Stephen Koseff, CEO of Investec group IMF 2010 Overview of Investec - PowerPoint PPT Presentation

Stephen Koseff, CEO of Investec group IMF 2010

Overview of Investec

Mission statement We strive to be a distinctive specialist bank and asset manager driven by commitment to our core philosophies and values 1

Strategic positioning • Specialised and focused • Target client base • High income and High Net Worth Individuals • Entrepreneurial and Large Corporates • Government and Parastatals • Strong entrepreneurial culture • Balance risk and reward • Sustainable business 2

Business model Capital intensive and Capital light and fiduciary proprietary Asset Management Specialist Banking Wealth Asset Management Market making Advisory Principal transactions Management Transactional Structured Specialist funds Lending banking transactions • Build third party funds under management • Grow loan portfolio • Clear differentiation of markets and products • Increase customer deposits • Price risk appropriately 3

Balanced portfolio of businesses % contribution to operating profit* (excluding Group Services and Other Activities) 100% 90% 80% Capital Markets 70% 60% Investment Banking 50% Private Banking 40% Property Activities 30% Private Wealth^ 20% 10% Asset Management 0% Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 *Before goodwill, non-operating items, taxation and after minorities 6 Prior to 2005 the numbers are reported in terms of UK GAAP and thereafter in terms of IFRS 4 6 ^Formerly Private Client Portfolio Management and Stockbroking

Mix of revenue Total operating income* 1800 1,657mn Operating income from associates 1600 1400 1200 Principal transactions 1000 £'mn 800 Net fees and commissions income 600 400 200 Net interest income 0 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 57% 59% 65% 70% 60% Recurring income as a % of total income *Net of insurance claims 7 5

Core earnings drivers Third party assets under management Customer accounts (deposits) 100 25 90 21.9 80 20 73.6 17.9 70 16.2 14.6 60 15 56.3 56.1 12.8 52.7 48.8 £'bn 12.1 £'bn 50 10.7 10.1 9.6 40 10 8.7 34 30 6.4 6.5 20 5 10 0 0 2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010 Third party assets under management Core loans and advances Customer accounts (deposits) 6

10 year track record Attributable earnings before goodwill and non- EPS before goodwill and non-operating items* operating items pence £'mn Year to Mar-10 up 6.4% to 45.1p Year to Mar-10 up 15.0% to £309.7mn 350 60 300 50 250 40 200 30 150 20 100 10 50 0 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Results are shown for the year-ended 31 March, unless otherwise indicated. Prior to 2005 numbers are reported in terms of UK/SA GAAP and thereafter in terms of IFRS. 7 *EPS numbers have been adjusted for the 5:1 share split that took place in September 2006.

Investec DLC: Salient features £’000 Mar-10 Mar-09 Mar-08 Operating profit before goodwill, non-operating items, taxation, impairments and after minorities 718 839 652 939 622 902 Operating profit before goodwill, non-operating items, taxation and after minorities 432 258 396 766 508 717 Core loans to customer deposits 76.2% 103.6% 98.4% Credit loss ratio 1.16% 1.08% 0.51% Gross defaults as a % of gross core loans and advances to customers 5.07% 4.27% 1.71% Adjusted EPS* (pence) 45.1 42.4 56.9 Cost to income ratio 57.8% 55.9% 56.1% Return on average adjusted shareholders equity (post-tax) 13.5% 14.8% 23.6% 8

Investec DLC: Capital and leverage Capital Gearing Update given to the market on 16 Sep 2010 Expected capital adequacy Tier 1 Aug-10 Mar-10 Sep-09 ratios at ratio 30 Sep-10 Investec Limited 15.8% 11.7% Core loans to capital ratio 4.8x 5.4x 5.8x Total gearing 11.5x 12.5x 12.1x Investec plc 15.9% 11.7 % Total gearing (excluding 10.7x 11.7x 11.2x securitised assets) 9

Overview of first half performance for 2011 Update given to the market on 16 Sep 2010 • We have continued to see strong growth from the asset management and investment platforms and these businesses have recorded strong inflows during the period • Operating conditions within our banking and advisory businesses remain mixed with low levels of economic activity and a difficult trading environment persisting • The balance sheet remains strong • Operating profit* is expected to be marginally higher than the prior year *Normalised operating profit refers to net profit before tax, goodwill and non-operating items but after adjusting for earnings attributable to minorities. 10

An overview of the South African (SA) economy

SA left recession mid 2009 and growth continues to strengthen • SA’s financial system has not experienced the same issues as the global financial community due to the fact that it never had a banking crisis. • Instead, SA experienced a traditional recession in 2009, brought about by high interest rates and the collapse of global demand. The economy is now in the process of recovery and growth should reach 2.8% this year. • SA is well structured for growth from a financial point of view, but needs demand from the world economy to pick-up. As a resource driven country, SA is also benefiting from Asia's demand. 12

SA’s comparatively low fiscal deficit is likely to contract this year, as advanced economies’ deficits expand. Budget deficits as % of GDP -18 -16 -14 -12 -10 -8 -6 -4 -2 0 Spain Italy Greece -11.4 -5.6 -13.6 France -7.5 Brazil -3.5 Ireland US -14.3 -11.8 Portugal Canada -9.4 -3.1 Austria UK -3.5 -11.5 SA -6.7 Germany , -3.4 Japan -10.4 China -3 Source: Standard and Poors 13

SA’s government forecasts a deficit of 6.2% of GDP, but indications are it will be below this. Budget deficit as a % of GDP (-ve deficit) Sovereign risk (%) -1 0 -0.6 0.4 1 1.1 2 1.4 1.5 1.9 1.9 2.1 2.3 3 2.8 4 3.7 3.7 3.8 4.6 5 5.0 5.1 5.6 5.9 6 7 6.7 7.3 9 8 91/92 93/94 95/96 97/98 99/00 01/02 03/04 05/06 07/08 09/10 Deficit % GDP Sovereign risk Source: SARB, I-net Bridge 14

Capital inflows, attracted by SA’s comparatively high interest rates, are amply financing the modest trade and current account deficits. % GDP 7 5 3 1 -1 -3 -5 -7 -9 1993 1995 1997 1999 2001 2003 2005 2007 2009 Current account Trade Account Source: SARB 15

Government borrowing is set to rise substantially over the medium-term, which is sustainable … Net debt % GDP Net debt is total (gross) debt less government’s financial assets (cash, deposits, loans, holdings of traded equities etc) 50 45 40 35 30 25 20 15 10 5 0 2000/01 2005/06 2010/11 2015/16 National Treasury's long-term debt projections Source: National Treasury 16

… due to very low current debt levels … Government debt as % of GDP 140 120 100 80 60 40 20 0 Australia China South Africa Canada Ireland Spain Brazil US UK France Germany India Japan Italy Greece 2009 Forecast 2012 2009 Forecast 2012 Source: Standard and Poors 17

… enabling SA to fund investment in infrastructure and human capital that could result in growth of 6-7%. % change y/y 10 8 6 4 2 0 -2 -4 1947 1957 1967 1977 1987 1997 2007 Fixed capital stock growth GDP growth Employment Source: SARB 18

This will place SA on a much firmer long-term growth path … % change y/y 8 6 4 2 0 -2 2007 2009 2011 2013 2015 2017 GDP growth Source: SARB, Investec Group Economics 19

… than most advanced economies whose high debt levels means higher taxes and austerity measures. Real growth, % change y/y 8 6 4 2 0 -2 -4 -6 2007 2009 2011 2013 2015 2017 SA Japan US UK EU16 Germany Source: Standard and Poors 20

The sovereign debt crisis prolonged SA’s lower interest rates - but comparatively our real interest rates are still high. Real interest rate (%) Brazil 5.9 Australia 2.7 South Africa 2.3 Russia 2.3 1.5 Poland 1.4 Argentina 1.2 Malaysia 0.9 Japan 0.8 Indonesia 0.5 Chile 0.1 South Korea 0.0 Hungary 0.0 Czech Republic -0.3 Taiwan -0.3 Canada -0.7 Israel -0.7 Egypt -0.8 Euro-zone -0.9 US -2.0 Thailand -2.2 Singapore -2.4 UK -2.5 Hong Kong -7.7 India -8 -4 0 4 8 Source: StatsSA, Economist 21

SA’s household debt levels are also low in comparison to advanced economies. Household debt / disposable income 180% 160% 140% 120% 100% 80% 60% 40% 20% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Germany United Kingdom United States South Africa Australia Source: OECD 22

Borrowing is negligible improving the health of private sector balance sheets. Private sector credit extension, y/y 35 30 25 20 15 (%) 10 5 0 -5 -10 2002 2003 2005 2007 2008 2010 Corporations Individuals Source: SARB 23

Debt servicing costs are falling due both to a moderation in debt levels and lower interest rates. % disposable income Rm 180,000 25 160,000 20 140,000 120,000 15 100,000 80,000 10 60,000 40,000 5 1998 1999 2000 2001 2002 2003 2004 2006 2007 2009 Debt Servicing cost of Household Debt Servicing cost as % of Disposable Income Source: SARB 24