Investec plc · LSE:INVP
Investec — FY2021 Earnings Presentation
64 slides from Investec's earnings presentation, May 21, 2021
Slide 1: Results Presentation
Results Presentation 21 May 2021 Month Year
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: o changes in the political and/or economic environment that would materially affect the In
Slide 3: Agenda
Agenda 01 02 Overview – Fani Titi, Chief Executive Financial Review – Nishlan Samujh, Group Finance Director 03 04 Strategy execution update – Fani Titi Closing and Q&A – Fani Titi Investec 3
Slide 4: Nature uses disorder to grow stronger (Taleb quote)
“Nature uses disorder to grow stronger. It’s like going to the gym. You get stronger because you subject your body to stressors and gain from them.” Nassim Nicholas Taleb, “Black Swan” author Investec
Slide 5: Thanking our clients and colleagues for a testing year
Thanking our clients for the support and colleagues for their dedication in what has been a testing year Investec
Slide 6: Overview
Overview 1. 2. 3. 4. Improving operating Resilient performance Simplification Committed to environment and good momentum substantially complete medium-term targets Investec 6
Slide 7: Improving macro environment, vaccine rollouts
Improving macro environment, vaccine rollouts…. % (yoy) 4.0 Pre-pandemic 3.0 Mean: 1.6% • South Africa GDP contracted by an unprecedented -7.0% y/y 2.0 over 2020 due to the COVID-19 lockdown restrictions 1.0 • From Jul 2020, the economy saw a marked rebound in GDP, 0.0 although not to pre-pandemic l
Slide 8: And recovering financial markets
.… and recovering financial markets JSE - LHS FTSE - RHS 75,000 8,000 70,000 7,500 65,000 7,000 60,000 6,500 55,000 6,000 50,000 Markets 45,000 5,500 40,000 5,000 35,000 4,500 30,000 4,000 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 Mar-21 25 24 23 22 21 Exchange rate 20 – ZAR / GBP 19 1
Slide 9: Global interest rates barometer
Global interest rates barometer USA 10-year treasury bonds (%) 3.5 • Global interest rates reduced markedly in response to 3.0 COVID-19 pandemic 2.5 • Yields began to stabilize and rise from August 2020 as economies started to recover from the pandemic’s first wave December 2019 2.0 in Q2 1.5 • Look
Slide 10: Business showed strong recovery in 2H2021
Business showed strong recovery in 2H2021 Private Banking lending turnover Point of Sale (POS) Transactions Value of new deals Value of card transactions relative to March 2020 levels 120% • Recovery seen 100% • Since Sep 2020, since Jul 2020 – South lending turnover 80% value of POS transactions ha
Slide 11: Results highlights
Results highlights Adjusted operating profit Adjusted earnings per share Net Asset Value per share £377.6mn 28.9p 460.2p (MAR-20 £419.2MN) (MAR-20: 33.9P) (MAR-20: 414.3P) 9.9% BEHIND PRIOR PERIOD 14.7% BEHIND PRIOR PERIOD UP 11.1% SINCE MARCH 2020 Return on Equity (ROE) Cost to Income ratio Credit
Slide 12: Financial highlights
Financial highlights ADJUSTED OPERATING PROFIT DECREASED 9.9% TO £377.6 million • Record FUM in both geographies, £58.4 billion • Loan growth of 6.1% to £26.4 billion • Good client acquisition in both geographies THIS GOOD UNDERLYING PERFORMANCE WAS AFFECTED BY • Interest rate cuts • Lower client ac
Slide 13: Divisional highlights
Divisional highlights UK and Other | Wealth & Investment SA | Wealth & Investment • Achieved record FUM of £41.7bn • Breadth and depth of product offering suitable for • Net inflows of £1.1bn wealth globalisation trend • Adjusted operating profit up 18.0% to £74.3mn • Discretionary inflows of R7.6bn
Slide 14: Sustainability highlights
Sustainability highlights Our Purpose: Creating enduring worth, living in, not off, society | We continued to embed ESG into our business strategy Environmental | Achieved net-zero direct emissions Social | Caring for our communities • Sourced 100% of our Scope 2 emissions from renewables • Contribu
Slide 15: Simplify, focus and grow
Simplify, focus and grow Strategy execution • Refreshed executive leadership in the UK Bank and UK Wealth & Investment • Continued cost discipline with significant reduction in the UK Bank cost base • Actions taken to simplify business: Exit from Australia • Capital efficiency and allocation Reducti
Slide 16: Agenda
Agenda 01 02 Overview – Fani Titi, Chief Executive Financial Review – Nishlan Samujh, Group Finance Director 03 04 Group strategic update – Fani Titi Closing and Q&A – Fani Titi Investec 16
Slide 17: Diversified, quality revenue mix across geographies and businesses
Diversified, quality revenue mix across geographies and businesses Geography Division Mar-21 Mar-21 25% 41% Operating 2% • Operating income down 9.2% to £1,641.1mn income 59% 73% Wealth & Investment Group Investments Specialist Bank UK and Other Southern Africa 25% 33% Adjusted operating • Adjusted
Slide 18: Wealth & Investment South Africa
Wealth & Investment South Africa Performed well against a tough economic backdrop Funds under management Adjusted operating profit* Operating margin R’mn R’bn 40% 350 333 600 554 501 300 500 252 30% 250 158 400 227 212 203 169 200 120 20% 300 150 200 100 10% 175 132 132 50 104 110 115 100 0 0% 0 Mar
Slide 19: Wealth & Investment UK and Other
Wealth & Investment UK and Other Record performance in FUM and net organic growth for FY2021 Funds under management Adjusted operating profit* Operating margin £’bn £’mn 45 41.7 40 80 6.5 74.3 30% 35 33.1 70 6.7 6.8 63.0 30 7.6 5.5 60 25 6.6 50 20% 20 35.2 40 15 30.0 25.8 27.9 27.6 30 10 21.3 20 10%
Slide 20: Specialist Banking Southern Africa
Specialist Banking Southern Africa Net core loans reflecting lower activity levels in the first half, and a marked improvement in the second half Net core loans R’bn 288.9 287.3 290 270 • Net core loans broadly flat at R287.3bn (31 March 2020: R288.9bn) 250 • Private Banking loan book increases by 2
Slide 21: Specialist Banking Southern Africa
Specialist Banking Southern Africa Solid performance from our client franchises particularly in the second half as the economic recovery gathered pace Operating income R’bn • NII decreased by 4.2% driven primarily by 300bps rate cut since Jan 14 12.7 12 12.3 2020 10 • Increase in trading income offs
Slide 22: Specialist Banking UK and Other
Specialist Banking UK and Other Private client business continues to build scale by leveraging infrastructure, while corporate banking business experienced a strong rebound in activity levels in 2H2021 Net core loans £’bn 12.3 11.9 12 • Since Mar 2020, net core loans increased by 3.9% to £12.3bn • N
Slide 23: Specialist Banking UK and Other
Specialist Banking UK and Other Strong underlying franchise performance and rightsized cost base Operating income £’mn 800 630.5 • NII increased by 3.3%, driven by higher average interest earning 618.0 600 assets 400 • Strong equity capital markets activity and higher investment income 200 • Costs r
Slide 24: Group Investments
Group Investments Group Investments pillar consists of equity investments held outside the group’s banking activities £' miillion Carrying Value Income Yield % holding Reported adjusted operating profit: £34.4 million (FY2020: £16.7 Ninety One 363 11.1% 25.0% million) IPF 159 -1.0% 24.3% • Primarily
Slide 25: Revenue analysis
Revenue analysis Lower interest rates, transactional and lending activities due to economic lockdowns in the first half, followed by strong recovery in the second half Operating income £'mn Operating income reduced 9.2% (4.4% down in neutral currency) 2,000 1,807 16 8 1,641 • Net interest income imp
Slide 26: Earnings drivers
Earnings drivers Funds under management £’bn 60 58.4 50 45.0 40 30 • FUM up 29.8% to £58.4bn (26.9% in neutral currency) 20 • Net inflows of £1.1bn 10 • Recovery in market levels since 31 March 2020 0 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 Wealth & Investment UK Wealth & Investment SA Othe
Slide 27: SA net core loan reported growth in the second half
SA net core loan reported growth in the second half HNW and Other private client lending book reported growth in mortgages, driven by improved affordability given lower interest rates R'bn FY 2020 FY 2021 100 HNW & Other Property Corporate & Other lending Private client lending ▲5% 81 80 - 67 ▲1% 59
Slide 28: Strong growth in loan book
Strong growth in loan book Our HNW mortgage proposition growth momentum remains strong £'mn FY 2020 FY 2021 HNW & Other Property Corporate & Other lending Private client lending 3,500 ▲29% 3,190 3,000 UK net core loans up 3.9%, or 8.7% 2,500 excluding Australia ▲6% 2,068 ▼ 1% 1,947 • Prior year base
Slide 29: Operating cost analysis
Operating cost analysis Fixed operating costs contained; incurred once-off costs on execution of group priorities of simplification and focus £’mn 2,000 1,807 75% 1,641 1,600 68.2% 70% 70.9% 1,186 1,165 Cost to income ratio of 70.9% (2020: 68.2%) 1,200 65% Cost to 800 60% • Operating income reduced
Slide 30: ECL impairment charges & CLR reduced year on year
ECL impairment charges & CLR reduced year on year £'mn 120 100 80 ECL 60 102 Charges 40 66 20 33 31 • ECL impairment charges down 25.4% to £99.4mn - 0 (2020: £133.3mn) 1H 2020 2H 2020 1H 2021 2H 2021 • CLR reduced to 0.35% from 0.52% for FY2020 1.0% • Driven primarily by robust credit quality and hi
Slide 31: Unpacking the credit loss ratio - SA
Unpacking the credit loss ratio - SA 0.6% 0.5% 0.4% Investec Ltd credit 0.3% 0.55% loss ratio 0.2% 0.35% 0.1% 0.18% 0.01% • FY2021 CLR reduced to 0.18% from 0.36% for FY2020 0.0% 1H 2020 2H 2020 1H 2021 2H 2021 • Total FY2021 ECL charge of R621mn, down 44% from R1.1bn in FY2020 R'mn • Driven by stab
Slide 32: Unpacking the credit loss ratio - UK
Unpacking the credit loss ratio - UK 1.2% 1.0% 0.8% Investec plc 0.6% credit loss 0.97% ratio 0.4% 0.60% 0.52% 0.2% 0.28% 0.0% • CLR reduced to 0.56% for FY2021 from 0.69% for FY2020 1H 2020 2H 2020 1H 2021 2H 2021 • Total ECL charges for FY2021 of £71mn, down 6.1% from £76mn in FY2020 £'mn • Mainly
Slide 33: Balance sheet provisions
Balance sheet provisions £’mn R’mn 200 4,000 Investec plc 150 3,000 107 ▼5.6% 101 Investec Ltd balance 100 1,880 ▼ 29.4% 1,328 balance sheet 2,000 sheet ECL 423 ▼ 1.7% 50 31 ▲ 35.5% 42 ECL provision 1,000 416 provision 37 ▼27.0% 1,057 ▼ 6.8% 985 27 0- 0- FY 2020 FY 2021 FY 2020 FY 2021 Stage 1 Stage
Slide 34: ROE and ROTE
ROE and ROTE ROE ROTE 6.6% 7.2% Group 9.3% 9.4% Geographic 4.0% 4.8% Investec Ltd Investec plc Investec Ltd Investec plc Average allocated equity Average allocated tangible equity 48.4% 51.6% 52.3% 47.7% £1 965.4mn £2 093.3mn £1 949.1mn £1 779.1mn Investec 34
Slide 35: Robust capital and liquidity position
Robust capital and liquidity position 7.9% Capital summary Leverage ratio as reported ** 7.8% • CET 1 ratio above 10% target, total capital ratios within target range of 14%-17% • Leverage ratios above group target of 6% 11.2% • Investec Limited obtained approval to adopt AIRB approach for the SME a
Slide 36: Financial outlook
Financial outlook NEAR-TERM OUTLOOK IS DEPENDENT ON PROGRESS IN CONTAINING COVID-19 AND THE EXTENT OF ECONOMIC RECOVERY IN THE UK AND SOUTH AFRICA • Vaccine roll-out is encouraging in the UK and other developed economies • South Africa remains vulnerable to the third wave given the slow progress in
Slide 37: Agenda
Agenda 01 02 Overview – Fani Titi, Chief Executive Financial Review – Nishlan Samujh, Group Finance Director 03 04 Group strategic update – Fani Titi Closing and Q&A – Fani Titi Investec 37
Slide 38: Group Strategy Update
~ & Investec Group Strategy Update
Slide 39: 40 years of heritage. Two core geographies. One Investec.
40 years of heritage. Two core geographies. One Investec. Whether you are an individual, a business, or an intermediary acting for clients, our aim is to create and manage your wealth and fuel your business growth.
Slide 40: Good progress made on strategy execution
Good progress made on strategy execution 1. Disciplined execution of strategy to simplify, focus and grow the business 2. A domestically relevant and internationally connected banking and wealth group 3. Clear progress made against stated objectives with a clear path to performance improvement 4. Co
Slide 41: Where we were two years ago
Where we were two years ago Looking back at the focus of CMD 2019 Key areas of focus CMD 1. Under-appreciated businesses within the complexity of the Group structure 2019 2. Capital allocation and capital generation to support growth 3. Expensive operating cost base Today 4. Drive inter-connectednes
Slide 42: Journey to simplify, focus and grow the business
Journey to simplify, focus and grow the business At tail-end of simplifying and focusing the business – substantially complete by FY2021 • Demerged Investec Asset management (now separately listed as Ninety One) Simplify • Exited business which were subscale, non-core businesses or fall outside of r
Slide 43: A distinctive banking and wealth management business
A distinctive banking and wealth management business We are not all things to all people; we serve select niches where we can compete effectively. Our distinction lies in our ability to be nimble, flexible and innovative, delivering a client-centric, high-tech, high-touch service Corporate / Institu
Slide 44: Identified initiatives to improve business performance
Identified initiatives to improve business performance Deliver a domestically relevant, internationally connected banking and wealth & investment group Growth initiatives Cost management Clear set of opportunities to deliver revenue growth Improved management of the cost base through operational lev
Slide 45: Unpacking historical performance as we look forward
Unpacking historical performance as we look forward We are in a position of strength as we emerge from COVID-19 pandemic Early FY2021 and guided FY2022 adjusted EPS indicate a strong recovery in £’mn FY 2019 FY2020 FY 2021 Guidance performance FY 2022 Adjusted EPS - pence per share 48.7 33.9 28.9 36
Slide 46: Capital discipline
Capital discipline • Exited non-core and sub scale businesses to focus and invest in core client franchises and geographies • Reduction of SA investment portfolio • Group Investments pillar has an average required capital of £463mn with a market value of £1bn as at 18 May 2021 • Refined risk appetit
Slide 47: Capital discipline
Capital discipline Execution since 2019 CMD Investec Limited’s Closure of Click JV Partnership in India Key step towards transition to FIRB & Invest with State Bank of India implementation of AIRB 2019 2020 2021 Closure and rundown of Hong Sale of Ireland Wealth Announced exit from Kong direct inves
Slide 48: Capital discipline (continued)
Capital discipline (continued) South African operations anticipated to have surplus capital in the medium term Group Investment pillar since CMD R million • Cumulative reduction of c.R3bn 15,000 • Market conditions are improving to realise some of the investments in our portfolio 14,000 13,571 3,870
Slide 49: Growth philosophy
Growth philosophy Clear set of scalable opportunities to deliver revenue growth Grow with discipline (stay inside tramlines and risk appetite) Focused on increasing proportion of revenue from capital-light business Future technology spend to be weighted towards growth Organic growth Leveraging clien
Slide 50: Growth initiatives remain on track
Growth initiatives remain on track Introduction Growth Maturing UK Private Bank £3.2bn HNW mortgage book (CMD 2019: £1.7bn) Investec for Business UK Bank Digital Deposit-raising Channel Revenue: R0.8bn | Book size R12.5 bn Launch date: March 2020 | £480mn deposits raised (FY20: R11.6 bn) SA Bank: In
Slide 51: Cost discipline
Cost discipline Operating costs from underlying businesses have been well managed Group target cost to income ratio <63% £million Operating costs 1,300 Key Highlights Fixed costs reduction of £109mn since FY2019 • UK Specialist Bank fixed operating costs have reduced by c.£56 1,200 million since FY2
Slide 52: Cost management | Operational leverage
Cost management | Operational leverage Creating and connecting common platforms Three-pronged operational leverage strategy Fully operational global platforms Global Lending Card Fraud Human Operations Team Resources 01. Effectively utilise common platforms (people, process & technology) across the
Slide 53: Connectivity | Client ecosystem
Connectivity | Client ecosystem Servicing clients across businesses, locally and abroad CROSS-BORDER CROSS-BUSINESS 51% # 65% of IWI SA annuity FUM invested 33% 42% # 64% 20% 25% of IWI SA’s top clients with # of PB SA’s clients with IWI growth in PB SA clients with UK offshore with an average yield
Slide 54: Digitalisation
Digitalisation FOR OUR CLIENTS Transformation of Investec through the digitalisation of our DNA Digitising our client journeys end to end, to deliver integrated experiences and frictionless access to products and services through Investec’s suite of Apps, Investment spend of £203m at Mar’21 (Mar’20:
Slide 55: Paved runway to pursue our growth ambitions
Paved runway to pursue our growth ambitions DEALT WITH ISSUES THAT HAVE CONSTRAINED THE BUSINESS Exited business which were subscale, non-core businesses or fall outside of refined risk appetite RIGHTSIZED THE COST STRUCTURE OF THE BUSINESS Costs well contained, sustainable operating platform IMPROV
Slide 56: Committed to medium-term targets
Committed to medium-term targets Moving to Regional targets CMD targets Medium-term targets Medium term FY2022 targets UK South Africa Group Long-term value UK South Africa Group (3 years) outcomes 11% to 15% 15% to 18% ROE Bank: 10% to 13% Bank: 14% to 16% 12% to 16% ROE 11% to 15 % 15% to 18% 12%
Slide 57: Conclusion
Conclusion WE HAVE A 40 YEAR HERITAGE IN PRIVATE BANKING, CORPORATE AND INVESTMENT BANKING AND WEALTH MANAGEMENT WE ARE DEDICATED TO OUR PURPOSE OF CREATING ENDURING WORTH - LIVING IN, NOT OFF, SOCIETY STRONG CULTURE OF ENTREPRENEURSHIP OUR PEOPLE ARE MOTIVATED, TALENTED AND EMPOWERED OUR CLIENTS AR
Slide 58: Thank you
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Slide 59: Appendix
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Slide 60: Macroeconomic scenarios – 31 March 2021
Macroeconomic scenarios – 31 March 2021 Base case Average 2021-2026 Downside 2 Downside 1 Financial year ending (%) 2021/2022 2022/2023 2023/2024 2024/2025 2025/2026 Upside Base case No-FTA L-shape Brexit GDP growth 12.2 3.5 1.9 1.6 1.6 5.4 4.2 1.3 0.9 UK Unemployment rate 6.1 4.8 4.2 4.2 4.2 4.3 4.
Slide 61: Living our purpose: to create enduring worth
Living our purpose: to create enduring worth, living in, not off, society Investec’s sustainability principles: Well positioned in ESG rankings and ratings • Creating long-term value for all our stakeholders • Do no harm: ethical conduct and ESG screening • Committed to a clean carbon transition • P
Slide 62: Focused on addressing climate change and inequality
Focused on addressing climate change and inequality Action taken in the past year • Achieved net-zero direct emissions for the second year as part of our commitment to ongoing carbon neutrality in our ENVIRONMENT Scope 1 and Scope 2 emissions. Took action to address climate issues • Received shareho
Slide 63: Digitalisation
Digitalisation Client engagement FOR OUR CLIENTS 01 • • Distinctive client digital experience for our Private Clients, Private Companies and Businesses, Intermediary clients, and Listed Companies In 2020 overall client logins increased by 30% during the year (app logins specifically increased 55%) W
Slide 64: Thank you
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