Investec Plc · LSE:INVP
Investec — Investor Presentation (October 2014)
42 slides from Investec's investor presentation, October 2014
Slide 1: ream ea re
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Slide 2: An overview of Investec
© Investec 2014 remem An overview of Investec
Slide 3: About Investec
About Investec Summary • Established in 1974 Mission “We strive to be a DISTINCTIVE SPECIALIST BANK AND ASSET • Today, efficient integrated MANAGER driven by commitment to our core philosophies and international business platform values” employing over 8 300 people • Three principal regions: − South
Slide 4: Three distinct businesses focused on well defined target clients
Three distinct businesses focused on well defined target clients Operating profit before tax* 100 ASSET MANAGEMENT Corporate / Institutional / • Investment management services 90 Government 80 70 SPECIALIST BANKING 60 Specialist Banking • Advisory • Transactional banking 50 • Lending • Treasury and
Slide 5: Key earnings drivers
Key earnings drivers Third party assets under management Customer accounts (deposits) and loans £’bn £’bn 140 30 120% Down 7.6% 120 Down 6.8% 25 100% 100 20 80% 80 15 60% 60 10 40% 40 5 20% 20 - - 0% Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Aug-14 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Aug-14 Cu
Slide 6: Stable capital and low leverage
Stable capital and low leverage Capital position Gearing ratios times Expected 16 31 Mar 30 Sep 31 Mar 13.8 30 Sep 2014 2013 2013 14 13.0 2014 12.2 12.5 11.3 11.3 11.6 12 Investec plc 10.3 Total 16.0% 15.3% 16.7% 16.7% 10 Core Tier 1 9.3% 8.8% 9.1% 8.8% 8 Tier 1 11.2% 10.5% 11.2% 11.0% 5.8 6.2 5.5 5
Slide 7: Resulting in a balanced business model
Resulting in a balanced business model BUSINESS MODEL - 2014 £’mn Net interest, investment and Third party assets and advisory 1,400 trading income £1 008mn 1,200 £933mn 1,000 Net annuity fees and commissions 800 Net interest income of £652mn of £720mn (34% of total) (37% of total) 600 400 Investmen
Slide 8: Investec DLC: Salient features
Investec DLC: Salient features 31 Mar 2014 31 Mar 2013 % Change Operating profit* before tax (£’000) 451 817 426 278 6.0% Core loans to customer deposits 72.0% 71.5% - Credit loss ratio 0.68% 0.84% - Adjusted EPS* (pence) 38.0 36.1 5.3% Cost to income ratio 67.5% 65.7% - Return on average adjusted s
Slide 9: Update given to the market on September 2014
Update given to the market on 19 September 2014 • Over the past year we have focused on simplifying and reshaping our specialist banking business with a view to improving returns and have successfully restructured and/or sold certain businesses • Sale of the Trust businesses • Sale of the Australian
Slide 10: An overview of the South African (SA) economy
An overview of the South African (SA) economy
Slide 11: Snapshot of SA
Snapshot of SA SA in context Rating agency and market views • Population: 53.0mn • Real GDP: US$ 308.7bn (R3,312.3bn) Long-term Foreign Long-term Foreign Long-term Foreign Currency Debt Currency Debt Currency Debt Baa1 BBB- BBB Negative Stable Negative Contribution to SA’s GDP Long-term Domestic Lon
Slide 12: Its been a difficult year for SA
Its been a difficult year for SA Slow economic growth • Economic growth dropped to 1.9% in 2013 and is expected to be 1.5% in 2014. Gross domestic product growth % change y/y 8.0 5.0 2.0 -1.0 -4.0 -7.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 q/q (seasonally adjusted, annualised) y/y Source
Slide 13: Its been a difficult year for SA
Its been a difficult year for SA Exacerbated by the prolonged strike action and inadequate energy supply • “On the home front, economic activity contracted in the first quarter of 2014, mainly driven by production losses in the mining and manufacturing sectors... Unlike in preceding years, the slowd
Slide 14: Its been a difficult year for SA
Its been a difficult year for SA Impacting consumer spending and unsecured lending • “Consumption expenditure for households also continued its moderating trend… reflects continued sluggish growth in mortgage credit extension and tighter credit criteria for unsecured lending in particular.” Gill Mar
Slide 15: Its been a difficult year for SA
Its been a difficult year for SA Service delivery challenges by local government and some inefficiencies in the public sector • Strike action on service delivery has been due partly to some instances of poor quality and incomplete rollout, and partly as a result of disappointment that not all areas
Slide 16: Its been a difficult year for SA
Its been a difficult year for SA Current account deficit persists and budget deficit requires economic growth above 3% to improve • The current account deficit persists with exports yet to respond to weak currency. • SA’s largest import is oil, followed by capital equipment and components. SA budget
Slide 17: Its been a difficult year for SA
Its been a difficult year for SA At the same time, Fed tapering resulted in emerging market outflows causing a sharp depreciation of the Rand • SA’s exchange rate has weakened amid nonresident portfolio capital outflows. Rand exchange rate and capital outflows Cumulative portfolio flows into emergin
Slide 18: Its been a difficult year for SA
Its been a difficult year for SA Pushing inflation into the upper end of the target range and causing a moderate rise in interest rates • CPI inflation rose above the 6.0% upper limit of the target earlier this year but CPI inflation should fall back toward 6.0% in the second half of the year. Subdu
Slide 19: However ...
However … There are a number of areas of strength and opportunity 1. Key investment highlights 2. Sound fiscal and monetary policy 3. First phase of implementation of the NDP via the MTSF (Medium Term Strategic Framework) 4. Sound financial sector and capable private sector 5. Growth of Sub-Saharan
Slide 20: Key investment highlights
Key investment highlights Prudent fiscal management, a flexible Government has adopted the National exchange rate and an effective inflation Development Plan as the framework for economic and social transformation targeting regime Major strengths are the services Expenditure ceiling has been maintai
Slide 21: Prudent fiscal policy
Prudent fiscal policy Borrowing only for infrastructure Strengths highlighted by IMF Real main budget non-interest expenditure growth Highly transparent process 16 • High quality budget documents, with extensive and detailed information on 13.5 14 national and sub-national government finances 12.1 1
Slide 22: Sound monetary policy
Sound monetary policy Monetary policy has begun gradual normalisation Lesetja Kganyago, appointed as South Africa’s 10th Reserve Bank governor, has pledged to continue the policy path of predecessor Gill Marcus and pursue price and financial stability. “It is a continuum that we have seen since Ms.
Slide 23: First phase of implementation of NDP
First phase of implementation of NDP Via the Medium Term Strategic Framework (MTSF) • The NDP is the over-arching plan for the country and has been adopted by government, business and civil society alike. • The MTSF is Government’s strategic plan for the 2014-2019 electoral term and reflects the com
Slide 24: Effective implementation of the MTSF
Effective implementation of the MTSF Emphasising the development of infrastructure Public-sector infrastructure expenditure • SA has a solid transport infrastructure. 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 • However, gaps in information and communications technologies and electricit
Slide 25: Effective implementation of the MTSF
Effective implementation of the MTSF Significantly increasing exports … … to reduce the current account deficit • Implement National Tourism Strategy and review impact regularly. • Increasing the number of foreign visitor arrivals to more than 44mn annually by 2017 and increasing the contribution of
Slide 26: Effective implementation of the MTSF
Effective implementation of the MTSF Improving service delivery “Local government needs to go ‘Back to Basics’ in order to improve on the delivery of services to citizens.” Cooperative Governance and Traditional Affairs Minister, Pravin Gordhan September 2014 The ‘Back to Basics’ Strategy is about:
Slide 27: Effective implementation of the MTSF
Effective implementation of the MTSF Improving the quality of SA’s public education • 22.8% are achieving a quality education. • Independent private schools have grown from 518 in 1994 to some 2,500 today. • 48.3% are achieving a medium education. Education: District performance and poverty levels S
Slide 28: Capable private sector
Capable private sector SA has a developed corporate sector 1st Strength of auditing and reporting standards 1st Regulation of securities exchange 2nd Protection of borrowers/lenders legal rights and of minority shareholders interests 3rd Efficacy of corporate boards 3rd Financing through local equit
Slide 29: Capable private sector
Capable private sector And a sound financial sector • Less than 15% of global banks are rated higher than SA banks on Baseline Credit Assessment. Weighted average local currency long-term bank deposit ratings among Global distribution of Baseline Credit Assessment (BCA) the BRICS countries Aa3 14% A
Slide 30: Capable private sector
Capable private sector Ease of doing business in SA SA’s total ranking SA vs Sub-Saharan Africa SA vs BRICS (out of 189 economies) 10 Protecting investors Protecting investors 26 Dealing with Dealing with construction construction permits permits 106 Trading across Trading across borders borders 24
Slide 31: Capable private sector
Capable private sector Private sector opportunities in the Power Sector … … to provide an additional energy source for the economy • The Integrated Resource plan for electricity (2010– 2030) is a blueprint for the energy mix that SA desires for the power sector in the period from 2010 to 2030. • Thi
Slide 32: Growth in Africa
Growth in Africa Provides strong growth opportunities for SA • GDP growth of Sub-Saharan Africa is expected average over 5.5% between 2013 - 2018. Heat map of expected GDP growth for 2014 “Growth in Sub-Saharan Africa remains robust and is expected to accelerate in 2014” IMF, April 2014 Less than 0
Slide 33: Growth in Africa
Growth in Africa Corporate SA has invested some US$18bn in Africa • SA companies across most industries are increasing their footprint on the African continent. Source: Investec Asset Management, September 2014 33
Slide 34: Growth in Africa
Growth in Africa Supports many domestic market segments Retail Private healthcare Private education Tourism Property 34
Slide 35: Conclusion
Conclusion • The SA economy is currently underperforming its SA’s Purchasing Managers Index (PMI) potential. Whilst there are many challenges, strategic level plans have been adopted and we are starting to 56 (50 = no change on previous month) Increasing rate of growth see execution of these plans b
Slide 36: Appendix
© Investec 2014 remem Appendix
Slide 37: Forecasts
Forecasts Expected case forecasts, real % growth y/y 2012 2013 2014 2015 2016 2017 2018 GDP (%) 2.5 1.9 1.6 2.9 3.0 3.5 3.8 HCE (%) 3.5 2.6 2.1 2.8 2.9 3.4 3.7 GCE (%) 4.0 2.4 2.2 2.4 2.5 2.9 2.9 GFCF (%) 4.4 4.7 3.2 4.9 5.4 6.0 6.1 Real change in inventories (R’bn) 9.9 1.3 -5.1 10.4 10.7 11.1 11.5
Slide 38: National Development Plan overview
National Development Plan overivew The NDP was established in 2011 in a bid to eliminate poverty and reduce inequality in South Africa by 2030. Some of its key policy objectives are: Jobs Infrastructure Poverty and Social Wages Health • Target: to create 11 million new • Public sector investment to
Slide 39: Investec DLC: Salient financial features
Investec DLC: Salient financial features Investec group consolidated results 31 March 2014 31 March 2013 % change Income statement Adjusted earnings attributable to ordinary shareholders before goodwill, acquired intangibles and non-operating items (£'000) 327,824 309,310 6.0% Operating profit* (£'0
Slide 40: Investec DLC: Summary income statement
Investec DLC: Summary income statement £'000 31 March 2014 31 March 2013* Interest income 1,905,383 2,132,715 Interest expense (1,253,704) (1,429,108) Net interest income 651,679 703,607 Fee and commission income 1,136,902 1,110,398 Fee and commission expense (147,481) (143,578) Investment income 16
Slide 41: Investec DLC: Summary balance sheet
Investec DLC: Summary balance sheet £'000 31 March 2014 31 March 2013* 31 March 2012* Assets Cash and balances at central banks 2,080,190 1,782,447 2,593,851 Loans and advances to banks 3,280,179 3,136,051 2,725,471 Non-sovereign and non-bank cash placements 515,189 420,960 642,480 Reverse repurchas
Slide 42: For further information:
For further information: Refer to the investor relations website www.investec.com/en_za/#home/investor_relations.html Or contact the Investor Relations team: Telephone UK: +44 (0) 207 597 5546 SA: +27 (0)11 286 7070 Fax: +27 11 (0) 291 1597 E-mail: investorrelations@investec.com