stephen koseffstephen koseff ceo of investec … koseffstephen koseff ceo of investec groupceo of...
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Stephen Koseff CEO of Investec groupStephen Koseff CEO of Investec group
IMF 2011
1
Overview of InvestecOverview of Investec
2
Mission statement
We strive to be aWe strive to be a
distinctive specialist bankdistinctive specialist bank and asset managerg
driven by commitment toour core philosophies and valuesour core philosophies and values
3
Specialist bank and asset manager
Broad range of services: To: GovernmentgAdvisory StructuringLendingSecurities TradingMarket MakingPrincipal Transactions
To: Government InstitutionalCorporatesHigh Net Worth ClientsHigh Income Clients
Provides investment management services
d i d d t
Provides investment management services
To: Private clientsCharities
To: Private clientsCharities
and independent financial planning advice
gand independent financial planning advice
TrustsTrusts
Provides investment management services
To its predominantly global institutional client base
4
International platform
Core infrastructureDistribution channels Origination channels
SinceSince1992
Since1997
Since 1974
5
Building non-banking revenue streams
Contribution to group earnings 31 Mar-10Contribution to group earnings 31 Mar-11
Asset Management
Asset and wealth management businesses
38 6%
Asset and wealth management businesses
25.3%
Asset Management
29.3%
Management 19.3%
Wealth Management 38.6%
Specialist banking businesses61.4%
Specialist banking businesses74.7%
Wealth Management
9 3%
Specialist Banking
61.4%
g6.0%
Specialist Banking
74.7%
9.3%
6
Solid base of recurring income
Recurring income
2000
2500
Operating income from associates
1000
1500
£'m
n
Principal transactions
500
1000Net fees and commissions income
Net interest income
0Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11
Recurring income as % of total income57% 59% 65% 70% 60% 62%
7
Strong growth in funds under management and customer depositscustomer deposits
Third party assets under management Customer accounts (deposits) and loans
Up 11%88.9
Up 20%
25
30
24.480
100
15
20
£’bn
40
60
£'bn
5
10
20
02005 2006 2007 2008 2009 2010 2011
Net core loans Customer deposits
02005 2006 2007 2008 2009 2010 2011
Other Wealth and Investment* Asset Management
*Incorporates funds under advice as previously reported within the Private Bank. Historic numbers have been restated accordingly.
8
10 year track record
EPS before goodwill and non-operating items*
Attributable earnings before goodwill and non-operating items
pence pence
50
60pence
300
350
400pence
30
40
200
250
10
20
50
100
150
Results are shown for the year-ended 31 March, unless otherwise indicated.
0
2002 2005 2008 2011
0
2002 2005 2008 2011
y ,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.
9
Investec DLC: Salient features
Mar-11 Mar-10 % Change
Operating profit* before tax (£’000) 434 406 432 258 0.5%
Operating profit* before tax and impairment losses on loans and advances (£’000) 752 636 718 839 4.7%
Core loans to customer deposits 72.4% 76.2% (5.0%)
Credit loss ratio 1.27% 1.16% 9.5%
Adjusted EPS* (pence) 43.2 45.1 (4.2%)
Cost to income ratio 61.7% 57.8% 6.7%
Return on average adjusted shareholders equity (post-tax) 11.2% 13.5% (17.0%)
*Before goodwill, acquired intangibles, non-operating items and after non-controlling interests
10
Investec DLC: Summarised balance sheet
£'000 Mar-11 Mar-10AssetsCash and near cash 9,319,000 9,117,000 Derivative assets 1,799,204 1,591,841 Securities, including repo's 5,365,472 3,713,131 Loans and advances to customers 20,370,705 19,191,216 Securitised assets 4,924,293 5,334,453 Investment properties and fixed assets 659,328 434,293 G d ill d i t ibl t 593 060 311 037Goodwill and intangible assets 593,060 311,037 Combined other assets, excluding assurance assets 1,548,912 1,479,038
44,579,974 41,172,009 LiabilitiesDeposits by banks 2,834,435 3,652,712 Derivatives and other trading liabilities 2 202 975 1 698 039Derivatives and other trading liabilities 2,202,975 1,698,039 Repurchase agreements and securities lending 1,599,646 1,599,646 Settlement liabilities 575,254 723,492 Customer accounts 24,441,260 21,934,044 Debt securities in issue 2,145,213 2,187,041 Securitised liabilities 4,340,864 4,714,556 Subordinated liabilities 1,287,635 1,070,436 Combined other liabilities, excluding assurance liabilities 1,766,844 1,023,674
40,618,872 37,880,148
Equity 3,643,105 2,976,765 Perpetual preferred securities issued by subsidiaries 317 997 315 096
11
Perpetual preferred securities issued by subsidiaries 317,997 315,096 44,579,974 41,172,009
Investec DLC: Capital and leverage
GearingCapital position
13.812.9
12.5
11.311.9 11.8 11.7
10 211
16Expected
30 Sep 2011
31 Mar 2011
30 Sep 2010
6.66.2
5.44.7
10.2
6
Investec plcTotalTier 1
16.4%11.1%
16.8%11.6%
16.7%12.1%
1Mar-08 Mar-09 Mar-10 Mar-11
Investec LtdTotalTier 1
15.4%11.7%
15.9%11.9%
16.2%12.1%
Core loans to capital ratioGearingTotal gearing (excluding securitised assets)
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
12
Positioned for long term growth
Update given to the market on 15 September 2011
• Operating conditions are difficult as the global geopolitical landscape remains uncertain
• The group’s operational performance remains stable underpinned by a solid recurring• The group s operational performance remains stable underpinned by a solid recurring income base
13
An overview of theSouth African (SA) economySouth African (SA) economy
14
SA’s current growth rate of 3.4% is above most advanced economies.advanced economies.
• SA is a small, open economy and the slower than expected global recovery means 2011 is now likely to see growth of only 3.2% (previously 3.7% was expected). Thi i till b l t ’ t f 2 8% b t b l b th t d d th t d d• This is still above last year’s outcome of 2.8%, but below both trend and the rate needed to meaningfully reduce unemployment.
7
9 % change GDP
1
3
5
-5
-3
-1
-7
5
Mar
-00
Sep
-00
Mar
-01
Sep
-01
Mar
-02
Sep
-02
Mar
-03
Sep
-03
Mar
-04
Sep
-04
Mar
-05
Sep
-05
Mar
-06
Sep
-06
Mar
-07
Sep
-07
Mar
-08
Sep
-08
Mar
-09
Sep
-09
Mar
-10
Sep
-10
Mar
-11
q/q y/y
15
Source: SARBSource: SARB
SA’s sound balance sheet is due in part to its very low debt levels ...debt levels ...
Net government debt as % of GDP
120
140
160
60
80
100
0
20
40
2010 Forecast 2012
Source: Standard and Poor’s
16
… sound banking sector which was recently ranked 2nd
in the world* …in the world …
South AfricaCanada
MalaysiaCzech Republic
FinlandChile
SingaporeAustralia
TaiwanPhilippines
ThailandTurkey
IndiaMalaysia
KoreaUnited StatesMozambique
UgandaHungary
Poland
0 1 2 3 4 5 6 7 8
NigeriaZimbabwe
United KingdomKorea
(1 = insolvent and may require a government bailout; 7 = generally healthy with sound balance sheets) 2010-11 weighted average
*Source: Global Competitiveness Report*Source: Global Competitiveness Report
17
… persistent economic growth ...
GDP growth %, 1994-2010
France
Germany
Italy
Japan
G
United States
Russia
Portugal
France
Brazil
South Africa
Spain
Greece
0 2 4 6 8 10 12
China
India
Ireland
0 2 4 6 8 10 12
Source: IMF
18
… and sharp rise in foreign exchange reserves.
50000
$/bn
40000
45000
50000
25000
30000
35000
15000
20000
0
5000
10000
1998 1999 2001 2002 2004 2005 2007 2008 2010 2011
Source: SARB and Standard and Poor’s
19
The financing of the current account deficit is still reliant on portfolio inflows …reliant on portfolio inflows …
20000
R'ms Rm's
10000
15000
20000
5,000,000
10,000,000
15,000,000
0
5000
-10,000,000
-5,000,000
0
15000
-10000
-5000
-20,000,000
-15,000,000
, ,
-20000
-15000
1994 1996 1998 2000 2002 2004 2006 2008 2010
Foreign net purchases of SA gilts
-30,000,000
-25,000,000
2000 2002 2004 2006 2008 2010
F i t h f SA itiForeign net purchases of SA gilts Foreign net purchases of SA equities
Source: I-Net
20
… but when portfolio flows reverse, the deficit automatically reduces as the trade account tends to run a surplus.reduces as the trade account tends to run a surplus.
6% GDP
2
4
-2
0
-6
-4
-8
6
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: SARB
21
Current account of which: dividend and interest payments Trade account
Inflation is expected to only temporarily breach the upper limit of the target range …
14% change year/year
upper limit of the target range …
12
8
10
4
6 Inflation target range
21998 2000 2002 2004 2006 2008 2010 2012
Actual CPI forecast
Source: Stats SA, Investec
22
... meaning interest rates are unlikely to rise significantly.
%
25
30%
15
20
5
10
0
5
1998 2000 2002 2004 2006 2008 2010
Repo rate Prime Long rate
Source: I-net
23
Debt servicing costs are falling, due to moderation in private sector debt levels and low interest rates.
% disposable incomeR’mn
private sector debt levels and low interest rates.
13
15
160,000
180,000
11
100 000
120,000
140,000
7
9
60,000
80,000
100,000
540,0001998 1999 2000 2001 2002 2003 2004 2006 2007 2008 2009 2011
Debt Servicing cost of Households Debt Servicing cost as % of Disposable IncomeDebt Servicing cost of Households Debt Servicing cost as % of Disposable Income
Source: SARB
24
Growth in private sector spending has picked up but demand for credit is sluggish although improving.
12Household consumption expenditure %, y/y
40Demand for credit %, y/y
demand for credit is sluggish although improving.
8
10
12
25
30
35
40
4
6
10
15
20
25
0
2
-5
0
5
-4
-2
2001 2003 2005 2007 2009 2011-15
-10
2000 2002 2004 2006 2008 2010
Source: SARB, Bloombergs
25
Confidence, however, is declining as a consequence of lethargic global growth.lethargic global growth.
(%)
80
100( )
40
60
0
20
-202004 2005 2005 2006 2007 2008 2009 2010 2010 2011
FNB/BER C C fid RMB/BER B i C fidFNB/BER Consumer Confidence RMB/BER Business Confidence
26
Source: BER
Investment in infrastructure is weak …
% change y/y
8
10
4
6
0
2
-4
-2
1947 1957 1967 1977 1987 1997 2007
Fi d it l t k th GDP th E l tFixed capital stock growth GDP growth Employment
27
Source: SARB
… as government and private business enterprise under invest.under invest.
Fixed investment by institutional sector (2006 = 100)
240
280
320
120
160
200
802006 2007 2008 2009 2010 2011
General Government Private businesses enterprises Public corporations
Real gross fixed capital formationg p% change at seasonally adjusted annualised rates 2010 2011
Q1 Q2 Q3 Q4 Year Q1 Q2Private business enterprises -2.9 2.2 2.0 1.6 -4.4 2.7 4.0Public corporations 2.6 2.9 0.7 3.3 3.5 6.6 4.4General Government -10 3 -5 3 -3 0 1 9 -10 9 -0 5 3 8
28
Source: SARB
General Government 10.3 5.3 3.0 1.9 10.9 0.5 3.8Total -2.8 1.2 1.0 1.5 -3.7 3.1 4.1
Restrictive labour practices and weak global conditions impact on job creation in the private sector …impact on job creation in the private sector …
Index: 2006 = 100
120
125
130
110
115
120
100
105
110
95
100
2006 2007 2008 2009 2010 2011
General go ernment B siness enterprises Total
Source: SARB
29
General government Business enterprises Total
… leaving unemployment at a very high level of 25.7%.
Million14,0
13,6
Total employment
,13,8
13,213,4
13,0
Total employment
Million 3,6
2,7
4,8
12,8
4,4
4,0
Discouraged work seekers (right-hand scale)
%
1,8
0,9
4,0
3,6
3,226
Unemployment rate
2524232221
Source: : Statistics South Africa, Quarterly Labour Force Survey
30
2008 2009 2010 201121
SA is well positioned to take advantage of Africa’s growth potential … (particularly in services and tourism)
GDP th % /
potential …
• Growth in Africa has been above the world average of 3.3% over the past decade. • The IMF forecasts that it will grow by 5.5% in 2011 and 5.9% in 2012.
(p y )
ZimbabweMozambique
AngolaEritrea
Ethiopia
GDP growth, % y/y
BotswanaMalawi
TanzaniaDem. Rep of Congo
ZambiaZimbabwe
Central African RepublicNamibiaDjiboutiGabonKenya
Uganda
0 1 2 3 4 5 6 7 8 9 10
SwazilandLesotho
South AfricaCameroon
Central African Republic
0 1 2 3 4 5 6 7 8 9 10Expected for 2011
Source: IMF
31
… with a strong private and financial sector, although disadvantaged by lack of capacity in the public sector.disadvantaged by lack of capacity in the public sector.
South Africa's ranking: top sectors (blue) vs bottom (green)
3
2
2
1
1
Protection of minority shareholder's interests
Efficacy of corporate boards
Soundness of banks
Regulation of securities exchanges
Strength of auditing and reporting standards
132
10
8
4
3
Business impact of HIV/AIDS
Strength of investor protection
Legal rights index
Financing through local equity market
Availability of financial services
138
138
136
135
133
Flexibility of wage determination
Quality of math’s and science
Business costs of crime and violence
Hiring and firing practices
Quality of educational system
141
139
138
138
15 5 25 45 65 85 105 125 145
Tuberculosis incidence
HIV prevalence
Business impact of tuberculosis
Cooperation in labour-employee relations
-15 5 25 45 65 85 105 125 145Country position
Source: Global Competitiveness Report
32
Conclusion
• SA fortunes are tied to the global economy.
• The growing middle class and counter-cyclical government spending (including rapidly increasing job creation and salary levels in the public sector), provide support to growth.
• The private sector has become financially healthier over the last few years, increasingly spending on the back of rising real incomes, not credit. Consumer spending remains the driver of growth.spe d g e a s t e d e o g o t
• On a longer-term basis stronger growth and improved job creation is likely, providing government rectifies its management constraints by partnering with th i t tthe private sector.
33
Thank youThank you
34