| Thu 23 May 2002, 0:00 | | Investec Group results demonstrate resilience and |
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The Investec Group reported a growth in headline earnings for the year ended 31 March 2002 of R1 684 million, up 28.2% over the previous year. An increase in headline earnings per share of 13% to 1 840.4c yields a ten-year compound growth of 28.0%. The Group declared total dividends per share of 825c, up 10% from750c at 31 March 2001.
“In South Africa, we experienced limited GDP growth, negative sentiment, a difficult and consolidating banking environment and a run on the local currency. Overseas, Investec operated amidst a global economic slowdown coupled with extreme volatility and uncertainty in financial markets,” summarised CEO Stephen Koseff. “In this regard, we were pleased with the Group’s achievements this year, particularly in light of the performance of other global investment banks.”
Koseff said that putting the complexities surrounding the integration of Fedsure behind it and looking forward to proposed dual-listing on the London Stock Exchange would allow Investec to focus on its core strategy of building one of the world’s leading specialist banking groups. “We think that by delivering good results this year, particularly following the shock to the markets post September 11, demonstrates the resilience and tenacity of the Group’s balanced model across regions and businesses.”
Summary of salient financial information
Headline net income before tax (“headline NIBT”, i.e., Net Income Before Tax and Exceptional Items, for example Goodwill Amortisation) grew by 29.8% to R2 369 million, underpinned by an increase of 45.6% in net-interest income, raising the percentage of other income to total income from 65.8% to 70.7%.
Growth in total income (excluding provisions for bad and doubtful debts) of 36.8% to R7 254 million, of which 70.7% represented a 45.6% increase in non-interest income to R5 273 million.
Net interest income increased by 17.9% to R1 981 million, driven by a healthy organic growth in advances of 20.8%. Private banking activity worldwide and stable growth in the SA corporate loan book contributed to this growth. Only R88 million of translation gains is included in the income statement under this heading. All other such gains (R1 612 million) are transferred to reserves.
The Group’s cost to income ratio increased from 63.2% to 65.5%, reflecting the devaluation of the Rand, the cost of bedding down acquisitions, and recruitment and the benefit of selective cost cutting.
Return on average tangible shareholders’ funds (also called ROE) increased from 25.8% (restated) to 27.6%, with growth in tangible net assets of 25.3% to R7 745 million. The concentration of assets and net tangible shareholders’ funds is weighted towards the Group’s international activities, with 63% and 61% respectively residing offshore.
Headline earnings by geography revealed a notable shift from the UK and Europe to the Southern African operations, with the latter increasing its contribution from 30.7% in 2001 to 47.3%. Similarly, foreign currency earnings dropped from 69.3% to 52.7%. This shift reflects the SA-based Fedsure acquisition, strong performance by the SA and Australian operations and operational challenges in the UK.
Owing to a strong increase in income from contributions by the newly acquired commodities trading team and traded endowment business, private equity activities in both SA and the UK, and the SA property division, annuity income as a percentage of total income decreased from 76.1% to 71.8%. The percentage remains high for a specialist banking group like Investec and reinforces the stability of its earnings base.
On balance sheet assets grew by 56% attributed in part to the inclusion of Fedsure assets and goodwill, organic growth in advances and the depreciating Rand. Third party assets under management increased by 42.2% to R455 billion.
Total capital resources increased by 42.5% to R16 016 million. Investec’s consolidated capital adequacy ratio therefore is 13.2%.
Further Highlights:
Acquisitions:
Koseff noted that the Group made several acquisitions, which were primarily platform acquisitions, together with critical mass enhancing acquisitions. In the United States, the Group acquired the PMG Group, and smaller clearing operations of Merrill Lynch and the ING Group. In Australia the leading independent corporate advisory house, Wentworth Associates merged with Investec, as did M&A boutique Chronworth. In South Africa, the Group acquired the Merrill Lynch Private Client operation in Cape Town, the Regal Treasury Private Client Book and made considerable acquisitions for listed property vehicles Metboard and Growthpoint.
In addition to acquiring businesses, Investec benefited from selective recruitment: In the UK these included the Gerrard international portfolio management team as well as a new head of Investment Banking and a new head of International Research. In South Africa, a new head of trading and research for the institutional securities operation, as well as academic Brian Kantor were recruited. Former ANC MP Andrew Feinstein joined the London office and in the US, the Group acquired a TMT research team from UBS Warburg and a life sciences team from Tucker Anthony Sutro Capital Markets. A structured finance team joined the Australian operation and European Capital, a project finance team was acquired in the UK to build Investec’s international franchise in project and infrastructure finance.
Empowerment:
Investec continued to help foster the growth of businesses at all levels of the South African economy – from the 1000 small and micro entrepreneurs who have received advice and support at The Business Place to helping create black controlled entities such as Tiso Capital and Millennium Consolidated Investments (MCI). Investec has also contributed to the development, in an advisory capacity, of several other black controlled companies.
“We believe that developing platforms for significant, meaningful empowerment also illustrates the synergies between Investec’s business units,” said Koseff. “Investec Asset Management, for example, is actively assisting both Tiso and MCI to raise private equity funds, while the Specialised Finance team financed the acquisition by a consortium led by Tiso Capital of a 5% interest in Kumba Resources, a transaction in which Investec’s corporate finance division was involved in an advisory capacity. In addition,” he said, “the project finance team assisted a significant empowerment player to make inroads into the coal industry by financing the South Dunes Coal Terminal at Richard’s Bay.
“We are also extremely pleased by the recognition Taddy Blecher, the director of the CIDA City Campus, has received both at home and abroad. He’s worked tirelessly to build a registered, accredited university offering a BA in business administration and entrepreneurial skills at virtually no cost to the students. We’ve proudly donated the use of our former head office and its upkeep in the Johannesburg CBD,” added Koseff. He said many of Investec’s employees donate time and resources to tutor or sponsor students.
Regional Summary
A solid performance was recorded by the Southern African operations despite extreme exchange rate volatility and severe market volatility. In particular, Treasury and Specialised finance, Private Banking, Investment Banking and the Property Group made significant contributions. The Fedsure acquisition was bedded down.
In the UK, Private Banking and Treasury and Specialised Finance delivered strong results, particularly the banking and interest rate operations. These were, however, counterbalanced by reduced results in the Investment Banking division, primarily driven by an inactive equity capital market and resulting slowdown in IPO’s and secondary fundraisings.
The US performance was affected by declining equity prices, which negatively affected a number of key business drivers, including trading volumes, commission revenues and net interest margins. At the end of the financial year, Investec decided to exit the private client stockbroking business there.
A platform for growth and deal flow in Australia were augmented this year by establishing a Private Equity division, applying for a banking license and acquiring the businesses and teams highlighted above.
Israel suffered from both deteriorating macroeconomic and geopolitical fundamentals during the year under review. However, the Group’s operation ended the year on a stronger note, with headline earnings increasing by 78.6%.
From the principal business areas, Koseff reported the following contributions:
“As we reported mid-year, the Treasury and Specialised Finance division, Private Banking and Asset Management businesses posted solid returns, while the Investment Banking and Private Client Stock Broking businesses came under pressure across our geographical structure, ” said Koseff.
Headline NIBT for Investment Banking decreased by 7.7%, reflecting difficult market conditions across all geographic operations of the Group. The division’s contribution to Group earnings declined from 34.2% to 24.6% last year
The Group’s Private Client Activities results were supported by strong performances by the SA and UK private banking operations. Headline NIBT increased 42.3%. The division’s contribution to overall Group earnings rose from 21.6% last financial year to 23.9% in 2002. The split in these earnings between private banking and Private Client Stockbroking and Portfolio Management was 62% and 38%, respectively. Investec’s Private Client Stockbroking and Portfolio Management division suffered under adverse market conditions. The division had R157 billion under management at year end.
Balancing the pressure on earnings from these business units was a strong performance from the Treasury and Specialised Finance division, which contributed 30.5% to the Group’s overall performance and produced an increase in the division’s headline NIBT of 22.7%.
Asset Management delivered strong headline NIBT growth of 22.8% to R280 million, growing assets under management from R172 billion to R263 billion.
In addition to concluding a reinsurance contract with respect to the individual life book with Capital Alliance Holding Limited (CAL), much attention was devoted to the Assurance business to address numerous inherited problems. At the end of the reporting period, the embedded value of Investec Employee Benefits Limited was R2 951 million. Reducing costs and improving the matching requirements of assets to liabilities helped increase this calculation by R306 million since our mid-year report at 30 September.
Awards:
The SA Corporate Finance team received 1st place, in both volume and value of M&A transactions, in the 2001 Ernst and Young survey of M&A activity. Further, they were ranked 1st in general corporate finance activity, excluding M&A, in both volume and value of transactions recorded and achieved “Dealmaker of the Year” award for deal flow in 2001 by Dealmaker Magazine survey for 2001.
The UK Investec Investment Banking and Securities team were ranked favourably in the Reuters UK Smaller Company’s Survey for 2001: 1st for research in Telecoms, Media, Hotels, Restaurants & Leisure, 2nd for Deal flow of New Equity Issues and 3rd for Pricing of New Equity Issues
The Price Waterhouse Cooper Banking Survey(2001) awarded Investec Private Bank in South Africa 1st place in a peer review. In addition, the survey ranked the Investec Private Equity team in 3rd place for the second consecutive year.
The Project Finance division was ranked 7th amongst global project finance advisors for mandates won in 2001 (Project Finance International, January 2002) and 4th amongst EMEA project finance advisors for mandates won in 2001. The Project Finance International Yearbook, 2002 awarded the team EMEA Infrastructure Deal of the Year for the Platinum Toll Road. Project Finance, February 2002 gave the team the European PPP Deal of the Year 2001 award as well as African Transport Deal of the Year 2001. They were ranked 23rd by value and 21st by volume amongst global arrangers (Infrastructure Journal March/April 2002) and 11th by value and volume in the PPP sector as global arrangers.
Investec Asset Management were recipients of the Lipper Leaders’ award for “Overall Fund Group of the Year” in the UK, based on the performance of the onshore and offshore funds authorised for sale in the UK; Locally, Standard and Poors ranked Investec Asset Management best group over five years, best larger group over one year, most improved group and top performing fund, while several funds received Raging Bull awards in South Africa.
Saambou:
The Group’s investment in Saambou (a custodial investment held in the Investec Employee Benefits policy) has been written down to no value and following recent announcements, Investec’s loan is fully recoverable.
Prepared by: Beachhead Media and Investor Relations (Jennifer Cohen)
011 535 5262 / 082 468 6469
On behalf of: The Investec Group
Further information: Stephen Koseff, CEO – 011 286 7004
Bernard Kantor, MD – 011 286 7000
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Certain statements contained in this press release constitute "forward-looking statements". These statements, which contain the words "anticipate", "believe", "intend", "estimate", "expect" and words of similar meaning, reflect the Director's beliefs and expectations and are subject to risks and uncertainties that may cause actual results to differ materially. As a result, readers are cautioned not to place undue reliance on such forward-looking statements. The Company disclaims any obligation to update its view of such risks and uncertainties or to publicly announce the result of any revisions to the forward-looking statements made herein, except where it would be required to do so under applicable law.
