| Thu 27 Nov 2003, 10:06 | | results in Pounds for the 6 months ended 30 Sep 03 |
|
Investec Limited - Unaudited consolidated UK GAAP financial results in Pounds
Sterling for the six months ended 30 September 2003
Investec Limited
(Registration number 1925/002833/06)
JSE Code: INL
ISIN: ZAE000040531
Directors: H S Herman (Chairman), S Koseff* (Chief Executive), B Kantor*
(Managing). J N Abell, S E Abrahams, G F O Alford, G R Burger*, H Fukuda (OBE),
G M T Howe, D E Jowell, I R Kantor, Sir Chips Keswick, M P Malungani, A
Tapnack*, P R S Thomas. *Executive
Company secretary: S Noik
Investec Limited (incorporating the results of Investec plc)
Unaudited consolidated UK GAAP financial results in Pounds Sterling for the six
months ended 30 September 2003
Salient Features
30 Sept % 30 Sept 31 March
2003 Change 2002* 2003*
Earnings before goodwill 47,093 7.4 43,867 88,684
amortisation and exceptional
items (GBP"000)
Operating profit before 58,120 19.7 48,543 84,758
goodwill amortisation and
taxation (GBP"000)
Earnings per share (before 49.2 3.4 47.6 97.6
goodwill amortisation and
exceptional items) (pence)
Dividend cover (times) 1.8 1.8 1.8
Dividends per share (pence) 28 7.7 26 54.0
30 Sept % 30 Sept 31 March
2003 Change 2002* 2003*
Cost to income ratio (%) 75.0 (4.0) 78.1 79.8
Annuity income as a 67.9 (6.1) 72.3 71.3
percentage of operating
income (%)
Total capital resources (GBP 1,185 28.2 924 1,013
millions)
Total assets under 43,919 8.2 40,576 40,604
administration (GBP
millions)
Return on average 13.3 11.9 12.4
shareholders" funds (%)
Return on average tangible 22.6 23.4 23.8
shareholders" funds (%)
Weighted number of ordinary 95.8 92.3 90.9
shares in issue (million)
Consolidated profit and loss accounts
6 months to
30 Sept 2003
Unaudited
Before
goodwill Goodwill
and and
exceptional exceptional
GBP"000 items items Total
Interest receivable - interest income 54,170 - 54,170
arising from debt securities
Interest receivable - other interest income 285,736 - 285,736
Interest payable (296,653) - (296,653)
Net interest income 43,253 - 43,253
Dividend income 3,511 - 3,511
Fees and commissions receivable 157,128 - 157,128
- Annuity 131,148 - 131,148
- Deal 25,980 - 25,980
Fees and commission payable (10,251) - (10,251)
Dealing profits 34,975 - 34,975
Income from long-term assurance business 2,699 - 2,699
Return on shareholders" fund in the long- 6,769 - 6,769
term assurance business
Other operating income 13,558 - 13,558
Other income 208,389 - 208,389
Total operating income 251,642 - 251,642
Administrative expenses (181,954) - (181,954)
Depreciation and amortisation (6,679) (29,780) (36,459)
- tangible fixed assets (6,679) - (6,679)
- amortisation and impairment of goodwill - (29,780) (29,780)
Provision for bad and doubtful debts (4,889) - (4,889)
Operating profit/(loss) 58,120 (29,780) 28,340
Operating profit/(loss) from continuing 58,120 (29,780) 28,340
operations
Operating loss from discontinued operations - - -
Share of income of associated companies 4,791 (1,008) 3,783
Exceptional items - 8,571 8,571
Provision for losses on termination and disposal of - (5,103) (5,103)
group operations - discontinued
Impairment of goodwill on discontinued operations - - -
Profit on termination and disposal of group - 13,674 13,674
operations - continuing
Fundamental reorganisation and restructuring costs - - -
- continuing
Profit/(loss) on ordinary activities before 62,911 (22,217) 40,694
taxation
Taxation on profit on ordinary activities (12,727) - (12,727)
Tax on profit on ordinary continuing activities (12,727) - (12,727)
Tax on loss on ordinary discontinued activities - - -
Tax on provision for losses on termination and - - -
disposal of group operations - discontinued
Profit/(loss) on ordinary activities after taxation 50,184 (22,217) 27,967
Minority interests - equity (1,235) - (1,235)
Profit/(loss) attributable to shareholders 48,949 (22,217) 26,732
Dividends - including non-equity (29,819) - (29,819)
Retained profit/(loss) for the period 19,130 (22,217) (3,087)
Profit/(loss) attributable to shareholders 26,732
Amortisation and impairment of goodwill 29,780
Profit on termination and disposal of group (13,674)
operations
Provision for losses on termination and disposal of 5,103
group operations (net of deferred tax)
Amortisation of goodwill of associates 1,008
Fundamental reorganisation and restructuring costs -
Preference dividends (1,856)
Earnings before goodwill and exceptional items 47,093
Earnings per share (pence)
- Basic 26,0
- Diluted 26,0
Excluding goodwill and exceptional items
- Basic 49.2
Dividends per share (pence) 28.0
6 months to
30 Sept 2002*
Unaudited
Before
goodwill Goodwill
and and
exceptional exceptional
GBP"000 items items Total
Interest receivable - interest income 65,072 - 65,072
arising from debt securities
Interest receivable - other interest income 327,537 - 327,537
Interest payable (330,930) - (330,930)
Net interest income 61,679 - 61,679
Dividend income 2,903 - 2,903
Fees and commissions receivable 145,094 - 145,094
- Annuity 124,394 - 124,394
- Deal 20,700 - 20,700
Fees and commission payable (6,982) - (6,982)
Dealing profits 30,230 - 30,230
Income from long-term assurance business 18,830 - 18,830
Return on shareholders" fund in the long- 6,291 - 6,291
term assurance business
Other operating income (1,615) - (1,615)
Other income 194,751 - 194,751
Total operating income 256,430 - 256,430
Administrative expenses (193,726) - (193,726)
Depreciation and amortisation (6,556) (31,409) (37,965)
- tangible fixed assets (6,556) - (6,556)
- amortisation and impairment of goodwill - (31,409) (31,409)
Provision for bad and doubtful debts (7,605) - (7,605)
Operating profit/(loss) 48,543 (31,409) 17,134
Operating profit/(loss) from continuing 54,838 (31,409) 23,429
operations
Operating loss from discontinued operations (6,295) - (6,295)
Share of income of associated companies 4,451 (780) 3,671
Exceptional items - (5,159) (5,159)
Provision for losses on termination and - (5,159) (5,159)
disposal of group operations - discontinued
Impairment of goodwill on discontinued - - -
operations
Profit on termination and disposal of group - - -
operations - continuing
Fundamental reorganisation and restructuring - - -
costs - continuing
Profit/(loss) on ordinary activities before 52,994 (37,348) 15,646
taxation
Taxation on profit on ordinary activities (8,204) (3,523) (11,727)
Tax on profit on ordinary continuing (8,204) - (8,204)
activities
Tax on loss on ordinary discontinued - - -
activities
Tax on provision for losses on termination - (3,523) (3,523)
and disposal of group operations -
discontinued
Profit/(loss) on ordinary activities after 44,790 (40,871) 3,919
taxation
Minority interests - equity (492) - (492)
Profit/(loss) attributable to shareholders 44,298 (40,871) 3,427
Dividends - including non-equity (27,349) - (27,349)
Retained profit/(loss) for the period 16,949 (40,871) (23,922)
Profit/(loss) attributable to shareholders 3,427
Amortisation and impairment of goodwill 31,409
Profit on termination and disposal of group -
operations
Provision for losses on termination and 8,682
disposal of group operations (net of
deferred tax)
Amortisation of goodwill of associates 780
Fundamental reorganisation and restructuring -
costs
Preference dividends (431)
Earnings before goodwill and exceptional 43,867
items
Earnings per share (pence)
- Basic 3.2
- Diluted 3.2
Excluding goodwill and exceptional items
- Basic 47.6
Dividends per share (pence) 26.0
Year to
31 March 2003*
Audited
Before
goodwill Goodwill
and and
exceptional exceptional
GBP"000 items items Total
Interest receivable - interest income 171,066 - 171,066
arising from debt securities
Interest receivable - other interest income 682,254 - 682,254
Interest payable (737,405) - (737,405)
Net interest income 115,915 - 115,915
Dividend income 3,597 - 3,597
Fees and commissions receivable 331,375 - 331,375
- Annuity 286,782 - 286,782
- Deal 44,593 - 44,593
Fees and commission payable (54,768) - (54,768)
Dealing profits 45,231 - 45,231
Income from long-term assurance business 27,779 - 27,779
Return on shareholders" fund in the long- 15,551 - 15,551
term assurance business
Other operating income 25,269 - 25,269
Other income 394,034 - 394,034
Total operating income 509,949 - 509,949
Administrative expenses (392,466) - (392,466)
Depreciation and amortisation (14,417) (122,302) (136,719)
- tangible fixed assets (14,417) - (14,417)
- amortisation and impairment of goodwill - (122,302) (122,302)
Provision for bad and doubtful debts (18,308) - (18,308)
Operating profit/(loss) 84,758 (122,302) (37,544)
Operating profit/(loss) from continuing 101,427 (116,599) (15,172)
operations
Operating loss from discontinued operations (16,669) (5,703) (22,372)
Share of income of associated companies 11,350 (1,644) 9,706
Exceptional items - (28,757) (28,757)
Provision for losses on termination and - (9,437) (9,437)
disposal of group operations - discontinued
Impairment of goodwill on discontinued - (19,047) (19,047)
operations
Profit on termination and disposal of group - 5,800 5,800
operations - continuing
Fundamental reorganisation and restructuring - (6,073) (6,073)
costs - continuing
Profit/(loss) on ordinary activities before 96,108 (152,703) (56,595)
taxation
Taxation on profit on ordinary activities (5,357) - (5,357)
Tax on profit on ordinary continuing 858 - 858
activities
Tax on loss on ordinary discontinued (6,215) - (6,215)
activities
Tax on provision for losses on termination - - -
and disposal of group operations -
discontinued
Profit/(loss) on ordinary activities after 90,751 (152,703) (61,952)
taxation
Minority interests - equity (1,646) - (1,646)
Profit/(loss) attributable to shareholders 89,105 (152,703) (63,598)
Dividends - including non-equity (53,428) - (53,428)
Retained profit/(loss) for the period 35,677 (152,703) (117,026)
Profit/(loss) attributable to shareholders (63,598)
Amortisation and impairment of 122,302
goodwill
Profit on termination and (5,800)
disposal of group operations
Provision for losses on 28,484
termination and disposal of
group operations (net of
deferred tax)
Amortisation of goodwill of 1,644
associates
Fundamental reorganisation and 6,073
restructuring costs
Preference dividends (421)
Earnings before goodwill and 88,684
exceptional items
Earnings per share (pence)
- Basic (70.4)
- Diluted (70.4)
Excluding goodwill and
exceptional items
- Basic 97.6
Dividends per share (pence) 54.0
Consolidated profit and loss accounts
Continuing Discontinued
operations operations
Six Six months Six Six months
months to to months to to
30 Sept. 30 Sept. % 30 Sept. 30 Sept.
2003 2002* 2003 2002*
GBP"000 Unaudited Unaudited change Unaudited Unaudited
Net interest income 43,253 59,726 (27.6) - 1,953
Dividend income 3,511 2,903 20.9 - -
Net fees and commissions 146,877 121,564 20.8 - 16,548
receivable
Dealing profits 34,975 27,397 27.7 - 2,833
Income from long-term 2,699 18,830 (85.7) - -
assurance business
Return on shareholders" 6,769 6,291 7.6 - -
fund in the long-term
assurance business
Other operating income 13,558 (1,453) <(100) - (162)
Other income 208,389 175,532 18.7 - 19,219
Total operating income 251,642 235,258 7.0 - 21,172
Administrative expenses (181,954) (166,946) 9.0 - (26,780)
Depreciation (6,679) (5,869) 13.8 - (687)
Provision for bad and (4,889) (7,605) (35.7) - -
doubtful debts
Operating profit/(loss) 58,120 54,838 6.0 - (6,295)
before goodwill and
exceptional items
Share of income of 4,791 4,451 7.6 - -
associated companies
before goodwill
Profit/(loss) on 62,911 59,289 6.1 - (6,295)
ordinary
activities before
taxation,
goodwill and
exceptional items
Consolidated statements of recognised gains and losses
6 months 6 months Year to
to 30 Sept to 30 Sept 31 March
2003 2002* 2003*
GBP"000 Unaudited Unaudited Audited
Profit/(loss) for the period 26,732 3,427 (63,598)
attributable to shareholders
Currency translation 20,515 (12,724) (13,870)
differences on foreign currency
net investments
Unrealised surplus on 2,033 3,212 18,265
revaluation of investment
properties
Total recognised gains and 49,280 (6,085) (59,203)
losses for the period
Consolidated cash flow statements
6 months 6 months Year to
to 30 Sept to 30 Sept 31 March
2003 2002* 2003*
GBP"000 Unaudited Unaudited Audited
Net cash (outflow)/inflow from (58,293) 523,338 79,262
operating activities
Net cash outflow from return (22,333) (16,912) (23,235)
on investments and servicing
of finance
Taxation (4,973) (25,341) (21,151)
Net cash inflow/(outflow) from 25,006 (594,473) (136,590)
capital expenditure and
financial investment
Net cash (outflow)/inflow from (1,055) 5,324 (9,629)
acquisitions and disposals
Ordinary share dividends paid (26,298) (26,433) (54,325)
Net cash inflow from financing 127,806 6,025 34,395
Increase/(decrease) in cash 39,860 (128,472) (131,273)
Cash and demand bank balances 1,033,902 2,062,888 1,165,175
at beginning of period
Cash and demand bank balances 1,073,762 1,934,416 1,033,902
at end of period
Consolidated balance sheets
30 Sept 30 Sept 31 March
2003 2002* 2003*
GBP"000 Unaudited Unaudited Audited
Assets
Cash and balances at central 348,391 221,487 348,343
banks
Treasury bills and other 311,422 487,019 243,019
eligible bills
Loans and advances to banks 1,523,294 2,755,770 2,758,797
Loans and advances to 5,858,259 5,079,600 4,898,226
customers
Debt securities 1,902,519 3,797,015 1,931,265
Equity shares 263,895 136,995 138,888
Interests in associated 66,099 43,051 62,422
undertakings
Other participating interests 8,890 8,750 8,750
Intangible fixed assets 280,286 338,198 299,773
Tangible fixed assets 174,297 178,383 205,982
Own shares 88,233 70,004 82,922
Other assets 1,765,340 761,098 1,211,441
Accruals and deferred income 120,297 126,718 124,390
Long-term assurance business 188,700 97,972 108,528
attributable to the
shareholder
12,899,922 14,102,060 12,422,746
Long-term assurance assets 2,857,111 2,022,945 2,536,319
attributable to policyholders
15,757,033 16,125,005 14,959,065
Liabilities
Deposits by banks 1,402,002 3,518,586 2,129,292
Customer accounts 6,907,589 7,089,082 6,354,867
Debt securities in issue 960,697 669,047 1,089,756
Other liabilities 2,212,605 1,703,446 1,580,881
Accruals and deferred income 232,061 197,541 255,281
11,714,954 13,177,702 11,410,077
Long-term assurance 2,857,111 2,022,945 2,536,319
liabilities attributable to
policyholders
14,572,065 15,200,647 13,946,396
Capital Resources
Subordinated liabilities 300,271 153,803 276,897
(including convertible debt)
Minority interests - equity 41,987 32,580 38,804
Called up share capital 158 123 158
Share premium account 994,098 917,233 994,108
Shares to be issued 2,996 41,148 2,428
Perpetual preference shares 126,778 - -
Revaluation reserves 31,193 14,148 29,160
Other reserves (153,367) (179,703) (173,877)
Profit and loss account (159,146) (54,974) (155,009)
Shareholders" funds 842,710 737,975 696,968
- equity 715,932 737,975 696,968
- non-equity 126,778 - -
1,184,968 924,358 1,012,669
15,757,033 16,125,005 14,959,065
* Restated for changes to accounting policies and disclosures as detailed in the
paragraph headed "Restatements".
Segmental analysis - geographical and business analysis of operating profit
before taxation, goodwill amortisation and exceptional items - for the 6 months
ended 30 September 2003
United United
Southern Kingdom Australia States
and and of
GBP"000 Africa Europe Asia Israel America Total
Private 9,149 14,328 1,229 370 - 25,076
client
activities
Treasury and 5,239 8,909 65 1,165 - 15,378
specialised
finance
activities
Investment 15,884 1,516 1,591 1,086 - 20,077
banking
activities
Asset 12,735 215 - 111 - 13,061
management
and
assurance
activities
Group (12,645) (3,864) 885 (691) 843 (15,472)
services and
other
activities
Discontinued - - - - - -
operations
30,362 21,104 3,770 2,041 843 58,120
Segmental analysis - geographical and business analysis of operating profit
before taxation, goodwill amortisation and exceptional items - for the 6 months
ended 30 September 2002*
United
Kingdom Australia
Southern and and
GBP"000 Africa Europe Asia Israel
Private client activities 5,290 9,393 656 1,124
Treasury and specialised finance activities 18,644 (3,586) (376) 94
Investment banking activities 1,517 (4,576) 1,786 1,374
Asset management and assurance activities 26,376 1,334 - 94
Group services and other activities (16,287) 11,021 1,185 (61)
Discontinued operations - - - -
35,540 13,586 3,251 2,625
United
States of Discontinued
GBP"000 America operations Total
Private client activities - - 16,463
Treasury and specialised finance activities - - 14,776
Investment banking activities - - 101
Asset management and assurance activities - - 27,804
Group services and other activities (164) - (4,306)
Discontinued operations - (6,295) (6,295)
(164) (6,295) 48,543
Consolidated statements of reconciliations of shareholders" funds and movements
on reserves
6 months 6 months Year to
to 30 Sept to 30 Sept 31 March
2003 2002* 2003*
GBP"000 Unaudited Unaudited Audited
Balance at the beginning of 696,968 734,302 734,302
the period
Foreign currency adjustments 20,515 (12,724) (13,870)
Loss for the period (3,087) (23,922) (117,026)
Reduction in shareholding of (1,055) - -
associates
Issue of perpetual preference 127,465 - -
shares
Share issues/to be issued 568 69,768 112,588
Cancellation of shares - (5,189) (5,079)
Conversions from debentures - - 1
Issue expenses (697) (27,472) (32,213)
Revaluation of investment 2,033 3,212 18,265
properties
Balance at end of the period 842,710 737,975 696,968
Reconciliation between UK and SA accounting principles
6 months 6 months Year to
to 30 Sept to 30 Sept 31 March
2003 2002* 2003*
GBP"000 Unaudited Unaudited Audited
Earnings before goodwill and 47,093 43,867 88,684
exceptional items under UK GAAP
SA GAAP adjustments:
Acquisition accounting 2,636 1,638 4,300
Employee share option plans (1,555) 5,021 7,615
AC 133 adjustments+ 8,193 - -
Debenture interest reflected 4,745 3,411 5,113
above the line
Interest rate swaps (1,590) (1,228) (2,581)
Embedded value earnings (865) 15,251 23,935
Other (762) (180) 2,568
Earnings before goodwill and 57,895 67,780 129,634
exceptional items under SA GAAP
+ AC133 is a South African accounting statement on recognition and measurement
of financial instruments. This South African standard is based on international
accounting standard IAS39.
* Restated for changes to accounting policies and disclosures as detailed in the
paragraph headed "Restatements".
Overall performance
After a period of intensive rationalisation and strategic realignment, the group
(comprising Investec Limited and Investec plc) has refocused its activities
resulting in an increase in basic earnings per share (EPS) before exceptional
items and goodwill amortisation of 3.4% from 47.6 pence to 49.2 pence.
Salient features of the six month period were:
* Investec Bank Limited issued R1.5 billion (GBP127.5 million) non-cumulative,
non-redeemable and non-participating preference shares.
* The proportion of Investec"s operating profit before exceptional items and
amortisation of goodwill shifted significantly towards Investec plc.
The proportion earned in the group"s Southern African operations
reduced from 73.2% to 52.2%.
* Administrative expenses declined by 6.1% reflecting the successful
rationalisation and restructuring of the group"s operations in the last
financial year, particularly in the United Kingdom (UK) and in the United States
(US).
* Operating profit before exceptional items and goodwill amortisation of the
group"s continuing operations increased from GBP54.8 million to GBP58.1 million.
This was largely attributable to a turnaround in the performance of the UK
operations, and was achieved despite a mixed performance by the SA businesses.
* Investec welcomed the introduction of the Financial Sector Charter in South
Africa (SA) during the period under review and believes that the group is
reasonably well-positioned to implement its principles of transformation and
empowerment. Prior to the Charter"s release, the group announced that Investec
Limited had entered into an empowerment partnership with Peu Investment Group,
Tiso Group and a broad-based Entrepreneurship Development Trust.
* Dividends of 28 pence per share equating to a dividend cover of 1.8 based on
the combined group"s EPS before exceptional items and goodwill amortisation, as
determined in UK GAAP are proposed.
Presentation of financial information
Investec Limited and Investec plc
In July 2002, Investec Group Limited (now Investec Limited), which is
headquartered in South Africa, implemented a Dual Listed Companies (DLC)
structure, and listed its principal non-Southern African businesses on the
London Stock Exchange. For further information, see Investec"s web site
www.investec.com/investorrelations.
Under the contractual arrangements of the DLC structure, Investec Limited and
Investec plc effectively form a single economic enterprise in which the economic
and voting rights of shareholders are equalised. In accordance with this
structure, the directors of the two companies consider that for financial
reporting purposes, the fairest presentation is achieved by consolidating the
results and financial position of both companies using merger accounting
principles.
Accordingly, the interim results for Investec plc present the results and
financial position of the combined DLC group under UK GAAP, denominated in
Pounds Sterling. In the commentary below, all references to Investec or the
group relate to the combined DLC group comprising Investec Limited and Investec
plc.
Investec previously reported its consolidated results in accordance with SA
GAAP, denominated in Rands and UK GAAP, denominated in Pounds Sterling.
In terms of the new JSE Securities Exchange South Africa (JSE) listing
requirements the group is now only required to report its consolidated results
in accordance with UK GAAP, denominated in Pounds Sterling. However, because SA
GAAP differs in certain respects from UK GAAP, the group sets
out a high-level reconciliation and summary of the principal differences.
The financial information contained in the "Commentary" section was prepared in
accordance with UK GAAP. Rand values included in the "Commentary" section were
translated into Pounds Sterling - in the case of the profit and loss accounts,
at the weighted average rate for the relevant period and, in the case of the
balance sheets, at the relevant period-end rate. Reuters quotes the average
Rand/Pounds Sterling exchange rate at 12.2 and 15.7 for the six months ended 30
September 2003 and 30 September 2002, respectively. This represents some 22.3%
appreciation of the Rand during the period under review.
This Rand appreciation had a positive effect on the results expressed in
Pounds Sterling of those Investec businesses that generate revenues and profits
in Rands. Where the impact of Rand appreciation is key to understanding
the performance of the group"s businesses, this is noted in the "Commentary"
section.
Dividend declaration
The dividends per share declared by Investec Limited and Investec plc are
determined with reference to the group"s consolidated EPS before exceptional
items and amortisation of goodwill, denominated in Pounds Sterling and prepared
in accordance with UK GAAP.
Commentary
Unless the context indicates otherwise, all comparatives included in the
"Commentary" section relate to the corresponding period in the previous year.
Business Unit Review
Investment Banking
The group"s Investment Banking division took advantage of the better market
conditions to record an improved operating profit before exceptional items and
amortisation of goodwill, increasing from a marginal profit to GBP20.1 million.
In SA, the Investment Banking division benefited from an upliftment in values of
its direct investment and private equity portfolios. Investec Corporate Finance
enjoyed a steady level of activity focusing on restructurings, black economic
empowerment transactions, de-listings and a number of high profile investment
banking deals. The low volumes on the JSE Securities Exchange South Africa
continued to have a negative impact on the agency business of Investec
Securities.
Improved stock market conditions and a reduced cost base in the Investment
Banking division in the UK enabled the division to a achieve a major turnaround
in performance. The level of corporate activity increased and the division
concluded a number of public-to-private deals during the period. Secondary
commissions also benefited from the higher equity market levels. Furthermore,
the rankings of Investec in the UK Small Mid-Cap Survey (2003) were encouraging,
with a number one ranking for the "Most improved product and service".
In Australia, Investec Wentworth benefited from the return of activity in the
IPO market and the upturn in merger and acquisition (M&A) activity. The
corporate advisory business advised on 11 deals valued at A$2.4 billion for the
six months to September 2003.
Private Client Activities
The group"s Private Client Activities, comprising the Private Banking and
Private Client Portfolio Management and Stockbroking divisions, reported strong
growth in operating profit before exceptional items and amortisation of goodwill
of 52.3% to GBP25.1 million from GBP16.5 million. The group"s Private Banking
operations performed particularly well. The performance of Carr Sheppards
Crosthwaite in the UK benefited from improved net inflows, largely in higher
yielding discretionary mandates, while the performance of Investec Securities in
SA was impacted by subdued market volumes in the SA market.
Private Banking
The Private Banking division increased operating profit before exceptional items
and amortisation of goodwill by 54.7%, to GBP21.8 million. This performance was
driven by a solid growth in total advances and non-interest income in SA, the UK
and Australia. During the period under review, the group"s private client
lending book in SA grew by 15.1% to R19.8 billion (GBP1.7 billion), and the
private client lending book in the UK grew by 13.7% to GBP1 052 million.
Investec Private Bank in SA increased operating profit despite the decline in
interest rates. A notable contribution was made by the relatively new private
client investment banking portfolio, which benefited from the sale of certain
investments held by the division and an increase in the value of others.
In the UK, strong performances were recorded across all of the Private Banking
businesses. The property lending business continued its sound performance
against the backdrop of a somewhat less buoyant market with a well-spread loan
book. Despite a strong bias in the overall lending book towards commercial and
residential property exposures, the book is well-secured and the group believes
that loan to value ratios are conservative.
The Private Client Group in Australia continued to grow its Structured Property
Finance unit strongly. During the period a new initiative was undertaken to
establish a Private Client Investment Banking business to target those clients
that fall below the radar of the investment banks.
Private Client Portfolio Management and Stockbroking
Private Client Portfolio Management and Stockbroking recorded a creditable
performance, earning operating profit before exceptional items and amortisation
of goodwill of GBP3.3 million, increasing by 38.2%.
Depressed stock market volumes in SA restricted the performance of Investec
Securities, although total funds under management increased by 26.2% to
R32.3 billion (GBP2.8 billion) from R25.6 billion (GBP2.0 billion) at year-end.
Investec Securities continues to focus on reducing costs and during the period a
campaign was launched to increase the awareness of Investec Securities Online,
which should provide further cost savings.
In the UK, despite the difficult operating environment, Carr Sheppards
Crosthwaite performed well with total funds under management increasing by 19.1%
to GBP5.6 billion from GBP4.7 billion at 31 March 2003. Net new inflows of
GBP327 million were generated including the Public Guardianship Office account
for GBP192 million with the remainder comprising a combination of private client
and gross funds, including two charities of approximately GBP8 million each.
Treasury and Specialised Finance
The group"s Treasury and Specialised Finance division posted operating profit
before exceptional items and amortisation of goodwill of GBP15.4 million, an
increase of 4.1% from GBP14.8 million. The strong performance from the UK
operation was largely offset by the negative performance from the SA operation.
The SA Treasury and Specialised Finance division disappointed with operating
profit before exceptional items and amortisation of goodwill declining from
GBP18.6 million to GBP5.2 million. Banking Activities suffered as a result of
the general slow down in corporate activity, while the treasury desk was
negatively impacted by the rate positioning of its assets. Furthermore,
difficult trading conditions and losses on the currency and interest rate desks
negatively affected the overall performance of the division.
The UK Treasury and Specialised Finance division, on the other hand, achieved a
considerable turnaround with operating profit before exceptional items and
amortisation of goodwill increasing to GBP8.9 million from a loss of GBP3.6
million. This was largely due to the extensive restructuring of the division in
the previous financial year. The division benefited from a renewed focus on
higher margin, less capital intensive transactions and customer flows, in
addition to the growth and pleasing performance of its Banking Activities.
Asset Management
The Asset Management division achieved operating profit before exceptional items
and amortisation of goodwill of GBP10.9 million, which represented growth of
14.7% in Pounds Sterling. Assets under management increased by 11.8% in Pounds
Sterling to GBP18.8 billion and by 3.3% in Rand to R217.4 billion in the period
under review. The key features of the first six months of the year were the
resilience of the SA business and the major strides that were made in
penetrating the UK institutional and retail funds markets.
Investec Asset Management recorded strong growth and continued expansion of the
market share of its UK retail funds. The UK retail business grew assets under
management for the reporting period by 31.1%, with net inflows of
GBP96 million. This contributed to it achieving an annualised market share of
2.7% of net industry sales, up from 0.4% three years ago. The UK institutional
business continued to penetrate the market through its acceptance by major
consultants and multi-managers. The strong performance across the product range
was key to these successes. The offshore fund range took net inflows of GBP219
million due to the sales effort from the Asia and UK-based teams. Flows from SA
slowed as a result of the strength of the Rand.
In SA, Investec Asset Management is developing a strong franchise in specialist
products, such as, fixed income and specialist equity products. The performance
of the balanced funds, although improved, remains a cause for special attention.
The SA institutional business was appointed to manage important new mandates
during the reporting period, including two substantial SA equity mandates won
outside SA. The SA Personal Investments business attracted domestic net new
retail flows of R1.3 billion (GBP110 million) during the reporting period. In
addition, a range of absolute return unit trusts was launched, complementing the
successful institutional range.
Assurance Activities
The group"s SA life assurance activities, conducted by Investec Employee
Benefits (IEB) reported operating profit before exceptional items and
amortisation of goodwill of GBP2.2 million - a decline of 88.0%. In the
comparative period IEB had generated substantial non-recurring operational
earnings from the restructuring of its businesses and investment portfolios.
Group Services and Other Activities
Group Services and Other Activities posted an operating loss of GBP15.5 million
compared to the prior period loss of GBP4.3 million. This was largely
attributable to the weaker performance of the Central Funding division, which
experienced a decline in net interest income as a consequence of the margin
squeeze that occurred following the lowering of interest rates in South Africa
and the UK. This was further exacerbated by the investment of some of the
surplus capital in non-interest earning investments. This negative variance was
almost completely offset by a solid increase in other operating income, with the
division benefiting from an increased return on a number of investments held.
Central costs, expressed in Pounds Sterling, were negatively affected by the
average appreciation of the Rand. The group"s Property Activities in SA
continued to perform well, with total assets under management increasing by
29.9% to R11.3 billion (GBP978 million) since the year-end. The Traded
Endowments business has continued to make a loss as a result of its traditional
client base losing confidence in the product, with the business remaining under
strategic review.
Geographic Performance
The group"s Southern African operations accounted for 52.2% (2002: 73.2%) of
Investec"s operating profit before exceptional items and amortisation of
goodwill. This reduction was largely as a result of the increase in the
contribution from the UK operations and the closure and sale of the group"s loss
making US businesses. Highlights of the developments and the performance of the
regions in which the group operates, follow.
Southern Africa
The Southern African operations posted an operating profit before exceptional
items and amortisation of goodwill of GBP30.4 million, representing a decrease
of 14.6%. The consistently strong performance from the Private Banking operation
was supported by a solid performance from the Investment Banking division. This
was negated by the weak performance from the Treasury and Specialised Finance
division and a considerable decline in the earnings of the group"s Assurance
Activities and Central Funding division, explained elsewhere in
this report.
UK
The UK operations recorded an operating profit before exceptional items and
amortisation of goodwill of GBP21.1 million, an increase of 55.3% over the
previous period. The strong results from the Private Banking and Treasury and
Specialised Finance divisions were supported by a solid performance from Carr
Sheppards Crosthwaite. Furthermore, the Investment Banking activities benefited
from a reduced cost base and increased corporate activity.
Australia
The Australian operating profit before exceptional items and amortisation of
goodwill increased by 16.0% to GBP3.8 million against a backdrop of a stronger
stock market. The business experienced sound activity levels and good progress
was made in all its core areas of activities.
US
The heavily reduced ongoing operations in the US, consisting of several fixed
income trading operations and a small equities trading desk supporting Investec
Israel"s clients, posted a modest operating profit before exceptional items and
amortisation of goodwill of GBP0.8 million. The fundamental restructuring of the
US business was completed and, with the exception of runoff related activities,
all other businesses in Investec Ernst and Investec Inc. ceased operating as of
31 May 2003. The headcount at the end of the period was 68, all based in
New York.
Israel
The economic environment in Israel remained difficult and negative inflation
weakened performance reported in nominal terms. Operating profit before
exceptional items and amortisation of goodwill decreased by 22.2% to
GBP2.0 million. Equity capital market activity picked up towards the end of the
reporting period boosted by the performance of international markets. Investec
Bank (Israel) continues to leverage off the presence of the group in the US,
with the Israeli Desk in New York. Assets under management increased by 32.3% to
NIS13.1 billion (GBP1.8 billion) from NIS9.9 billion at year-end. Furthermore,
there was a marginal fall in expenses as a result of ongoing
cost control.
Financial statements analysis
Operating income
Operating income of GBP251.6 million declined by 1.9%. Operating income for
continuing operations increased by 7.0%. The movements in total operating income
for continuing operations are analysed further below.
Net interest income of GBP43.3 million decreased by 27.6% largely as a result of
the declining interest rate environment in SA, which had a negative impact on
the group"s SA Treasury and Specialised Finance activities and Central Funding
division which experienced a severe margin squeeze as the group"s assets
repriced quicker than its liabilities. Furthermore, net interest income was
adversely affected by the closure of the money markets and repo business in the
UK in the prior period. The group, however, continued to achieve sound growth in
its Private Banking lending portfolios.
Net fees and commissions increased by 20.8% to GBP146.9 million. This was
largely attributable to increased lending turnover in the Private Banking
