Investec Plc · LSE:INVP
Investec — H1 2021 Earnings Presentation
40 slides from Investec's earnings presentation, Nov 19, 2020
Slide 1: Interim Results Presentation
Interim Results Presentation 19 November 2020
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: ❑ changes in the political and/or economic environment that would materially affect the In
Slide 3: Agenda
Agenda 1. Overview ––Fani Overview FaniTiti, Titi,Joint ChiefGroup Chief Executive Officer Executive 2. Financial Review – Nishlan Samujh, Group Finance Director 3. Sustainability – Fani Titi 4. Closing and Q&A – Fani Titi 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. 4
Slide 5: COVID-19 Response update
COVID-19 Response update ▪ Staff in South Africa are beginning to return to the office. In the UK, staff continue to work from home given the second lockdown Our people ▪ Research and consideration underway of the future world of work post COVID-19 and the multiple remote working models available to
Slide 6: Overview
Overview 0 Difficult trading environment 1 Client franchises resilient, despite 2 Strong balance sheet with robust capital revenue headwinds and liquidity levels 3 Resilient loan book 4 Cost discipline 5 Continued execution of strategic plan 6
Slide 7: Six months under review characterised by sharp GDP contractions
Six months under review characterised by sharp GDP contractions…. mmmxm,l[l’ll’’l % (yoy) ▪ South Africa GDP contracted by an 4.0 unprecedented 51% quarter on quarter 3.0 (annualised) in the second quarter of 2020 (16% year on year), mainly due to COVID-19 2.0 induced lockdown Mean: 1.2% South Afric
Slide 8: .… and volatile markets
.… and volatile markets mmmxm,l[l’ll’’l JSE - LHS FTSE - RHS 6-month period under review 65,000 8,000 60,000 7,500 7,000 55,000 6,500 Markets 50,000 6,000 45,000 5,500 40,000 5,000 35,000 4,500 30,000 4,000 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 Ma
Slide 9: Impact of COVID-19 lockdowns on our private banking businesses
Impact of COVID-19 lockdowns on our private banking businesses ▪ Hard lockdown in Private Banking lending turnover since Mar 2020 ▪ Economic Point of Sale (POS) Transactions Value of new deals relative to March 2020 Value of card transactions relative to March 2020 levels South Africa resulted lockd
Slide 10: Continuing operations results highlights
Continuing operations results highlights Net Asset Value per share Adjusted operating profit Adjusted Earnings per share £142.5mn 11.2p 433.5p (Mar-20: 414.3p) (Sep-19: £276.3mn) (Sep-19: 22.4p) Up 9.3% annualised since March 48.4% behind prior period 50.0% behind prior period 2020 Return on Equity
Slide 11: Franchise performance offset by the impact of macro headwinds and market volatility
Franchise performance offset by the impact of macro headwinds and market volatility SA^ ▼45.6% (34.3% in ZAR) UK^ ▼53.9% Specialist Bank £’mn ROE 8.1% (1H 2020: 13.5%) ROE 2.8% (1H 2020: 7.5%) ▪ Lower interest rates ▪ Lending and transactional related 300 revenues impacted by lower client activity ▪
Slide 12: Agenda
Agenda 1. Overview – Fani Titi, Chief Executive 2. Financial Review––Nishlan Financial Review NishlanSamujh, Samujh, Group Group Finance Finance Director Director 3. Sustainability – Fani Titi 4. Closing and Q&A – Fani Titi 12
Slide 13: Diversified, quality revenue mix across geographies and businesses
Diversified, quality revenue mix across geographies and businesses Geography Division Sep-20 Sep-20 26% ▪ Operating income 40% down 24.0% to £729.0mn Operating 0.1% income 60% 74% UK and Other Southern Africa Wealth & Investment Group Investments Specialist Bank ▪ Adjusted 30% 26% operating profit*
Slide 14: Specialist Banking Southern Africa
Specialist Banking Southern Africa Performance reflects the recessionary economic backdrop and lower interest rate environment, costs were well managed ▪ Core loans reduced R’bn ▪ NII impacted by 300bps R’bn 1.6% to R284.4bn rate cut since Jan 2020 and 8 288.9 since Mar 2020 6.3 delayed liability re
Slide 15: Specialist Banking UK and Other
Specialist Banking UK and Other Recovery in equity capital markets fees and positive fair value adjustments were offset by lower lending fees and higher hedging costs £’bn ▪ NII declined 2.1% as ▪ Core loans £’mn 11.9 12.0 increased by 0.9% to average book growth was 12 400 347.1 £12.0bn since Mar o
Slide 16: Wealth & Investment South Africa
Wealth & Investment South Africa Market recovery, current and prior periods inflows and brokerage fee income supported modest revenue growth in Rands Funds Adjusted operating profit* Operating margin under management R’mn R’bn 280 40% 350 32.3% 32.8% 293 264 300 258 252 260 30% 250 227 212 203 169 1
Slide 17: Wealth & Investment UK & Other
Wealth & Investment UK & Other Net organic growth in FUM in the prior and current year offset by lower FUM at key billing dates and lower interest rates Funds Adjusted operating profit* Operating margin under management £’bn £’mn 40 37.6 18.8% 35 20% 18.6% 35 33.1 5.9 6.7 30 6.8 5.5 30.5 7.6 25 30 2
Slide 18: Group Investments
Group Investments Group Investments pillar consists of equity investments held outside the group’s banking activities £’mn Net fee and commission income IPF - NCI ▪ Lower IPF rental income as a result of COVID-19 12 Investment income ▪ Negative valuation adjustments on IPF ▼56.3% investment properti
Slide 19: Revenue analysis
Revenue analysis £'mn Operating income reduced 24.0% (17.8% in neutral currency) ▪ Net interest income reflective of lower interest rates, lag in liability 1,200 repricing following rate cuts and muted asset growth 1,000 959 ▪ Fee and commission income impacted by lower lending and transactional act
Slide 20: Earnings drivers
Earnings drivers £’bn 60 52.0 50 45.0 Third party 40 ▪ Third party FUM up 15.5% to £52.0bn (14.6% in neutral currency) funds 30 20 ▪ under Net inflows of £336mn 10 management 0 ▪ Recovery in market levels since 31 March 2020 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 Sep-20 Other Wealth & Inve
Slide 21: SA net core loan decline driven by corporate and other lending
SA net core loan decline driven by corporate and other lending R'bn FY 2020 1H 2021 100 HNW & Other Property Corporate & Other lending Private client lending - 80 80 - 67 SA net core loans and advances reduced 1.6%, driven by: ▼ 9% 60 54 ▲1% 50 ▪ Other corporates and Fund SA net core finance in Corp
Slide 22: Underpinned by Private Bank franchise which offset lower corporate advances
Underpinned by Private Bank franchise which offset lower corporate advances £'mn FY 2020 1H 2021 HNW & Other Property Corporate & Other lending Private client lending 3,000 ▲11%2,750 2,500 UK net core loans and advances up 0.9%, driven by: ▲2%1,992 ▼ 3% 2,000 1,903 ▼ 7% ▪ High net worth and 1,635 ot
Slide 23: Operating cost analysis
Operating cost analysis £’mn 1,200 75% 959 Cost to income ratio of 72.0% (1H 2020: 67.0%) 1,000 70% 72.0% 67.0% ▪ Operating income reduced 24.0% (17.8% in 800 729 623 65% neutral currency) Cost to 600 536 60% ▪ Operating costs reduced 14.0% (8.1% in neutral income 400 currency) 200 55% ▪ Heightened
Slide 24: ECL impairment charges increased year on year
ECL impairment charges increased year on year £'mn 180 160 ▪ ECL impairment charges of £66.0mn 140 (1H 2020: £31.0mn) 168 120 ▪ Annualised credit loss ratio of 0.47% (1H 2020: 0.23%, 2H 2020: 0.74%), 100 above through the cycle range of Total ECL 0.30% to 0.40% charge 80 102 ▪ Updated macroeconomic
Slide 25: Unpacking the credit loss ratio - SA
Unpacking the credit loss ratio - SA 0.6% 0.5% 0.4% Investec Ltd credit loss 0.3% 0.55% ratio 0.2% 0.35% ▪ Double the level reported in 1H 2020 and 0.1% in line with expectations 0.18% 0.0% ▪ Moderation in credit loss ratios relative to 1H 2020 2H 2020 1H 2021 the 2H 2020 ▪ Updated macroeconomic sce
Slide 26: 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% 0.2% 0.28% ▪ Credit loss ratio remains elevated 0.0% 1H 2020 2H 2020 1H 2021 ▪ Updated macroeconomic scenarios ▪ COVID-19 related stage 3 ECL charge £'mn and other unrelated specific impairments
Slide 27: Balance sheet provisions
Balance sheet provisions £’mn R’mn 200 5,000 4,000 Investec plc 150 Investec Ltd 107 ▼14.0% 92 3,000 balance 100 balance 1,880 ▲ 23.6% 2,323 sheet ECL ▲ 45.2% 45 sheet ECL 2,000 ▲ 2.8% 435 50 31 423 provision ▼10.8% provision 1,000 1,057 ▲ 11.9% 1,183 37 33 0- 0- FY 2020 1H 2021 FY 2020 1H 2021 Stag
Slide 28: Stage 2 and 3 loans and advances subject to ECL
Stage 2 and 3 loans and advances subject to ECL 5.1% 11.5% as % of core loans 3.3% 3.0% £ mn 1,600 1341 1,400 Investec plc 1,200 ▪ The increase in Investec plc Stage 2 1,000 exposures was driven by model-driven core loans 800 576 migrations from updated by Stage 600 379 345 macroeconomic scenarios 4
Slide 29: Divisional ROE
Divisional ROE Continuing Specialist Bank Wealth & Investment* Group Investments Group Costs operations 5.3% 15.2% 71.2% ROE n.m. 9.1% 8.1% 18.2% 0.7% 2.8% 0.9% SA UK & Other SA UK & Other SA UK & Other SA Total UK Total Average allocated equity Average allocated equity Average allocated equity Aver
Slide 30: Divisional ROTE
Divisional ROTE Group Continuing Specialist Bank Wealth & Investment Group Investments Costs operations 5.8% 76.1% ROTE 15.2% n.m. 9.2% 45.1% 8.1% 3.3% 0.8% 0.9% SA UK & Other SA UK & Other SA UK & Other SA Total UK Total Average allocated tangible Average allocated tangible Average allocated tangib
Slide 31: Robust capital and liquidity position
Robust capital and liquidity position Capital summary Leverage ratio as 7.8% 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% 10.7% ▪ Investec Limited’s application for conversion to AIRB* is under review
Slide 32: Financial outlook to year end
Financial outlook to year end ▪ Client activity expected to recover from 1H 2021 levels ▪ Net interest margin expected to improve notwithstanding the low interest rate environment ▪ Non-interest income expected to improve relative to first half and result in early double-digit decline for the full y
Slide 33: Agenda
Agenda 1. Overview – Fani Titi, Chief Executive 2. Financial Review – Nishlan Samujh, Group Finance Director 3. 2. Sustainability 3. Sustainability–– Fani Fani Titi 4. Closing and Q&A – Fani Titi 33
Slide 34: Integrating the Sustainable Development Goals (SDG) into business strategy
Integrating the Sustainable Development Goals (SDG) into business strategy Creating financial and social value in a sustainable way that ensures a low-carbon, inclusive world Investec’s sustainability framework is based Investec SDG priorities on: ▪ Living sustainably within our operations Core prio
Slide 35: Focused on addressing climate change and inequality
Focused on addressing climate change and inequality Action taken in the past six months Well positioned in ESG rankings and ratings Published our first stand alone TCFD report in line with our commitment to climate disclosures Shareholders voted 99.95% in favour of our climate-related resolution at
Slide 36: Agenda
Agenda 1. Overview – Fani Titi, Chief Executive 2. Financial Review – Nishlan Samujh, Group Finance Director 3. Sustainability – Fani Titi 3. 4. Closing 4. Q&A- –Fani andQ&A Closing and Fani Titi 36
Slide 37: Resilient balance sheet, positioning the business for the long term
Resilient balance sheet, positioning the business for the long term Expect to substantially complete our simplification process by the end of the financial year Capital optimisation ▪ Concluded sale of the IAPF management company this week, ▪ Rightsizing the direct equity investment portfolio in lin
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Slide 39: Appendix
@ Investec Appendix
Slide 40: Macroeconomic scenarios – 30 September 2020
Macroeconomic scenarios – 30 September 2020 Base case Average 2020-2025 Downside 2 Financial year ending Downside 1 2021 2022 2023 2024 Upside Base case No-FTA (%) L-shape Brexit GDP growth (8.7) 6.7 1.5 1.6 2.1 0.7 (1.7) (1.0) UK Unemployment rate 6.1 6.7 5.5 4.5 3.9 5.4 7.7 7.5 House price growth