Investec plc · LSE:INVP
Investec — H1 FY2014 Earnings Presentation
33 slides from Investec's earnings presentation, Nov 21, 2013
Slide 1: Results Presentation
Results Presentation For the six months ended 30 I 09 I 2013 1
Slide 2: Proviso
Proviso o 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 the further development of standards and interpretations under IFRS applicable to past,
Slide 3: The six months in review
Out of the Ordinary® o Investec The six months in review Specialist Banking \ Asset Management \ Wealth & Investment
Slide 4: Improving operating environment
Improving operating environment … Equity markets Interest rates 130 8 JSE 7 120 6 ASX ZAR Rebased to 100 5 % FTSE 110 4 3 A$ Since Since Mar-13 Sep-12 100 JSE +10.5% +23.1% 2 ASX +4.8% +18.4% 1 £ FTSE +1.9% +14.8% U$ 90 0 Sep 12 Nov 12 Jan 13 Mar 13 May 13 Jul 13 Sep 13 Sep-12 Nov-12 Jan-13 Mar-13 M
Slide 5: But group results impacted by the Rand depreciation
… but group results impacted by the Rand depreciation Exchange rates 130 Since Since Mar-13 Sep-12 Rand +17.0% +22.3% 120 A$ +19.6% +11.8% 110 Rebased to 100 US$ +6.7% +0.2% 100 +1.2% -4.7% Euro 90 + depreciation - appreciation 80 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Rand/£ Euro/£ US$/£
Slide 6: Overall, diversified business model supported performance
Overall, diversified business model supported performance Operating profit* by Business Operating profit* by Geography o Asset Management D 6.8% o Strong performance from SA, D 35.6% in Rands o Wealth & Investment D 35.0% o UK behind prior year but significantly ahead of second half of 2013 o Specia
Slide 7: Key earnings drivers up on currency neutral basis
Key earnings drivers up on currency neutral basis Third party assets under management Customer accounts(deposits) and loans FUM down 3.6% to £106.7bn Customer accounts down 5.3% (up 2.6% currency neutral) (up 4.3% currency neutral) Core loans and advances down 5.6% (up 4.7% currency neutral) £’bn £’
Slide 8: Impairments down 28%
Impairments down 28% South Africa UK & Europe (ex Kensington) Australia R’bn £’bn A$’bn 160 5% 8.0 5% 4.0 12% 140 7.0 3.5 10% 4% 4% 120 6.0 3.0 8% 100 5.0 2.5 3% 3% 80 4.0 2.0 6% 2% 2% 60 3.0 1.5 4% 40 2.0 1.0 1% 1% 2% 20 1.0 0.5 0 0% - 0% 0.0 0% Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-08 Sep-
Slide 9: Jaws ratio
Jaws ratio Cost to income: 67.5% from 64.8% Narrowing jaws ratio Cost to income £’mn Asset Management 1200 Operating costs Operating income 100 % Sep-12 Sep-13 D 10% D 9% 80 65.0 65.7 Operating income down o Headcount up about 80 people 60 1000 2.5% to £941.8mn to support growth 10-yr CAGR of 12.1%
Slide 10: Good Rand performance
Good Rand performance Sep-13 Sep-12 % change Operating profit* before tax (R’mn) 3 394 2 982 13.8% Adjusted earnings^ (R’mn) 2 499 2 210 13.1% Adjusted EPS* (cents) 291 258 12.8% DPS (cents) 131 112 17.0% Net asset value per share (cents) 6 091 5 079 19.9% Net tangible asset value per share (cents)
Slide 11: Sterling performance negatively impacted by the weak Rand
Sterling performance negatively impacted by the weak Rand % change on stable Sep-13 Sep-12 % change currency basis** Operating profit* before tax (£’000) 222 818 228 070 (2.3%) 9.8% Attributable earnings ^(£’000) 164 121 167 043 (1.7%) 13.2% Adjusted EPS^ (pence) 19.1 19.5 (2.1%) 12.8% DPS (pence) 8
Slide 12: Financial targets
Financial targets Target Sep-13 Mar-13 Sep-12 (restated) ROE 12-16% over a rolling 5-yr period 10.0% 9.4% 10.2% Tangible ROE 12.4% 11.7% 12.7% Adjusted* EPS growth Target: 10% > UKRPI (2.1%) 13.2% (5.3%) Cost to income Target: < 65% 67.5% 65.7% 64.8% Dividend cover (times) Target: 1.7-3.5 times 2.4x
Slide 13: Divisional highlights
Specialist Banking \ Asset Management \ Wealth & Investment Out of the Ordinary® o Investec y -_ — Divisional highlights 13
Slide 14: Asset management
Asset management Overview of performance Financial summary (£) Sep-13 Sep-12 % change o Benefited from higher average assets under management Operating profit before minorities* 71.9 67.4 6.8% (mn) o Net inflows of £1.4bn Operating profit* (mn) Currency neutral 78.1 67.4 15.9% o Total assets under m
Slide 15: Wealth & Investment
Wealth & Investment Overview of performance Financial summary o Benefited from (£) Sep-13 Sep-12 % change o Higher average funds under management Operating profit* (mn) 30.8 22.9 35.0% o Total funds under management of £40.0bn Operating profit* (mn) Currency neutral 32.4 22.9 41.5% o Net inflows of
Slide 16: Specialist Banking
Specialist Banking Overview of performance Financial summary o SA benefited from an increase in corporate and property (£) Sep-13 Sep-12 % change fund fees and increased trading income. Unlisted private equity performed well and the professional finance Operating profit* (mn) 120.0 137.8 (12.9%) bus
Slide 17: Specialist Banking – Income down in Sterling but up in local currency
Specialist Banking – Income down in Sterling but up in local currency Investment and trading Net interest income Net fees and commissions income £’mn £’mn £’mn 400 200 300 Debt repurchases 300 150 200 200 100 100 100 50 0 0 0 17
Slide 18: Specialist Banking – Costs flat and impairments down
Specialist Banking – Costs flat and impairments down Costs Impairments £’mn £’mn 500 175 450 150 400 350 125 300 100 250 75 200 150 50 100 25 50 0 0 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 'Sep-13 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 'Sep-13 Currency Currency neutral neutral 18
Slide 19: Strategy and positioning
Specialist Banking \ Asset Management \ Wealth & Investment Out of the Ordinary® o Investec ee = Strategy and positioning 19
Slide 20: Key focus areas for driving future performance
Key focus areas for driving future performance o Sound franchise in place Asset Management o Remain focused on broadening the client base and generating net inflows o We have a strong foundation on which to grow o Focused on building critical mass in locations where we believe increasing our presenc
Slide 21: Specialist Banking – simplifying Australia
Specialist Banking – simplifying Australia Summary o A review has been conducted of the Australian Legacy book business A$’mn o A number of businesses were identified as being 1750 1 723 unlikely to make suitable profits or returns 1500 o Consequently, certain businesses have been closed 1250 which
Slide 22: UK Specialist Bank: What is the Legacy Business?
UK Specialist Bank: What is the Legacy Business? o Assets put on the bank’s books pre 2008 where market conditions post the financial crisis have materially impacted business model eg. Kensington Avg shareholders’ equity: o Assets written prior to 2008 with very low/negative margins £374mn (Mar-13:
Slide 23: UK Specialist Bank – Legacy vs Ongoing 31 Mar 2013
UK Specialist Bank – Legacy vs Ongoing 31 Mar 2013 31 Mar 2013 (restated) £'mn Ongoing business Legacy Total Total income 577.9 64.6 642.5 Total impairments (65.9) (105.3) (171.2) Total expenses (367.3) (45.5) (412.8) Depreciation on operating leased assets (16.1) - (16.1) Net profit before tax 128.
Slide 24: UK Specialist Bank – Legacy vs Ongoing 30 Sep 2013
UK Specialist Bank – Legacy vs Ongoing 30 Sep 2013 30 Sep 2013 £'mn Ongoing business Legacy Total Total income 262.0 11.0 273.0 Total impairments (11.4) (36.4) (47.8) Total expenses (174.6) (23.8) (198.4) Depreciation on operating leased assets (3.9) - (3.9) Net profit before tax 72.1 (49.2) 22.9 Ta
Slide 25: UK Specialist Bank: expected Legacy business run off rate
UK Specialist Bank: expected Legacy business run off rate Total net loans: Investec originated Total net loans: Kensington originated £’mn £’mn 5000 4 856 2500 4500 2 036 4000 2000 3500 Forecast Forecast 3000 1500 1 361 2 615 1 240 2500 1 131 2 170 1 032 1 802 1000 956 2000 877 1 443 1500 1 199 876
Slide 26: Capital under Basel III and CRD IV
Capital under Basel III and CRD IV o Based on our understanding of proposed regulations, we have adjusted our capital targets as follows: Core equity Tier 1 (Fully loaded) Above 10% by March 2016 Total Tier 1 Above 11% by March 2016 Total ratio Range remains between 14%-17% Leverage ratio Above 6% 2
Slide 27: Overall capital planning
Overall capital planning … o Our banking entities already meet our current 2016 target o Investec Limited and Investec plc will achieve target by 2016 or earlier through: o Retained earnings net of dividend o Managing down the legacy book o Migrating Investec Limited to the Advanced approach o Optim
Slide 28: Current ratios
Current ratios Investec Investec Investec Investec Australia Limited Bank plc Bank plc Bank Limited Limited Core equity tier 1 9.5% 10.1% 9.1% 11.1% 11.8% Core equity tier 1 (Fully loaded) 9.4% 10.0% 8.7% 10.7% 11.8% Tier 1 11.2% 10.7% 11.2% 11.1% 11.8% Total capital adequacy ratio 15.4% 15.2% 16.7%
Slide 29: Closing
Specialist Banking \ Asset Management \ Wealth & Investment Out of the Ordinary® o Investec ae Closing 29
Slide 30: We have a quality franchise
We have a quality franchise … Some of the recognition received: o Best Private Bank and Wealth Manager in SA (Financial Times Group Global Private Banking Awards, 2013) o Top Private Bank (Business Day Investors Monthly Award, 2013) o Top Private Banking and Wealth Management (Euromoney, 2013) o 2nd
Slide 31: With a balanced business model
With a balanced business model … £’mn Third party assets and 800 Net interest, investment Third party assets and advisory advisory and trading income £493mn £448mn Net interest income and investment and trading income 600 Net annuity fees and Net interest income of £318mn commissions of £361mn (34%
Slide 32: And sound platforms in place from which to grow
And sound platforms in place from which to grow o Over the past few years, we have spent a significant amount of time , energy and resources realigning the business model o We have a solid base from which we are growing our Asset Management business and our strategic focus is on long-term performanc
Slide 33: Closing
Closing o Whilst economic conditions remain mixed, the overall group is improving in shape and capability o Significant progress has been made in identifying and addressing the drag on overall performance o We will continue to realign the business model to position the business appropriately for fut