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Business profile |
UK and Europe |
| The overall strategy is to align the strategic focus of the UK business with that of South Africa. |
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South Africa |
| Investec Property is one of South Africa's pre-eminent property operations. The business has built strong expertise within the specialist areas
of: |
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Property fund and asset management |
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We manage property portfolios to maximise returns and capital growth of property assets over time |
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Development |
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We develop, re-develop and refurbish properties within the office, retail, industrial, residential and land conversion sectors using our extensive experience and skill |
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Trading and acquisitions |
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The division sources buildings or land opportunities with the specific intention of adding or unlocking value and ultimately trading the assets in order to optimise the return. |
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Australia |
| The Australian Property division focuses on the following activities: |
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Property investments, trading and development |
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Property fund and asset management |
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Property backed distressed debt acquisitions. |
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Management structure |
Global head of Property |
Sam Hackner |
| Deputy chairman |
Sam Leon |
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UK and Europe |
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| Regional head |
Sam Hackner |
| Property Projects |
Robin Magid |
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South Africa |
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| Property Projects |
Robin Magid |
| Investec Property fund |
Sam Leon |
| Finance and operations |
Dave Donald |
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Australia |
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| Regional head |
Graeme Katz |
| Finance and operations |
Darrell Godin |
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Review of operating environment |
The South African commercial property market (rent producing) has weathered the impact of the global economic downturn more favourably
than its international counterparts. The property development environment is relatively uncertain and difficult to anticipate due to pressures
on capital funding from financial institutions. The property industry relies on a well regulated environment within which to operate. Changes
in this environment are impacting on planning and development, availability of services and deeds' registration. To manage the impact of the
changing legislative and operating environment, the business has ensured that it is well prepared and adequately staffed.
The Australian property market has seen some interesting developments and gone through what would appear to be some fundamental
changes over the past year: |
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Listed property players continue to stabilise their capital structures and refocus on core business |
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Valuations and senior debt availability appear to be stabilising, but remain conservative |
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Property fundamentals are beginning to stabilise and the general consensus is that the market is at or near the end of the downward cycle |
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Increasing M&A activity in the local market, with a number of acquisitions/mergers and management changes, although still in the early
stages |
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The fund management environment is fundamentally different, with many retail fund management players no longer operating independently |
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Limited material unlisted capital raisings, particularly opportunistically, with current focus on smaller, yielding syndicates. |
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| Overall, despite increasing market confidence, many investors remain cautious. Over time we anticipate investor confidence returning, but
in the near term likely to be focused on yield and certainty of investment. However, in contrast, many opportunities continue to present
themselves in the development and opportunistic area for the principal investor who can take advantage of the recent downturn to acquire
projects from pressurised vendors. |
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Financial analysis |
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Operating profit increased by 42.5% to £47.7 million, contributing 11.0% to group profit. |
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Operating profit^ – track record |
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Income statement analysis |
| £’000 |
31 March
2011 |
31 March
2010 |
Variance |
%
change |
| Net interest income |
(1 595) |
(7 513) |
5 918 |
78.8% |
| Net fee and commission income |
22 808 |
15 375 |
7 433 |
48.3% |
| Other income |
52 385 |
45 599 |
6 786 |
14.9% |
| Total operating income |
73 598 |
53 461 |
20 137 |
37.7% |
| Operating costs |
(25 890) |
(19 982) |
(5 908) |
29.6% |
| Operating profit before goodwill, acquired intangibles, non-operating items, taxation and after non-controlling interests |
47 708 |
33 479 |
14 229 |
42.5% |
| UK and Europe |
375 |
825 |
(450) |
(54.5%) |
| Southern Africa |
40 178 |
31 582 |
8 596 |
27.2% |
| Australia |
7 155 |
1 072 |
6 083 |
>100.0% |
| Operating profit before goodwill, acquired intangibles, non-operating items, taxation and after non-controlling interests |
47 708 |
33 479 |
14 229 |
42.5% |
| Ordinary shareholders' equity* |
112 775 |
75 615 |
37 160 |
49.1% |
| ROE (pre-tax)* |
39.6% |
41.0% |
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| Return on tangible equity (pre-tax)* |
39.8% |
41.2% |
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| Cost to income ratio |
35.2% |
37.4% |
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| Operating profit per employee (£'000)* |
603.2 |
434.8 |
168.4 |
38.7% |
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The variance in operating profit over the year can be explained as follows: |
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In South Africa, the revaluation of investment properties net of funding costs amounted to R485 million (2010: R398 million). |
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The Australian business benefited from a successful equity raising, a discounted distressed debt acquisition and the sale of investments. |
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Analysis of key earnings drivers (funds under management) |
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£'million |
|
Home currency 'million |
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| Total funds under management as at |
31 March
2011 |
31 March
2010 |
%
change |
31 March
2011 |
31 March
2010 |
%
change |
| UK and Europe |
80 |
73 |
9.6% |
£80 |
£73 |
9.6% |
| South Africa |
46 |
61 |
(24.6%) |
R503 |
R677 |
(25.7%) |
| Australia |
166 |
^127 |
30.7% |
A$258 |
^A$211 |
22.3% |
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292 |
261 |
11.9% |
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Developments |
Southern Africa |
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The business has successfully formed a new diversified property fund in South Africa valued at R1.7 billion comprising Investec group
owned assets. The fund was listed on the JSE Limited in April 2011 |
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Successfully procured development and re-development projects for major clients |
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The business has cemented its status as a premier industrial developer. |
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Australia |
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The Investec Property Opportunity fund enters its final year, with some of its major assets fully completed and others anticipated to
complete construction by mid 2011 |
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A second opportunity fund, Investec Property Opportunity fund no. 2 (IPOF2) was raised during the year, with A$38.6 million of committed
equity |
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The Toga Accommodation fund resumed distributions and reached the end of its initial five year life, subsequently moving into the
anticipated two year liquidity period during which we will facilitate an exit for investors |
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We acquired a portfolio of distressed loans which we aim to realise over the next two years. |
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Outlook |
Southern Africa |
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The business has a substantial pipeline of development and re-development projects |
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The listing of the fund enhances capacity to procure new business and grow assets under management |
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The business will continue to embark on trading and development of identified assets on a deal by deal basis |
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The business aims to fully invest the Investec GLL Global Special Opportunities (GSO) Real Estate fund I. Total capital committed to the
fund is e150 million. |
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Australia |
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With property fundamentals stabilising, we are well positioned in current market conditions to take advantage of opportunities for property
and development acquisitions through principal investment and partnering with investors through joint ventures or syndicates |
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We intend to fully invest IPOF2 by 2012. Thereafter we will continue to source and manage value adding property opportunities for both
the balance sheet and investors while actively managing investments currently underway through to maturity. |
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Sustainability considerations |
Despite the reality that economic returns still drive the long-term sustainability of our business, we
recognise the importance of investing in communities.
Our sustainability approach focuses on: |
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Driving environmental strategies around paper recycling, building and construction design and
energy saving |
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Catering for multinational tenants requiring green star rated buildings |
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Encouraging our investors to be conscious of the necessity for ‘green building’ practices |
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Conducting an environmental impact assessment of property development projects where we are
cognisant of environmental degradation |
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Encouraging every team member to attend and/or participate in activities associated with
sustainability, e.g. talent fairs, road shows, business updates, and social and well-being
presentations |
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Engaging in and supporting corporate social investment initiatives and encouraging employees
to do the same. |
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| We influence
sustainability
policy formulation
through our
membership
on the Green
Building Council
of South Africa,
the South African
Property Owners'
Association
and the South
African Council of
Shopping Centres. |
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Our employees are integral to the success of the business. We encourage the development of
entrepreneurial skills in the specialist areas of property investments, property developments and
property analysis. Our focus is on retaining employees with the required skills set and relevant
experience. The division participates in the group's graduate training programme, specifically focusing
on Bachelor of Science Property Studies students.
The South African business has made good progress in addressing employment equity during the
past three years but recognises that a few challenges remain. We have exceeded the targets set at
senior manager and semi-skilled/discretionary decision maker occupational levels.
A portion of Property's budget is allocated each year for specific external corporate social investment
activity, usually in the form of donations. |