| Thu 31 May 2001, 0:00 | | Investec Group Limited - Audited Results |
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Investec Group Limited
Audited Group Results for the year ended 31 March 2001
* 22nd Year of Uninterrupted Growth
* Headline Earnings 25.5%
* Headline Earnings Per Share 25.2%
* 10-Year Compound Growth in Headline EPS 30.1%
Salient Features
%
31 March 31 March Increase/
2001 2000 (decrease)
Headline earnings attributable
to ordinary shareholders
(R' millions) 1 314 1 047 25.5
Headline earnings
per share (cents) 1 628.2 1 300.9 25.2
Dividends per share (cents) 750 620 21.0
Net tangible asset value
per share (R) 60.9 55.7 9.3
Capital adequacy ratio (%) 14.6 11.9 22.7
Return on average tangible
net asset value (%) 28.6 24.3 17.7
Return on average risk
weighted assets (%) 3.0 2.8 7.1
Total assets under management
(R' billions) 514 486 5.8
Total number of ordinary
shares in issue (millions) 80.9 80.6
Commentary
Overall performance
Investec is pleased to announce that headline earnings for the year ended 31
March 2001 increased by 25.5% to R1 314 million, extending the company's 22
years of uninterrupted growth. Given the Group's positioning as a specialist
banking group operating in environments which experienced extreme equity
market volatility and uncertainty, Investec is highly satisfied with its
achievements this year.
Highlights of the year's performance were:
* Headline earnings per share grew by 25.2% to 1 628.2c, representing a ten-
year compound growth of 30.1% per annum
* Total income grew by 20% to R5 301 million, of which 96% was organic and
the balance was attributable to the inclusion of acquisitions
* Annuity income as a percentage of total income increased from 70.7% last
year to 76.1% this year, improving the stability of the earnings base
* Return on average tangible net asset value increased from 24.3% to 28.6%
* Total dividend per share of 750c is up 21.0% from 620c in the prior year.
This represents a ten-year compound annual growth rate of 29.6% and equates
to a dividend cover of 2.2.
Operating environment
The year under review was characterised by a slowdown in global growth in
the last six months and extreme volatility throughout international markets,
particularly in the United States (US). International uncertainty permeated
the South Africa (SA) market. Equities performed poorly despite the
favourable backdrop of declining interest rates. The strong dollar and
regional influences contributed to a further devaluation in the Rand,
notwithstanding a sound economy and prudent monetary and fiscal policies.
Increasing competition and consolidation in the local market also put
pressure on margins, but Investec remains well placed because of its
international earnings, local knowledge, product innovation and integrated
operating divisions.
Business unit review
The Investec Group continues to focus on its four principal business areas,
namely Investment Banking, Treasury and Finance, Private Client Activities
and Asset Management, providing a multi country offering with specific local
and global banking and asset management expertise.
Each business area achieved solid results in difficult global financial
markets. The performance underscores the value of the Group's diverse
portfolio of integrated international businesses and profit streams.
Investec remains confident about its strategic model, backed up by the high
level of margin and other annuity related income, which is sustainable
notwithstanding market volatility.
Contribution analysis - % of headline net income before tax (excluding
"other" activities)
* Investment Banking
The Investment Banking division posted credible results in a difficult
environment, with Headline Net Income before Tax ("Headline NIBT")
increasing by 9.7%. Its contribution dropped from 38.2% last year to 34.2%
in the current year. Operating expenses were 15.8% higher and the cost-to-
income ratio increased marginally to 37.4% (2000: 36.6%).
Although the weaker markets negatively impacted the division's principal
trading and institutional broking activities, strong results were generated
in the M&A advisory businesses. Specifically, Investec Henderson Crosthwaite
in the United Kingdom (UK) increased net income before tax by more than 75%.
It is also worth noting that notwithstanding adverse market conditions, the
SA corporate finance division increased its level of activity, as evidenced
by achieving first place in the Ernst & Young survey for number of deals and
third place in DealMakers Magazine survey of value of deals undertaken
during 2000 calendar year.
Worldwide great strides were made in integrating, expanding and enhancing
capabilities. In addition to increasing the number of cross border
transactions, it bolstered research capabilities and expanded its reach into
the US. The acquisition of the PMG Group Inc., a boutique investment bank,
also provides significant enhancement to the UK and Israeli product
offerings.
The acquisition of Wentworth Associates, a high quality M&A boutique based
in Sydney, Australia will enhance the Group's investment banking capability
while at the same time raising the Group's profile, improving the quality of
its client base and increasing its presence in the Australian market.
* Treasury and Finance
The Treasury and Finance division made another significant contribution of
31.9% to Investec's Group performance, and a growth in Headline NIBT of
26.8%.
A key development during the year was the consolidation of the Group's
international treasury and finance related businesses with the result that
the division is now divided into eight business units worldwide. These units
are described as financial markets activities or banking related activities.
Already well-represented in SA, the division benefited from its first full
year of integrated activities in Ireland. Particularly strong performances
were experienced in the equities derivatives, emerging markets finance,
mining finance and structured finance areas. Some of the other key
developments included Investec's entry into the South African warrants
market, achieving an average market share of 15%, and the establishment of a
commodities trading business. The commodities business will enable Investec
to increase its presence in and product offering to the mining and
manufacturing sectors which use base metals, oil and certain soft
commodities.
* Private Client Activities
Private Client Activities performed impressively on all fronts, with
Headline NIBT growing by 37.9% and the cost to income ratio reducing to
70.3% from 71.1%. Accordingly, its contribution to Group earnings increased
to 21.6% from 19.2%.
The Private Bank's strategic efforts to diversify its revenue streams bore
fruit this year, leading to a 32% growth in its advances book and a 39.1%
increase in assets under management. Innovative product development,
incorporating international best practice, and client acquisition
significantly increased its market share.
South African Private Client stockbroking grew strongly. Funds under
management increased by 23.3% of which 12% is attributable to organic growth
and the balance attributable to the acquisition of Quyn Martin Asset
Management. The latter added a quality client base and brought with it a
management team with substantial experience and expertise.
The launch of an online private banking product offering coupled with the
continued penetration of the domestic market assisted the UK Private Client
division in yielding earnings growth of 45% during 2001. Acquisitions in
Switzerland and Jersey as well as an extension of activities in Ireland
broadened the geographic scope of offshore trust, fiduciary and structuring
services for Investec's private clients world-wide. Carr Sheppards continued
to enjoy growth in earnings notwithstanding very difficult equity market
conditions. They currently have assets under administration of R78 billion
(GBP6.9 billion).
In the US, the acquisition of the retail correspondent clearing business of
Herzog Heine Geduld Inc. bolstered retail brokerage activities which overall
had a very difficult year.
Notwithstanding Israel's political uncertainty, the division continued to
build its image and profile through the marketing of its E-Bank and other
private client offerings in line with the rest of the Group.
* Asset Management
The Asset Management division delivered another year of strong profit
growth, despite extremely tough conditions in the SA unit trust market,
increasing Headline NIBT by 27.4% and reducing its cost to income ratio from
75.3% to 74.0%.
The resilience of the SA institutional business was severely tested under
the strain of weak equity performance during the 2001 financial year. It is
gratifying to report net inflows under these conditions as well as a
decisive improvement in performance since January 2001. The robust platform
in SA is well positioned to extract maximum synergy from the acquisition of
the Fedsure asset management business.
In non SA retail markets our net inflows exceeded R2.7 billion. Two new
Investment Trusts raised R2 billion. The excellent performance on the UK
pension fund manager tables is cause for long term optimism. After a very
successful recruitment drive, the right teams are in place to take this
business into its next growth phase.
Internationalisation
The Group's internationalisation continues with a number of acquisitions and
further replication of its South African business model. The international
rebranding has successfully lifted Investec's profile. Investec's matrix
business model makes all business divisions international, with global
business heads facilitating inter-divisional and inter jurisdictional
cooperation to provide comprehensive and efficient cross border services and
products. Foreign currency accounts for 61% of the Group's income and 69% of
its assets.
Headline net income before tax by geography
Acquisitions
Select acquisitions, as previously mentioned, were made during the year,
capitalising on opportunities arising from the ongoing consolidation within
the international financial services sector. Strategic motivation for
acquisitions remains either to bolster critical mass within existing areas
of operation or to allow the Group to enter appropriate markets. The
acquisition of the financial services businesses of Fedsure represents a
combination of both in that it enables the Group to derive significant
economies of scale in select businesses (notably asset management, linked
products and property asset management) and entry into the employee benefits
and traded endowments businesses.
The acquisition announced on 22 November 2000 remains subject to regulatory
approval which is expected shortly. As Investec does not yet have control
over Fedsure's financial and operating decisions it continues to account for
all of Fedsure's operations as an associate. As the transaction has not
closed, the acquisition shares have not been issued. The vendors will be
entitled to a dividend equivalent to the final dividend which will be
accounted for as part of the acquisition cost. A significant amount of
effort has been expended by the Group in preparing for the integration and
implementation of the strategies outlined in the announcement dated 16 March
2001. Significant co-operation has been initiated between senior Fedsure and
Investec management to facilitate a smooth transition pending regulatory
approval.
Management of Investec are confident that the problems experienced by
Fedsure have been addressed and expect the transaction to be earnings
enhancing.
Assets by geography
Steady growth in income
Net interest income increased by 34.3%, driven by healthy growth in advances
of 15.2%. The Group earned an annualised net interest margin of 2.6%, after
excluding the effects of centralised funding and the reduced returns on the
short dated wholesale banking business in the UK.
Due to the improved quality of loan portfolios, and a continuing commitment
to balanced risk management the provision for bad and doubtful debts charged
to the income statement reduced by 6.2%. The percentage of non performing
loans to advances reduced from 2.1% to 1.65%.
Provision levels exceed the Registrar of Bank's requirements, in terms of
international regulatory norms, with the adequacy of provisions supported by
an increase in total provision coverage of gross non performing loans from
117.3% to 134.1%, while the ratio of total provisions to gross advances
maintained a healthy level of 2.2%.
Other income rose 12.1% to R3 621 million. Although solid growth in
commission and fees was achieved, principal transactions and trading income
dropped, largely due to unfavourable market conditions and the absence of
the significant realised gains earned in the previous year. This together
with strong growth in net margin accounts for a decline in other income
expressed as a precentage of total income from 69.8% to 65.8%.
Cost control
The overall ratio of operating expenses to total income increased from 61.9%
to 63.3%. This mainly reflects the investments made in marketing and
equipment. Specifically, a brand-building campaign was launched in the UK
and Israel (contributing to an increase in marketing expenditure of 43.3 %)
while operational capacity was enhanced with systems expenditure by Treasury
and Finance and by Asset Management as well as by Investec Ernst in the US.
This contributed towards an increase in equipment expenses of 44.6%.
Having regard to this, an overall increase of 16.9% in business, premises
and personnel expenses demonstrates that cost management measures are still
in place but that business development and profile enhancement takes
priority at this stage.
Taxation
The effective tax rate for the Group has dropped from 26.9% to 20.3%. This
is due to increased deferred tax assets raised in the UK, coupled with lower
taxable earnings in the US and Israel, (which have higher corporate tax
rates than SA) partially offset by higher tax charges in SA.
Income from associates
Income from associates largely represents the operational performance of
Fedsure and is broken down into Investec's share of its operational earnings
and exceptional items.
For the year ended 31 December 2000, Fedsure recognised an exceptional loss
arising from an adverse movement in free assets.
A further exceptional item was the write off of goodwill relating to its
healthcare business. Investec has made an adjustment to its 2000 results,
being a decrease in attributable earnings of R64 million, so as to align the
treatment of this goodwill amortisation with Investec's policy for goodwill.
Exceptional items
Exceptional items comprise Investec's share of associates' exceptional items
as detailed above, the discount arising on the fair value of acquisitions,
and goodwill amortised over the period. The latter amount increased
significantly primarily due to the full year impact of amortisation of
goodwill relating to acquisitions made towards the end of last year and, to
a lesser extent, the impact of new acquisitions made during the course of
the current year.
Capital resources
Total capital resources increased by R2 989 million to R10 884 million at 31
March 2001, equivalent to an increase of 37.9%. This was due mainly to the
issue of compulsorily convertible debentures, to the value of R611 million,
and an issue of R1 945 million unsecured subordinated bonds. As a
consequence, the Group's net qualifying capital for banking activities
increased by 45.4%. Against a slower growth in risk weighted assets of 18.2%
over the period, the Group increased its capital adequacy ratio
significantly from 11.9% to 14.6% which marginally exceeds the ratio
determined in terms of the new regulations to the Banks Act governing
consolidated capital adequacy.
The Group's increased attention to capital management saw the introduction
of a capital committee to prepare for the new Basle Capital Accord in 2004.
Other areas of focus include the refinement of the Group's capital
allocation model with a view to measuring the return by product and
geography, after full allocation of indirect costs, and the realignment of
the Group's incentivisation basis to accord with the new allocation model.
Return on average tangible net asset value increased to 28.6% (2000 -
24.3%), largely as a result of increased headline earnings generated off a
relatively stable equity base, equity raising initiatives being balanced by
depressed revaluation reserves.
Tangible net asset value by geography
Changes to accounting policies and disclosure
Compliance with the new South African standard relating to the disclosure of
taxation (AC 102) resulted in the reclassification of certain tax-related
charges as expenses, with no resultant effect on after-tax income.
In line with a stepped approach to full compliance with the new South
African standard on Financial Instruments (AC 133), all trading derivatives
are carried at gross positive and negative fair values (after permissible
netting) on the balance sheet. This has resulted in an increase in the
investment and trading assets in the prior year of R1 096 million, with a
corresponding increase in liabilities. There is no effect on the income
statement.
Assets and liabilities of the assurance business which were previously
treated as off balance sheet items are reflected on balance sheet. This has
resulted in an increase in total assets in the prior year of R7 865 million.
Again, there is no effect on the income statement.
Social impact initiatives
The Group's social impact initiatives reflect Investec's ongoing commitment
to project-driven, entrepreneurial-focused, high-impact investments. Two key
initiatives launched during the year were The Business Place and the CIDA
City Campus. The former is a cluster of micro and small businesses providing
advice and services to SMME's. The latter is an innovative tertiary
institution offering a four year fully accredited, Bachelor of Business
Administration, degree to talented, underprivileged students. Investec has
donated the use of its former head office in the Johannesburg CBD to the
CIDA City Campus.
Prospects for the year ahead
The directors and management are of the opinion that the Group will continue
to achieve solid growth in earnings and dividends.
On behalf of the board
HS Herman S Koseff B Kantor
Chairman Chief Executive Managing Director
A variety of factors, many of which are beyond Investec's control, could
cause forward looking statements expressed here to differ materially from
actual results. These factors include, but are not limited to, financial
market volatility, actions and initiatives by current and potential
competitors and the effect of future legislation or regulation.
Consolidated Income Statement
%
31 March *31 March Increase/
(R' Millions) 2001 2000 (decrease)
Interest received 12 114 9 006 34.5
Interest paid 10 236 7 608 34.5
Net interest income 1 878 1 398 34.3
Provision for bad and doubtful
debts 198 211 (6.2)
1 680 1 187 41.5
Other income 3 621 3 230 12.1
Commission and fees
- recurring 2 339 1 904 22.8
Principal transactions and
trading income 638 767 (16.8)
Commission and fees - once off 644 559 15.2
Total income 5 301 4 417 20.0
Operating expenses 3 476 2 864 21.4
Income before exceptional
items and taxation 1 825 1 553 17.5
Exceptional items 312 165 89.1
Income before taxation 1 513 1 388 9.0
Taxation 321 352 (8.8)
Income after taxation 1 192 1 036 15.1
Share of (loss)/income of
associated companies (86) 42 (304.8)
Operating income 70 106 (34.0)
Exceptional items (156) (64) (143.8)
Net income 1 106 1 078 2.6
Earnings attributable to
minority shareholders 13 15 (13.3)
1 093 1 063 2.8
Compulsorily convertible
debenture interest 247 245 0.8
Earnings attributable to ordinary
shareholders 846 818 3.4
Headline earnings
per share (cents) 1 628.2 1 300.9 25.2
Earnings per share (cents) 1 048.4 1 016.4 3.1
Diluted earnings
per share (cents) 1 039.7 1 016.1 2.3
Calculation of Headline Earnings
31 March *31 March
(R' Millions) 2001 2000
Headline earnings 1 314 1 047
Headline adjustments (468) (229)
Share of associates'
exceptional items (156) (64)
Goodwill amortised (315) (195)
Discount on fair value
of acquisitions 3 30
Attributable earnings 846 818
Consolidated Balance Sheet
31 March *31 March
(R' Millions) 2001 2000
Assets
Cash and short-term funds 69 187 73 118
Short-term negotiable
securities 53 874 39 043
Investment and trading
securities 22 144 17 765
Other assets 6 552 7 426
Advances and other accounts 38 062 33 034
Associated companies 544 349
Fixed assets 1 320 1 065
Intangible assets 2 849 2 443
194 532 174 243
Equity and liabilities
Capital and reserves
Ordinary share capital 49 48
Compulsorily convertible
debentures 2 321 1 710
Convertible preference shares 385 -
Reserves 5 917 5 846
8 672 7 604
Subordinated bonds 1 945 -
Interest of minority
shareholders in subsidiaries 267 291
Total shareholders' funds 10 884 7 895
Liabilities
Deposits and other accounts 182 994 165 679
Taxation 298 361
Shareholders for ordinary
dividends 356 308
194 532 174 243
Acceptances, guarantees and
letters of credit 11 368 9 057
Statement of Changes in Shareholders' Equity
31 March *31 March
(R' Millions) 2001 2000
Balance at beginning of year 7 604 7 107
Issue of shares and debentures 1 053 12
Movement in other reserves (225) 166
Transfer from income statement 846 818
As previously reported 882
Prior year adjustment (64)
Dividends declared (606) (499)
8 672 7 604
* Restated for changes to accounting policies and disclosures
Segmental Report
Headline NIBT by Geography (R'mn)
%
31 March 31 March Increase/
2001 2000 (decrease)
Southern Africa & Other 704 459 53.4
UK & Europe 965 764 26.3
Israel 65 87 (25.3)
USA 91 243 (62.6)
Group 1 825 1 553 17.5
Headline NIBT by Business (R'mn)
%
31 March 31 March Increase/
2001 2000 (decrease)
Investment Banking 633 577 9.7
Treasury & Finance Group 591 466 26.8
Private Client Activities 400 290 37.9
Asset Management 228 179 27.4
Other Activities (27) 41 (165.9)
Group 1 825 1 553 17.5
Dividend announcement
A final dividend (No. 92) of 440 cents (2000: 382.5 cents) per share, making
a total of 750 cents (2000: 620 cents) for the year ended 31 March 2001 has
been declared payable to shareholders registered at the close of business on
15 June 2001. Dividend cheques will be posted on or about 27 June 2001.
The dividend is payable in the currency of the Republic of South Africa.
By order of the board
S Noik
Secretary 31 May 2001
Registered office:
100 Grayston Drive, Sandown, Sandton 2196.
Transfer secretaries:
Mercantile Registrars Limited, 8th Floor, 11 Diagonal Street, Johannesburg
2001.
Directors:
H S Herman (Chairman), S Koseff* (Chief Executive), B Kantor* (Managing), S
E Abrahams, A I Basserabie, Dr H K Davies, G H Davin, D E Jowell, I R
Kantor, D M Lawrence*, D H Mitchell, D R Motsepe, Dr M Z Nkosi, B Tapnack*,
P R S Thomas.
* Executive
Investec Group Limited
("Investec")
(Registration number 1925/002833/06)
Directors:
H S Herman (Chairman), S KoseffY (Chief Executive), B KantorY (Managing), S
E Abrahams, A I Basserabie, Dr H K Davies, G H Davin, D E Jowell, I R
Kantor, D M Lawrence*, D H Mitchell, D R Motsepe, Dr M Z Nkosi, B Tapnack*,
P R S Thomas.
* Executive
Investec Group Limited
("Investec")
(Registration number 1925/002833/06)
