An overview of Investec
About Investec Summary Established in 1974 • “We strive to be a DISTINCTIVE SPECIALIST BANK AND ASSET Mission Today, efficient integrated • MANAGER driven by commitment to our core philosophies and international business platform values” employing over 8 300 people Three principal regions: • Southern Africa − Purpose To facilitate the CREATION of wealth and the MANAGEMENT of UK and Europe wealth − Asia-Pacific − Three core areas of activity • Government, Institutions, Corporates, Charities and Trusts, Private Target Listed on the JSE and LSE (a FTSE • Clients both High Net Worth and High Income Market 250 company) Total assets of £47.1bn • Total equity £4.0bn • To build DIVERSIFIED REVENUE STREAMS by providing appropriate asset management , wealth management , specialist banking and Total FUM £119.6bn (Aug-14) • Strategy advisory services to our target client base in our core domestic Market Cap £4.8bn (Current) • markets and across geographies Note: Data as at end of March 2014 unless otherwise indicated 3
Three distinct businesses focused on well defined target clients Operating profit before tax* 100 Corporate / Institutional / ASSET MANAGEMENT • Investment management services 90 Government 80 70 SPECIALIST BANKING 60 Specialist Banking • Advisory • Transactional banking 50 • Lending • Treasury and trading 40 (High Net Worth / High Income) Wealth & Investment • Investment activities 30 Private Client 20 WEALTH & INVESTMENT Asset Management • Investment management services 10 • Independent financial planning advice 0 Mar-09 Mar-10 Mar11 Mar-12 Mar-13 Mar-14 *Before tax, goodwill, acquired intangibles, non-operating items and after other non-controlling interests 4
Key earnings drivers Third party assets under management Customer accounts (deposits) and loans £’bn £’bn 30 120% 140 Down 7.6% Down 6.8% 120 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 Customer accounts Core loans and advances to customers Asset Management Wealth & Investment Other Loans and advances to customer deposits 5
Stable capital and low leverage Capital position Gearing ratios times 16 Expected 31 Mar 30 Sep 31 Mar 13.8 30 Sep 14 2014 2013 2013 13.0 12.5 2014 12.2 11.6 11.3 11.3 12 10.3 Investec plc 10 Total 16.0% 15.3% 16.7% 16.7% Core Tier 1 9.3% 8.8% 9.1% 8.8% 8 10.5% 11.2% 11.0% Tier 1 11.2% 6.2 5.8 5.5 5.4 6 Leverage 7.6% 7.4% 7.7% na 4.7 4.7 4.5 4.3 4 Investec Ltd 2 Total 15.1% 14.9% 15.4% 15.5% Core Tier 1 9.5% 9.4% 9.5% 8.9% 0 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Tier 1 11.2% 11.0% 11.2% 10.8% Gearing ratio (assets excluding assurance assets to total equity) Leverage 7.3% 7.2% 7.5% na Core loans to equity ratio Note: The group is on the standardised approach in terms of Basel II and as a result has higher RWA than banks applying the advanced approach to similar portfolios, thus understating capital ratios 6
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 £933mn 1,200 1,000 Net annuity fees and commissions Net interest income of £652mn 800 of £720mn (34% of total) (37% of total) 600 Investment income of £166mn 400 (8% of total) Other fees and other income of 200 £288mn (15% of total) - Trading income of £115mn Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 (6% of total) Third party assets and advisory Net interest income, investment income and trading income Capital light Capital intensive 52% 48% (2008: 40%) (2008: 60%) Note: As at 31 March 2014 7
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 shareholders equity (post-tax) 10.1% 9.4% - *Before goodwill, acquired intangibles, non-operating items and taxation 8
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 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 • 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 • Sale of the Start mortgage business in Ireland to an affiliate of Lone Star – still subject to approval • These transactions upon completion are expected to: • Bolster CET1 capital ratio in Investec plc from 8.8% to c.11.1% • Significantly improve leverage ratio in Investec plc from 7.4% to c. 8.9% • Reduce legacy assets in the UK by c. £1.5bn • Reduce total assets by c. £6bn • Whilst there are still some legacy assets remaining, the actions we have taken to simplify our business has allowed the focus to shift to growing and building our franchise in our core areas of activity and improving returns to shareholders . 9
An overview of the South African (SA) economy
Snapshot of SA SA in context Rating agency and market views • Population: 53.0 mn • Real GDP: US$ 308.7 bn (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 Long-term Domestic Long-term Domestic Currency Debt Currency Debt Currency Debt Baa1 BBB+ BBB+ Agricultures, Negative Stable Negative forestry & fishing 2% Mining & General quarrying 9% government • SA ranked as an upper middle income services 17% economy • SA ranked as 30 th largest economy in the Manufacturing 12% world Personal services • SA ranked as 2 nd largest economy in Africa 6% Electricity & water 3% • SA ranked 10 th in Protecting Investors • SA ranked 41 st in Ease of Doing Business Construction 3% (out of 189 countries in IFC’s Survey) Finance, insurance, real estate & Wholesale & • SA ranked 53 rd of 148 countries in WEF business services retail trade, 22% competitiveness index catering & accommodation Transport, 17% storage & communication 9% Source: SA Reserve Bank, National Treasury Investor Presentation September 2014 11
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: SA Reserve Bank 12
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 slowdown in domestic economic activity has been largely driven by local developments.” Finance Minister Nhlanhla Nene, June 2014 Industrial disputes Quality of electricity supply South Africa Finland Argentina Singapore Spain United Kingdom France Canada Canada Czech Republic Finland United States United Kingdom Hungary India Malaysia Korea Korea Australia Poland Mexico Chile Poland Thailand United States Turkey New Zealand Philippines Turkey South Africa Philippines India Chile Mozambique Malaysia Uganda Hungary Zimbabwe Singapore Nigeria 0 50 100 150 200 0 1 2 3 4 5 6 7 8 How would you assess the reliability of the electricity supply (lack of interruptions and lack of Working days lost per 1,000 inhabitants per year (average 2010-2012) voltage fluctuations)? (1) not reliable at all (7) extremely reliable Source: Global Competitiveness Report 2014/15 Source: IMD World Competitiveness Yearbook 2014 13
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 Marcus Governor of the SA Reserve Bank, Monetary Policy Statement, September 2014 Household consumption expenditure (HCE) and unsecured lending growth Growth % y/y 10 Growth % y/y 30 25 8 20 6 15 4 10 5 2 0 0 -5 -2 -10 -4 -15 2003 2005 2007 2009 2011 2013 HCE (LHS) Unsecured lending (RHS) Source: SA Reserve Bank 14
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