| Thu 27 May 2004, 11:18 | | Reviewed condensed consolidated SA GAAP financials |
|
Investec Bank Limited - Reviewed condensed consolidated SA GAAP financial
results in Rands for the year ended 31 March 2004
Investec Bank Limited
(Registration number 1969/004763/06)
JSE Code: INLP ISIN: ZAE000048393
Directors: H S Herman (Chairman), D M Lawrence* (Deputy Chairman). S Koseff*
(Chief Executive). B Kantor* (Managing). S E Abrahams.
G R Burger*. D E Jowell. M P Malungani. D R Motsepe. Dr M Z Nkosi. B Tapnack*. P
R S Thomas. F Titi. R A P Upton. *Executive
Company secretary: S Noik
Investec Bank Limited
Reviewed condensed consolidated SA GAAP financial results in Rands for the year
ended 31 March 2004
Consolidated income statement for the year ended 31 March
2004 2003*
(R millions) Reviewed Audited
Interest received 6,551 7,226
Interest paid (5,242) (5,966)
Net interest income 1,309 1,260
Impairment of advances (173) (281)
Impairment of non-trading loans - (263)
1,136 716
Other income 962 989
Total income 2,098 1,705
Operating expenses (1,076) (1,247)
Operating profit before goodwill amortisation 1,022 458
Goodwill amortisation - (10)
Operating profit before taxation 1,022 448
Taxation (131) (42)
Operating profit after taxation 891 406
Earnings attributable to minority shareholders (1) (2)
Earnings attributable to shareholders 890 404
Calculation of headline earnings
Earnings attributable to shareholders 890 404
Headline adjustments (3) 256
Goodwill amortised - 10
Profit on disposal of subsidiaries and fixed (3) (17)
assets
Losses on the impairment of non-trading loans - 263
Headline earnings attributable to shareholders 887 660
Compulsorily convertible debenture interest (268) (267)
Preference dividends declared (22) -
Headline earnings attributable to ordinary 597 393
shareholders
Statement of changes in shareholders` funds for the year ended 31 March
2004 2003*
(R millions) Reviewed Audited
Balance at the beginning of the year 7,974 8,649
Adjustments to opening reserves as a result of 160 -
the adoption of AC133
Restated balance at the beginning of the year 8,134 8,649
Net issue of perpetual preference shares 1,491 -
Earnings attributable to shareholders 890 404
Compulsorily convertible debenture interest (268) (267)
Preference dividends declared (22) -
Dividends paid (500) (800)
Movement in foreign currency translation (59) (53)
reserves
Increase in cashflow hedge fair value 10 -
adjustments
Net movement in investment revaluation (5) 41
reserves
Balance at the end of the year 9,671 7,974
Abridged cash flow statement for the year ended 31 March
2004 2003*
(R millions) Reviewed Audited
Cash inflow/(outflow) from operating 331 (72)
activities
Cash (outflow)/inflow from banking operations (5,130) 3,828
Cash inflow from investing activities 161 18
Cash inflow from financing activities 1,979 1,533
Net (decrease)/increase in cash and short-term (2,659) 5,307
funds
Cash and short-term funds at the beginning of 14,423 9,116
the year
Cash and short-term funds at the end of the 11,764 14,423
year
Consolidated balance sheet at 31 March
2004 2003*
(R millions) Reviewed Audited
Assets
Cash and short-term funds 11,764 14,423
Short-term negotiable securities 6,336 8,199
Investment and trading securities 16,710 9,531
Other assets 1,409 1,681
Advances 35,726 28,158
Intergroup 9,768 10,274
Property and equipment 686 816
Intangible assets - 1
82,399 73,083
Equity and liabilities
Capital and reserves
Ordinary share capital 16 16
Perpetual preference shares 1,491 -
Compulsorily convertible debentures 1,938 1,938
Reserves 6,226 6,020
9,671 7,974
Interest of minority shareholder`s in 29 33
subsidiaries
Total shareholders` funds 9,700 8,007
Subordinated debt 2,961 2,801
12,661 10,808
Liabilities
Redeemable preference shares 1,740 1,820
Deposits and other accounts 67,866 60,398
Taxation 132 57
82,399 73,083
Segmental information
For the year ended 31 March 2004
Private Treasury &
Client Specialised Investment
(R millions) Activities Finance Banking Other Total
Total income 628 669 372 426 2,095
Operating (415) (353) (92) (216) (1,076)
expenses
Operating 213 316 280 210 1,019
profits before
taxation and
headline
adjustments
Cost to income 58.4 51.6 24.7 43.2 47.5
ratio (%)
For the year ended 31 March 2003*
Private Treasury &
Client Specialised Investment
(R millions) Activities Finance Banking Other Total
Total income 545 812 138 456 1,951
Operating (380) (426) (71) (370) (1,247)
expenses
Operating 165 386 67 86 704
profits before
taxation and
headline
adjustments
Cost to income 58.4 48.8 51.7 55.5 55.8
ratio (%)
These consolidated financial results are published to provide information to
holders of Investec Bank Limited`s listed non-cumulative, non-redeemable and non
participating preference shares.
Commentary
Investec Bank Limited, a wholly owned subsidiary of Investec Limited, is pleased
to announce that headline earnings attributable to ordinary shareholders
increased by 51.9% from R393 million to R597 million. Excluding the impact of
AC133, headline earnings would have increased by 42.0%.
Operating profit before taxation and headline adjustments increased by 45% to
R1,019 million, with solid performances from the Investment Banking, Private
Banking and Group Services and Other Activities divisions.
The banking capital adequacy ratio for Investec Bank Limited at year end was
19.9%.
Accounting policies
Basis of preparation
The financial information has been prepared in accordance with South African
Statements of Generally Accepted Accounting Practice and in the manner required
by the South African Companies Act of 1973.
Changes to accounting policies
Accounting policies applied are consistent with those adopted in the 31 March
2003 annual report, except for the changes as a result of the adoption of the
accounting statement on recognition and measurement of financial instruments
(AC133).
In terms of AC133, all financial assets and financial liabilities are required
to be classified into prescribed categories which determine their recognition
and measurement criteria. Further, the statement has introduced principles in
relation to impairments of financial instruments carried at amortised cost which
replaces previous methodologies of determining specific and general provisions.
The major changes to Investec Bank Limited Group (Bank) as a result of adopting
the standard are detailed below:
Fair value adjustments
- The statement requires all derivatives to be recorded on balance sheet at fair
value, with changes in fair value being recognised in the income statement
(except for fair value adjustments relating to the successful application of
cash flow hedging principles, which result in fair value adjustments being
recognised directly in equity until the occurrence of the cash flow being
hedged). In prior years, non trading derivatives within the banking book were
accounted for on the same basis as the underlying asset, liability or cash flow
being hedged. On adoption of AC133, all of these derivatives have been
recognised on balance sheet at fair value. Except for the application of cash
flow hedging, all changes in fair value are recognised in income. To the extent
that fair value hedge accounting principles have been successfully applied,
changes in fair value relating to the hedged risk of the underlying hedged item
have also been recognised in income.
- In certain instances where hedge accounting is impractical to apply, and the
Bank deems it appropriate, related financial assets and financial liabilities
have been designated as held at fair value. This designation is made at
inception of the financial asset or financial liability (or on adoption of
AC133) and cannot be changed.
- To the extent that derivatives have been identified as embedded in a host
contract that is not carried at fair value and the economic characteristics of
the embedded derivative are not closely related to that of the host contract,
the embedded derivative has been separated from the host contract and accounted
for as a stand alone derivative.
Impairments
- Specific impairments are determined for non performing loans and advances
based on a discounted cash flow methodology. This has resulted in specific
impairments greater than the previous specific provisions due to the
introduction of a discount factor in determining the present value of the
expected cash flows.
- In prior years, the Bank`s general provision had been determined taking into
account the structure and risk characteristics of the Bank`s loan portfolio and
ensuring that the minimum requirements of the banking regulations in the
jurisdictions in which the Bank operated were maintained. As a result of the
adoption of AC133, portfolio impairments are determined for loans that are not
specifically identified as impaired or non performing based on a discounted cash
flow methodology, taking into account historical loss given defaults,
probabilities of default and changes in the credit quality of loans
and advances since inception. This has resulted in significantly lower
portfolio impairments when compared to general provisions raised previously. The
difference between portfolio impairments and regulatory minimum provisions per
regulatory asset category has been met by transferring sufficient distributable
reserves to a non-distributable regulatory reserve.
Opening transitional adjustments
AC133 provides that changes resulting from the adoption of the standard be
applied prospectively and therefore adjustments at 1 April 2003 have been
accounted for as an adjustment to opening retained income. The impact of
adopting AC133 on the opening shareholders` funds is detailed in the table
below:
At 1 April 2003
Non
Equity distributable Total
Retained revaluation regulatory shareholders`
R million income reserve reserve funds
Adjustments:
- Fair value (123) - - (123)
adjustments to
derivatives and
other financial
instruments
- Reclassification 20 (20) - -
of equity
revaluations
- Present value (36) - - (36)
adjustments to
specific
impairments
- Reversal of 354 - - 354
general bad debt
provision
- Creation of (35) - - (35)
portfolio
impairment
180 (20) - 160
- Transfer to non (333) - 333 -
distributable
regulatory reserve
Change in total (153) (20) 333 160
shareholders` funds
The impact of AC133 was to increase earnings for the year ended
31 March 2004 as follows:
R million
Net interest income before impairments 64
Impairments 38
Non interest income (35)
Income before taxation 67
Taxation (28)
Income after taxation 39
At 31 March 2004 a further transfer of R122 million was made from retained
income to the non distributable regulatory reserve.
Interpretations relating to accounting, regulatory and taxation effects on
adoption of AC133 are currently subject to debate within the South African
context. The Bank`s financial reporting will be affected by further amendments
to the International Financial Reporting Standard (IAS39) when incorporated into
AC133.
* Restatements to comparative figures:
- In the prior year, adjustments to headline earnings of R256m were separately
identified in the income statement. In the current year headline adjustments
have been reflected within the respective income and expenditure categories with
a corresponding adjustment to the comparative year. This resulted in two new
line items on the income statement being `Impairment of non trading loans`
(R263m) and `Goodwill amortisation` (R10m). The remaining R17m of income has
been included within other income.
- Interest on compulsorily convertible debentures, which are classified as
equity instruments, has been reflected in the statement of changes in equity.
- Cash and short-term fund assets amounting to R3,994m were classified under
other assets in the prior year. The comparatives have been adjusted to reflect
these assets as cash and short-term funds.
These results have been reviewed by our auditors, Ernst & Young and KPMG Inc.
and their review opinion is available for inspection at the company`s registered
office.
On behalf of the board of Investec Bank Limited
Hugh Herman Stephen Koseff Bernard Kantor
Chairman Chief Executive Officer Managing Director
Date: 27/05/2004 08:01:13 AM Produced by the JSE SENS Department
