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investec.com banking presentation

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Kensington Presentation Kensington Presentation Presentation Transcript

  • A distinctive specialist banking group Proposed acquisition of Kensington Group PLC Presentation 30 May 2007 A distinctive specialist banking group Disclaimer • For the purposes of the following disclaimers, references to this quot;presentationquot; shall be deemed to include references to the presenters' speeches, the question and answer session and any other related verbal or written communications. • This presentation is being made to you solely for your information and may not be reproduced, further distributed to any other person or published, in whole or in part, for any purpose. • This presentation does not constitute an offer, invitation or inducement to acquire any shares or other securities and no offer, invitation or inducement to acquire any shares or other securities is being made by or in connection with this presentation. Although reasonable care has been taken to ensure that the facts stated in this presentation are accurate and that the opinions expressed are fair and reasonable, the contents of this presentation have not been verified by Investec or any other person. Accordingly no representation or warranty, express or implied, is made as to the fairness, accuracy, completeness or correctness of the information and opinions contained in this presentation and no reliance should be placed on such information or opinions. Neither Investec nor any of its directors, officers, employees or advisers nor any other person accepts any liability whatsoever for any loss howsoever arising from any use of such information or opinions or otherwise arising in connection with this presentation. Nothing in this presentation is intended to constitute a profit forecast for the financial year ending 31 March 2008, nor for any other period. Nor should anything in this presentation be interpreted to mean that future earnings per share of Investec will necessarily match or exceed its historical published earnings per share. • This presentation is not being made by, nor has it been approved by, an authorised person within the meaning of the Financial Services and Markets Act 2000 (quot;FSMAquot;). This presentation is being made and communicated in the UK on the basis that it is exempt from the general restriction (in section 21 of the FSMA) on communications of invitations or inducements to engage in investment activity as made only to persons (a) reasonably believed to be persons who have professional experience in matters relating to investments falling within Article 19(5) of the FSMA (Financial Promotion) Order 2005 (the “Order”), (b) reasonably believed to be high net worth entities within Article 49(2) of the Order (all persons within (a) or (b) above being referred to as “relevant persons”), (c) reasonably believed to be persons in the business of disseminating information concerning controlled activities within Article 47(2) of the Order or (d) any other persons, who, for the purposes of Article 69(2)(a) of the Order, have solicited this presentation. By attending this presentation, all persons are soliciting the presentation. This presentation is not being made or communicated to any other persons and such other persons should not rely or act upon this presentation or any of its contents. • The distribution of this presentation in other jurisdictions may be restricted by law, and persons into whose possession this presentation comes should inform themselves about, and observe, any such restrictions. Any failure to comply with any of those restrictions may constitute a violation of the securities laws of any such jurisdictions. • This presentation may contain quot;forward-looking statementsquot;. Forward-looking statements may be identified by words such as quot;expects,quot; quot;anticipates,quot; quot;intends,quot; quot;plans,quot; quot;believes,quot; quot;seeks,quot; quot;estimates,quot; or quot;willquot; or words of similar meaning and include, but are not limited to, statements about the expected future business and financial performance of Investec or Kensington. Forward-looking statements are based on management's current expectations and assumptions, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. Actual outcomes and results may differ materially from these expectations and assumptions due to changes in global political, economic, business, competitive, market, regulatory and other factors. As a result you are cautioned not to place undue reliance on any forward looking statements. Investec undertakes no obligation to publicly update or review any forward-looking information, whether as a result of new information, future developments or otherwise except where to do so would be required by applicable law. • By participating in this presentation you agree to be bound by the above terms. 2
  • A distinctive specialist banking group Overview - transaction highlights and strategic rationale A distinctive specialist banking group Transaction highlights • 0.7 Investec shares for each Kensington share – represents 5.8% of Investec’s aggregate issued share capital post the deal Terms • Plus special dividend declared by Kensington of 26p per share • Unanimously recommended by the Board of Kensington • 519.5p per Kensington share based on closing price the day before announcement, representing a premium of 6.0% Value • Values Kensington’s fully diluted share capital at £283mn • Class 2 transaction for Investec in terms of UK listing rules Structure and • Scheme of arrangement timing • Expected closing end August 2007 • Regulatory approvals Conditions • Kensington shareholder approval 4
  • A distinctive specialist banking group Strategic rationale – key messages Thorough understanding of Kensington assets • Market is well known to Investec • Undertaken a thorough due diligence of the risks implicit in the Kensington business Consistent with our stated strategic growth objectives • “Bolt-on” acquisition – expanding our existing principal finance and securitisation activities • Kensington represents 9% of the group’s assets* • Will be earnings enhancing in the first year – pre synergies** Compelling strategic rationale • Kensington will be an attractive platform for growth with the right capital and funding structure • Investec has the ability to leverage Kensington’s existing origination and distribution platform and take advantage of the potential securitisation opportunities that arise *Based on last reported numbers: year to 31 Mar 07 for Investec, year to 30 Nov 06 for Kensington. Assets exclude securitised assets. **This statement should not be interpreted to mean that earnings per Investec share for the current or future financial years, or those of the combined group, will necessarily match or exceed the historical published earnings per Investec share. 5 A distinctive specialist banking group An overview of Kensington Kensington Group Assets under management: £7.1 bn Group Chief Executive: Alison Hutchinson Pioneer in non-standard specialist lending with longstanding presence • Recognised brand, innovative products and broad distribution • Rigorous focus on underwriting and arrears management • Highest rated specialist residential mortgage servicer by Fitch 100% 57% 65% 15% Kensington Money Partners Ltd Start Mortgages BlueStep Ireland Sweden Mortgages (MPL) Intermediaries / Direct Direct to consumer Intermediaries Intermediaries / Direct Brokers Specialist mortgages in 1st / 2nd Charge Brokers Broad range of underdeveloped 1st / 2nd Charge Mortgages specialist mortgage market Mortgages product 6
  • A distinctive specialist banking group Investec’s stated strategic positioning Mission: to be a distinctive specialist Pursue a long-term sustainable growth banking group strategy • Build well-defined, value-added businesses • Deliver on financial targets • Serve the needs of select market niches where • Organic growth in areas where we have we can compete effectively significant scale • Entrepreneurial culture, balanced by a strong • Actively seek “bolt-on” acquisitions that risk management discipline expand our position in our core businesses and deliver competitive advantages quickly and • Client-centric approach and ability to be efficiently nimble, flexible and innovative Kensington is in line with our strategic growth objectives Enhances our existing capabilities within our Capital Markets division 7 A distinctive specialist banking group Investec Capital Market Activities • Successfully leveraged its platforms and enhanced its capabilities • Recorded a 55% compound annual growth rate in PBT* over the past four years • Core area of focus over past few years – develop specialist principal finance and securitisation activities • UK and Europe business has to date completed £3 billion of securitisations (including securitisations of non-conforming mortgages totalling £550 million) * Where PBT is operating profit before taxation, goodwill and non-operating items. 8
  • A distinctive specialist banking group Financial impact and risk analysis A distinctive specialist banking group Summary Kensington Investec Is an attractive franchise Compelling strategic fit • Strong market position and recognised brand • Existing market presence • Established distribution • Increased scale • Innovative product range • “Bolt-on” acquisition • Prudent risk management • Track record of service excellence Benefits Investec provides to Kensington • Stronger balance sheet, subject to strict capital allocation criteria However, has been under pressure • Access to lower funding costs • Higher funding costs in the face of declining margins – income from future cash flows has • Capital markets expertise reduced • Changing customer redemption behaviour reducing early redemption income • Lack of capital to fund growth Enhanced competitive positioning Increased flexibility Tangible synergies Well placed to take advantage of growing market 10
  • A distinctive specialist banking group Financial impact analysis • Operationally, the acquisition is relatively small and does not change group drivers • Kensington represents 9% of the group’s assets* • Increase in tangible NAV per share of 10%* • Will be earnings enhancing in first year – pre synergies** • We expect the acquisition to have the following impact on our performance against our financial targets Target Actual Impact 31 March 2007 ROE above 20% 26.1% Marginal decline Cost: income ratio below 65% 59.0% Improvement Capital adequacy ratio 13-16% Investec plc: Marginal decline 24.7% Source: Company report and accounts: year to 31 Mar 07 for Investec, year to 30 Nov 06 for Kensington. *Based on last reported numbers. Assets exclude securitised assets. Number of shares used in NAV calculation includes proposed new shares to be issued. **This statement should not be interpreted to mean that earnings per Investec share for the current or future financial years, or those of the combined group, will necessarily match or exceed the historical published earnings per Investec share. 11 A distinctive specialist banking group Risk analysis • One of Kensington’s underlying capabilities remains prudent risk management Risk factor Kensington position • Low LTVs – 67% on a weighted average indexed* basis Borrower risk • High affordability – 59% of portfolio with debt service ratio of less than 25%* • Rigorous checking of valuations Asset risk • Avoid property concentration • Non-recourse financing throughout Funding risk • Exposure limited to reserve funds - £186mn Collection • Direct debits only risk Unexpected • Net margin covers expected loss by 6x** losses Prepayment • High redemption charges during fixed rate teaser periods risk Source: Kensington *UK portfolio. **KM first charge mortgages. 12
  • A distinctive specialist banking group Value creation opportunities A distinctive specialist banking group Tangible opportunities for value creation Cost reductions Capital • Option to write higher quality business • Planned cost reduction programme • Opportunity to reduce proportion of • Invest in infrastructure to enhance originations sold efficiencies • Subject to strict capital allocation and • Properties return criteria • Head office costs • Eliminate duplicated functions Funding benefits Integration • Existing term loans • Straightforward process, leveraging extensive integration experience of • Enhanced securitisation structuring Investec benefits 14
  • A distinctive specialist banking group Significant under penetration in new growth markets Industry gross Kensington Industry year-on- advances Group Market sector year growth (%) 2006 (UK only) Prime Self- £20.0bn 11.1% New entrant Certified Prime buy-to-let £34.3bn 40.0% New entrant Source: Kensington 2006 preliminary results presentation: table was extracted from a variety of sources, including CML, Datamonitor and industry references 15 A distinctive specialist banking group Conclusion
  • A distinctive specialist banking group Conclusion The combination of Investec’s stronger balance sheet, access to lower cost of funding, and capital markets expertise, together with Kensington’s established distribution, innovative product range, and prudent risk management, create a strong combination for the growing non-standard mortgage marketplace • Compelling strategic rationale - aligned with Investec strategy • Risks are well understood and a thorough due diligence has been undertaken - small in the overall context of the group • Offers attractive financial benefits 17 A distinctive specialist banking group South Africa: Investec sale of property fund management and property administration business to Growthpoint
  • A distinctive specialist banking group Summary Transaction Rationale • Investec infrastructure geared largely • Sale of fund management and property towards supporting Growthpoint admin businesses by Investec to • Growthpoint significant increase in Growthpoint scale – appropriate for them to manage • Effective date: 1 July 2007 own assets • Purchase consideration: R1.4 bn – settled through issue of 87 mn Growthpoint units Financial impacts Outlook • Maintain relationship with Growthpoint • Earnings* – no significant impact • Investec will focus on: • NAV per share* – approx 8% increase - Trading and development opportunities - Increase FUM in listed property business - Create, manage and distribute specialist funds to clients *As reported 31 March 2007 19 A distinctive specialist banking group Further information • Contact the Investec investor relations team: • Telephone – UK: +44 (0) 207 597 5546 – SA: +27 (0)11 286 7070 • Fax: +27 11 (0) 291 1597 • E-mail: investorrelations@investec.com • Useful links: • Investec’s website: http://www.investec.com • Kensington’s website: http://www.kensingtongroup.co.uk • Growthpoint’s website: http://www.growthpoint.co.za 20