results presentation2014/09/30 · reasonable operating environment source: datastream exchange...
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Results presentation For the six months ended 30 September 2014
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, current and future periods
oevolving practices with regard to the interpretation and application of standards under IFRS
odomestic and global economic and business conditions
omarket related trends
o A number of these factors are beyond the group’s control
o These factors may cause the group’s actual future results, performance or achievements in markets in which it operates to differ from those expressed or implied
o Any forward looking statements made are based on knowledge of the group at 20 November 2014
2
o We have successfully executed on our strategy to sell certain non-core or non-performing businesses
o We had good net inflows in the Wealth & Investments and Asset Management businesses
o The UK Corporate and Institutional Banking business performed well
o The South African business had a solid performance in Rand terms
Highlights for the six month period
3
The six months in review
Reasonable operating environment
Equity markets Interest rates (3 month interbank)
Positive equity market performance with interest rates up in SA, flat in UK and US, and down in Euro
0
1
2
3
4
5
6
7
Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14
%
SA
UK
Euro US
80
85
90
95
100
105
110
115
120
Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14
Reb
ased
to 1
00
Since Mar-14
Since Sep-13
JSE 3.3% 12.0%
FTSE -0.6% 2.6%
Euro 2.0% 11.5%
DJIND 3.6% 12.6%
5
6
Reasonable operating environment
Source: Datastream
Exchange rates
Results still impacted by the depreciation of the average Rand: Pounds Sterling exchange rate of 19% over the period
80
95
110
125
140
Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14
Reb
ased
to 1
00
Since Mar-14
Since Sep-13
£ / ZAR +4.4% +12.5%
£ / A$ +2.8% +6.9%
£ / Euro +5.8% +6.7%
£ / US$ -3.0% 0%
+ depreciation - appreciation
Diversified business model
0
10
20
30
40
50
60
70
80
90
100
Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14
SA & Other
UK, Europe, Australia & Other
Operating profit* % contribution to group by geography
*Before goodwill, acquired intangibles, non-operating items, taxation and after other non-controlling interests
0
10
20
30
40
50
60
70
80
90
100
Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14
Specialist Banking
Wealth & Investment
Asset Management
Operating profit* % contribution to group by business
Geographic diversity Operating income
47.6%
o Asset Management ∆ 6.6%
o Wealth & Investment ∆ 23.3%
o Specialist Banking ∆ 6.0%
o SA: ∆ 21.5% in Rands o UK and Other: ∆ 17.6% in Pounds
7
52.4%
Supporting generation of annuity revenue of 77%
Continued growth in key earnings drivers
Third party assets under management Customer accounts (deposits) and loans
-
20
40
60
80
100
120
140
Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Sept-14 Sept 14
£’bn
Asset Management
Wealth & Investment
Other
0%
20%
40%
60%
80%
100%
120%
-
5
10
15
20
25
30
Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Sept-14 Sept-14
£’bn
Customer accounts
Core loans and advances to customers
Loans and advances to customer deposits
Up 5.6% Up 6.3%
Up 5.3%
Up 6.9% Customer accounts
Core loans and advances
Customer accounts Core loans and advances Down 6.8%
Down 1.6% Down 6.9%
Adjusted* Currency neutral
8 *Adjusted for the sale of Investec Bank (Australia) Limited and Kensington
Impairments continue downward trend
Impairment analysis by geography
*A negative number represents a recovery.
-20
0
20
40
60
80
100
120
140
160
Sep-07* Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14
£’mn
South Africa UK and Europe
9
Costs up in certain performing businesses
34.3 34.7 35.7
0
10
20
30
40
50 % Sep-13 Mar-14 Sep-14
Asset Management
Operating margin
o Headcount up 50 people to support growth
o Investment in distribution platforms
22.4 22.9 24.9
0
8
15
23
30
% Sep-13 Mar-14 14-Sep
66.0 66.0 67.2
0
20
40
60
80
100 % Sep-13 Mar-14 Sep-14
Wealth & Investment
Specialist Bank
o Headcount up 95 people o Investment in IT, online
infrastructure and additional experienced portfolio managers
o Headcount down 72 people
Operating margin
Cost to income
Operating costs ∆ 0.2%
Operating income ∆ 2.4%
Operating costs ∆ 7.4%
Operating income ∆ 11.0%
Operating costs ∇ 0.1%
Operating income ∇ 1.6%
Jaws ratio Cost to income / Operating margin
0
200
400
600
800
1000
1200 £’mn
Operating costs (excl. depreciation) up 1.9% to £632mn
Operating income up 1.1% to £952mn
10
11
Resulting in an improved group performance
Sep-14 Sep-13 % change % change on currency
neutral basis^^
Operating profit* before tax (£’000) 240 769 221 677 8.6% 21.8%
Adjusted attributable earnings** ^(£’000) 169 065 163 220 3.6% 16.4%
Adjusted EPS**^(pence) 19.7 19.0 3.7% 16.3%
DPS (pence) 8.5 8.0 6.3% N/A
Sep-14 Mar-14 % change % change on currency
neutral basis^^
Net asset value per share (pence) 357.7 376.0 (4.9%) (3.4%)
Net tangible asset value per share (pence) 299.4 309.0 (3.1%) (1.3%)
*Before goodwill, acquired intangibles, non-operating items and after other non-controlling interests; **Before goodwill, acquired intangibles, non-operating items, taxation and after non-controlling interests; ^ After deducting preference dividends; ^^Amounts represented on a currency neutral basis assume that the closing and average exchange rates of the group’s relevant exchange rates relative to Pounds Sterling remain the same as at 30 Sep 2014 when compared to 31 March 2014 and 30 Sep 2013, respectively
Negatively impacted by the Rand
12
Strong Rand performance – up 27%
Sep-14 Sep-13 % change
Operating profit* before taxation (R’mn) 4 286 3 376 26.9%
Adjusted attributable earnings**^ (R’mn) 3 002 2 486 20.8%
Adjusted EPS* (cents) 350 289 21.1%
DPS (cents) 146 131 11.5%
Sep-14 Mar-14 % change
Net asset value per share (cents) 6 557 6 603 (0.7%)
*Before goodwill, acquired intangibles, non-operating items and after other non-controlling interests; **Before goodwill, acquired intangibles, non-operating items, taxation and after non-controlling interests; ^After deducting preference dividends
0
1000
2000
3000
4000
Sep-09 Sep-10 Sep-11 Sep-12 Sep13 Sep-14
R’mn
Strong recovery post the crisis in Rand operating profit
13
Progress made on our financial targets
Target Sep-14 Mar-14 Sep-13
ROE 12-16% 10.7% 10.0% 10.0%
Tangible ROE 12.9% 12.3% 12.3%
Adjusted* EPS growth Target: 10% > UKRPI 3.7% 5.3% (2.6%)
Cost to income Target: < 65% 67.8% 67.6% 67.7%
Dividend cover (times) Target: 1.7-3.5 times 2.3x 2.0x 2.4x
Note: These are medium to long-term targets which we aim to achieve through varying market conditions *Adjusted EPS is before goodwill, acquired intangibles and non-operating items, taxation and after non-controlling interests and after deducting preference dividends
16.3% Currency neutral
14
Sound capital position
7.4%
7.4%
7.8%
7.9%
7.6%
8.1%
8.2%
8.4%
0% 4% 8% 12%
Investec plc
Investec Bank plc
Investec Limited
Investec Bank Limited
Sep-14
Mar-14
8.8%
11.0%
9.4%
10.3%
9.5%
12.7%
9.5%
10.7%
0% 4% 8% 12% 16% 20%
Investec plc
Investec Bank plc
Investec Limited
Investec Bank Limited
Sep-14
Mar-14
15.3%
16.0%
14.9%
15.3%
16.4%
17.9%
15.0%
15.6%
0% 4% 8% 12% 16% 20%
Investec plc
Investec Bank plc
Investec Limited
Investec Bank Limited
Sep-14
Mar-14
Capital adequacy Tier 1
Note: The estimated ‘fully loaded’ capital and leverage ratios are based on the group’s understanding of current and draft regulation which apply in the respective geographies. ‘Fully loaded” is based on Basel III capital requirements as fully phased in by 2022.
10.5%
11.0%
11.0%
10.8%
11.4%
12.7%
11.2%
11.2%
0% 4% 8% 12% 16%
Investec plc
Investec Bank plc
Investec Limited
Investec Bank Limited
Sep-14
Mar-14
Sep-14 Fully loaded
8.0%
7.2%
8.1%
6.4%
Sep-14 Fully loaded
10.6%
9.4%
12.7%
9.6%
Leverage ratios Common equity tier 1
18.8% pro forma
13.2% pro forma
11.0% pro forma
8.7% pro forma
Divisional highlights
Asset Management
o Benefited from higher average assets under management
o Net inflows of £2.7bn
o Total assets under management of £71.7bn
o Business remains stable and momentum is positive o Priorities are to deepen and widen our investment
strategies and to focus on further diversifying the client base, including expanding our range of private market strategies and increasing market penetration
*Before goodwill, acquired intangibles, non-operating items, taxation and before non-controlling interests **Return on adjusted shareholders’ equity (including goodwill)
(%)
43
29
17
5 6
Mar-14 44
29
17
4 6
Sep-14
Equities
Fixed income
Multi-asset
Alternatives
Third party funds on advisory platform
(£) Sep-14 Sep-13 % change
Operating profit* (mn) 76.7 71.9 6.6%
Operating profit* (mn) 84.1 71.9 16.9%
Operating margin 35.7% 34.3%
ROE (pre-tax)** 92.8% 94.4%
ROE tangible (pre-tax) 244.2% 332.8%
(£’bn) Sep-14 Mar-14 % change
Assets under management 71.7 68.0 5.5%
Currency neutral
Overview of performance Financial summary
Outlook Assets under management by asset class
16
Wealth & Investment
o Benefited from
o Higher average funds under management
o Total funds under management of £43.7bn
o Net inflows of £1.5bn
o Improved operating margins
o UK business has benefited from investment in platforms and additional professional investment managers
o The SA business continues to leverage off the division’s global investment platform and the group’s integrated private client offering (One Place)
o Whilst we expect the second half to be a more challenging period, our business model has shown its resilience against difficult trading conditions in the past
o We remain confident that our strategy will deliver the continuing success of the business over the medium and longer term
*Before goodwill, acquired intangibles, non-operating items, taxation and after other non-controlling interests **Return on adjusted shareholders’ equity (including goodwill)
0
10
20
30
40
50
Mar-14 Sep-14
£’bn
Europe - Non-discretionary
Europe - Discretionary
SA - Non-discretionary
SA - Discretionary
(£) Sep-14 Sep-13 % change
Operating profit* (mn) 38.0 30.8 23.3%
Operating profit* (mn) 40.0 30.8 29.3%
Operating margin 24.9% 22.4%
ROE (pre-tax)** 20.6% 16.0%
ROE tangible (pre-tax) 112.8% 181.4%
Sep-14 Mar-14 %
change
Europe FUM (£’bn) 28.2 27.0 4.5%
SA FUM (R’bn) 284.7 255.9 11.2%
41.5 43.7
Currency neutral
Overview of performance Financial summary
Outlook Assets under management by asset class
17
Specialist Banking
o Highlights for SA o All businesses performed well o Good growth in net interest income, investment income and
net fee and commission income
o Highlights for the UK o Cost of funding improved o Strong performance from corporate and institutional banking
business o Strong growth in corporate fees, particularly in the corporate
finance and corporate treasury teams o Good performance from the UK investment portfolio but weak
performance from the Hong Kong investment portfolio
(£) Sep-14 Sep-13 % change
Operating profit* (mn) 126.1 118.9 6.0%
Operating profit* (mn) 146.0 118.9 22.8%
Cost to income 67.2% 66.0%
ROE (pre-tax)** 9.8% 8.8%
ROE tangible (pre-tax) 10.0% 9.2%
o The focus on cleaning up legacy is likely to see further costs and impairments
o However, we are making good progress in penetrating our target client base and we expect the core bank to continue to grow
0
10
20
30
40
Mar-14 Sep-14
£’bn
*Before goodwill, acquired intangibles, non-operating items, taxation and after other non-controlling interests **Return on adjusted shareholders’ equity (including goodwill)
0
10
20
30
40
Mar-14 Sep-14
£’bn
Net core loans and advances Total deposits
SA
17.2 SA
UK UK
AU AU 22.6
Currency neutral
16.0 22.3
Overview of performance Financial summary
Outlook Loans and deposits
18
Specialist Banking – Drivers
0
100
200
300
400
Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 'Sep-14
£’mn
0
50
100
150
200
Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 'Sep-14
£’mn
0
100
200
300
Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 'Sep-14
£’mn
Net interest income Net fees and commissions Investment and trading income
UK
311.5
357.2
146.5
182.6
129.7
94.9
19
UK
SA
SA
currency neutral
UK UK
SA
SA
currency neutral
UK UK
SA SA
currency neutral
326.6
UK
SA
UK
SA
168.2
UK
SA 85.9
Specialist Banking – Costs up in neutral currency* and impairments down
0
25
50
75
100
125
150
175
Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 'Sep-14
£’mn
0
100
200
300
400
500
Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 'Sep-14
£’mn
Costs Impairments
393.5 393.1
83.1
66.4
20
422.8
69.8
currency neutral
currency neutral
*Mainly in variable remuneration
1 511 1 151
864 583
136
62
60
56
3 209
1 402
1 261
1 121
0
1000
2000
3000
4000
5000
Mar-08 Mar-13 Mar-14 Sep-14 Other corporate assets and securitisation activities
Private Bank Irish planning and development assets
Other Private Bank assets
£’mn
2 185
2 615
4 856
1798 1433
387
327
Mar-14 Sep-14 Performing
Non-performing
2 185
Total net assets: Investec originated
Dealing with the UK Legacy Business Specialist Banking
1 760 1 760
21
UK Legacy Business – Legacy vs Ongoing 30 Sep 2014 Specialist Banking
30 Sep 2014 £'mn Ongoing Legacy Total
Total income 259.7 16.7 276.4
Total impairments 3.9 (47.6) (43.7)
Total expenses* (179.4) (21.1) (200.5)
Depreciation on operating leased assets (0.9) (0.2) (1.1)
Net profit before tax 83.3 (52.2) 31.1
Taxation (using total effective tax rate for UK at 20.6%) (17.2) 10.8 (6.4)
Net profit after tax 66.1 (41.4) 24.7
Non-controlling interests 5.6 - 5.6
Attributable earnings before preference dividends 71.7 (41.4) 30.3
Average shareholders' equity (£'mn) 839 279 1 118
Post-tax return on equity (before preference dividends) 17.1% (29.7%) 5.4%
Cost to income ratio 69.3% >100.0% 72.8%
22 *Excludes £18.7mn of group costs that have been fully allocated to the UK Specialist Bank
0
1000
2000
3000
4000
5000
6000
7000
8000
Mar-08 Mar-13 Mar-14 Sep-14 Mar-15 Mar-16 Mar-17 Mar-18
£’mn
Other corporate assets and securitisation activities
Private Bank Irish planning and development assets
Other Private Bank assets
Kensington - UK warehouse loans
Kensington - Ireland
3 976
3 427
1 760
1 055 760
477
6 892
Total net loans: Investec and Kensington Total net loans: Investec only
UK Legacy Business – Expected run off rate
Expected run off
Specialist Banking
1 446
0
1000
2000
3000
4000
5000
6000
7000
8000
Mar-08 Mar-13 Mar-14 Sep-14 Mar-15 Mar-16 Mar-17 Mar-18
£’mn
Other corporate assets and securitisation activities
Private Bank Irish planning and development assets
Other Private Bank assets
2 615 2 185
1 760
1 055 760
477
4 856
Expected run off
1 446
23
Strategy and positioning
Today
-
10
20
30
40
50
60
70
80
90
Mar-05 Mar-07 Mar-09 Mar-11 Mar-13 Sep-14
£’bn
Mar-09 Sep-14 % change
SA (R’bn) 213.5 468.6 119.5%
UK and Other (£’bn) 13.1 46.2 252.3%
25
o Investment performance is always the priority o Capture the multi-asset opportunity o Develop additional global equity (including emerging
market) strategies o Simplify our proposition to the South African market o Invest in our advisor business globally o Continue to nurture growth opportunities (e.g. building
scale in private markets) o Cost and headcount control
Strategic focus Assets under management
Sep-14 currency neutral
… to grow the Asset Management business Executing our strategy …
-
10
20
30
40
50
60
Mar-05 Mar-07 Mar-09 Mar-11 Mar-13 Sep-14
£’bn
Mar-09 Sep-14 % change
SA (R’bn) 106.9 284.7 166.3%
UK and Other (£’bn) 11.7 28.2 141.0%
26
o Advancing our digital strategy to meet the changing needs of our current and future clients
o Offer our existing and potential clients the choice of three platforms in separate jurisdictions within Europe in which their investments can be held
o Explore opportunities to achieve a greater international reach
Strategic focus Funds under management
Sep-14 currency neutral
Top Stockbroker for the Sophisticated Exec
2013
o We expanded our wealth business and consolidated into a single business globally through the acquisition of Williams De Broe, NCB and the balance of Rensburg Sheppards
… to grow the Wealth & Investment business Executing our strategy …
o We have made progress in dealing with Legacy issues and have successfully restructured and/or sold certain businesses with a view to improving returns:
o Sale of the Trust businesses
o Sale of the Australian Professional Finance and Asset Finance and Leasing businesses and deposit book to Bank of Queensland Limited at a premium to tangible net asset value – effective 31 Jul 2014
o Sale of the UK Kensington business to funds managed by Blackstone Tactical Opportunities Advisors L.L.C and TPG Special Situations Partners – still subject to approval
o Sale of the Start mortgage business in Ireland to an affiliate of Lone Star – approved and expected to be completed early Dec 2014
27
… to simplify the Specialist Banking business model Executing our strategy …
Supporting our entrepreneurial endeavours and providing appropriate RETURNS to shareholders
+
28
CLIENT FRANCHISE BUSINESSES
Private Banking
Corporate Banking and Advisory
Wealth & Investment
Asset Management
SPECIALIST ACTIVITIES
Aircraft Finance Asset Finance
Project Finance Resource Finance
Private Equity Property
By building very STRONG RELATIONSHIPS with our core client base so we can offer them a broad spectrum
of services and products
Executing our strategy … … to build client franchise businesses and leverage our extensive client base
29
Net annuity fees and commissions of £402mn
(42% of total)
Other fees and other income of £130mn
(14% of total)
Net interest income of £332mn (35% of total)
Investment income of £46mn (5% of total)
Net interest, investment and trading income
£420mn
Third party assets and advisory £532mn
Trading income of £42mn (4% of total)
Capital Light 56% Capital intensive 44% (2008: 40%) (2008: 60%)
BUSINESS MODEL
0
200
400
600
800 £’mn
Third party assets and advisory
Net interest income and investment and trading income
Executing our strategy … … to grow capital light revenue
Our Specialist Bank strategy has shifted from reshaping to growth
Core loans and advances to customers
Mar-09 Sep-14 % change
SA (R’bn) 126.9 217.6 71.5%
UK and Other (£’bn) 4.4 10.4 113.6%
Customer accounts (deposits)
Mar-09 Sep-14 % change
SA (R’bn) 120.2 170.5 42.0%
UK and Other (£’bn) 6.0 6.7 10.0%
30
0%
20%
40%
60%
80%
100%
120%
-
5
10
15
20
25
30
Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Sept-14 Sept-14
£’bn
Customer accounts Core loans and advances to customers Loans and advances to customer deposits
*Adjusted for the sale of Investec Bank (Australia) Limited and Kensington
Adjusted*
31
By growing the franchise businesses in the UK
Asset Finance
African and Middle Eastern Business Jet Financier 2012, 2013, 2014
Aviation Finance
For example:
Power Finance
Structured Equity Derivatives
Growth & Acquisition Finance
Finance Provider of the Year
32
Perpetuating our position in the SA corporate and institutional market
African and Middle Eastern Business Jet Financier 2012, 2013, 2014
Aviation Finance
1st M&A number of deals Merger Market Survey – Sub-Saharan Africa (2013)
Corporate Finance
Dealmaker of the Decade
1st M&A Investment Advisers by Deal Flow 9 out of 12 years
… and opportunities to take advantage of the growth in Sub-Saharan Africa
With opportunities for the private sector in the Power Sector …
“Growth in Sub-Saharan Africa remains robust and is expected to accelerate in 2014”
IMF, April 2014
Bokpoort CSP PFI Awards, African Renewable Energy Deal of the Year
Project Finance, Africa Power Deal of the Year
For example:
Top CFD Provider
Equity Derivatives
Creating and launching an integrated solution for private clients in SA
o A collaboration of Private Banking and Wealth & Investment
o Aligns our products, channels, processes, operations and strategies to give clients access to our banking and investment services, both locally and internationally, in One Place
o A seamless, integrated service experience, through the channel they choose
Best private banking services overall for SA
33
34
Creating the same experience for UK and International private clients
o Building market share in the private client transactional banking space
o Further development and roll out of our digital offering
35
Summary of strategic priorities
o Maintain momentum in Asset Management by focusing on investment performance
o Continue exploring opportunities to achieve a greater international reach in the Wealth & Investment business
o Grow the Specialist Banking businesses
o Continue the progress made with the digitization strategy and collaboration between the Private Bank and Wealth & Investment
o Accelerate the progress in dealing with the legacy portfolio
36
Outlook
o The group has reshaped its business model, both through the sales of businesses and the restructuring that has taken place over the past few years
o Whilst economic conditions have improved in the developed world, volatility and uncertainty remain a feature. Additionally, South Africa’s economic growth has been weak with a difficult outlook, which could negatively affect growth prospects
o Notwithstanding, the group believes that these strategic initiatives place Investec in a favourable position to make progress in its core client- and geographic- markets
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