| Thu 27 May 2004, 8:23 | | Investec Limited/ Investec plc - Results |
|
Investec Limited/ Investec plc - Results
Investec Limited
(Registration number 1925/002833/06)
JSE Code: INL
ISIN: ZAE000040531
Investec plc
(Registration number 3633621)
JSE Code: INP
ISIN: GB0031773103
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,
F Titi. *Executive
Company secretary: S Noik
Investec plc (incorporating the results of Investec Limited)#
Consolidated UK GAAP financial results in Pounds Sterling for the
year ended 31 March 2004
Salient Features
31 March % 31 March
2004 Change 2003
Operating profit before goodwill 132,139 54.1 85,762
amortisation and taxation (GBP`000)
Earnings before goodwill 106,082 18.3 89,668
amortisation and exceptional items
(GBP`000)
Profit/(loss) attributable to 68,785 >100 (62,614)
shareholders (GBP`000)
Earnings per share (before goodwill 103.7 7.9 96.1
amortisation and exceptional items)
(pence)
Earnings per share (pence) 59.9 >100 (67.6)
Headline earnings per share 103.4 15.4 89.6
Dividends per share (pence) 58 7.4 54
Consolidated profit and loss accounts for the year ended 31 March
2004
Before
goodwill Goodwill
and and
exceptional exceptional
GBP`000 items items Total
Interest receivable - 91,845 - 91,845
interest income arising
from debt securities
Interest receivable - 588,067 - 588,067
other interest income
Interest payable (574,249) - (574,249)
Net interest income 105,663 - 105,663
Dividend income 3,450 - 3,450
Fees and commissions 340,528 - 340,528
receivable
- Annuity 272,718 - 272,718
- Deal 67,810 - 67,810
Fees and commission (22,155) - (22,155)
payable
Dealing profits 91,015 - 91,015
Income from long-term 5,082 - 5,082
assurance business
Return on shareholders` 24,122 - 24,122
fund in the long-term
assurance business
Other operating income 13,028 - 13,028
Other income 455,070 - 455,070
Total operating income 560,733 - 560,733
Administrative expenses (395,188) - (395,188)
Depreciation and (12,448) (50,644) (63,092)
amortisation
- tangible fixed assets (12,448) - (12,448)
- amortisation and - (50,644) (50,644)
impairment of goodwill
Provision for bad and (20,958) - (20,958)
doubtful debts
Operating profit/(loss) 132,139 (50,644) 81,495
Operating profit/(loss) 132,139 (50,644) 81,495
from continuing
operations
Operating loss from - - -
discontinued operations
Operating profit/(loss) 132,139 (50,644) 81,495
Share of income of 11,205 (2,132) 9,073
associated companies
Exceptional items - 8,529 8,529
Provision for losses on - (5,103) (5,103)
termination and
disposal of group
operations -
discontinued
Losses on termination - (24,328) (24,328)
and disposal of group
operations -
discontinued
Less provision made - 19,225 19,225
last year
Impairment of goodwill - - -
on discontinued
operations
Profit on termination - 13,632 13,632
and disposal of group
operations - continuing
Fundamental - - -
reorganisation and
restructuring costs -
continuing
Profit/(loss) on 143,344 (44,247) 99,097
ordinary activities
before taxation
Tax on profit on (27,821) (678) (28,499)
ordinary activities
Tax on profit on (27,821) - (27,821)
ordinary continuing
activities
Tax on loss on ordinary - - -
discontinued activities
Tax on termination and - (678) (678)
disposal of group
operations - continuing
Profit/(loss) on 115,523 (44,925) 70,598
ordinary activities
after taxation
Minority interests - (1,888) 75 (1,813)
equity
Profit/(loss) 113,635 (44,850) 68,785
attributable to
shareholders
Dividends - including (63,709) - (63,709)
non-equity
Retained profit/(loss) 49,926 (44,850) 5,076
for the year
Profit/(loss) 68,785
attributable to
shareholders
Amortisation and 50,644
impairment of goodwill
Profit on termination (13,029)
and disposal of group
operations
Provision for losses on 5,103
termination and
disposal of group
operations (net of
deferred tax)
Amortisation of 2,132
goodwill of associates
Fundamental -
reorganisation and
restructuring costs
Preference dividends (7,553)
Earnings before 106,082
goodwill and
exceptional items
Earnings per share
(pence)
- Basic 59.9
- Diluted 59.5
Excluding goodwill and
exceptional items
- Basic 103.7
- Diluted 100.7
Dividends per share 58.0
(pence)
Weighted number of 102.3
ordinary shares in
issue (million)
2003*
Before
goodwill Goodwill
and and
exceptional exceptional
GBP`000 items items Total
Interest receivable - 171,066 - 171,066
interest income arising
from debt securities
Interest receivable - 678,615 - 678,615
other interest income
Interest payable (738,980) - (738,980)
Net interest income 110,701 - 110,701
Dividend income 3,597 - 3,597
Fees and commissions 330,959 - 330,959
receivable
- Annuity 287,199 - 287,199
- Deal 43,760 - 43,760
Fees and commission (54,768) - (54,768)
payable
Dealing profits 57,668 - 57,668
Income from long-term 27,779 - 27,779
assurance business
Return on shareholders` 15,551 - 15,551
fund in the long-term
assurance business
Other operating income 27,780 - 27,780
Other income 408,566 - 408,566
Total operating income 519,267 - 519,267
Administrative expenses (400,780) - (400,780)
Depreciation and (14,417) (122,302) (136,719)
amortisation
- tangible fixed assets (14,417) - (14,417)
- amortisation and - (122,302) (122,302)
impairment of goodwill
Provision for bad and (18,308) - (18,308)
doubtful debts
Operating profit/(loss) 85,762 (122,302) (36,540)
Operating profit/(loss) 102,431 (116,599) (14,168)
from continuing
operations
Operating loss from (16,669) (5,703) (22,372)
discontinued operations
Operating profit/(loss) 85,762 (122,302) (36,540)
Share of income of 11,350 (1,644) 9,706
associated companies
Exceptional items - (28,757) (28,757)
Provision for losses on - (9,437) (9,437)
termination and
disposal of group
operations -
discontinued
Losses on termination - (16,493) (16,493)
and disposal of group
operations -
discontinued
Less provision made - 7,056 7,056
last year
Impairment of goodwill - (19,047) (19,047)
on discontinued
operations
Profit on termination - 5,800 5,800
and disposal of group
operations - continuing
Fundamental - (6,073) (6,073)
reorganisation and
restructuring costs -
continuing
Profit/(loss) on 97,112 (152,703) (55,591)
ordinary activities
before taxation
Tax on profit on (5,377) - (5,377)
ordinary activities
Tax on profit on 838 - 838
ordinary continuing
activities
Tax on loss on ordinary (6,215) - (6,215)
discontinued activities
Tax on termination and - - -
disposal of group
operations - continuing
Profit/(loss) on 91,735 (152,703) (60,968)
ordinary activities
after taxation
Minority interests - (1,646) - (1,646)
equity
Profit/(loss) 90,089 (152,703) (62,614)
attributable to
shareholders
Dividends - including (53,428) - (53,428)
non-equity
Retained profit/(loss) 36,661 (152,703) (116,042)
for the year
Profit/(loss) (62,614)
attributable to
shareholders
Amortisation and 122,302
impairment of goodwill
Profit on termination (5,800)
and disposal of group
operations
Provision for losses on 28,484
termination and
disposal of group
operations (net of
deferred tax)
Amortisation of 1,644
goodwill of associates
Fundamental 6,073
reorganisation and
restructuring costs
Preference dividends (421)
Earnings before 89,668
goodwill and
exceptional items
Earnings per share
(pence)
- Basic (67.6)
- Diluted (67.6)
Excluding goodwill and
exceptional items
- Basic 96.1
- Diluted 91.9
Dividends per share 54.0
(pence)
Weighted number of 93.8
ordinary shares in
issue (million)
Abridged consolidated profit and loss accounts for the year ended 31 March
Continuing Discontinued
operations operations
GBP`000 2004 2003 % change 2004 2003*
Net interest 105,663 106,642 (0.9) - 4,059
income
Dividend income 3,450 3,597 (4.1) - -
Net fees and 318,373 249,708 27.5 - 26,483
commissions
receivable
Dealing profits 91,015 58,629 55.2 - (961)
Income from long- 5,082 27,779 (81.7) - -
term assurance
business
Return on
shareholders`
fund in the long-
term
assurance 24,122 15,551 55.1 - -
business
Other operating 13,028 28,774 (54.7) - (994)
income
Other income 455,070 384,038 18.5 - 24,528
Total operating 560,733 490,680 14.3 - 28 587
income
Administrative (395,188) (356,468) 10.9 - (44,312)
expenses
Depreciation (12,448) (13,473) (7.6) - (944)
Provision for bad (20,958) (18,308) 14.5 - -
and doubtful
debts
Operating
profit/(loss)
before goodwill
and
exceptional items 132,139 102,431 29.0 - (16,669)
Share of income 11,205 11,350 (1.3) - -
of associated
companies before
goodwill
Profit/(loss) on
ordinary
activities before
taxation,
goodwill and 143,344 113,781 26.0 - (16,669)
exceptional items
* Restated for changes to accounting policies and disclosures as detailed in the
paragraph headed `Restatements`.
Consolidated statements of recognised gains and losses for the year ended 31
March
GBP`000 2004 2003*
Profit/(loss) for the year attributable to 68,785 (62,614)
shareholders
Currency translation differences on foreign (4,104) (13,870)
currency net investments
Unrealised surplus on revaluation of 13,982 18,265
investment properties
Actuarial losses recognised on pension fund (1,294) (9,707)
schemes
Total recognised gains and losses for the year 77,369 (67,926)
Prior year adjustments in respect of changes (2,226)
in accounting policies
Total gains and losses since last annual 75,143
report
As a result of changes in accounting policies net assets, other than gains and
losses, at 31 March 2003 have been reduced by GBP54.8m
Consolidated cash flow statements for the year ended 31 March
GBP`000 2004 2003*
Net cash (outflow)/inflow from operating (589,773) 93,215
activities
Net cash outflow from return on investments (52,663) (25,511)
and servicing of finance
Taxation (31,917) (21,151)
Net cash inflow/(outflow) from capital 398,238 (111,527)
expenditure and financial investment
Net cash inflow/(outflow) from acquisitions 80,226 (9,629)
and disposals
Ordinary share dividends paid (52,810) (54,335)
Net cash inflow/(outflow) from financing 387,691 (2,335)
Increase/(decrease) in cash 138,992 (131,273)
Cash and demand bank balances at beginning 1,033,902 1,165,175
of year
Cash and demand bank balances at end of 1,172,894 1,033,902
year
Consolidated balance sheets at 31 March
GBP`000 2004 2003*
Assets
Cash and balances at central banks 363,862 348,343
Treasury bills and other eligible bills 332,208 243,019
Loans and advances to banks 1,704,715 2,758,797
Loans and advances to customers 6,345,848 4,883,903
Debt securities 1,466,437 1,931,265
Equity shares 418,254 147,638
Interests in associated undertakings 70,006 62,422
Other participating interests 9,135 -
Intangible fixed assets 251,508 299,773
Tangible fixed assets 146,326 205,982
Own shares 43,780 52,223
Other assets 1,081,131 1,211,441
Prepayments and accrued income 81,511 124,390
Long-term assurance business attributable 265,315 108,528
to the shareholder
12,580,036 12,377,724
Long-term assurance assets attributable 2,781,335 2,536,319
to policyholders
15,361,371 14,914,043
Liabilities
Deposits by banks 1,233,609 2,129,292
Customer accounts 7,211,292 6,354,867
Debt securities in issue 621,857 1,089,756
Other liabilities 1,969,855 1,580,881
Accruals and deferred income 185,600 254,413
Pension fund liability 11,967 10,041
11,234,180 11,419,250
Long-term assurance liabilities 2,781,335 2,536,319
attributable to policyholders
14,015,515 13,955,569
Capital Resources
Subordinated liabilities (including 497,858 279,702
convertible debt)
Minority interests - equity 39,029 38,804
Called up share capital 165 158
Share premium account 1,020,890 980,321
Treasury shares (52,102) (40,987)
Shares to be issued 2,666 2,428
Perpetual preference shares 126,698 -
Revaluation reserves 43,142 29,160
Other reserves (168,402) (166,907)
Profit and loss account (164,088) (164,205)
Shareholders` funds 808,969 639,968
- equity 682,271 639,968
- non equity 126,698 -
1,345,856 958,474
15,361,371 14,914,043
Memorandum items
Commitments 522,879 496,638
Contingent liabilities 172,579 348,906
695,458 845,544
The financial information set out above does not constitute the company`s
statutory accounts for the years ended 31 March 2004 or 2003. The auditors have
reported on the 2003 accounts for Investec plc; their report was unqualified and
did not contain a statement under section 237(2) or (3) of the Companies Act
1985. The statutory accounts for 2004 for Investec plc (incorporating the
results of Investec Limited) will be finalised on the basis of the financial
information presented by the directors in this announcement and will be
delivered to the Registrar of Companies following the company`s annual general
meeting.
# The results of Investec Limited (incorporating the results of Investec plc)
are the same as the results presented in this announcement.
Segmental analysis - geographical and business analysis of operating profit
before taxation, goodwill amortisation and exceptional items - for the year
ended 31 March 2004
United United
Southern Kingdom Australia States
and and of
GBP`000 Africa Europe Asia Israel America Total
Private Client 19,610 30,627 3,025 600 - 53,862
Activities
Treasury and 18,887 14,015 436 2,467 - 35,805
Specialised
Finance
Investment 27,147 2,939 4,312 3,066 255 37,719
Banking
Asset 22,740 1,614 - 257 - 24,611
Management
Assurance 4,582 - - - - 4,582
Activities
Group Services (15,538) (10,461) 1,853 (472) 178 (24,440)
and Other
Activities
Discontinued - - - - - -
Operations
77,428 38,734 9,626 5,918 433 132,139
Segmental analysis - geographical and business analysis of operating profit
before taxation, goodwill amortisation and exceptional items - for the year
ended 31 March 2003*
United
Kingdom Australia
Southern and and
GBP`000 Africa Europe Asia Israel
Private Client 12,722 18,884 930 1,465
Activities
Treasury and 26,604 (5,659) (865) 118
Specialised Finance
Investment Banking 4,898 4,297 2,532 1,797
Asset Management 16,171 1,426 - 118
Assurance Activities 26,830 - - -
Group Services and (17,746) 3,614 3,327 (2)
Other Activities
Discontinued - - - -
Operations
69,479 22,562 5,924 3,496
United
States of Discontinued
GBP`000 America operations Total
Private Client Activities - - 34,001
Treasury and Specialised Finance - - 20,198
Investment Banking - - 13,524
Asset Management - - 17,715
Assurance Activities - - 26,830
Group Services and Other 970 - (9,837)
Activities
Discontinued Operations - (16,669) (16,669)
970 (16,669) 85,762
Consolidated statements of reconciliations of shareholders` funds and movements
on reserves for the year ended 31 March
GBP`000 2004 2003*
Balance at the beginning of year 639,968 733,797
As previously reported 696,968 734,302
Changes in accounting policies
Adoption of full requirements of FRS 17: (9,173) 487
Retirement benefits
Adoption of UITF 37: Purchase and sale of (47,827) (992)
own shares
Foreign currency adjustments (4,104) (13,870)
Retained profit/(loss) for the year 5,076 (116,042)
Transfer to pension fund deficit (1,294) (9,707)
Reduction of shareholding in associate (1,056) -
Issue of ordinary shares/shares to be issued 45,995 112 588
Issue of perpetual preference shares 127,484 -
Share issue expenses (2,031) (32,213)
Movement in treasury shares (15,051) (47,772)
Cancellation of shares - (5,079)
Conversion of debentures - 1
Revaluation of investment properites 13 982 18,265
Balance at end of year 808,969 639,968
Reconciliation between UK and SA accounting principles for the year ended 31
March
GBP`000 2004 2003*
Earnings before goodwill and exceptional items 106,082 89,668
under UK GAAP
SA GAAP adjustments:
Acquisition accounting 3,036 4,300
Employee share option plans (7,640) 7,143
AC 133 adjustments+ 9,230 -
Debenture interest reflected below the line 8,471 6,505
Interest rate swaps (3,224) (2,581)
Embedded value earnings (783) 23,935
Revaluation of investment properties 13,982 18,265
Treasury shares 1,427 -
Perpetual preference shares 7,553 421
Other 482 250
Earnings before goodwill and
exceptional items under SA GAAP 138,616 147,906
+ 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
The financial year was characterised by a more favourable market environment
benefiting the activities of the group (comprising Investec plc and Investec
Limited) with basic earnings per share (EPS) before exceptional items and
goodwill amortisation increasing 7.9% to 103.7 pence from 96.1 pence.
Salient features of the 2004 financial year were:
? Operating profit before exceptional items and goodwill amortisation of the
group`s operations increased 54.1% from GBP85.8 million to GBP132.1 million.
This was largely attributable to the strong performance from the group`s
Investment Banking, Private Banking and UK Treasury and Specialised Finance
divisions and the elimination of the losses from the US operations. These
factors were offset to some extent by the weaker performance from the SA
Treasury and Specialised Finance activities and the decline in income from the
SA life assurance activities.
? Investec plc and its subsidiaries accounted for 41.4% (2003: 19%) of
Investec`s operating profit before exceptional items and amortisation of
goodwill.
? The ratio of total operating expenses to total operating income decreased from
80.0% to 72.7%.
? Investec Bank (UK) Limited successfully placed a GBP200 million 12-year
subordinated note in the UK market to a diversified range of investors.
? Investec Bank Limited issued R1.5 billion (GBP127.5 million) non-cumulative,
non-redeemable and non-participating preference shares.
? Investec Limited concluded its empowerment shareholding transaction with Peu
Investment Group, Tiso Group and a broad-based Entrepreneurship Development
Trust issuing 5.6 million new shares (GBP46.0 million). Investec was recognised
by BusinessMap as the `Most Progressive Established Company of the Year` for its
black economic empowerment and transformation initiatives in SA.
? The operational effective tax rate of the group (excluding the tax effect on
exceptional items) increased from 6.3% to 21.1%.
? Dividends of 58 pence per share equating to a dividend cover of 1.79 based on
the group`s EPS before exceptional items and goodwill amortisation, as
determined in UK GAAP, are proposed.
Presentation of financial information
Investec plc and Investec Limited
In July 2002, Investec Group Limited (now Investec Limited), which is
headquartered in South Africa, implemented a Dual Listed Companies (DLC)
structure. The group`s Southern African and Mauritius operations were listed on
the JSE Securities Exchange of South Africa (JSE) and its principal non-Southern
African operations were listed on the London Stock Exchange. For further
information, see Investec`s web site www.investec.com/investorrelations.
In terms of the contracts constituting the DLC structure, Investec plc and
Investec Limited effectively form a single economic enterprise in which the
economic and voting rights of shareholders of the companies are maintained in
relative equilibrium. 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 preliminary 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 plc and Investec
Limited.
Investec, for the year ended 31 March 2003, 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 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 publishes a high-level
reconciliation and summary of the principal differences.
The financial information contained in the `Commentary` section is prepared in
accordance with UK GAAP. Rand values included in the `Commentary` section are
translated into Pounds Sterling - in the case of the profit and loss accounts,
at the weighted average rate for the relevant year and, in the case of the
balance sheets, at the relevant year-end rate. Reuters quotes the average
Rand/Pounds Sterling exchange rate at 12.02 and 15.04 for the year ended 31
March 2004 and 31 March 2003, respectively. This represents some 20.0%
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 below.
Dividend declaration
The dividends per share declared by Investec plc and Investec Limited 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 previous year.
Business Unit Review
Investment Banking
The group`s Investment Banking division benefited from the better market
environment recording a much improved operating profit before exceptional items
and amortisation of goodwill of GBP37.7 million from GBP13.5 million.
In the UK, the more favourable stock market conditions and a reduced cost base
in the division enabled it to achieve a major turnaround in performance. The
level of corporate activity increased and the division concluded a number of
Initial Public Offerings 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 SA, the Investment Banking division benefited from a significant improvement
in the performance of its trading investments held within the direct investment
and private equity portfolios. Corporate Finance maintained its strong
positioning and deal flow with a steady level of activity comprising corporate
restructuring activities, black economic empowerment transactions, de-listings,
fair and reasonable opinions and two high profile investment banking
transactions. Lower volumes were traded on Investec Securities` agency business
and the structured equity desk was affected by the volatility of the Rand and
uncertain markets.
In Australia, the Investment Banking division, Investec Wentworth, benefited
from an upturn in merger and acquisition activity. The private equity business
also performed particularly well with two realisations and a number of notable
investments made during the year.
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 58.4% to GBP53.9 million from GBP34.0 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
discretionary mandates, while the performance of Investec Securities in SA was
impacted by subdued market volumes.
Private Banking
Operating profit before exceptional items and amortisation of goodwill of the
Private Banking division increased by 53.4%, to GBP45.4 million. This
performance was driven by a solid growth in total advances and non-interest
income. During the period under review, the group`s private client lending book
in SA grew by 26.9% to R22.5 billion (GBP1.9 billion), and the private client
lending book in the UK grew by 14.8% to GBP1.1 billion.
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 less buoyant market with a well-spread loan book.
While there is a strong bias in the overall lending book towards commercial and
residential property, the book is well-secured and the group believes that loan
to value ratios are conservative enough to provide a cushion for all but an
unexpectedly severe downturn.
In SA, the Private Bank increased operating profit through strong growth in
advances and structured and transactional banking fees as well as a noteworthy
contribution from the private client investment banking portfolio.
In Australia, the Private Client group performed well, with particularly strong
growth from the Structured Property Finance unit, as the business continues to
leverage off the Investec Wentworth brand and client base. 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 major
investment banks.
Private Client Portfolio Management and Stockbroking
Private Client Portfolio Management and Stockbroking recorded a strong result,
earning operating profit before exceptional items and amortisation of goodwill
of GBP8.5 million, an increase of 91.8% on the previous year.
In the UK, Carr Sheppards Crosthwaite performed well with total funds under
management increasing by 25.5% to GBP5.9 billion from GBP4.7 billion. Net new
inflows of GBP360 million were generated largely in discretionary mandates.
Poor stock market volumes in SA restricted the performance of Investec
Securities, although total funds under management increased by 17.2% to R30.0
billion (GBP2.5 billion) from R25.6 billion (GBP2.0 billion). 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.
Treasury and Specialised Finance
The group`s Treasury and Specialised Finance division posted operating profit
before exceptional items and amortisation of goodwill of GBP35.8 million, an
increase of 77.3% from GBP20.2 million. A strong performance from the UK
operation was partially offset by a weaker performance from the SA operation.
The UK Treasury and Specialised Finance division achieved a considerable
turnaround with operating profit before exceptional items and amortisation of
goodwill increasing to GBP14.0 million from a loss of GBP5.7 million. The
division benefited from the restructuring of its trading activities undertaken
in the previous financial year and from a solid performance from the stock
lending and commodities trading desks during the period. Furthermore, an
increasing focus on higher margin, less capital intensive transactions and
customer flows, in addition to the growth and creditable performance of its
Banking Activities enhanced the division`s performance.
The SA Treasury and Specialised Finance division`s operating profit before
exceptional items and amortisation of goodwill declined from GBP26.6 million to
GBP18.9 million. A weak performance by the currency and interest rate desks
together with a margin squeeze - which was inadequately hedged by the
positioning of the interest rate book - were the key causes of the decline in
operating profit. The general slow down in infrastructural finance moderated the
performance of the Banking Activities although the division experienced sound
growth in structured finance fees.
Asset Management
The Asset Management division delivered operating profit before exceptional
items and amortisation of goodwill of GBP24.6 million, which represented an
uplift of 38.9% in Pounds Sterling terms and 11.1% in Rand terms. Assets under
management increased by 22.2% in Pounds Sterling terms to GBP20.6 billion and by
14.0% in Rand terms to R240.0 billion over the year. The key features of the
year were the continued penetration of the UK pension and Independent Financial
Advisory channels and strong investment performance across the product range.
The UK retail funds enjoyed sound growth and continued expansion in market share
with net inflows for the year amounting to GBP284 million. Funds under
management now exceed GBP1 billion (68.8% year-on-year growth). This contributed
to market share of net retail industry sales increasing to 3.2%. The offshore
fund range also achieved strong net inflows of GBP236 million largely as a
result of the sales efforts in Asia and in the UK. Flows from SA slowed due to
the strength in the Rand. The UK institutional team continued to penetrate the
pension market, which represents a shift in the book towards the pension fund
business. The UK Institutional business saw outflows from cash as investors
shifted allocations. During 2004, Investec Asset Management won the Global
Investor`s `Firm to Watch` award.
The SA business once again showed resilience with a solid performance. Most
notable, the excellent retail and specialist investment performance resulted in
Investec Asset Management achieving first place in the Plexus survey, and
winning the Standard & Poors` `Best Large Manager` award over one, three and
five years. Balanced investment performance has improved over the past year
although further progress is required. Investec Asset Management continues to
establish leadership in specialist products, and was appointed to manage
significant new mandates. The SA business generated net inflows of R4.4 billion
excluding the structural outflows from the Investec Employee Benefits (ex-
Fedsure) book.
Assurance Activities
The group`s SA life assurance activities, conducted by Investec Employee
Benefits (IEB) did not have the benefit of the substantial operational earnings
from the restructuring and rationalisation of its activities of the previous
period and reported operating profit before exceptional items and amortisation
of goodwill of GBP4.6 million - a decline of 82.9%.
Group Services and Other Activities
Group Services and Other Activities posted an operating loss of GBP24.4 million
compared to the prior period loss of GBP9.8 million. This was largely
attributable to an increase in interest paid on subordinated debt following the
raising of GBP44.4 million of subordinated debt in SA towards the end of the
2003 financial year and of a further GBP200 million in the UK in February 2004.
The loss was exacerbated by the increase in costs within the Central Services
divisions, mainly as a result of: the appreciation of the Rand against Pounds
Sterling, an increase in incentive based remuneration in the UK operations given
an increase in profitability, and expansion of the Australian operations.
This result was partially offset by a significant increase in dealing income,
with the group benefiting from an increased return on a number of investments
and a better performance from the loss-making UK Traded Endowments business. In
addition, the group`s Property Activities in SA continued to perform well, with
total assets under management increasing by 43.8% to R12.5 billion (GBP1
billion).
Geographic Performance
Investec plc and Investec Limited earned 41.4% (2003: 19.0%) and 58.6% (2003:
81.0%), respectively of the group`s operating profit before exceptional items
and amortisation of goodwill excluding discontinued operations. The change in
profit contribution was largely as a result of the improved 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 SA businesses posted an operating profit before exceptional items and
amortisation of goodwill of GBP77.4 million, representing an increase of 11.4%.
The operations benefited from the strength of the Rand and a solid performance
from the Investment Banking and Private Banking divisions. This strong
performance was offset by a poor performance from the Treasury and Specialised
Finance division and a decline in the earnings of the group`s Assurance
Activities and Central Funding division, explained earlier in this report.
UK
The UK businesses recorded an operating profit before exceptional items and
amortisation of goodwill of GBP38.7 million, an increase of 71.7% over the
previous financial year. The strong results from the Private Banking and
Treasury and Specialised Finance divisions were supported by a
