Investec plc · LSE:INVP
Investec — FY2002 Earnings Presentation
68 slides from Investec's earnings presentation, 2002
Slide 1: Summary of Results
Summar y of Result s Inve stec Summar y of Re sult s
Slide 2: Snapshot of Results
>> Snapshot of Results Year ended Year ended % 31 March 2002 31 March 2001 2 Change Income Statement and Selected Returns Headline earnings attributable to ordinary shareholders (R millions) 1 684 1 314 28.2 Headline net income before tax (R millions) 2 369 1 825 29.8 Headline earnings: Southern Afr
Slide 3: Snapshot of Results: Salient Financial Features and Key Statistics
>> Snapshot of Results Year ended Year ended % 31 March 2002 31 March 2001 2 Change Salient Financial Features and Key Statistics Summar y of Result s Headline earnings per share (cents) 1 840.4 1 628.2 13.0 Dividends per share (cents) 825.0 750.0 10.0 Dividend cover (times) 2.2 2.2 Net tangible ass
Slide 4: Headline EPS, DPS and ROE; Reconciliation to Headline Earnings
>> Headline EPS, DPS and ROE cents DPS Headline EPS ROE % 2000 28 1800 26 1600 10 Year CAGR 1400 Headline EPS: 28.9% 24 DPS: 28.0% 1200 22 1000 800 20 600 18 400 16 200 0 14 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 >> Reconciliation to Headline Ear nings R’mn Attributable earnings 626
Slide 5: Accounting Policies Update
>> Accounting Policies Update AC107 – Events after the balance sheet date • Dividends to holders of equity instruments that are proposed or declared after the balance sheet date are not recognised as a liability at the balance sheet date • This has resulted in an increase in reserves of R356mn at 31
Slide 6: Global Positioning and Review
Inve stec Global Po sitioning and Review page 00 Investec> > 2 0 0 2 Investec >>2 0 0 2 page 00
Slide 7: Operating Environment
>> Oper ating Environment Global Positioning and Review “It was the best of times, it was the worst of times...” - Charles Dickens Best of Times: • Fedsure has been rationalised and integrated • Received permission to dual list the Group: > Key step in the established internationalisation strategy >
Slide 8: UK and Europe
>> UK and Europe • Headline net income before tax declined marginally > Weaker performance from equity related activities as a result of market volatility > Negated by stronger performances by the Group’s private banking, treasury and specialised finance activities • Continued focus on development a
Slide 9: Southern Africa
>> Souther n Afr ica Global Positioning and Review • Strong performance from the Group’s South African operations > Noteworthy performances from treasury and specialised finance, investment banking, private banking and the property division > Overall results enhanced as a result of the inclusion of
Slide 10: USA
>> USA • The subdued state of the equity markets and the Group’s high exposure thereto resulted in negative earnings growth > Both the investment banking and private client operations were negatively impacted • Enhanced investment banking capability - select recruitment • In March 2002, Investec dec
Slide 11: Israel and Australia
>> Isr ael Global Positioning and Review • The Israeli operations posted credible results, off a low base in 2001 and an extremely difficult political and economic environment >> Salient Financial Features - Isr ael Year ended Year ended % 31 March 2002 31 March 2001 Change Assets (R’bn) 15 11 36.4
Slide 12: Segmental Analysis Year ended 31 March 2002
>> Segmental Analysis Year ended 31 March 2002 Southern UK Africa & & R’mn Other Europe Israel USA Group Net interest income 1 079 744 182 178 2 183 Provision for bad and doubtful debts 241 (46) 7 - 202 Other income 2 044 2 434 96 699 5 273 Total income 2 882 3 224 271 877 7 254 Operating expenses 1
Slide 13: Segmental Analysis Year ended 31 March 2001
>> Segmental Analysis Year ended 31 March 2001 Global Positioning and Review Southern UK Africa & & R’mn Other Europe Israel USA Group Net interest income 904 677 119 178 1 878 Provision for bad and doubtful debts 175 (11) 34 - 198 Other income 1 258 1 796 173 394 3 621 Total income 1 987 2 484 258
Slide 14: Assets by Geography; NAV by Geography
The weaker performance of the Group’s international operations, coupled with strong performance of its South African operations has served to alter the dynamics of the Group’s geographical spread of income and assets... >> Assets by Geogr aphy Year ended 31 March 2002 (31 March 2001) 3.0% (4.5%) 4.8
Slide 15: Headline Income Before Tax and Earnings by Geography
>> Headline Income Before Tax by Geogr aphy Global Positioning and Review Year ended 31 March 2002 (31 March 2001) (3.5%) (5.0%) 4.4% 0.7% (52.9%) 38.6% UK & Europe Southern Africa & Other Israel USA (38.6%) 56.3% >> Headline Ear nings by Geogr aphy Year ended 31 March 2002 (31 March 2001) (2.1%) (4
Slide 16: Cost to Income by Geography; Loan Portfolio by Geography
>> Cost to Income by Geogr aphy 2002 2001 100 98.2 90 84.1 80 72.7 70 66.1 65.5 63.2 59.3 61.4 59.7 60 50 49.6 40 30 20 10 0 Southern UK & Israel USA Group Africa & Europe Other >> Loan Por tfolio by Geogr aphy Year ended 31 March 2002 (31 March 2001) (7.3%) 3.9% 7.5% (10.5%) 33.0% (25.3%) UK & Euro
Slide 17: Divisional Review
Inve stec Divisional Review
Slide 18: Divisional Review; Contribution Analysis
>> Divisional Review Headline NIBT Investment Banking DOWN 7.7% Decline in performance reflecting difficult market conditions Treasury and Specialised Finance UP 22.7% Credible results despite market volatility Private Client Activities UP 42.3% Strong performance from private banking in UK and SA A
Slide 19: Investment Banking
>> Investment Banking Introduction Engaged in a range of investment banking activities, comprising: • Corporate finance • Research, sales and trading • Private equity and direct investment Divisional Review Geographies in which the division operates: • Principally SA and the UK • Developing operatio
Slide 20: Investment Banking: South Africa
>> Investment Banking South Africa • Headline net income before tax has increased by 44.2% to R248mn (excluding Australia) Corporate Finance • Slow capital raising activity in market therefore focus primarily on M&A activity • 39 M&A transactions completed • Continued to perform strongly relative to
Slide 21: Investment Banking: UK and Europe
>> Investment Banking UK and Europe • Decline in headline net income before tax of 31.5% to R296mn Investec Investment Banking and Securities • Investec Henderson Crosthwaite was rebranded Investec Investment Banking and Divisional Review Securities • Decline in performance largely attributed to the
Slide 22: Investment Banking: Ireland, USA, Australia
>> Investment Banking Ireland • Completed the establishment of a satellite stockbroking function for the distribution of Investec Investment Banking and Securities’ products into the Irish market • First cross-border corporate finance deal concluded USA • Posted operating losses of R46mn • Investec
Slide 23: Treasury and Specialised Finance
>> Treasur y and Specialised Finance Introduction The division is involved in the following: • Non-private client deposit taking, • Corporate and public sector lending, • Structuring, and Divisional Review • Proprietary trading activities Eight product areas divided equally between banking activitie
Slide 24: Treasury and Specialised Finance: Banking Activities
>> Treasur y and Specialised Finance Banking Activities • Project Finance: > The acquisition of the European Capital team of project finance advisors in November 2001 enhanced the Group’s project finance and advisory platform in the UK and Europe > Closed the N1-N4 Platinum Toll Road project, the la
Slide 25: Financial Markets Activities; Private Client Activities
>> Treasur y and Specialised Finance Financial Markets Activities • Equities derivatives operation established in New York to focus on equity and equity derivative proprietary trading opportunities in most developed markets • Commodities team: > Substantial progress made in creating an internal infr
Slide 26: Private Client Activities: Salient Features and Private Banking
>> Pr ivate Client Activities Salient Financial Features Year ended Year ended % 31 March 2002 31 March 2001 Change Net operating income (R’mn) 2 048 1 585 29.2 Operating expenses (R’mn) 1 479 1 185 24.8 Headline NIBT (R’mn) 569 400 42.3 Cost to income ratio (%) 68.0% 70.3% >> Pr ivate Client Activi
Slide 27: Private Banking: UK, Europe and Australia
>> Pr ivate Client Activities Private Banking UK and Europe • Strong growth supported by a healthy growth in advances and commendable performance of the trust and fiduciary businesses which now operate under the name Investec Trust Group (ITG) Divisional Review • Loan portfolio increased by 28% to £
Slide 28: Private Client Stockbroking
>> Pr ivate Client Activities Private Client Stockbroking South Africa • Ongoing consolidation in the private client stockbroking industry • Acquired Merrill Lynch South Africa’s private client operation in Cape Town which enhanced capabilities and provided an additional R4bn in assets under adminis
Slide 29: Asset Management
>> Asset Management Introduction Investec Asset Management provides a comprehensive range of portfolio management services and products to institutional and retail clients in SA and the UK. In addition, it provides a selection of offshore unit trust products to investors in Hong Kong, the United Sta
Slide 30: Asset Management: Funds under Management
>> Asset Management Funds under management Business Type Geography (sourced) Asset Class 0.4% R71.5bn R131.5bn 37.8% Institutional SA Cash & Fixed Income Retail Non-SA Equities Hedge Funds R191.8bn R131.8bn 61.8% Total: R263.3bn >> Asset Management SA Institutional • Strong performance • Successfull
Slide 31: Asset Management: Performance; SA Personal Investments
>> Asset Management Consistent top 3 performance over last 5 years** 10 Number of times in top 3 over last 10 6-month periods 10 9 Divisional Review 8 8 7 6 5 5 4 4 3 2 2 1 1 0 on l c am M lib n* y E ua ra te BO BA io an et ut nl G s ve at pl St Sa M RM lan on In em ld Al or nT O C kli an Fr ** Meas
Slide 32: Asset Management: SA Unit Trust Industry and Retail Performance
>> Asset Management Investec in the South African Unit Trust Industry 31 March 2002 31 March 2001 31 March 2000 Funds under management (R’mn) 19 965 13 394 16 342 Total industry size (R’mn) 176 338 124 337 117 334 Market share (%) 11 11 14 Size ranking in industry 2nd out of 29 3rd out of 29 2nd out
Slide 33: SA Linked Products; UK Institutional
>> Asset Management Investec in the South African Linked Product Industry 31 March 2002 31 March 2001 31 March 2000 Funds under management (R’mn) 19 313 10 593 10 577 Divisional Review Total industry size (R’mn) 77 024 58 125 62 982 Market share (%) 25 18 17 Industry gross sales (R’mn) 19 864 18 523
Slide 34: UK European Retail
>> Asset Management UK European Retail • UK unit trust: R2.5bn net inflows • Doubled unit trust business since acquisition • Grew net sales market share by 250% • Offshore funds: R4.6bn net inflows • Offshore funds: positive net inflows for 12 consecutive quarters • Award for best larger offshore fu
Slide 35: Assurance Activities
>> Assur ance Activities Developments in Investec Employee Benefits (formerly Fedsure Life Assurance) • Concluded and implemented reinsurance contract with Capital Alliance • Completed restructuring of policyholder portfolios > Removing shareholder risk and protecting policyholders Divisional Review
Slide 36: Assurance Activities: Balance Sheet Information
>> Assur ance Activities Balance Sheet Information R’mn March 2002 Sept 2001 May 2001 Total Value of assets 27 863 28 875 29 662 Less: Liabilities 25 340 26 494 27 354 Actuarial value of policy liabilities* 23 530 22 520 25 519 Long-term and current liabilities 1 810 3 974 1 835 Net asset value 2 52
Slide 37: Assurance Activities: Income and Economic Assumptions
>> Assur ance Activities Income from Long Term Assurance Business R’mn 10 months ended 31 March 2002 Premium income 2 865 Divisional Review Investment income 999 Total income 3 864 Total outgo 6 908 Benefits paid 6 378 Commission 172 Marketing and administration expenses 229 Taxation 129 Income less
Slide 38: Other Activities
>> Other Activities Includes: Property Group, Clearing and Execution Business in USA, Reichmans, Share Capital and Centralised Funding, Central Services, Traded Endowments in the UK Year ended Year ended % R’mn 31 March 2002 31 March 2001 Change Net Income - International Trade Finance 34 65 (47.7)
Slide 39: Other Activities: Property, Reichmans, US Clearing
>> Other Activities Property Group - UK • Property portfolio is primarily located in central London > Rental growth and occupational demand were negatively impacted by weak global markets • The investment market remained buoyant however, largely as a result of the low Divisional Review interest rate
Slide 40: Segmental Analysis by Division
>> Segmental Analysis Year ended 31 March 2002 Southern UK Africa & & R’mn Other Europe Israel USA Group Investment Banking 282 296 52 (46) 584 Treasury and Specialised Finance 568 153 4 - 725 Asset Management & Assurance 467 29 4 - 500 Asset Management 247 29 4 - 280 Assurance Activities 220 - - -
Slide 41: Group Performance
Inve stec Group Per formance
Slide 42: Salient Financial Features - Balance Sheet
>> Salient Financial Features - Balance Sheet R’mn 31 March 2002 31 March 2001 Assets Cash and short term funds 111 224 69 196 Short term negotiable securities 64 738 53 874 Investment and trading securities 17 917 9 968 Other assets 9 020 6 237 Advances 54 413 38 062 Associated companies 503 544 Fi
Slide 43: Salient Financial Features - Income Statement
>> Salient Financial Features - Income Statement Year ended Year ended % R’mn 31 March 2002 31 March 2001 Change Group Per formance Interest received 12 444 12 114 2.7 Interest paid 10 261 10 236 0.2 Net interest income 2 183 1 878 16.3 Provision for bad & doubtful debts 202 198 2.0 Other income 5 2
Slide 44: Growth in Net Tangible Asset Value per Share; Total Assets
>> Growth in Net Tangible Asset Value per Share Rands 80 70 10 Year CAGR: 20.0% 60 50 40 30 20 10 0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 >> Growth in Total Assets R’bn 320 280 10 Year CAGR: 54.2% 240 200 160 120 80 40 0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 page 44
Slide 45: Growth in Assets Under Administration
>> Growth in Assets Under Administr ation R’bn 800 Group Per formance 700 10 Year CAGR: 55.8% 600 500 400 300 200 100 0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 >> Assets Under Administr ation R’mn 31 March 2002 31 March 2001 Retail (includes unit trusts, mutual funds and linked produc
Slide 46: Goodwill Impairment and Analysis
>> Goodwill Impair ment • AC 128 and AC 131: annual review of carrying value of all assets and test on good- will arising from acquisitions for impairment losses • Result of exercise: Impairment of R472mn with respect to goodwill on Fedsure insurance business • Methodology > Combination of value in
Slide 47: Operating Income by Type
>> Oper ating Income by Type For the year ended 31 March 2002 (31 March 2001) 3.1% 10.1% 41.2% Commission and fees - recurring (12.2%) (44.1%) Group Per formance Margin income Principal transactions & trading income 18.3% (12.0%) Commission & fees - non-recurring Income from long term assurance busi
Slide 48: Annuity Income; Share of Associated Earnings
>> Annuity Income as a % of Total Income % 90 83.2 80 81.1 77.4 73 70 76.1 71.8 70.7 69 60 60 50 40 30 20 10 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 >> Share of Associated Ear nings R’mn Fedsure operating earnings for 2 months ended 1 June 2001 13 Capital Alliance operating earnings for 5 and
Slide 49: Net Interest Margin; Organic Growth in Income
>> Net Interest Mar gin Impact of Shor t-Dated Instr uments Year ended Year ended Year ended R’mn 31 March 2002 31 March 2001 31 March 2000 Group Per formance Interest bearing assets 235 488 165 812 148 577 Less: short dated money market instruments** (130 287) (87 986) (79 827) Total adjusted inter
Slide 50: Organic Growth in Expenses and Net Income
>> Or ganic Growth in Expenses R’mn 5 000 25.5% 4 500 4 000 3 500 20.4% 3 000 27.9% 2 500 2 000 1 500 35.6% 1 000 20.1% 38.2% 28.1% 500 15.3% 16.6% 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 >> Or ganic Growth in Net Income R’mn 2 500 16.0% 2 000 16.9% 33.0% 1 500 54.9% 1 000 71.3% 500 46.2% 58.
Slide 51: Organic Growth in Advances
>> Or ganic Growth in Advances R’mn Organic Purchased 18000 Group Per formance 16000 14000 12000 10000 8000 6000 4000 2000 0 1996 1997 1998 1999 2000 2001 2002 Investec >>2 0 0 2 page 51
Slide 52: Operational Issues
Inve stec Op erational Is sue s
Slide 53: Operational Issues: Risk Management
>> Oper ational Issues Operational Issues • Risk Management and Compliance • Capital • Cost control Op erational Is sues • Marketing • Systems and Infrastructure • Corporate Citizenship Risk Management • The Group continues to embed a culture of risk awareness, control and compliance in its core act
Slide 54: Risk Management (continued)
>> Oper ational Issues Risk Management (continued) > A Historical Timeseries database and scenario generation software has been developed in-house to enable automatic V@R calculation and backtesting > Continued standardisation of ALM policy, process & enhanced risk measures on a Groupwide basis, thu
Slide 55: Group Compliance
>> Oper ational Issues Group Compliance • Developments over the past year include: > Bradley Tapnack was appointed the Global Head of Corporate Governance and Compliance Op erational Is sues South Africa: • Developed a risk based compliance methodology • Alignment of Investec SA compliance policies
Slide 56: Asset Quality; Adequacy of Provisions
>> Asset Quality Year ended Year ended R’mn 31 March 2002 31 March 2001 Total loans and advances (pre provisions) 55 450 38 925 Managed book 1 189 1 171 Net loans and advances 54 261 37 754 Average total loans and advances 47 188 36 390 Income statement provision charge 202 198 Specific provisions 4
Slide 57: Bad Debt Charge; Gross NPLs
>> Bad Debt Char ge as a % of Aver age Advances % 1.2 1.13 Op erational Is sues 1.0 0.8 0.8 0.75 0.71 0.6 0.54 0.58 0.53 0.43 0.4 0.2 0.0 1995 1996 1997 1998 1999 2000 2001 2002 >> Gross NPLs as a % of Total Loans and Advances % 3.0 2.7 3.0 2.6 2.5 2.0 2.1 2.0 1.8 1.65 1.5 1.11 1.0 0.5 0.0 1995 1996
Slide 58: Expected Tail Loss; Capital Resources
>> 95% one day Expected Tail Loss South United SA & Group R’mn Africa Kingdom UK Israel USA Aggregate Interest Rates 13.5 15.3 18.7 0.2 0.5 19.4 Equity 2.0 7.8 8.2 - 0.7 8.9 Foreign Exchange 18.0 2.9 17.7 0.4 0.1 18.2 Commodities - 4.5 4.5 - - 4.5 Consolidated 13.7 8.7 33.8 0.6 1.3 35.7 V@R is defin
Slide 59: Capital Adequacy
>> Capital Adequacy Total Risk-weighted Risk weighted Assets Assets Assets R’mn 31 March 2002 31 March 2002 31 March 2001 Op erational Is sues Total assets - banking activities 116 053 63 826 48 034 Trading assets subject to CAD 186 258 - - Total assets 302 310 63 826 48 034 Risk-weighted capital re
Slide 60: Return on Equity; Return on Investment
>> Retur n On Equity Year ended Year ended R’mn 31 March 2002 31 March 2001 Total shareholders’ funds (including CCD’s and convertible preference shares) 13 230 9 028 Goodwill 5 485 2 849 Headline earnings 1 684 1 314 After-tax debenture interest 235 190 Adjusted earnings 1 919 1 504 Ave shareholder
Slide 61: Cost Control
>> Cost Control • An analysis of the increase in operating expenses of 40.5% to R4 885mn reveals the following: > 37.0% of the growth attributable to acquisitions included for the full year under review Op erational Is sues > 45.2% due to devaluation of the Rand > Remaining 17.8% represents underlyi
Slide 62: Expenses by Type
>> Expenses by Type For the year ended 31 March 2002 (31 March 2001) 4.4% (5.8%) 7.1% (7.1%) Personnel 12.0% (13.7%) Business Equipment Premises (53.5%) Marketing 20.7% 55.8% (19.9%) Year ended Year ended % R’mn 31 March 2002 31 March 2001 Change Personnel 2 728 1 860 46.7 Business expenses 1 011 69
Slide 63: People; Headline Earnings per Employee
>> People 6 000 5529 5 000 4836 4441 4 000 Op erational Is sues 3721 3 000 2706 2238 2 000 1659 1345 806 826 1067 1 000 0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 >> Headline Ear nings per Employee R’000 400 350 300 250 200 150 100 50 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 Inve
Slide 64: Marketing
>> Oper ational Issues Marketing • Investec has a monolithic brand strategy that is focused on building the equity in the primary brand over the long term • The Out of the Ordinary advertising campaign, runs in the UK, and to a lesser extent in Ireland, Mauritius, the USA and Australia • In Australi
Slide 65: Corporate Citizenship
>> Oper ational Issues Corporate Citizenship • Established a separate Social Investment Division • Developed a distinct approach to Corporate Social Investment > Collaboration is the key Op erational Is sues > No quick fixes to the problems in society > Focus on development in the long term • Do not
Slide 66: Looking Forward
Inve stec Lo oking For ward
Slide 67: Looking Forward
>> Looking Forward Investec will continue to pursue its strategy to be one of the world’s leading specialist banking groups through an emphasis on: • Reinforcing a specialised and focused approach > Building well-defined, value-added businesses Lo oking For ward > Focused on select market niches in
Slide 68: Financial Definitions
>> Financial Definitions Assets under administration Includes third party assets under administration and on-balance sheet assets. Dividend cover Headline earnings per ordinary share divided by dividends per ordinary share. Headline net income before tax Income before taxation, prior to headline adj