3 6.8% DPS (pence) 25.0 23.0 8.7% Customer deposits (£’bn) 12.1 10.7 13.9% Core loans and advan
Slide 8: Financial objectives
Financial objectives o Investec
Slide 9: Adjusted EPS growth of 6.8%
Adjusted EPS* growth of 6.8% …performance through the cycles 60 Target: UK RPI +10% 50 40 30 10-yr CAGR at 12.4% 20 4-yr CAGR at 28.6% (%) 10 Since setting growth targets in May 2004 0 -10 6.8% -20 -30 Attributable earnings Mar- Mar- Mar- Mar- Mar- Mar- Mar- Mar- Mar- Mar- Plc: 32.7% 99 00 01 02 03
Slide 10: ROE of 23.6%
ROE* of 23.6% …maintaining solid returns 30 Target: >20% 25 20 (%) 15 10 5 By geography 0 UK & Europe: 11.8% Mar- Mar- Mar- Mar- Mar- Mar- Mar- Mar- Mar- Southern Africa: 41.9% 00 01 02 03 04 05 06 07 08 Australia: 15.0% *Return on average adjusted shareholders’ equity (including goodwill and CCD’s)
Slide 11: Cost to income of 56.1%
Cost to income of 56.1% …driving income growth while ensuring cost efficiencies 90 Target: <65% 80 70 Operating income 60 Up 26.0% to £1 484mn 50 (%) 40 Costs 30 Up 19.9% to £831.8mn 20 10 Cost to income by geography 0 UK & Europe: 64.8% Mar- Mar- Mar- Mar- Mar- Mar- Mar- Mar- Mar- 00 01 02 03 04 05
Slide 12: Capital adequacy
Capital adequacy …maintaining a sufficient level of capital 30 Basel I Basel II 2500 Capital adequacy target: 12-15% Tier 1 target: 9% 25 2000 20 Capital Basel II Pillar I Tier 1 1500 adequacy 31 March 2008 ratio ratio (%) 15 Investec Limited 13.9% 9.2% 1000 10 Investec Bank Limited 14.3% 9.6% 500 I
Slide 13: Operational review
Operational review o Investec 13
Slide 14: Divisional performance
Divisional performance Operating profit* by business 31 March 2008 Property Activities 7.2% Private Client Asset Activities Management 38.8% 15.4% £500.0mn Investment Banking 15.5% Capital Markets 23.1% * Before goodwill and non-operating items and excluding Group Services and Other Activities 14
Slide 15: Private Client Portfolio Management and Stockbroking
Private Client Portfolio Management and Stockbroking Partner of choice from wealth creation to wealth management Key statistics (5.4% of group) Overview of performance 31 31 • Private Client business in South Africa % March March benefited from change 2008 2007 – Higher asset levels and increased vo
Slide 16: Private Client Portfolio Management and Stockbroking
Private Client Portfolio Management and Stockbroking Partner of choice from wealth creation to wealth management Operating profit* Outlook • Environment remains challenging which £'mn will impact investor confidence 30 27.3 • The business is more resilient as a result 25 of diverse business mix and
Slide 17: Private Banking
Private Banking Partner of choice from wealth creation to wealth management Key statistics (33.4% of group) Overview of performance 31 31 • Solid performance from all specialisations % (£ ) March March and all geographies change 2008 2007 Operating income 418.5 343.7 21.8% • Results reflect: – Conti
Slide 18: Private Banking
Private Banking Partner of choice from wealth creation to wealth management Operating profit* Outlook • Benefiting from growth strategy and £'mn diversification initiatives implemented 175 166.4 • Notwithstanding the current environment, momentum has continued into 2009 140 • Would look to consolida
Slide 19: Private Banking
Private Banking Partner of choice from wealth creation to wealth management Extra information • Three-year compound growth rate of 37% • Private Wealth Management • Net interest income is 65% of total – Operating income up 38% operating income – Funds under advice up 45% to £3.7bn • Bad debt charge:
Slide 20: Capital Markets
Capital Markets Specialist structuring and advisory business Key statistics (23.1% of group) Overview of performance 31 31 • Advisory, structuring and trading activities March March % continued to perform well (£ ) 2008 2007 change • Acquired Kensington which has now been Operating profit* (mn) 115.
Slide 21: Capital Markets
Capital Markets Specialist structuring and advisory business Operating profit* Outlook • Focus on being a specialist business £'mn targeting markets where we can be distinctive and competitive 125 115.8 • Uncertain markets still present 100 opportunities, however growth is dependent on liquidity and
Slide 22: Capital Markets
Capital Markets Specialist structuring and advisory business Extra information • Four areas of specialisation: – Specialised lending – Structured derivatives – Principal finance – Specialist funds • Treasury, trading and derivative businesses benefited from increased volatility and large increase in
Slide 23: Investment Banking
Investment Banking Integrated business focused on local client delivery with international access Key statistics (15.5% of group total) Overview of performance 31 31 • Mixed performance from balanced portfolio March March % of businesses (£ ) 2008 2007 change Operating profit* (mn) 77.3 91.2 (15.2%)
Slide 24: Investment Banking
Investment Banking Integrated business focused on local client delivery with international access Operating profit* Outlook • Focus continues to be on diversifying £'mn earnings streams 105 • Core level of sustainable earnings enables 90 us to perform through varying cycles 77.3 75 • Outperformance
Slide 25: Investment Banking
Investment Banking Integrated business focused on local client delivery with international access Extra information South Africa Integrated Securities • Operating profit* up 7% to £64.8mn (up • SA operating profit* up over 10% as a 12% in Rand) result of prime broking and international • Corporate F
Slide 26: Asset Management
Asset Management Investment specialist focused on performance and client needs Key statistics (15.4% of group total) Overview of performance 31 31 • Performance supports our positioning as a March March % specialist provider of high alpha investment (£ ) 2008 2007 change product Operating profit* (m
Slide 27: Asset Management
Asset Management Investment specialist focused on performance and client needs Operating profit* Outlook • Momentum across the business remains £'mn sound 90 76.8 • Solid long term track record and a growing 75 demand for specialist high performance products supports the fundamentals of the 60 busin
Slide 28: Asset Management
Asset Management Investment specialist focused on performance and client needs Extra information • Five-year compound growth rate of 33% • Longer-term investment performance remains very good • Operating revenues grew by 16% – SA: Morningstar (previously S&P) named – UK and international us the Best
Slide 29: Property Activities
Property Activities Leading fund management consolidator, seeking out selective trading opportunities Key statistics (7.2% of group) Overview of performance 31 31 • Strong performance of investment property March March % portfolio (£ ) 2008 2007 change Operating profit* (mn) 36.3 14.1 156.8% • Sale
Slide 30: Property Activities
Property Activities Leading fund management consolidator, seeking out selective trading opportunities Operating profit* Outlook SA £'mn • Property fundamentals have weakened 40 36.3 UK 30 • Progress is being made in expanding model in the UK 20 Australia • The property fund completed a successful 10
Slide 31: Group Services and Other Activities
Group Services and Other Activities Operating profit* Overview of performance 31 31 • Central Funding performed well benefiting March March % from a strong increase in net interest (£’mn) 2008 2007 change income International Trade 7.3 5.5 32.9% Finance • Operating profit impacted by: – Increased ca
Slide 32: General
General • Operational effective tax rate down from 26.3% to 22.6% • Weighted shares from 563.8mn to 606.2mn • Non-operating gain on sale of business to Growthpoint of £72.9mn • Goodwill impairments – Kensington: £59.9mn – Other: £2.9mn Earnings attributable to minority interests £28.9mn Operating pr
Slide 33: Risk review
Risk review @ Investec 33
Slide 34: Asset quality
Asset quality 31 March 31 March £’mn 2008 2007 Gross core loans and advances to customers 12 882 10 135 Total income statement impairments (excl. Kensington) 59 17 Gross default loans 222 133 Collateral 171 100 Specific impairments 47 33 Net default loans 4 0 34
Slide 35: Core loans and defaults
Core loans and defaults 2.00 14 1.7 12 1.50 10 (%) (£'bn) 8 1.00 6 4 0.50 2 0.00 0 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08* Gross core loans and advances to customers Gross default loans as a % of core loans and advances to customers 35
Slide 36: Breakdown of loan portfolio
Breakdown of loan portfolio Loan portfolio Private Banking lending to HNW* - breakdown by underlying collateral type 16 Capital Markets Residential 14 Private Banking mortgages 5% Other 9% 12 3.8 Residential 27% developments 6% 10 Commercial (£'bn) 3.1 8 Cash and securities 6 backed lending 8.9 15%
Slide 37: Liquidity management
Liquidity management Overall philosophy Surplus cash and near cash • Continue to focus on maintaining a Consolidated group cash and near-cash £'bn stock of readily available, high quality 7 liquid assets in excess of regulatory requirements 6 Ave 5 • Maintain an appropriate mix of funding – Low reli
Slide 38: Kensington – summary
Kensington – summary Warehouse Securitised Total As at 31 March 2008 book portfolio Mortgage assets under management (pre-IFRS 1 966 4 121 6 087 adjustments) (£’mn) Product mix (£’mn) 1 966 4 121 6 087 Prime 769 694 1 463 Adverse 638 3 053 3 691 Ireland 559 374 933 Weighted average current LTV of ac
Slide 39: Kensington – summary
Kensington – summary Warehouse Securitised Total As at 31 March 2008 book portfolio Investec exposure to warehouse and securitisation structures (£’mn) 162 172 334 On balance sheet provisions (£’mn) 34 71 105 Net exposure (£’mn) 128 101 229 Approximate excess spread (£’mn) 120 Warehouse funding – Ir
Slide 40: US structured credit investments
US structured credit investments (£’mn) 31 March 2008 US sub-prime 16 Other 55 US CLOs Bank protected 19 US CLOs 36 Net exposure 71 Net write-offs during the period 49 40
Slide 41: Strategic considerations
Strategic considerations 41
Slide 42: Strong base of recurring income
Strong base of recurring income 1600 Composition of total operating income Operating income from 1 484 associates 1400 1200 Principal transactions 1000 (£'mn) 800 600 Net fees and 400 commissions income 200 0 Net interest income 2004 2005 2006 2007 2008 42
Slide 43: Disciplined about efficiency
Disciplined about efficiency 1600 1400 CAGR: Operating income 15.1% 1200 1000 (£'mn) 800 Administrative CAGR: expenses 12.5% 600 400 200 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 43
Slide 44: Strategy for growth remains the same
Strategy for growth remains the same UK and • Continue to drive organic growth Europe • Manage liquidity very carefully • Build non-lending revenue • Continue to drive organic growth Australia • Take advantage of opportunities • Build non-lending revenue • Continue to drive organic growth South • No
Slide 45: Realigning the business model
Realigning the business model Managed loan growth Build non-lending revenue Manage costs Take advantage of Price risk appropriately opportunities Build customer deposits Third party assets Proprietary risk and advisory capital £573.5 mn (Year ended 31 March 2008) £860.1 mn ▲6.7% Net fees and Net int
Slide 46: Outlook
RES Oes BRL EA aaa — Eee @ Investec 46
Slide 47: Resilient business
Resilient business • Experienced management team • Sound balance sheet • Strict management of risk and liquidity • Disciplined expense control while investing for growth 47
Slide 48: Outlook
Outlook • The environment remains challenging but the scale and diversity of our earnings should enable us to navigate through this period of continued uncertainty • We expect to continue to benefit from the repricing of risk and opportunities arising from dislocated markets around the world 48
Slide 49: Results presentation
Results presentation For the year-ended 31 March 2008 49