results presentation2014/09/30 · reasonable operating environment source: datastream exchange...

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


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


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


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


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


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 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




Operating margin 24.9% 22.4%

ROE (pre-tax)** 20.6% 16.0%


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


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




Cost to income 67.2% 66.0%

ROE (pre-tax)** 9.8% 8.8%


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


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


£’mn

0

100

200

300


£’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


£’mn

0

100

200

300

400

500


£’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



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



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


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


SA (R’bn) 126.9 217.6 71.5%

UK and Other (£’bn) 4.4 10.4 113.6%

Customer accounts (deposits)


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

https://www.google.com/url?q=http://www.pfie.com/home/pfi-awards/&sa=U&ei=G4R8U82qO-WI0AWRr4Bg&ved=0CC4Q9QEwAA&usg=AFQjCNFG_6tRNA3MbNNDujk25V0kEcT4zg

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

https://www.google.com/url?q=http://www.pfie.com/home/pfi-awards/&sa=U&ei=G4R8U82qO-WI0AWRr4Bg&ved=0CC4Q9QEwAA&usg=AFQjCNFG_6tRNA3MbNNDujk25V0kEcT4zg

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

results presentation2014/09/30 · reasonable operating environment source: datastream exchange...

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