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InvestecInvestecNov-Dec 2010
1
Review of globalReview of global environment
2
Looking back
13 SEP 2008“You are about to experience the most unbelievable week in America ever andunbelievable week in America ever, and we have to prepare for the absolutely worst case …We have to protect the firm. This is about our SURVIVAL”This is about our SURVIVAL- JAMIE DIMON, CEO JPMorgan Chase
3
Financial crisis …Collapse ofCollapse ofCollapse ofCollapse of
3.2
3.6
Collapse of Collapse of Lehman’sLehman’sCollapse of Collapse of Lehman’sLehman’sLIBOR-OIS spread
2.4
2.8
Bear StearnsBear StearnsBear StearnsBear Stearns
1.6
2
(%)
Closure of Closure of money funds / money funds / Northern RockNorthern Rock
Closure of Closure of money funds / money funds / Northern RockNorthern Rock
0 4
0.8
1.2
-0.4
0
0.4
Oct
05
Apr
06
Oct
06
Apr
07
Oct
07
Apr
08
Oct
08
Apr
09
Oct
09
Apr
10
Oct
10
Source: Bloombergs and Datastream
O A O A O A O A O A O
UK Eurozone US
4
… leading to a potential global debt crisis
45%
Country % risk of bankruptcy
35%
40%
20%
25%
30%
5%
10%
15%
0%
Source: Market Oracle, March 2010
5
Resulting in the age of austerity
Australia
“We have entered the Age of Austerity. It’s l d i d i E d i d ti d f thalready arrived in Europe and is destined for the
United States. Governments throughout Europe are cutting social spending and raising taxes —or contemplating doing so.
Even rich countries find the costs too high, but the sudden austerity could perversely trigger a new financial crisis.”
Robert J Samuelson Washington post 11 OctoberRobert J. Samuelson, Washington post, 11 October 2010
6
Hence, the world is in ‘stop-start’ mode
7(President Herbert Hoover (August 10, 1874 – October 20, 1964)
With global growth slowly recovering
GDP Growth Forecasts for 2010-2017Forecasts for 2010 2017
8
Source: Standard and Poors
Interest rates at historic lowsExcept for South Africa and Australia
18
12
14
16
8
10
%
2
4
6
0Nov-99 Nov-00 Nov-01 Nov-02 Nov-03 Nov-04 Nov-05 Nov-06 Nov-07 Nov-08 Nov-09 Nov-10
JIBAR (3M) UKINT (3M) AUINT (3M) USINT (3M) JPN (3M) EURIBOR (3M)
Source: Datastream
JIBAR (3M) UKINT (3M) AUINT (3M) USINT (3M) JPN (3M) EURIBOR (3M)
9
Credit markets have recovered
100
80
90
00
60
70
Reb
ased
to 1
0
40
50
30Sep 08 Dec 08 Mar 09 Jun 09 Sep 09 Dec 09 Mar 10 Jun 10 Sep 10
ABX 06-1 AAA ABX 06-2 AAA ABX 07-1 AAA ABX 07-2 AAA
Source: Datastream
ABX 06 1 AAA ABX 06 2 AAA ABX 07 1 AAA ABX 07 2 AAA
10
Equity markets volatile but moving up
140
125
95
110
ased
to 1
00
65
80 Reb
a
50 Dec 08 Feb 09 Apr 09 Jun 09 Aug 09 Oct 09 Dec 09 Feb 10 Apr 10 Jun 10 Aug 10 Oct 10
JSE FTSE ASX Dow JonesJSE FTSE ASX Dow Jones
11
Source: Datastream
With SA on a much firmer long-term growth path
• SA never had a banking crisis but rather a traditional recession brought about by high interest rates and the collapse of global demand.
p
• SA’s banking sector was recently ranked 6th in the world in global competitiveness report and first on its strength of regulatory and reporting standards.
• 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.
G t d t t l fi d i t t ti t i• 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 i i l i t dit d th iddl l i i t lrising real incomes, not credit, and the middle class is growing strongly.
• The current weak activity a temporary blip in the country’s long-term path to stronger growth and improved job creation.
12
Investec through theInvestec through the crisis
13
Maintained a strong balance sheet• Current capital structure and capital ratios exceed the minimum requirements for
2013
Capital adequacy ratios Capital
2013
IBAL 19 2%18.5%
16 2
18
Investec plc
IBAL
15.9%
19.2%
16 2%
16.7% Sep-10Mar-10
16.2 15.8
1414.8 14.6
12.113.1
11.7 11.5 11.812
14
16
Tier 1 ratios
0% 5% 10% 15% 20%
Investec Ltd 15.5%16.2% 5
8.57.6
8.5
7.1 7.28
10
12
%
Tier 1 ratios
Investec
IBAL 16.6%
12.1%
15.4%
S 10 2
4
6
Investec Ltd
Investec plc
12.1%
11.3%
12.1%
12.1% Sep-10Mar-10 0
Investec Limited
ABSA FirstRand Banking
Nedbank Standard Bank
T t l it l d ti Ti 1 ti C it l A t *0% 10% 20%
*A capital adequacy ratio reflects capital as a percentage of risk-weighted assets. A permanent equity ratio is more conservative as it expresses equity as a percentage of total assets, ignoring any risk weightings applied to those assets^Expected capital adequacy ratios at 30 September 2010
Source: Annual Company Reports
Total capital adequacy ratio Tier 1 ratio Capital: Assets*
14
Diversified our funding sources
£'mn
Investec LimitedInvestec DLC
R'mn
Average9,000
10,000
11,000
60,000
70,000
g
6,000
7,000
8,000
40,000
50,000
averageaverage
3,000
4,000
5,000
20,000
30,000
1,000
2,000 10,000
-Oct-08 Feb-09 Jun-09 Oct-09 Feb-10 Jun-10 Oct-10
-Oct-08 Feb-09 Jun-09 Oct-09 Feb-10 Jun-10 Oct-10
15
Built our core earnings drivers
Third party assets under management
£'bn
Core loans and advances
£'bn
Investec DLC Investec DLC
45
60
75
90
48.8
74.262.9
80.0
9
12
15
18
2116.2
17.917.3 18.1
0
15
30
2009 2010Mar Sep
0
3
6
9
2009 2010Mar Sepp
400
500
321 4
409.4371.2104
425.7R'bn
Investec Limited Investec Limited
125
150 120.4 118.2119.9 119.4
R'bn
100
200
300
400 321.4
25
50
75
100
02009 2010
Mar Sep
16
02009 2010
Mar Sep
Results of the groupSalient financial features (Investec DLC)
Sep-10 Sep-09%
change Mar-10
Salient financial features (Investec DLC)
Operating profit* excluding debt buy-back 228,157 169,979 34.2% 382,258
Operating profit* before tax (£’000) 228,157 215,979 5.6% 432,258
Attributable earnings* (£’000) 163,202 160,422 1.7% 309,710
Adjusted EPS* (pence) 22.1 24.0 (7.9%) 45.1
DPS (pence) 8.0 8.0 0% 16.0
Net tangible asset value per share (pence) 317.8 296.9 7.0% 324.1
Core loans and advances to customers (£’mn) 18,148 17,342 4.6% 17,891
*Before goodwill and non-operating items and after minorities
17
And for South AfricaSalient financial features (Investec Limited)Salient financial features (Investec Limited)
R'mn Sep-10 Sep-09 % change Mar-10
Operating profit before taxation, headline adjustments 1 947 2 067 5 8% 4 450and impairments 1,947 2,067 -5.8% 4,450
Operating profit before taxation and headline adjustments 1,570 1,652 -5.0% 3,587
Headline earnings attributable to ordinary shareholders 1,026 1,008 1.8% 2,141
Net core loans and advances 119,407 119,935 -0.4% 118,155
Customer accounts (deposits) 150,954 136,498 10.6% 143,121
Capital adequacy ratio 16.2% 14.7% - 15.6%
Tier 1 ratio 12.1% 11.3% - 12.1%
*Before goodwill and non-operating items and after minorities
18
Strong operational performance
Investec LimitedInvestec DLCOperating profit* Operating profit*
250
300 +49.5%
1,400
1,600
1,800
2,000
+23.8%
100
150
200
£’m
n
800
1,000
1,200
1,400
R’m
n-
50
100
-
200
400
600
Sep-06 Sep-07 Sep-08 Sep-09 Sep-10
Capital Markets Investment BankingPrivate Banking PropertyWealth & Investment Asset Management
Sep-06 Sep-07 Sep-08 Sep-09 Sep-10
Capital Markets Investment BankingPrivate Banking PropertyWealth & Investment Asset Management
*Before goodwill, non-operating items, taxation and after minorities and excludes Group Services and Other
19
Supported by strong recurring income base
Investec LimitedInvestec DLC
600
700
800
900
3 500
4,000
4,500
5,000
300
400
500
600
£’m
n
2,000
2,500
3,000
3,500
£’m
n
-
100
200
300
63% 63% 74% 61% 63%
-
500
1,000
1,500
59% 67% 71% 65% 71%
Sep-06 Sep-07 Sep-08 Sep-09 Sep-10
Other incomePrincipal transactions Net deal fees and commissions incomeRecurring income
Sep-06 Sep-07 Sep-08 Sep-09 Sep-10
Other incomePrincipal transactions Net deal fees and commissions incomeRecurring income
20
Strategy and outlookStrategy and outlook
21
2008 – 2009: On the defensiveF th t f 2008 d h f 2009 th ’ f ti d t b• For the rest of 2008 and much of 2009, the group’s focus continued to be on the balance sheet and we remained in defensive mode
22
Past year we’ve moved onto the front foot
23
Focused on realigning the business model
Third party assets and advisory
Proprietary risk capital
£535 mn
600
Net fees and commissions of
£341 mn
advisory £346 mn
(40% of total)
(36% of total)
Net interest income of £321 mn
£535 mn
200
400
£'m
n
£341 mn
Other of
£5 mn
)
(24% of total)
Principal transactions of
£214 mn-
200
S 04 S 05 S 06 S 07 S 08 S 09 S 10Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10
Third party assets and advisory
Net interest income and principal transactions
Net interest income and principal transactions after impairments
Wealth management
Specialist funds
Asset management
Transactional banking
Principal transactions
Structured transactions
Market making
Loans and depositsg
Advisory
p
24
• Strengthen existing client relationships
…and on building our brand• Strengthen existing client relationships• Provide distinctive products and an increased breadth of
services to clients
25
Ready to capture opportunities
• The system has stabilised and activity levels are starting to improve
• We have a solid and resilient franchise and will continue our efforts to build a strong brand
• We are on the front foot and have had a forward-focused approach
• With our strong balance sheet and liquidity position, we are ready to capture opportunities arising from the realignment of the financialcapture opportunities arising from the realignment of the financial services industry
26
Thank YouThank You
27