Investec plc · LSE:INVP
Investec — FY2000 Earnings Presentation
64 slides from Investec's earnings presentation, 2000
Slide 1: Snapshot of Results
Snapshot of Results
Slide 2: Investec Group – 2000 Results in a Snapshot
Snapshot of Results Investec Group – 2000 Results in a Snapshot 31 March 31 March % 2000 1999 Change Headline Attributable Earnings (R’m) 1 047 787 33.0 Diluted Headline EPS (cents) 1 300.6 989.1 31.5 DPS (cents) 620 475 30.5 Return on Equity (%) 24.2 18.7 Cost to Income Ratio (%) 59.9 60.6 Assets U
Slide 3: Relative Share Price and Share Ownership
Summary of Results Relative Share Price of Investec vs Banks Index Investec 2.5 2.0 1.5 1.0 0.5 0.0 1990 1992 1994 1996 1998 2000 1991 1993 1995 1997 1999 Share Ownership Corporates, Institutions & Management Nominee Fedsure Individuals & Staff Companies 20.9% 42.2% INHOLD 34.4% 2.5% 0.9% 50.0% 2.1%
Slide 4: Recent changes in accounting policies
Summary of Results A meaningful analysis of these results requires an understanding of recent changes in accounting policies... Changes in Accounting Policy Interest Rate Differential • In terms of AC 112, effective years commencing on or after 1 January 1999, a foreign subsidiary is considered to b
Slide 5: Changes in Accounting Policy: Diluted Headline EPS
Summary of Results Changes in Accounting Policy Diluted Headline EPS • In terms of AC 104, effective from years commencing on or after 1 January 1999, headline earnings must be adjusted for the effects of all potentially dilutive instruments • Only those financial instruments which are actually dilu
Slide 6: Changes in Accounting Policy: Associate Accounting
Summary of Results Changes in Accounting Policy Associate Accounting • Previously, we used to equity account and ”mark-to-market” our investment in associates • The difference between cost plus equity accounted earnings and market value was credited to revaluation reserves • In terms of AC 110, effe
Slide 7: Global Positioning and Review
G l o b a l Po s i t i o n i n g a n d R e v i e w ”In today’s markets, you don’t have to go abroad to experience international competition. Sooner or later the world comes to you” – Harvard Business Review, March - April 2000
Slide 8: Globalisation
G l o b a l Po s i t i o n i n g a n d R e v i e w Globalisation As far back as the early 1990s Investec recognised this pending threat and defied the norm by embarking on an international expansion programme The Norm Investec
Slide 9: Globalisation: offshore presence
G l o b a l Po s i t i o n i n g a n d R e v i e w "Contrary to popular wisdom, companies from the fringes of the world economy can compete against established global giants from Europe, Japan and the United States. What they need is organisational confidence, a clear strategy, a passion for learnin
Slide 10: Global operations by jurisdiction
United States British Virgin Islands Ireland United Kingdom New York Tortola Dublin London Pasadena Investec Guinness Flight Investec Guinness Flight Investec Bank (UK) Ltd Investec Ernst & Company (International) Ltd (Ireland) Ltd Carr Sheppards Crosthwaite Ltd Investec Guinness Flight (US) Investe
Slide 11: Global operations by jurisdiction (continued)
Channel Islands Luxembourg Switzerland Isreal Hong Kong Jersey Investec SA Geneva Tel Aviv Investec Hong Kong (Pty) Ltd Guernsey Investec Finance SA Zurich Jerusalem Investec Guinness Flight Asia Ltd Haifa Investec Bank (Jersey) Ltd Reichmans SA Investec Bank (Channel Islands)Ltd Bank Guinness Mahon
Slide 12: The Result...
G l o b a l Po s i t i o n i n g a n d R e v i e w The Result... In light of these developments Investec was recently ranked as the 4th most global bank by 'The Banker' (February 2000) Investec
Slide 13: United Kingdom and Ireland
G l o b a l Po s i t i o n i n g a n d R e v i e w United Kingdom • First full year of integrated UK Group both physically and managerially • Strengthened management • Visibility and profile significantly enhanced • Acquired part of the banking business of Kleinwort Benson Private Bank – Critical ma
Slide 14: Europe... Future Strategy
G l o b a l Po s i t i o n i n g a n d R e v i e w Europe... Future Strategy • The UK remains integral to the broader Group's internationalisation strategy • Continue to streamline certain businesses and redeploy funds realised for the purposes of reinvestment in core activities • Selective acquisit
Slide 15: USA
G l o b a l Po s i t i o n i n g a n d R e v i e w USA • Very strong performance driven off equity market buoyancy • Acquisition of the retail broking division of the Royce Investment Group – Bringing the total number of private clients to 25 000 and registered brokers to 270 • Looking to bolster US
Slide 16: Israel
G l o b a l Po s i t i o n i n g a n d R e v i e w Israel • Repositioned the Bank - renamed Investec Clali • Significantly improved performance • Strong e-commerce initiatives • Will focus on building an Investment Banking capability with strong links between London and New York Israel Salient Finan
Slide 17: South Africa and Other
G l o b a l Po s i t i o n i n g a n d R e v i e w South Africa • Retain current focus while continuing to build our positioning in the market place – Build organically in a focused basis – Dominate wherever possible by rising up the league tables across the spectrum of businesses • Remain opportuni
Slide 18: Southern Africa and Other
G l o b a l Po s i t i o n i n g a n d R e v i e w Southern Africa and Other Salient Financial Features 31 March 2000 % of Total Assets (R’bn) 43.1 26.1 Funds Under Management (R’bn) 134.5 28.2 Operational Net Income Before Tax (R’mn) 691.3 39.2 Operational Net Income After Tax (R’mn) 534.7 40.9 Sta
Slide 19: Assets and Funds Under Management by Geography
I n t e r n a t i o n a l i s a t i o n S t ra t e g y Assets by Geography 5.8% 7.3% UK & Europe Southern Africa & Other 26.1% USA Israel 60.8% Funds Under Management by Geography 2.6% 5.6% UK Southern Africa & Other 28.2% USA Israel 63.6% Investec
Slide 20: Operational Capital and Income Before Tax by Geography
I n t e r n a t i o n a l i s a t i o n S t ra t e g y Operational Capital by Geography 7.6% 9.2% UK & Europe Southern Africa & Other USA Israel 32.8% 50.4% Operational Income Before Tax by Geography 5.0% 13.9% 41.9% UK & Europe Southern Africa & Other USA Israel 39.2% Investec
Slide 21: Operational Income After Tax by Geography; Employees
I n t e r n a t i o n a l i s a t i o n S t ra t e g y Operational Income After Tax by Geography (Operational ROE) (ROE: 11.3) (ROE: 23.3) 4.4% 9.8% UK & Europe Southern Africa & Other USA Israel 40.9% 44.9% (ROE: 28.3) (ROE: 14.7) A Total of 4 441 Employees (221) (104) 5.0% 2.0% (661) 15.0% South A
Slide 22: Cost to Income Ratio and Loan Portfolio by Geography
I n t e r n a t i o n a l i s a t i o n S t ra t e g y Operational Cost to Income Ratio by Geography 1999 2000 70 63.9% 63.3% 61.2% 60 55.5% 51.6% 50.6% 50 40 30 20 10 0 SA UK Other Loan Portfolio by Geography By Lender 0.7% 9.7% Southern Africa & Other 15.8% UK & Europe USA Israel Australia 22.1% 5
Slide 23: Globalisation - The Result...
I n t e r n a t i o n a l i s a t i o n S t ra t e g y Globalisation - The Result... As banks position themselves to compete in the face of increased globalisation, the consolidation and merger mania wave has gained even greater momentum... “The Liquidising Effect of Consolidation” • While consolida
Slide 24: Committed to being a leading specialist banking group
I n t e r n a t i o n a l i s a t i o n S t ra t e g y Against this backdrop, Investec remains committed to being one of the world’s leading specialist banking groups... ...By taking advantage of these opportunities and concentrating on the more profitable segments of our industry, namely: – Investm
Slide 25: Investment Banking & Principal Transactions
I n t e r n a t i o n a l i s a t i o n S t ra t e g y Investment Banking & Principal Transactions • Includes: Corporate Finance, Principal Transactions, Institutional Broking and Research 31 March 2000 Net Operating Income (R’mn) 978 Operating Expenses (R’mn) 452 Net Operating Profit Before Tax (R’
Slide 26: Corporate Finance South Africa
I n t e r n a t i o n a l i s a t i o n S t ra t e g y Corporate Finance South Africa • Increased co-operation between corporate finance teams in South Africa and the UK - enhancing cross-border capability • Investec Private Equity established as a separate division and WebCapital joint venture init
Slide 27: Investec Henderson Crosthwaite
I n t e r n a t i o n a l i s a t i o n S t ra t e g y Investec Henderson Crosthwaite • Focus on the small to medium corporate market has yielded profitable results – 34 capital raisings totalling approximately £750mn – Participated in the IPO for Kingston Telecommunications - the UK's largest IPO i
Slide 28: Corporate Finance Israel; Institutional Broking Scope
I n t e r n a t i o n a l i s a t i o n S t ra t e g y Corporate Finance Israel • Participated in underwriting a significant number of IPOs in the local market • First foreign placement of shares in a locally listed company was successfully undertaken in London • Continued focus on enhancing synergi
Slide 29: Institutional Broking and Research
I n t e r n a t i o n a l i s a t i o n S t ra t e g y Institutional Broking and Research • Greater degree of integration with Corporate Finance, Investec Securities and Investec Henderson Crosthwaite • Added to South African research coverage and established a distribution capability in the United
Slide 30: Corporate Banking and Interest Rate Activities
I n t e r n a t i o n a l i s a t i o n S t ra t e g y Corporate Banking and Interest Rate Activities • Includes: Specialised Finance, Treasury and Financial Markets 31 March 2000 Net Operating Income (R’mn) 887 Operating Expenses (R’mn) 378 Net Operating Profit Before Tax (R’mn) 509 Cost to Income
Slide 31: Corporate Banking and Interest Rate Activities
I n t e r n a t i o n a l i s a t i o n S t ra t e g y Corporate Banking and Interest Rate Activities • Growing importance of cross-border activity • Continued focus on product pioneering, offering clients an extensive range of treasury products • Enhanced capability by recruitment of leading equity
Slide 32: Private Client Group
I n t e r n a t i o n a l i s a t i o n S t ra t e g y Private Client Group • Includes: Private Banking, Private Client Portfolio Management and Stockbroking 31 March 2000 Net Operating Income (R’mn) 1 384 Operating Expenses (R’mn) 1 092 Net Operating Profit before Tax (R’mn) 292 Cost to Income Rati
Slide 33: Private Bank Group
I n t e r n a t i o n a l i s a t i o n S t ra t e g y Private Bank Group • Refinement of internationally integrated private banking model, tying in portfolio management with private lending • Number of "in-fill" acquisitions to enhance critical mass – Kleinwort Benson Private Banking business – Acq
Slide 34: Continual Product and Channel Innovation
I n t e r n a t i o n a l i s a t i o n S t ra t e g y Continual Product and Channel Innovation • South Africa: – Investec Private Bank Card - 5 044 accounts at 31 March 2000 – Investec Private Bond - a debt consolidation facility, allowing clients one account, combining all their lending requiremen
Slide 35: Private Client Portfolio Management and Stockbroking
I n t e r n a t i o n a l i s a t i o n S t ra t e g y Private Client Portfolio Management and Stockbroking • Carr Sheppards Crosthwaite - strong year of performance following a year of successful integration – In a recent Private Asset Management Survey, Carr Sheppards Crosthwaite obtained number o
Slide 36: Asset Management
I n t e r n a t i o n a l i s a t i o n S t ra t e g y Asset Management • Includes: Institutional, Retail and Investment Trust Asset Management and Linked Product Provider Business 31 March 2000 Net Operating Income (R’mn) 795 Operating Expenses (R’mn) 566 Net Operating Profit before Tax (R’mn) 229
Slide 37: Asset Management
I n t e r n a t i o n a l i s a t i o n S t ra t e g y Asset Management • A year of consolidation, repositioning and replenishment of resources - notwithstanding: – Operating profit growth exceeded 65% – R18bn net new business – R171bn funds under management • Recruitment of high quality new staff a
Slide 38: Another Year of Solid Performance...
I n t e r n a t i o n a l i s a t i o n S t ra t e g y Another Year of Solid Performance... • SA Institutional: – Ranked in the top 3 in 3 and 5 years by Alexander Forbes Large Manager Watch • UK Institutional: – Won 15 new public sector mandates and 2 building society accounts for Sterling fixed in
Slide 39: Rankings based on 3 Year Rolling Returns
I n t e r n a t i o n a l i s a t i o n S t ra t e g y Rankings based on 3 Year Rolling Returns June 96 Dec 96 June 97 Dec 97 June 98 Dec 98 June 99 Mar 00 Allan Gray 1 1 9 10 10 6 1 1 BOE 2 2 3 3 5 9 9 8 Coronation - 3 5 1 2 4 5 2 Gensec/Sanlam 6 9 6 8 6 6 7 7 Investec 3 4 1 4 1 1 2 3 Libam 7 6 10
Slide 40: Group Performance
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Slide 41: Salient Financial Features: Balance Sheet
G r o u p Pe r f o r m a n c e Salient Financial Features Balance Sheet R’mn 31 March 31 March 2000 1999 Liabilities Total Shareholders’ Funds 7 959 7 667 Deposits & Other Accounts 157 387 104 150 165 346 111 817 Assets Cash and Short Term Funds 112 169 73 725 Advances 33 035 21 700 Investments, Tra
Slide 42: Salient Financial Information: Income Statement
G r o u p Pe r f o r m a n c e Salient Financial Information Income Statement R’mn 31 March 31 March % 2000 1999 Change Net Interest Income 1 430 1 204 18.8 Provision for Bad & Doubtful Debts 211 223 (5.4) Other Income 3 230 2 204 46.6 Total Income 4 449 3 185 39.7 Operating Expenses 2 791 2 064 35.
Slide 43: Growth in Net Tangible Assets Per Share and Total Assets
G r o u p Pe r f o r m a n c e Growth in Net Tangible Assets Per Share Cents 7000 6000 10 Year CAGR: 31.7% 5000 4000 3000 2000 1000 0 1990 1992 1994 1996 1998 2000 Growth in Total Assets R’bn 180 160 140 120 10 Year CAGR: 62.8% 100 80 60 40 20 0 1990 1992 1994 1996 1998 2000 Investec
Slide 44: Growth in Assets Under Management; Operating Income by Type
G r o u p Pe r f o r m a n c e Growth in Assets Under Management R’bn 500 450 400 10 Year CAGR: 60.6% 350 300 250 200 150 100 50 0 1990 1992 1994 1996 1998 2000 Operating Income by Type 6.2% 13.0% Commission and Fees Margin Investment Income Trading 26.7% 54.1% Investec
Slide 45: Trading and Annuity as a % of Total Income
G r o u p Pe r f o r m a n c e Trading as a % of Total Income 16 14 15.3 12 11.6 10 11.9 8 7.5 6 6.7 6.2 5.2 4 2 0 1994 1995 1996 1997 1998 1999 2000 Annuity as a % of Total Income 90 80 83.2 81.1 70 77.4 73 71.7 69 60 50 53 40 30 20 10 0 1994 1995 1996 1997 1998 1999 2000 Investec
Slide 46: Net Interest Margin; Organic Growth in Income
G r o u p Pe r f o r m a n c e Net Interest Margin... Impact of Short-Dated Instruments 31 March 31 March 31March 2000 1999 1998 Interest Bearing Assets 148 884 98 188 73 381 Less: Short Dated Money Market Instruments** (79 827) (50 135) (36 912) Total Adjusted Interest Bearing Assets 69 057 48 053
Slide 47: Organic Growth in Expenses and Net Income
G r o u p Pe r f o r m a n c e Organic Growth in Expenses R’mn 2800 27.9% 2600 2400 2200 2000 1800 1600 35.6% 1400 1200 1000 20.1% 800 28.1% 600 38.2% 400 21.9% 15.3% 16.6% 200 0 1993 1994 1995 1996 1997 1998 1999 2000 Organic Growth in Net Income R’mn 33.0% 1600 1400 1200 54.9% 1000 71.3% 800 600 4
Slide 48: Organic vs. Purchased Growth - Advances
G r o u p Pe r f o r m a n c e Organic vs. Purchased Growth - Advances R’mn Organic Purchased 7000 6000 5000 4000 3000 2000 1000 0 1996 1997 1998 1999 2000 Investec
Slide 49: Operational Issues
O p e ra t i o n a l I s s u e s
Slide 50: Risk Management/Asset Quality
O p e ra t i o n a l I s s u e s Before I recommend anything, I’d like your views on what the word ‘risk’ implies.” Risk Management/Asset Quality • Stood up in very volatile times - no significant issues during market crisis • Quality of loan portfolio improved significantly • Global credit and pric
Slide 51: Asset Quality
O p e ra t i o n a l I s s u e s Asset Quality 31 March 31 March R’mn 2000 1999 Total Loans and Advances 33 855 22 430 Managed Book 896 781 Net Loans and Advances 32 959 21 649 Average Total Loans and Advances 28 143 19 718 Income Statement Provision Change 211 223 Specific Provisions 523 494 Genera
Slide 52: Bad Debt Charge; Total Non Performing Loans
O p e ra t i o n a l I s s u e s Bad Debt Charge % of Average Advances 1.2 1.0 1.1 1.13 0.94 0.8 0.8 0.75 0.71 0.6 0.58 0.53 0.4 0.2 0.0 1993 1994 1995 1996 1997 1998 1999 2000 Total Non Performing Loans % Total Loans and Advances 3.5 3.0 3.03 2.5 2.7 2 2.0 2.6 2.07 1.8 1.5 1.0 0.5 0.0 1995 1996 199
Slide 53: Impact of SARB Provisioning Policy; Capital Philosophy
O p e ra t i o n a l I s s u e s Impact of SARB Provisioning Policy Should have no impact as policy for suspending interest is in line and general provisions will cover the provisions required under the provisioning policy Capital Philosophy • Objective is to continue to improve ROE but retain a rea
Slide 54: Capital Adequacy
O p e ra t i o n a l I s s u e s Capital Adequacy Rand Value (mn) Percentage Tier One 4 833 11.88% Tier Two 52 0.13% Total 4 885 12.01% Deploying Capital Productivity 31 March 31 March Target 2000 1999 Ratio Return on Equity 24.2% 18.7% 30.0% Return on Investment 16.35% 14.65% 20.0% Return on Risk-W
Slide 55: Return on Equity...An Appropriate Calculation
O p e ra t i o n a l I s s u e s Return on Equity...An Appropriate Calculation 31 March 31 March 2000 1999 Average Shareholders’ Funds 5 675 4 727 Average CCD’s 1 713 1 001 Less: Average Goodwill 2 295 1 134 Comparative Capital Base 5 093 4 594 Headline Earnings 1 047 787 After Tax Debenture interes
Slide 56: Costs
O p e ra t i o n a l I s s u e s Costs • As international expansion has picked up pace, so has the cost to income ratio increased • This last year saw a slight improvement in the ratio, more as a consequence of revenue growth than as a consequence of sound cost management • There is room for signifi
Slide 57: Value at Risk; People
O p e ra t i o n a l I s s u e s Value at Risk Rands Value at Risk Limit SA Operations 5 375 000 40 800 000 UK Operations 1 929 000 2 650 000 US Operations 1 418 500 5 300 000 Israeli Operations 387 000 985 000 9 109 500 49 735 000 Total Value at Risk - Stress tested to 15 standard deviations: R31 8
Slide 58: Staff Turnover; Headline Earnings per Employee
O p e ra t i o n a l I s s u e s Staff Turnover Percent 25 20 23 17 15 15 15 16 15.56 15.31 14.8 14.7 13.6 13.1 10 5 0 1990 1992 1994 1996 1998 2000 Headline Earnings per Employee R’000 350 300 250 200 150 100 50 0 1993 1994 1995 1996 1997 1998 1999 2000 Investec
Slide 59: E-Commerce Initiatives
O p e ra t i o n a l I s s u e s "Investec has a quality e-commerce offering and its culture is well suited to rapid change... Analyst Report, Dec 99 E-Commerce Initiatives • During the past year, the Group completed all year 2000 preparations and successfully transitioned all current operations int
Slide 60: E-Commerce - Overall Strategy
O p e ra t i o n a l I s s u e s E-Commerce - Overall Strategy • Investec has introduced an Internet offering as an alternative distribution channel through which clients can transact with the Group • In certain markets our strategy has been defensive, whilst in others it has been aggressive E-Comme
Slide 61: E-Commerce Initiatives: Retail and Private Client
O p e ra t i o n a l I s s u e s E-Commerce Initiatives Retail • Investec Asset Management has clearly embraced the Internet and it is increasingly part of the way business is done - strongly evident in product range i.e. Wired, Wireless World and Internet.com funds • On-line trading of all IGF unit
Slide 62: E-Commerce Initiatives: Institutional, Corporate
O p e ra t i o n a l I s s u e s E-Commerce Initiatives Institutional • Development of institutional brokerage website - offering full range of all in- house research, access to internal models and valuation methodologies and will in time be extended to incorporate an execution capability Corporate
Slide 63: Looking Forward
L o o k i n g Fo r wa r d
Slide 64: Looking Forward
L o o k i n g Fo r wa r d Looking Forward • The past year was a year in which significant progress was made in building our name and reputation both internationally and domestically • A year in which most of our growth was organic without any significant acquisition and in which some significant cha