Investec plc · LSE:INVP
Investec — H1 2013 Earnings Presentation
43 slides from Investec's earnings presentation, Nov 15, 2012
Slide 1: Results presentation
Results presentation For the six months ended 30 I 09 I 2012
Slide 2: 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: the further development of standards and interpretations under IFRS applicable to past,
Slide 3: The six months in review
Out of the Ordinary® N ‘ © Investec Specialist Bank and Asset Manager \ The six months in review
Slide 4: Difficult operating environment has continued
Difficult operating environment has continued Equity markets Interest rates 130 8 Since Since Mar-12 Sep-11 7 120 +6.6% +20.5% 6 Rebased to 100 5 110 -0.1% +13.0% 4 % -0.3% +8.3% 100 3 2 90 1 80 0 Sep 11 Nov 11 Jan 12 Mar 12 May 12 Jul 12 Sep 12 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 JSE F
Slide 5: Summary
Summary Results negatively impacted by: Results highlights include: Difficult operating environment Solid net inflows and moderate loan growth Depreciation of the Rand Recurring income of 69.3% Lower investment income earned in the UK Improvement in SA business benefiting from business g
Slide 6: Operating profit impacted by the Rand
Operating profit impacted by the Rand …with the asset and wealth management businesses accounting for 40% Operating profit before tax* By business By geography 100% 100% 90% 90% 80% 80% 70% 70% 60% 60% Specialist 50% 50% SA & Other Banking 40% 40% Wealth & 30% Investment 30% UK, Europe, Australia &
Slide 7: Continued growth in net inflows and loans
Continued growth in net inflows and loans …up in stable currency Third party assets under management Customer accounts (deposits) and loans FUM up 6.7%* Customer accounts up 2.3%* Net inflows of £2bn Core loans and advances up 2.5%* £’bn £’bn 120 30 120% 100 25 100% 80 20 80% 60 15 60% 40 10 40% 20
Slide 8: Significantly improved impairment position
Significantly improved impairment position Impairment analysis £’mn 225 200 175 150 125 Australia 100 75 UK & Other 50 25 South Africa 0 1H08 2H08 1H09 2H09 1H10 2H10 1H11 2H11 1H12 2H12 1H13 8
Slide 9: … particularly in Australia
… particularly in Australia South Africa UK & Europe (ex Kensington) Australia R’bn £’bn A$’bn 160 5% 8 5% 4.0 12% 140 7 3.5 10% 4% 4% 120 6 3.0 8% 100 5 2.5 3% 3% 80 4 2.0 6% 2% 2% 60 3 1.5 4% 40 2 1.0 1% 1% 2% 20 1 0.5 - 0% - 0% 0.0 0% Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Mar-08 Mar-09 Mar-10 Mar-11
Slide 10: Headcount stable (excluding acquisitions)
Headcount stable (excluding acquisitions) Headcount analysis (permanent employees) By business By geography 8000 8000 Alliance Australia 7000 Equipment 7000 Finance 6000 6000 NCB Holdings UK & Europe 5000 5000 Specialist 4000 Banking 4000 3000 3000 SA & Other Wealth & Investment 2000 2000 1000 Asset
Slide 11: Costs slightly up
Costs slightly up …largely due to acquisitions Jaws ratio Cost to income ratio By business Target 2015: £’mn 63-65 70-72 <55 60-62 % Sep-11 Sep-12 100 1200 80.7 Operating income 80 75.7 64.7 65.0 62.6 64.7 CAGR since 2003: 16.0% 60.4 61.7 60 1000 40 20 800 0 Asset Management Wealth & Investment Spec
Slide 12: Resulting in a stable group performance
Resulting in a stable group performance Stable currency Sep-12 Sep-12 Sep-11 % change Pounds Operating profit* before tax (£’000) 259,080 229,419 223,629 2.6% Adjusted earnings attributable to ordinary shareholders before goodwill, acquired 198,658 168,575 162,867 3.5% intangibles and non-operating
Slide 13: …and an improved Rand performance
…and an improved Rand performance Sep-12 Sep-11 % change Rands Operating profit* before tax (R’mn) 2,825 2,462 14.7% Adjusted earnings attributable to ordinary shareholders before goodwill, acquired intangibles and non-operating items 2,185 1,832 19.2% (R’mn) Adjusted EPS* (cents) 255.4 232.7 9.8% D
Slide 14: Financial Targets
Financial Targets Capital ratios remain stable Target Sep-12 Mar-12 Sep-11 Actual ROE 10.1% 7.8% 10.1% ROE 12%-16% over a rolling 5-year period** 12.8% 14.2% 14.3% Adjusted* EPS growth 10% > UKRPI (4.4%) (26.4%) (6.8%) Cost to income < 65% 64.7% 64.7% 62.6% Dividend cover (times) 1.7 - 3.5 times 2
Slide 15: Divisional highlights
- A Out of the Ordinary® @ Investec Specialist Bank and Asset Manager Divisional highlights 15
Slide 16: Stable performance across the three key businesses
Stable performance across the three key businesses Operating profit* by business £’mn 250 200 150 100 50 0 Asset Management Wealth & Investment Specialist Banking Investec Group Sep-11 Sep-12 *Before goodwill, acquired intangibles, non-operating items, taxation and after non-controlling interests 16
Slide 17: Asset Management
Asset Management Overview of performance Financial summary % Higher average funds under management (£) Sep-12 Sep-11 change Positive net inflows of £1.5bn Operating profit* (mn) 67.2 65.6 2.5% Competitive investment performance over Cost to income 65.0% 64.7% all periods % Sep-12 Mar-12 change
Slide 18: Wealth & Investment
Wealth & Investment Overview of performance Financial summary Stable performance % Higher average funds under management (£) Sep-12 Sep-11 change Net inflows of £0.6bn Operating profit* (mn) 22.9 21.8 4.9% Inclusion of Williams de Broë and NCB Cost to income 80.7% 75.7% - Integration of ac
Slide 19: Specialist Banking
Specialist Banking Overview of performance Financial summary South Africa benefited from: (£) Sep-12 Sep-11 % change Improved net interest income in the lending and fixed income businesses Operating profit* (mn) 139.4 136.3 2.3% Solid performance from principal investment and investment proper
Slide 20: Specialist Banking – Net interest income
Specialist Banking – Net interest income Net interest income £’mn 400 350 300 250 200 150 100 50 0 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-12 Stable Currency 20
Slide 21: Specialist Banking – Net fee and commission income
Specialist Banking – Net fee and commission income Net fee and commission income £’mn 200 175 150 125 100 75 50 25 0 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-12 Stable Currency 21
Slide 22: Specialist Banking – Trading and investment income
Specialist Banking – Trading and investment income Trading and investment income £’mn 280 240 200 160 Debt repurchase 120 80 40 0 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-12 Stable Currency 22
Slide 23: Specialist Banking – Impairments
Specialist Banking – Impairments Impairments £’mn 175 150 125 100 75 50 25 0 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-12 Stable currency 23
Slide 24: Specialist Banking – Operating costs
Specialist Banking – Operating costs Operating costs £’mn 500 450 400 350 300 250 200 150 100 50 0 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-12 Stable currency 24
Slide 25: Strategy
Out of the Ordinary® @ Investec Specialist Bank and Asset Manager Strategy 25
Slide 26: We have built a balanced business model ...
We have built a balanced business model ... Sustainable business model Capital light 800 Capital intensive Third party assets and advisory £483mn 700 £485mn Net interest income and investment and trading income 50% of total 600 50% of total 500 Net annuity fees and Net interest income of £350mn comm
Slide 27: … with a recurring income base
… with a recurring income base Recurring income – average since 2003 of 66% £’mn 1200 80% Trading income 70% 1000 60% Investment income 800 50% Other fees and other operating income 600 40% Annuity fees and commissions 30% 400 20% Net interest income 200 10% Annuity income % 0 0% Sep-03 Sep-04 Sep-0
Slide 28: But ROE is still a challenge
But ROE is still a challenge Post-tax return on average shareholders’ equity 50% 41.9% 40% 30% 25.6% 20% 18.5% 17.5% 15.0% 14.9% 14.3% 11.8% 11.4% 10% 8.3% 8.0% 8.4% 6.0% 4.0% 2.8% 1.6% 0.1% 0% -10% -11.1% -20% Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Sep-12 Southern Africa UK & Europe Australia 28
Slide 29: Drag from the legacy books
Drag from the legacy books UK and Europe £’mn % 1050 120 850 100 80 650 60 450 40 250 20 50 0 -150 -20 Average Equity Capital Operating profit Cost to income Annualised ROE Legacy books Core Specialist Bank 29
Slide 30: Low interest rates have had ...
Low interest rates have had ... Interest rates % 16 14 12 10 8 6 SAJIB3M 4 GBP3M 2 AUD3M 0 FEDFD 30
Slide 31: ... negative endowment effect
... negative endowment effect Net interest margin 5% 4% Australia 3% South Africa Investec group 2% UK and Europe 1% 0% Mar-09 Mar-10 Mar-11 Mar-12 Sep-12 31
Slide 32: Scale in Australia
Scale in Australia Australia A$’mn Restructure and clean-up of the 250 business is now complete Core areas of activity have been 200 defined Strong balance sheet has been built 150 Well placed to grow core businesses Focused on smaller opportunistic 100 acquisitions of people / teams to fi
Slide 33: Low activity levels
Low activity levels Gross domestic product % 8 6 4 2 0 -2 -4 -6 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012F Australia South Africa UK US Source: IMF October 2012 33
Slide 34: Higher capital requirements
Higher capital requirements Basel III requirements 14% Common equity ratio Countercyclical buffer (maximum, if imposed) 12% 10% Capital conservation 8% D-SIB/G-SIB (assuming max level) 6% 4% SA basic minimum add on 2% 0% Basel II 2013 2014 2015 2016 2017 2018 2019 Basic minimum Tier 1 ratio 14% 12%
Slide 35: Core strategic focus
Core strategic focus Asset Management Wealth & Investment Specialist Banking Operating profit* £’mn £’mn £’mn 80 40 240 200 60 30 160 40 20 120 80 20 10 40 - - - Grow organically Integrate and broaden Reshape and optimise Solid platform in place Strong domestic platform in UK as a Single Bank
Slide 36: Building quality and depth of our franchise ...
Building quality and depth of our franchise ... Some recognition received includes: Best Business Bank (Sunday Times Top Brands, 2012) Best Discretionary Service Wealth Management Award (City of London, 2012) Excellence in Institutional Asset Management CEO of the Year (Financial News Awards,
Slide 37: Outlook and closing
Out of the Ordinary® @ Investec Specialist Bank and Asset Manager Outlook and closing 37
Slide 38: The cliff risk hanging over the world appears to have subsided
The cliff risk hanging over the world appears to have subsided as the global banking systems stabilise Leverage ratios (times) (a) US LCFIs European LCFIs Major UK banks (b)(c) SA Banks Investec plc: Investec Limited: 120 Max Sep-12: 10.5x Sep-12: 12.1x Mar-12: 10.8x Mar-12: 12.2x Average 100 Mar-08
Slide 39: IMF expect growth to pick up over next few years
IMF expect growth to pick up over next few years Gross domestic product % 8 6 4 2 0 -2 -4 -6 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012F 2013F 2014F 2015F Australia South Africa UK US Source: IMF October 2012 39
Slide 40: But there are still significant macro risks
But there are still significant macro risks Macro risks Eurozone crisis Growth in China US Fiscal Cliff Middle Eastern Unrest 40
Slide 41: ... and confidence remains low
... and confidence remains low Consumer confidence index 140 120 100 SA 80 Australia 60 UK 40 20 0 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Source: Nationwide, The Westpac-Melbourne Institute, SACCI 41
Slide 42: Outlook
Outlook Well placed to benefit from an improvement in market conditions The global economic environment continues to be volatile with some significant macro risks unresolved The financial system has started to show signs of greater stability as the process of deleveraging slows down and the capi
Slide 43: Results presentation
Results presentation For the six months ended 30 I 09 I 2012 43