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 driven by commitment to

• ur core philosophies and values

distinctive specialist bank and asset manager

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

• Build third party funds under management
• Clear differentiation of markets and products

Business model

• Grow loan portfolio
• Increase customer deposits
• Price risk appropriately

Asset Management Wealth Management Lending Market making Structured transactions Principal transactions

Specialist Banking

Capital light and fiduciary Capital intensive and proprietary

Advisory Transactional banking Specialist funds

Asset Management

3

*Before goodwill, non-operating items, taxation and after minorities Prior to 2005 the numbers are reported in terms of UK GAAP and thereafter in terms of IFRS ^Formerly Private Client Portfolio Management and Stockbroking

6

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10

Capital Markets Investment Banking Private Banking Property Activities Private Wealth^ Asset Management

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Balanced portfolio of businesses

% contribution to operating profit* (excluding Group Services and Other Activities)

4

200 400 600 800 1000 1200 1400 1600 1800 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 £'mn

Operating income from associates Principal transactions Net fees and commissions income Net interest income

Mix of revenue

7

1,657mn

65% 60% 57% 59% 70% Recurring income as a % of total income

*Net of insurance claims

Total operating income*

5

Core earnings drivers

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

Third party assets under management Customer accounts (deposits)

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10 year track record

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. *EPS numbers have been adjusted for the 5:1 share split that took place in September 2006. 10 20 30 40 50 60 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 pence 50 100 150 200 250 300 350 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 £'mn Year to Mar-10 up 15.0% to £309.7mn Year to Mar-10 up 6.4% to 45.1p

EPS before goodwill and non-operating items* Attributable earnings before goodwill and non-

• perating items

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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%

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Investec DLC: Capital and leverage

Aug-10 Mar-10 Sep-09

Core loans to capital ratio 4.8x 5.4x 5.8x Total gearing 11.5x 12.5x 12.1x Total gearing (excluding securitised assets) 10.7x 11.7x 11.2x

Expected capital adequacy ratios at 30 Sep-10 Tier 1 ratio

Investec Limited 15.8% 11.7% Investec plc 15.9% 11.7 %

Update given to the market on 16 Sep 2010

Capital Gearing

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Overview of first half performance for 2011

• 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

Update given to the market on 16 Sep 2010

*Normalised operating profit refers to net profit before tax, goodwill and non-operating items but after adjusting for earnings attributable to minorities.

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An overview of the

South African (SA) economy

• 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.

SA left recession mid 2009 and growth continues to strengthen

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SA’s comparatively low fiscal deficit is likely to contract this year, as advanced economies’ deficits expand.

US

• 11.8

Japan

• 10.4

China

• 3

Germany ,

• 3.4

France

• 7.5

UK

• 11.5

Italy

• 5.6

Brazil

• 3.5

Spain

• 11.4

Canada

• 3.1

SA

• 6.7

Austria

• 3.5

Greece

• 13.6

Portugal

• 9.4

Ireland

• 14.3
• 18
• 16
• 14
• 12
• 10
• 8
• 6
• 4
• 2

Source: Standard and Poors

Budget deficits as % of GDP

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1.9 3.7 7.3 5.6 4.6 5.1 5.0 3.7 2.8 2.1 1.9 1.4 1.1 2.3 1.5 0.4

• 0.6

3.8 6.7 5.9 2 4 6 8

• 1

1 3 5 7 9 91/92 93/94 95/96 97/98 99/00 01/02 03/04 05/06 07/08 09/10 Deficit % GDP Sovereign risk

Budget deficit as a % of GDP (-ve deficit) Sovereign risk (%)

SA’s government forecasts a deficit of 6.2% of GDP, but indications are it will be below this.

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.

• 9
• 7
• 5
• 3
• 1

1 3 5 7 1993 1995 1997 1999 2001 2003 2005 2007 2009 Current account Trade Account Source: SARB

% GDP

15

Government borrowing is set to rise substantially over the medium-term, which is sustainable …

5 10 15 20 25 30 35 40 45 50 2000/01 2005/06 2010/11 2015/16 National Treasury's long-term debt projections Net debt is total (gross) debt less government’s financial assets (cash, deposits, loans, holdings of traded equities etc) Source: National Treasury

Net debt % GDP

16

… due to very low current debt levels …

Source: Standard and Poors 20 40 60 80 100 120 140 Australia China South Africa Canada Ireland Spain Brazil US UK France Germany India Japan Italy Greece 2009 Forecast 2012 2009 Forecast 2012

Government debt as % of GDP

17

… enabling SA to fund investment in infrastructure and human capital that could result in growth of 6-7%.

• 4
• 2

2 4 6 8 10 1947 1957 1967 1977 1987 1997 2007 Fixed capital stock growth GDP growth Employment Source: SARB

% change y/y

18

This will place SA on a much firmer long-term growth path …

• 2

2 4 6 8 2007 2009 2011 2013 2015 2017 GDP growth Source: SARB, Investec Group Economics

% change y/y

19

… than most advanced economies whose high debt levels means higher taxes and austerity measures.

Source: Standard and Poors

• 6
• 4
• 2

2 4 6 8 2007 2009 2011 2013 2015 2017 SA Japan US UK EU16 Germany

Real growth, % change y/y

20

• 7.7
• 2.5
• 2.4
• 2.2
• 2.0
• 0.9
• 0.8
• 0.7
• 0.7
• 0.3
• 0.3

0.0 0.0 0.1 0.5 0.8 0.9 1.2 1.4 1.5 2.3 2.3 2.7 5.9

• 8
• 4

4 8 India Hong Kong UK Singapore Thailand US Euro-zone Egypt Israel Canada Taiwan Czech Republic Hungary South Korea Chile Indonesia Japan Malaysia Argentina Poland Russia South Africa Australia Brazil

The sovereign debt crisis prolonged SA’s lower interest rates

• but comparatively our real interest rates are still high.

Source: StatsSA, Economist

Real interest rate (%)

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20% 40% 60% 80% 100% 120% 140% 160% 180% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Germany United Kingdom United States South Africa Australia

SA’s household debt levels are also low in comparison to advanced economies.

Source: OECD

Household debt / disposable income

22

Borrowing is negligible improving the health of private sector balance sheets.

Source: SARB

• 10
• 5

5 10 15 20 25 30 35 2002 2003 2005 2007 2008 2010

(%)

Corporations Individuals

Private sector credit extension, y/y

23

5 10 15 20 25 40,000 60,000 80,000 100,000 120,000 140,000 160,000 180,000 1998 1999 2000 2001 2002 2003 2004 2006 2007 2009 Debt Servicing cost of Household Debt Servicing cost as % of Disposable Income

Debt servicing costs are falling due both to a moderation in debt levels and lower interest rates.

Source: SARB Rm

% disposable income

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• 6
• 3

3 6 9 12 2001 2004 2007 2010

(%)

Euro-zone UK US SA

Private sector spending is noticeably stronger …

Source: SARB, Bloombergs

Household consumption expenditure , q/q seasonally adjusted

25

10 20 30 2000 2002 2004 2006 2008 2010 Euro-zone US UK SA

… despite the rise in the already high unemployment rate …

Source: StatsSA, Bloombergs

Unemployment rate %

26

… as salary and wage increases are running well above inflation.

• 10
• 6
• 2

2 6 10 14 18 1971 1976 1980 1984 1988 1992 1996 2001 2005 2009 Public Sector Remuneration per worker Private Sector Remuneration per worker Source: SARB

% Change, in real terms

27

Confidence is improving.

Source: BER

(%)

• 20

20 40 60 80 100 Mar-04 Sep-05 Mar-07 Sep-08 Mar-10 FNB/BER Consumer Confidence RMB/BER Business Confidence

28

Source: SAARF

SA’s middle class continues to grow rapidly, despite the recession.

Definition of LSM: Living standard measure - focuses on household utilities rather than income or demographics

Thousands of individuals – survey results

1,000 3,000 5,000 7,000 9,000 11,000 13,000 15,000 17,000 19,000 21,000 1994 1997 2000 2003 2006 2009 LSM 6-7 LSM 8

29

Inflation is currently subdued.

2 4 6 8 10 12 14 1998 2000 2002 2004 2006 2008 2010 CPIX CPI Actual CPI forecast

Inflation target range

Source: StatsSA, Investec Group Economics

% change , y/y

30

50 52 54 56 58 60 62 64 66 14 16 18 20 22 24 26 28 30 1960 1970 1980 1990 2000 Gross Fixed Capital Formation Household Consumption Expenditure

Fixed investment as a % of GDP continues to pick-up significantly …

Source: SARB

% of GDP

31

• 60
• 40
• 20

20 40 60 80 100 2006 2007 2008 2009 2010 Africa Europe America Asia

… and international demand for SA’s goods is rising.

Source: SARS

Growth in exports, y/y %

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• The stimulus led recovery in the US, along with Asia's rapid rebound in growth, has caused

SA’s recovery to proceed better than initially expected.

• Revenue collections are up on last year and expenditure lower than expected. The budget

deficit may be somewhat lower than previously estimated.

• Government and parastatal fixed investment continues to improve, although infrastructure

challenges will likely constrain growth at 6-7%.

• The private sector is becoming financially healthier, spending on the back of rising real

incomes, not credit, and the middle class is growing strongly.

• SA ranks* very high in the quality of its financial markets, the soundness of its banking

system as well as the efficacy of corporate boards and its auditing and reporting standards.

• The current weak activity is a temporary blip in the country’s long-term path to stronger

growth and improved job creation. We expect economic growth of 2.8% y/y this year and 3.6% y/y in 2011, rising to 4.2% in 2012 as the domestic economy returns to trend.

Conclusion

Source: Global Competitiveness Report 2010-2011 World Economic Forum

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