| Thu 22 Nov 2001, 0:00 | | Investec Group Limited - Unaudited Group Results |
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Investec Group Limited
("Investec")
(Registration number 1925/002833/06)
JSE Code: INT ISIN Code: ZAE000012555
Unaudited Group Results for the six months ended 30 September 2001
* 23rd Year of Uninterrupted Growth
* Headline Earnings up31.0%
* Headline Earnings Per Share up15.1%
* 10-Year Compound Growth in Headline EPS 29.4%
Salient Features
Year to
30 Sept. % 30 Sept. 31 March
2001 Increase 2000 2001
Headline earnings attributable to
ordinary shareholders
(R' millions) 760 31.0 580 1 314
Headline earnings per
share (cents) 827.9 15.1 719.3 1 628.2
Dividend per share (cents) 375.0 21.0 310.0 750.0
Net tangible asset value
per share on a fully
diluted basis (R) 64.7 61.9 64.6
Capital adequacy ratio (%) 15.1 13.7 15.3
Return on average
shareholders' funds (%) 26.4 24.3 26.9
Return on average risk
weighted assets (%) 3.1 2.7 3.0
Total assets under
administration (R' billions) 594 18.1 503 514
Total number of ordinary shares
in issue (millions) 94.2 80.6 80.9
Consolidated Income Statement
6 months to 6 months to Year to
30 Sept. % 30 Sept. 31 March
(R' Millions) 2001 Increase 2000* 2001*
Interest received 5 870 6.9 5 492 12 114
Interest paid 4 869 2.2 4 765 10 236
1 001 37.7 727 1 878
Provision for bad and
doubtful debts 110 (0.9) 111 198
Net interest income 891 44.6 616 1 680
Other income 2 369 28.5 1 844 3 621
Commission and fees -
recurring 1 398 27.9 1 093 2 339
Principal transactions
and trading income 540 17.1 461 638
Commission and fees -
non-recurring 321 10.7 290 644
Income from long term
assurance business 110 - -
Total income 3 260 32.5 2 460 5 301
Operating expenses 2 127 32.6 1 604 3 476
Exceptional items 284 113.5 133 312
Income before taxation 849 17.4 723 1 513
Taxation 223 20.5 185 321
Income after taxation 626 16.4 538 1 192
Share of income of
associated companies 95 269.6 (56) (86)
Operating income 13 (70.5) 44 70
Exceptional items 82 182.0 (100) (156)
Net income 721 49.6 482 1 106
Attributable to minority
shareholders 10 (16.7) 12 13
711 51.3 470 1 093
Debenture interest 153 24.4 123 247
Earnings attributable to
ordinary shareholders 558 60.8 347 846
Headline earnings
per share (cents) 827.9 15.1 719.3 1 628.2
Earnings per share (cents) 607.8 41.2 430.5 1 048.4
Diluted earnings
per share (cents) 588.4 36.7 430.5 1 039.7
Calculation of Headline Earnings
6 months to 6 months to Year to
30 Sept. 30 Sept. 31 March
(R' Millions) 2001 2000* 2001*
Headline earnings 760 580 1 314
Exceptional items (202) (233) (468)
Goodwill amortised (285) (133) (315)
Discount on fair value of
acquisitions 1 - 3
Share of associates'
exceptional items 82 (100) (156)
Attributable earnings 558 347 846
Statement of Changes in Shareholders' Equity
6 months to 6 months to Year to
30 Sept. 30 Sept. 31 March
(R' Millions) 2001 2000* 2001*
Balance at beginning of year 9 028 7 912 7 912
- as previously reported 7 604 7 604
- prior year adjustment: dividends
declared subsequent to
reporting period 308 308
Net issue of shares and
debentures 3 771 12 670
Repurchase of own shares (644) - -
Issue of convertible preference
shares - 385 385
Earnings attributable to ordinary
shareholders 558 347 846
Dividends paid (356) (308) (558)
Movement in foreign
currency translation 704 49 152
Movement in investment
revaluation reserve (121) (167) (379)
12 940 8 230 9 028
Consolidated Balance Sheet
30 Sept 30 Sept. 31 March
(R' Millions) 2001 2000* 2001*
Assets
Cash and short-term funds 80 541 79 446 69 196
Short-term negotiable
securities 56 970 54 394 53 874
Investment and trading
securities 14 261 11 133 9 968
Other assets 6 196 6 565 6 237
Advances 42 671 33 525 38 062
Associated companies 43 299 544
Fixed assets 1 451 1 198 1 320
Goodwill 5 883 2 364 2 849
Long term assurance assets 42 198 12 710 12 682
250 214 201 634 194 732
Equity and liabilities
Capital and reserves
Ordinary share capital 58 48 49
Compulsorily convertible
debentures 2 317 1 710 2 321
Convertible preference shares 385 385 385
Reserves 10 180 6 087 6 273
12 940 8 230 9 028
Interest of minority shareholders
in subsidiaries 344 302 267
Total shareholders' funds 13 284 8 532 9 295
Subordinated debt 1 945 1 000 1 945
Total capital resources 15 229 9 532 11 240
Liabilities
Deposits and other accounts 194 394 178 929 170 312
Taxation 554 463 498
Long term assurance
liabilities 40 037 12 710 12 682
250 214 201 634 194 732
Acceptances, guarantees and letters
of credit 11 378 9 070 11 368
*Restated for changes to accounting policies and disclosures
Geographic and business analysis of headline net income before tax - 30
September 2001
Southern United United Investec
Africa Kingdom States of Group
(R' Millions) & Other & Europe Israel America Limited
Investment Banking 159 151 19 (4) 325
Treasury and
Finance Group 298 54 1 - 353
Asset Management
and Assurance
Activities 244 8 1 - 253
Private Client
Activities 57 138 12 3 210
Other (66) 30 - 28 (8)
Total 692 381 33 27 1 133
Geographic and business analysis of headline net income before tax - 30
September 2000
Southern United United Investec
Africa Kingdom States of Group
(R' Millions) & Other & Europe Israel America Limited
Investment Banking 205 243 27 - 475
Treasury and
Finance Group 230 41 2 - 273
Asset Management
and Assurance
Activities 89 16 2 - 107
Private Client
Activities 68 122 22 18 230
Other (280) (7) (2) 60 (229)
Total 312 415 51 78 856
Commentary
Overall performance
Investec is pleased to announce that headline earnings for the half-year
ended 30 September 2001 increased by 31.0% to R760 million. Headline
earnings per share grew by 15.1% to 827.9 cents, representing a 10-year
compound growth of 29.4% per annum. The Group's geographic spread, diverse
business portfolios and conservative risk management contained the effects
of weak financial markets experienced during the period under review.
Highlights of the past six months include:
Successful integration of the businesses retained from the acquisition of
the insurance and financial services businesses of Fedsure Holdings Limited
("the Fedsure acquisition") and the reinsurance of the individual life book
with Capital Alliance Holdings Limited;
Solid growth in headline net income before tax ("headline NIBT") of 32.4% to
R1 133 million, underpinned by an increase of R800 million in total income;
Enhanced balance sheet strength as represented by an increase of R955
million in tangible shareholders' funds and a solid capital adequacy ratio
of 15.1%, after providing for the capital requirements arising from the
Fedsure acquisition;
Return on average tangible shareholders' funds increased from 24.3% to
26.4%; and
Dividends per share of 375 cents up 21.0%. This represents a 10-year
compound annual growth rate of 29.6% and equates to a dividend cover of 2.2.
Operating environment
The period under review was characterised by a dramatic slowdown in the
global economy, a deteriorating worldwide political landscape and a volatile
investment environment, all of which contributed towards waning investor
confidence.
These adverse cyclical factors have inevitably affected the Group's equity
related activities, where unfavourable market conditions manifested in lower
trading volumes and turnover, a decrease in portfolio values and declining
primary and secondary market activity. Conversely, the Group's banking and
interest rate activities were well positioned to take advantage of the
dramatic interest rate cuts experienced worldwide, contributing positively
towards the Group's overall performance and providing a shield against
difficult investment banking and stockbroking markets.
Aggressive monetary and fiscal stimulus across the globe should promote
future growth and ultimately restore investor confidence in the economy and
the markets. Investec's diversification across equities, fixed income,
private client, asset management and investment banking activities, in
addition to its regional diversity, ensures that it is strategically
positioned to weather the current challenging conditions.
Business unit review
Investment Banking
The period under review proved difficult from an Investment Banking point of
view, with headline NIBT decreasing by 31.6%. As a result, its contribution
to Group earnings (excluding "other" activities) dropped from 43.8% last
year to 28.5% in the current year.
Corporate finance in South Africa (SA) posted credible results, benefiting
from the various opportunities that continue to arise in the corporate
market, particularly in the areas of M&A and corporate restructuring. In
this regard, Investec Corporate Finance remains well positioned and, as
such, was jointly awarded the "M&A House of the Year for South Africa"
accolade by Euromoney. The newly created Trade Facilitation Desk performed
well, supplementing the deflated revenue stream which arose from depressed
agency volumes in institutional stockbroking.
In the United Kingdom (UK), Investec Henderson Crosthwaite's (IHC) headline
NIBT decreased 53.6%, largely as a result of the sharp decline in IPO
activity, particularly in the technology, media and telecoms sectors from
which it derived significant benefits in the past year. However, this
division continues to generate positive results due to its strong
positioning in the mining, oils and leisure sectors and the sound
performance of its market making activities. Furthermore, IHC has succeeded
in diversifying its revenue streams by leveraging off a strong client base,
having concluded 16 M&A transactions and 10 capital raisings in the period
under review.
The Group has successfully integrated its recent Investment Banking
acquisitions. In Australia, Investec Wentworth was involved in a number of
significant deals in the past six months, generating headline NIBT of R18
million. Investec PMG in the United States (US) posted marginal operating
losses as a result of severe market conditions.
The Group continued to enhance, expand and integrate its international
capabilities. Specifically, a global initiative was undertaken to upgrade
and unify research products and to appoint an International Head of Research
and a UK Head of Investment Banking.
Treasury and Finance Group
The Treasury and Finance division made another commendable contribution of
30.9% to overall Group performance (excluding "other" activities), with a
growth in headline NIBT of 29.3%. Particularly noteworthy performances were
experienced in the areas of financial products, interest rates, structured
finance and project finance.
The Treasury and Finance Group continued to focus on enhancing and
developing its capabilities internationally. The European equity derivatives
and commodities teams have made substantial progress in creating an internal
infrastructure and establishing an external presence in the marketplace. In
addition, the recruitment of a structured finance team in Australia has
extended the Group's capabilities in that market.
In SA, the project finance team was appointed as the sole arranger and joint
underwriter of R1 billion of CPI-linked bonds issued to finance the Platinum
Toll Road project. These bonds will become the first such listed instruments
when they are listed on the Bond Exchange.
The Irish project finance team continued to raise its profile in public
private partnerships and in this regard was rated "No 1 Global Water
Advisor" by the Infrastructure Journal.
Private Client Activities
Private Client Activities generated a mixed performance, with Private
Banking headline NIBT increasing by 19.9% and Private Client Stockbroking
headline NIBT decreasing by 43.3%. As a result, Private Client Activities
posted an overall decline in headline NIBT of 8.7%, with the division's
contribution to Group earnings (excluding "other" activities) declining
marginally to 18.4%.
Private Banking
The declining interest rate environment in both the UK and SA enabled the
Group to grow its lending book from R20.2 billion in March 2001 to R23.7
billion, an increase of 17.3%.
In SA, the private banking division continued to enhance its online banking
offering and for the second successive year was ranked the top private bank
by its peers in the 2001 PricewaterhouseCoopers Banking Survey.
Investec Private Bank in the UK performed particularly well in the period
under review, with strong performances from Theodores Trust and Law Group in
Jersey and Radcliffes Trustee Company in Geneva, which were acquired towards
the end of 2000.
In Australia, the Private Client Group underwent a major restructuring
exercise, which resulted in a substantial increase in both lending and
deposit taking activities. The division remains considerably under scale but
continues to make significant progress in its market.
Private Client Stockbroking
Low market volumes, investor apathy and an aversion to equities have placed
immense pressure on the performance of the Group's Private Client
Stockbroking activities. During the period Investec Securities in SA
increased funds under management marginally by 7.0% to R19.8 billion.
In the UK, funds under management of Carr Sheppards Crosthwaite declined by
9.0% to 5.5 billion (excluding PEP/ISA funds under administration), even
though there was a healthy growth in new funds under management with the
addition of 350 million. Two teams, one international and one UK focused,
joined from the Gerrard Group during the period, providing a comprehensive
international offering to existing and potential clients of the Group.
In the US, Investec Ernst & Company suffered from weak market conditions
with average margin balances declining from $561 million to $321 million in
the period under review.
Asset Management
The Asset Management division delivered a period of strong profit growth,
successfully leveraging off its scalable SA platform and effectively
maximizing synergies from the acquisition of the Fedsure Asset Management
business. As a result headline NIBT increased by 33.6% (excluding long term
assurance activities). Similarly, assets under management have grown 30.8%
from R172 billion to R225 billion, impacted also by the depreciation of the
Rand.
The key achievement of the past 6 months was the high degree of business
retention in volatile markets.
The core SA institutional business has shown a strong recovery in both
performance and new business production. The 5 year period and performance
of the calendar year to date ranks Investec Asset Management 2nd and 3rd
respectively in the Alexander Forbes South African Management Watch.
During the period under review the SA personal investment business
successfully integrated Fedsure businesses to form the largest unit trust
and linked product complex in the SA market. The performance of the
division's unit trusts also excelled over the reporting period, with
Investec achieving 3rd place overall in the most recent Plexus survey.
In spite of weakening industry conditions, the division's UK unit trust
business produced more than R900 million of net inflows during the past 6
months, positioning it as one of the UK's fastest growing retail funds
businesses. The Group's offshore funds listed in Guernsey and Dublin also
received net inflows to the tune of R1.5 billion. This can be attributed to
stronger sales in the SA market and a successful entry into the European
markets.
On the institutional front, Investec Asset Management continues to win fixed
income mandates in the UK. Net inflows for the period in this area exceeded
R3 billion. Investec Asset Management looks forward to a meaningful entry
in the UK pensions market supplying both specialist equity and income
services.
In summary, the core SA businesses have, once again, proven their resilience
while the division's international expansion prospects are promising.
Other Activities
The Group's other activities posted a significant increase in headline NIBT
of 96.5%. This result reflects the strong operational performance of the
Group's property activities in SA, the inclusion of Fedsure's traded
endowment activities and increased return on the Group's additional capital.
The latter has assisted in driving growth in the Group's net interest
income.
Fedsure
Although there were difficulties and delays encountered in concluding the
Fedsure acquisition, it became evident that the ultimate success of the
acquisition lay in the Group's ability to deal with the component parts
effectively and efficiently.
The Group launched a vigorous programme of integrating the acquired asset
management, linked product and property management businesses which was
successfully concluded by October 2001, with complete harmonisation of
infrastructure ensuring uninterrupted business continuity. A number of
businesses identified as non-core to Investec's strategy were disposed of or
reinsured (i.e. individual life assurance, credit life, Fedlife Namibia,
Fedsure General SA, Fedsure General Namibia and NSP Holdings in Australia).
As to the balance of the assurance business, which incorporates group
benefits and a select element of individual life, Investec has devoted
considerable attention to addressing issues surrounding the smoothed bonus
business conducted by Fedsure Employee Benefits. Restructuring of these
portfolios is near finalisation and will be complete by the end of December
2001. As at 30 September 2001, the embedded value of Fedsure Life was R2 645
million, increasing by R167 million since 1 June 2001.
Across all businesses acquired, significant progress was achieved in
reducing expenses with the closure of Fedsure's head office both in SA and
internationally, a reduction in the overall headcount as well as economies
of scale benefits derived from the integration of businesses.
Regional perspective
The Group continued to focus on enhancing and building its international
capabilities, particularly in its UK, Australian and US operations.
The SA operations enjoyed solid profit growth, with noteworthy performances
from Treasury and Finance, Private Banking and the Property division. The
region's performance was enhanced as a result of the inclusion of the
Fedsure acquisition for four months in the period under review.
Of its worldwide operations, the Group's US and Israeli businesses posted
negative earnings growth as a result of the deflated state of the equities
markets to which these businesses are highly exposed. In the UK weaker
performances from the Group's equity related activities negated the stronger
performances by the Group's banking and interest rate operations, with
headline NIBT declining marginally.
These developments served to alter the dynamics of the Group's geographical
spread of income and assets. Foreign currency earnings of the Group now
account for 44.9% of the Group's headline attributable earnings (2000:
66.9%), while 60.5% (2000: 71.4%) of its assets reside offshore.
Steady growth in income
Net interest income increased by 37.7% to R1 001 million, driven largely by
healthy annual growth in advances of 27.3%, and an increase in the average
capital base of the Group. As a result, the Group's annualised net interest
margin increased to 2.4% (2000: 2.1%), after extracting the effects of
centralised funding and the reduced returns on the UK short dated wholesale
banking business.
Bad and doubtful debts charged to the income statement were relatively flat
as a result of the continued improvement in the quality of the Group's loan
portfolios. The percentage of non performing loans to advances reduced from
2.0% last year to 1.6%.
Other income rose by 28.5%, comprising 70.3% of total income as opposed to
71.7% in the previous year. Growth across all categories of income was
largely driven by the strong performances of the Group's global private
banking and treasury and finance activities, property activities in SA and
the inclusion of acquisitions, notably Fedsure, Wentworths, Radcliffes and
Theodores which cumulatively accounted for 41.3% of the increase in total
income of 32.5%. Furthermore, the Group's annuity income as a percentage of
total income increased from 70.0% last year to 73.7% during this period.
Cost Control
Total expenses increased by 32.6% to R2 127 million. Of this growth, 40.3%
was attributable to acquisitions and new activities and 39.4% was due to
exchange rate devaluation of the Group's international expenses with the
result that the overall organic growth in expenses after extracting these
factors was 6.6%.
Excluding Fedsure's assurance activities, the ratio of operating expenses to
total income increased from 62.4% last year to 65.2%. The sharp increase in
this ratio is attributable to the reduced revenues generated in the Group's
investment banking activities as well as capacity building in some of the
recent offshore acquisitions, resulting in higher initial costs as opposed
to revenues. Notwithstanding, in SA the cost to income ratio declined to
51.8% (2000: 58.7%) mainly as a result of strong revenue growth.
Taxation
The effective tax rate for the Group declined from 25.2% to 22.8%. This is
due to the continued utilisation of tax losses in the UK, coupled with lower
taxable earnings in the US and Israel (which have higher corporate tax rates
than SA). Contrary to this overall decrease, the SA effective tax rate
increased from 20.1% to 24.5% during this period.
Income from Associates
The effective date of the acquisition of the financial and insurance
businesses of Fedsure was 1 June 2001, with the acquired operations being
accounted for as an associate during the first two months of the period
under review. Income from Associates largely represents the operational
performance of Fedsure and is broken down into Investec's share of its
operational profits and exceptional items.
Exceptional Items
Exceptional items comprise Investec's share of associates' exceptional items
as explained above and goodwill amortised over the period. The latter amount
increased significantly due to the inclusion of goodwill amortisation
relating to acquisitions made towards the end of the previous year and the
Fedsure acquisition.
Capital Resources
Total capital resources increased by 35.5% to R15.2 billion since March
2001. This was partly due to an increase in foreign currency revaluation
reserves and net share capital raised of R3.1 billion after effecting a
share buy-back of 3.5 million shares to the value of R644 million. As a
consequence, the Group's capital adequacy ratio remains high at 15.1%.
Total Assets and Assets Under Administration
On balance sheet assets recorded strong growth of 28.5% from March 2001,
primarily attributable to the inclusion of Fedsure assets and the increase
in cash and short-term funds in the UK. Third party assets under management
increased by 7.4% from R319 billion in March 2001 to R344 billion, with
growth being negatively affected by the overall decline in equity markets in
the period under review.
Changes to Accounting Policy and Disclosure
In line with a stepped approach to full compliance with the new SA 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 R1.6 billion, 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 R12.7
billion. There is no effect on the income statement.
In line with the requirements of the revised accounting statement, Events
After The Balance Sheet Date (AC107), dividends to holders of equity
instruments that are proposed or declared after the balance sheet date are
not recognised as a liability at the balance sheet date. This has resulted
in an increase in reserves at 30 September 2000 of R250 million and R 356
million at 31 March 2001, with a corresponding reduction in liabilities.
There is no effect on the income statement.
Prospects
Given the Group's exposure to investment banking and other equity-related
activities, the current state of uncertainty and volatility pervading the
markets undoubtedly presents a number of challenges to the performance of
these businesses in the second half of the financial year.
With the integration of the Fedsure acquisition behind us, the Group is able
to focus its efforts on building its businesses across all fronts. However,
despite a strong sense of satisfaction as to the operational health of
Investec's activities, the volatility of external market and economic
conditions render performance for the remainder of the 2002 financial year
difficult to predict.
On behalf of the board
H S Herman S Koseff B Kantor
Chairman Chief Executive Managing Director
Dividend Announcement
It is the company's policy to pay an interim dividend of 50% of the previous
year's total dividend.
An interim dividend (No. 93) of 375.0 cents (2000: 310.0 cents) per ordinary
share has been declared in respect of the six months ended 30 September
2001.
The dividend is payable to shareholders registered in the books of the
company at the close of business on 14 December 2001 (the record date). The
last date to trade cum dividend will be 7 December 2001 and trading will
commence ex dividend on 10 December 2001. The dividend will be paid on 18
December 2001.
Share certificates may not be dematerialised or rematerialised between 3
December 2001 and 14 December 2001, both dates inclusive.
By order of the board
S Noik
Secretary 22 November 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, Dr H K Davies, G H Davin, D E Jowell, I R Kantor,
D M Lawrence*, D R Motsepe, Dr M Z Nkosi,
B Tapnack*, P R S Thomas.
* Executive
