| Thu 25 Nov 2004, 9:13 | | FINANCIAL RESULTS IN POUNDS STERLING |
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INVESTEC PLC - UNAUDITED CONSOLIDATED UK GAAP FINANCIAL RESULTS IN POUNDS
STERLING FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2004
INVESTEC PLC
(incorporating the results of Investec Limited)
SHARE CODE: INP
ISIN: GB0031773103
UNAUDITED CONSOLIDATED UK GAAP FINANCIAL RESULTS IN POUNDS STERLING FOR THE SIX
MONTHS ENDED 30 SEPTEMBER 2004
Salient Features
30 Sept. % 30 Sept. 31 March
2004 Change 2003* 2004*
Earnings before goodwill 66,208 40.9 47,003 106,203
amortisation and
exceptional items
(GBP`000)
Operating profit before 88,706 53.2 57,895 132,260
goodwill amortisation,
exceptional items and
taxation (GBP`000)
Profit attributable to 37,776 41.8 26,642 68,906
shareholders (GBP`000)
Earnings per share 61.7 31.3 47.0 103.8
(before goodwill
amortisation and
exceptional items)
(pence)
Earnings per share 29.9 20.6 24.8 60.0
(pence)
Headline earnings per 61.7 31.3 47.0 103.5
share (pence)
Dividends per share 30.0 7.1 28.0 58.0
(pence)
Consolidated profit and loss accounts
6 months ended
30 Sept. 2004
Before Goodwill
goodwill
and and
exceptional exceptional
GBP`000 items items Total
Interest receivable - interest income
arising
from debt securities 39,528 - 39,528
Interest receivable - other interest 310,283 - 310,283
income
Interest payable (288,183) - (288,183)
Net interest income 61,628 - 61,628
Dividend income 879 - 879
Fees and commissions receivable 205,781 - 205,781
- annuity 156,966 - 156,966
- deal 48,815 - 48,815
Fees and commission payable (10 117) - (10,117)
Dealing profits 33,771 - 33,771
Income from long-term assurance business 3,538 - 3,538
Return on shareholders` funds in the
long-term
assurance business 14,515 - 14,515
Other operating income 1,650 - 1,650
Other income 250,017 - 250,017
Total operating income 311,645 - 311,645
Administrative expenses (209,193) - (209,193)
Depreciation and amortisation (4,631) (18,419) (23,050)
- tangible fixed assets (4,631) - (4,631)
- amortisation and impairment of - (18 419) (18,419)
goodwill
Provision for bad and doubtful debts (9,115) - (9,115)
Operating profit before exceptional 88,706 (18,419) 70,287
items
Share of income of associated companies 7,181 (1,033) 6,148
Exceptional items - (14,655) (14,655)
Provision for losses on termination and
disposal of
group operations - discontinued - - -
Losses on termination and disposal of
group
operations - discontinued - (2,602) (2,602)
Less provision raised in prior periods - 2,602 2,602
Impairment of goodwill on termination
and disposal
of group operations - continuing - (2,712) (2,712)
(Loss)/profit on termination and
disposal of
group operations - continuing - (11,943) (11,943)
Profit on ordinary activities before 95,887 (34,107) 61,780
taxation
Tax on profit on ordinary activities (23,292) - (23,292)
Tax on profit on ordinary continuing (23,292) - (23,292)
activities
Tax on provision for losses on
termination and disposal
of group operations - discontinued - - -
Profit on ordinary activities after 72,595 (34,107) 38,488
taxation
Minority interests - equity (712) - (712)
Profit attributable to shareholders 71,883 (34,107) 37,776
Dividends - including non-equity (36,118) - (36,118)
Retained profit/(loss) for the period 35,765 (34,107) 1,658
Profit attributable to shareholders 37,776
Amortisation and impairment of goodwill 18,419
Loss/(profit) on termination and
disposal of group
operations (net of taxation and minority 11,943
interest)
Provision for losses on termination and
disposal of
group operations -
Impairment of goodwill on termination
and disposal of
group operations - continuing 2,712
Amortisation of goodwill of associates 1,033
Preference dividends (5,675)
Earnings before goodwill amortisation
and exceptional items 66,208
Earnings per share (pence)
- Basic 29.9
- Diluted 29.7
Excluding goodwill amortisation and
exceptional items
- Basic 61.7
- Diluted 59.3
Dividends per share (pence) 30.0
Weighted average number of shares 107.4
(millions)
6 months ended
30 Sept. 2003*
Before Goodwill
goodwill
and and
exceptional exceptional
GBP`000 items items Total
Interest receivable - interest income
arising
from debt securities 54,170 - 54,170
Interest receivable - other interest 285,950 - 285,950
income
Interest payable (292,950) - (292,950)
Net interest income 47,170 - 47,170
Dividend income 3,511 - 3,511
Fees and commissions receivable 153,857 - 153,857
- annuity 126,884 - 126,884
- deal 26,973 - 26,973
Fees and commission payable (8,318) - (8,318)
Dealing profits 39,312 - 39,312
Income from long-term assurance business 2,699 - 2,699
Return on shareholders` funds in the
long-term
assurance business 6,769 - 6,769
Other operating income 6,385 - 6,385
Other income 204,215 - 204,215
Total operating income 251,385 - 251,385
Administrative expenses (181,922) - (181,922)
Depreciation and amortisation (6,679) (29,780) (36,459)
- tangible fixed assets (6,679) - (6,679)
- amortisation and impairment of - (29,780) (29,780)
goodwill
Provision for bad and doubtful debts (4,889) - (4,889)
Operating profit before exceptional 57,895 (29,780) 28,115
items
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
group operations - discontinued - (5,103) (5,103)
Losses on termination and disposal of
group
operations - discontinued - (24,328) (24,328)
Less provision raised in prior periods - 19,225 19,225
Impairment of goodwill on termination
and disposal
of group operations - continuing - - -
(Loss)/profit on termination and
disposal of
group operations - continuing - 13,674 13,674
Profit on ordinary activities before 62,686 (22,217) 40,469
taxation
Tax on profit on ordinary activities (12,592) - (12,592)
Tax on profit on ordinary continuing (12,592) - (12,592)
activities
Tax on provision for losses on
termination and disposal
of group operations - discontinued - - -
Profit on ordinary activities after 50,094 (22,217) 27,877
taxation
Minority interests - equity (1,235) - (1,235)
Profit attributable to shareholders 48,859 (22,217) 26,642
Dividends - including non-equity (29,819) - (29,819)
Retained profit/(loss) for the period 19,040 (22,217) (3,177)
Profit attributable to shareholders 26,642
Amortisation and impairment of goodwill 29,780
Loss/(profit) on termination and
disposal of group
operations (net of taxation and minority (13,674)
interest)
Provision for losses on termination and
disposal of
group operations 5,103
Impairment of goodwill on termination
and disposal of
group operations - continuing -
Amortisation of goodwill of associates 1,008
Preference dividends (1,856)
Earnings before goodwill amortisation
and exceptional items 47,003
Earnings per share (pence)
- Basic 24.8
- Diluted 23.9
Excluding goodwill amortisation and
exceptional items
- Basic 47.0
- Diluted 45.0
Dividends per share (pence) 28.0
Weighted average number of shares 100.1
(millions)
Year ended
31 March 2004*
Before Goodwill
goodwill
and and
exceptional exceptional
GBP`000 items items Total
Interest receivable - interest income
arising
from debt securities 91,845 - 91,845
Interest receivable - other interest 588,188 - 588,188
income
Interest payable (574,249) - (574,249)
Net interest income 105,784 - 105,784
Dividend income 3,450 - 3,450
Fees and commissions receivable 339,942 - 339,942
- annuity 273,977 - 273,977
- deal 65,965 - 65,965
Fees and commission payable (21,569) - (21,569)
Dealing profits 91,015 - 91,015
Income from long-term assurance business 5,082 - 5,082
Return on shareholders` funds in the
long-term
assurance business 24,122 - 24,122
Other operating income 13,028 - 13,028
Other income 455,070 - 455,070
Total operating income 560,854 - 560,854
Administrative expenses (395,188) - (395,188)
Depreciation and amortisation (12,448) (50,644) (63,092)
- tangible fixed assets (12,448) - (12,448)
- amortisation and impairment of - (50,644) (50,644)
goodwill
Provision for bad and doubtful debts (20,958) - (20,958)
Operating profit before exceptional 132,260 (50,644) 81,616
items
Share of income of associated companies 11,205 (2,132) 9,073
Exceptional items - 8,529 8,529
Provision for losses on termination and
disposal of
group operations - discontinued - (5,103) (5,103)
Losses on termination and disposal of
group
operations - discontinued - (24,328) (24,328)
Less provision raised in prior periods - 19,225 19,225
Impairment of goodwill on termination
and disposal
of group operations - continuing - - -
(Loss)/profit on termination and
disposal of
group operations - continuing - 13,632 13,632
Profit on ordinary activities before 143,465 (44,247) 99,218
taxation
Tax on profit on ordinary activities (27,821) (678) (28,499)
Tax on profit on ordinary continuing (27,821) - (27,821)
activities
Tax on provision for losses on
termination and disposal
of group operations - discontinued - (678) (678)
Profit on ordinary activities after 115,644 (44,925) 70,719
taxation
Minority interests - equity (1,888) 75 (1,813)
Profit attributable to shareholders 113,756 (44,850) 68,906
Dividends - including non-equity (63,709) - (63,709)
Retained profit/(loss) for the period 50,047 (44,850) 5,197
Profit attributable to shareholders 68,906
Amortisation and impairment of goodwill 50,644
Loss/(profit) on termination and
disposal of group
operations (net of taxation and minority (13,029)
interest)
Provision for losses on termination and
disposal of
group operations 5,103
Impairment of goodwill on termination
and disposal of
group operations - continuing -
Amortisation of goodwill of associates 2,132
Preference dividends (7,553)
Earnings before goodwill amortisation
and exceptional items 106,203
Earnings per share (pence)
- Basic 60.0
- Diluted 59.6
Excluding goodwill amortisation and
exceptional items
- Basic 103.8
- Diluted 100.8
Dividends per share (pence) 58.0
Weighted average number of shares 102.3
(millions)
Consolidated statements of recognised gains and losses
6 months 6 months Year
ended ended ended
30 Sept. 30 Sept. 31 March
2004 2003* 2004*
GBP`000 Unaudited Unaudited Audited
Profit for the period attributable to 37,776 26,642 68,906
shareholders
Currency translation differences on (4,803) 19,556 (4,104)
foreign currency net investments
Unrealised surplus on revaluation of 2,735 2,033 13,982
investment properties
Actuarial losses recognised on pension - - (1,294)
fund schemes
Total recognised gains and losses for 35,708 48,231 77,490
the period
Prior year adjustments in respect of (43)
changes in accounting policies
Total gains and losses since last annual 35,665
report
Consolidated cash flow statements
6 months 6 months Year
ended ended ended
30 Sept. 30 Sept. 31 March
2004 2003* 2004*
GBP`000 Unaudited Unaudited Audited
Net cash inflow/(outflow) from operating 487,999 (58,383) (485,602)
activities
Net cash outflow from return on (35,444) (17,022) (54,318)
investments and servicing of finance
Taxation (16,691) (4,973) (31,917)
Net cash (outflow)/inflow from capital (525,744) 25,006 334,187
expenditure and financial investment
Net cash (outflow)/inflow from (2,423) (1,055) 40,227
acquisitions and disposals
Ordinary share dividends paid (28,833) (26,298) (52,810)
Net cash (outflow)/inflow from financing (6,886) 122,585 389,225
(Decrease)/increase in cash (128,022) 39,860 138,992
Cash and demand bank balances at 1,172,894 1,033,902 1,033,902
beginning of period
Cash and demand bank balances at end of 1,044,872 1,073,762 1,172,894
period
Consolidated balance sheets at
30 Sept. 30 Sept. 31 March
2004 2003* 2004*
GBP`000 Unaudited Unaudited Audited
Assets
Cash and balances at central banks 217,460 348,391 363,862
Treasury bills and other eligible bills 277,583 311,422 332,208
Loans and advances to banks 2,676,378 1,523,294 1,704,715
Loans and advances to customers 6,532,100 5,844,318 6,347,032
Debt securities 1,761,409 1,902,519 1,466,437
Equity shares 240,744 263,895 418,254
Interests in associated undertakings 71,684 66,099 70,006
Other participating interests 9,137 8,890 9,135
Intangible fixed assets 225,358 280,286 251,508
Tangible fixed assets 143,567 174,297 146,326
Other assets 1,259,779 1,765,475 1,081,131
Prepayments and deferred income 110,221 120,297 81,511
Long-term assurance business 299,209 188,700 265,315
attributable to the shareholder
13,824,629 12,797,883 12,537,440
Long-term assurance assets attributable 2,689,767 2,857,111 2,781,335
to policyholders
16,514,396 15,654,994 15,318,775
Liabilities
Deposits by banks 886,583 1,402,002 1,233,609
Customer accounts 7,233,545 6,907,589 7,211,292
Debt securities in issue 1,165,994 960,697 621,857
Other liabilities 3,031,690 2,212,605 1,969,855
Accruals and deferred income 191,299 231,644 185,600
Pension fund liability 11,967 10,041 11,967
12,521,078 11,724,578 11,234,180
Long-term assurance liabilities 2,689,767 2,857,111 2,781,335
attributable to policyholders
15,210,845 14,581,689 14,015,515
Capital Resources
Subordinated liabilities (including 500,326 302,812 497,858
convertible debt)
Minority interests - equity 37,781 41,987 39,029
Called up share capital 165 158 165
Share premium account 1,027,539 981,606 1,027,539
Treasury shares (101,541) (98,273) (101,304)
Shares to be issued 2,384 2,996 2,666
Perpetual preference shares 126,698 126,778 126,698
Revaluation reserves 45,877 31,193 43,142
Other reserves (173,205) (147,356) (168,402)
Profit and loss account (162,473) (168,596) (164,131)
Shareholders` funds 765,444 728,506 766,373
- equity 638,746 601,728 639,675
- non equity 126,698 126,778 126,698
1,303,551 1,073,305 1,303,260
16,514,396 15,654,994 15,318,775
Memorandum items
Contingent liabilities 424,856 313,180 267,441
Commitments 327,062 250,046 522,879
751,918 563,226 790,320
The results of Investec Limited (incorporating the results of Investec plc) are
the same as the results presented in this announcement.
* Restated for changes to accounting policies and disclosures as detailed in the
paragraph headed `accounting policies and disclosures` .
Segmental analysis - geographical and business analysis of operating profit
before taxation, goodwill amortisation and exceptional items - for the 6 months
ended 30 September 2004
United United
Southern Kingdom States Total
and of
GBP`000 Africa Europe Australia Israel America group
Private Client 16,207 21,763 1,180 1,753 - 40,903
Activities
Treasury and 15,006 6,178 611 (343) - 21,452
Specialised Finance
Investment Banking 11,488 3,155 1,540 1,842 (41) 17,984
Asset Management 12,748 1,981 - 152 - 14,881
Assurance Activities 3,525 - - - - 3,525
Group Services and (3,966) (7,110) 1,135 (112) 14 (10,039)
Other Activities
55,008 25,967 4,466 3,292 (27) 88,706
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 States Total
and of
GBP`000 Africa Europe Australia Israel America group
Private Client 9,149 14,328 1,229 370 - 25,076
Activities
Treasury and 5,239 8,909 65 1,165 - 15,378
Specialised Finance
Investment Banking 15,884 1,516 1,591 1,086 - 20,077
Asset Management 10,537 215 - 111 - 10,863
Assurance Activities 2,198 - - - - 2,198
Group Services and (12,420) (4,314) 885 (691) 843 (15,697)
Other Activities
30,587 20,654 3,770 2,041 843 57,895
Consolidated statements of reconciliations of shareholders` funds and movements
on reserves
6 months 6 months Year
ended ended ended
30 Sept. 30 Sept. 31 March
2004 2003* 2004*
GBP`000 Unaudited Unaudited Audited
Balance at the beginning of the period 766,373 588,466 588,466
- As previously reported 808,969 696,968 639,968
- Changes in accounting policies
Adoption of UITF 38: Accounting for (42 596) (51,502) (51,502)
ESOP trusts
Adoption of UITF 37: Purchase and sale - (47,827) -
of own shares
Adoption of full requirements of FRS - (9,173) -
17: Retirement benefits
Foreign currency adjustments (4,803) 19,556 (4,104)
Retained profit/(loss) for the period 1,658 (3,177) 5,197
Reduction in shareholding of associate - (1,055) (1,056)
Issue of shares - 568 46,325
Issue of perpetual preference shares - 127,465 127,484
Share issue expenses - (697) (2,031)
Re-issue of treasury shares - 410 18,975
Purchase of treasury shares (519) (5,063) (25,571)
Transfer to pension fund deficit - - (1,294)
Revaluation of investment properties 2,735 2,033 13,982
Balance at the end of the period 765,444 728,506 766,373
Reconciliation between UK and SA accounting principles
6 months 6 months Year
ended ended ended
30 Sept. 30 Sept. 31 March
2004 2003* 2004*
GBP`000 Unaudited Unaudited Audited
Earnings before goodwill amortisation 66,208 47,003 106,203
and exceptional items under UK GAAP
SA GAAP adjustments:
Acquisition accounting 306 2,636 3,036
Employee share option plans (2,200) (7,910) (7,519)
AC 133 adjustments# (1,584) 8,193 9,230
Debenture interest 3,533 4,531 8,471
Interest rate swaps (1,649) (1,590) (3,224)
Embedded value earnings 423 (865) (783)
Revaluation of investment properties 2,735 2,033 13,982
Treasury shares 1,168 - 1,427
Perpetual preference share dividends 5,675 1,856 7,553
Other (18) 726 482
Earnings before goodwill amortisation 74,597 56,613 138,858
and 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 `Accounting policies and disclosures`.
Overall performance
Investec is pleased to announce that for the half-year ended 30 September 2004,
earnings per share (EPS) before exceptional items and amortisation of goodwill
increased 31.3% to 61.7 pence from 47.0 pence (as restated). These six months
were characterised by favourable economic conditions in all principal markets in
which the group operates. The group continued to make significant progress
towards achieving the financial objectives it set at the time of the release of
the 2004 year-end results.
Salient features of the six month period were:
* Operating profit before exceptional items and amortisation of goodwill
increased 53.2% from GBP57.9 million to GBP88.7 million.
* Earnings attributable to ordinary shareholders before exceptional items
and amortisation of goodwill increased 40.9% from GBP47.0 million to
GBP66.2 million.
* Annuity/recurring income as a percentage of total operating income
increased from 67.3% to 69.2%.
* The ratio of total operating expenses to total operating income decreased
from 75.0% to 68.6%.
* Annualised return on adjusted equity shareholders` funds (inclusive of
compulsorily convertible instruments) increased from 14.0% to 18.7%.
* Dividends of 30 pence per share are proposed, equating to a dividend cover
of 2.06 based on the group`s EPS before exceptional items and goodwill
amortisation.
Commentary
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 period, and in the case of the
balance sheets at the relevant closing rate. Reuters quotes the average
Rand/Pounds Sterling exchange rate at 11.74 and 12.25 for the six months ended
30 September 2004 and 30 September 2003, respectively. This represents an
appreciation of approximately 4% of the Rand during the period under review.
Unless the context indicates otherwise, all comparatives included below relate
to the six months ended 30 September 2003.
Business unit review
Private Client Activities
The group`s Private Client Activities, comprising the Private Banking and
Private Client Portfolio Management and Stockbroking divisions, reported
substantial growth in operating profit before exceptional items and amortisation
of goodwill of 63.1% to GBP40.9 million from GBP25.1 million.
Private Banking
Operating profit before exceptional items and amortisation of goodwill of the
Private Banking division increased by 60.2% to GBP34.9 million driven by a solid
growth in total advances and non-interest income.
Strong performances were recorded across the majority of Private Banking
activities with notable performances from Specialised Lending and Property
Finance. Since 31 March 2004, the global private client lending book has grown
by 19.5% to GBP3.8 billion and the division increased its retail deposit book by
17.5% to GBP3.0 billion.
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 GBP6.0 million, an increase of 82.2%.
Improved equity market conditions and strict cost control benefited both Carr
Sheppards Crosthwaite in the UK and Investec Securities in SA. Since 31 March
2004, total private client funds under management have increased by 1.8% to
GBP8.6 billion.
Treasury and Specialised Finance
The group`s Treasury and Specialised Finance division posted operating profit
before exceptional items and amortisation of goodwill of GBP21.5 million, an
increase of 39.5%.
The SA operation benefited from a relatively stable interest rate environment
and a significant increase in dealing profits following a disappointing
performance reported in the prior period. The advisory and lending activities in
the UK and SA performed well with a notable performance from the Project Finance
division in the UK. These results were somewhat offset by an unsatisfactory
result recorded by the Commodities trading operation in the UK.
Investment Banking
The group`s Investment Banking division recorded a decline in operating profit
before exceptional items and amortisation of goodwill of 10.4% from GBP20.0
million to GBP18.0 million.
The Corporate Finance divisions performed well with a strong performance from
the UK and sound contributions from Australia and SA. The Institutional
Stockbroking operations posted sound results against a backdrop of favourable
equity markets. Off a high base in the prior period the Direct Investments and
Private Equity divisions posted a lower operating profit.
Asset Management
The Asset Management division delivered operating profit before exceptional
items and amortisation of goodwill of GBP14.9 million, which represented growth
of 37.0%. Since 31 March 2004, with GBP302 million net inflows, assets under
management increased by 7.2% in Pounds Sterling to GBP22.1 billion and by 7.4%
in Rands to R257.7 billion.
The UK and other international operations recorded a significant improvement in
profit due to strong net inflows across its product range, with investment
performance remaining solid. The South African business continues to deliver
good results on the back of a well-established market position and strong
investment performance across its core products.
Assurance Activities
The group`s SA assurance activities, conducted by Investec Employee Benefits
(IEB) reported an increase in operating profit of 60.3% to GBP3.5 million. The
business has benefited from continued market penetration and improved
efficiencies.
Group Services and Other Activities
Group Services and Other Activities posted an operating loss of GBP10.0 million
compared to the prior period loss of GBP15.7 million. The UK Property division
performed particularly well whilst the SA Central Funding division benefited
from an improved capital structure and a lower interest rate environment. These
results were partially offset by a net increase in interest costs in the UK
Central Funding division following the issue of Tier II debt of GBP200 million
in March 2004.
Financial statements analysis
Operating income
Operating income increased by 24.0% to GBP311.6 million. The movements in total
operating income are analysed further below.
Net interest income increased by 30.7% to GBP61.6 million. The group reported
strong growth in its Private Banking and UK Treasury and Specialised Finance
lending portfolios. A more stable interest rate environment in SA has led to an
improvement in the performance of the Treasury and Specialised Finance and
Central Funding divisions.
Net fees and commissions increased by 34.4% to GBP195.7 million. This was
largely attributable to increased lending turnover and transactional activity in
the Private Banking division and a sound performance by the Project Finance,
Investment Banking and Property divisions in the UK. The Asset Management and
Private Client Portfolio and Stockbroking divisions benefited from improved
equity market conditions and net inflows across a number of the product ranges.
Dealing profits decreased by 14.1% to GBP33.8 million mainly as a result of a
more moderate performance of the trading investments held in the Investment
Banking and Private Equity portfolios and certain other investments held in the
group`s corporate portfolio.
The performance of the group`s long-term assurance activities is discussed under
`Business unit review`.
The growth in the return on shareholders` funds in the long-term assurance
business conducted through IEB is as a result of the substantial increase in
long-term assurance assets attributable to the shareholder from GBP188.7 million
to GBP299.2 million, supported by favourable capital market conditions.
Other operating income declined as the prior period included a significant one-
off gain.
Overall, annuity/recurring income as a percentage of total operating income
increased from 67.3% to 69.2%.
Administrative expenses
Total administrative expenses increased by 15.0% from GBP181.9 million to
GBP209.2 million largely as a result of an increase in variable remuneration due
to increased profitability, an increase in compliance and regulatory costs, and
an increase in rental costs given that the group no longer owned certain of the
buildings from which it operates.
The group made material progress towards achieving its operating expenses to
total operating income target of 65% as the ratio decreased from 75.0% to 68.6%,
principally as a result of the strong growth in operating income of 24.0%.
Goodwill amortisation
The charge for goodwill amortisation and impairment decreased from GBP29.8
million to GBP18.4 million. Included in the current period is GBP5 million
relating to negative goodwill arising from a structured finance transaction. The
prior period included an amount of GBP6.3 million relating to an impairment of
the Traded Endowments business.
Provision for bad and doubtful debts
The bad and doubtful debts charge in the income statement increased by 86.4% to
GBP9.1 million largely due to an increase in general provisions reflecting solid
book growth.
The percentage of gross non-performing loans (NPLs) to core loans and advances
increased marginally from 1.1% to 1.2%. Total provision coverage remains high
both as a percentage of gross NPLs and net NPLs (gross NPLs net of security), at
139.1% and 361.1% respectively. The group`s general provision coverage as a
percentage of net loans and advances has remained at approximately 1.2%.
Taxation
The operational effective tax rate of the group (excluding the tax effect on
exceptional items) increased from 21.7% to 26.3% due to reduced availability of
assessed losses.
Share of income of associated companies
The group`s main associate is Capital Alliance Holdings Limited (CAL). An amount
GBP7 million before goodwill amortisation was accrued, representing Investec`s
share of the directors estimate of CAL`s operating earnings for the six months
ended 30 September 2004.
Exceptional items
Exceptional items include:
* Provisions for losses arising on the impending sale of the banking
subsidiary in Israel of GBP6.5 million largely relating to a write down in
the value of the buildings it occupies.
* Losses of GBP3 million and an impairment of goodwill of GBP2.7 million
arising on the closure of the Traded Endowments operation in the UK.
Capital resources
Total capital resources and shareholders` funds of GBP1.3 billion and GBP765.4
million, respectively, have remained relatively unchanged since 31 March 2004.
The annualised return on average total equity shareholders` funds, inclusive of
goodwill, increased from 15.1% to 20.7%. The annualised return on adjusted
shareholders` funds (inclusive of compulsorily convertible instruments)
increased from 14.0% to 18.7%, representing material progress towards the target
of 20%.
Investec plc and Investec Limited are well capitalised and capital adequacy
ratios comfortably exceed the minimum regulatory requirements. The capital
adequacy of Investec plc (applying UK Financial Services Authority rules to its
capital base) is 17.0% (March 2004: 17.3%). The capital adequacy of Investec
Limited (applying South African Reserve Bank rules to its capital base) is 15.0%
(March 2004: 15.1%).
Total assets under administration
Total assets under administration (including on and off balance sheet
assets)increased by 9.5% from GBP47.8 billion at 31 March 2004 to GBP52.3
billion. This was mainly attributable to growth in assets under management of
GBP3.3 billion across all ranges of third party funds, due to improved equity
values, and a solid growth in core advances.
Prospects
Conditions are currently favourable and the board remains optimistic on the
outlook for the remainder of the financial year. The group strives to build
distinctive businesses in its core areas of operation focusing on activities in
regions where it believes it can compete effectively. The group has made
significant progress towards delivering on its financial objectives and remains
committed to ensuring that these objectives are met over the long-term. By
concentrating on the fundamentals of growing revenues, improving efficiency and
maintaining credit quality, Investec is confident that it can continue to build
a sustainable business model that will deliver value to shareholders.
On behalf of the boards of Investec plc and Investec Limited
Hugh Herman Stephen Koseff Bernard Kantor
Chairman Chief Executive Officer Managing Director
Presentation of financial information
Investec operates under a Dual Listed Companies (DLC) structure with primary
listings of Investec plc on the London Stock Exchange and Investec Limited on
the JSE Securities Exchange South Africa.
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
equilibrium relative to each other. 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 half-year results for Investec plc present the results and
financial position of the combined DLC group under 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. In the commentary below, all references to Investec or
the group relate to the combined DLC group comprising Investec plc and Investec
Limited.
As announced on 30 July 2004 Investec plc sold its 80.28% stake in Investec Bank
(Israel) Limited to The First International Bank of Israel. The details with
respect to the transaction as well as regulatory approval were obtained
subsequent to 30 September 2004 and hence the results of Investec Bank (Israel)
Limited have been consolidated into the group results for the six months ended
30 September 2004.
Accounting policies and disclosures
The comparative information provided in the financial information is for the six
months ended 30 September 2003 and the 12 months ended 31 March 2004. Changes in
accounting policies adopted at 31 March 2004 were not yet effective at 30
September 2003. For this reason, the note below discusses changes to accounting
policies since the release of 31 March 2004 annual results followed by changes
to the previously released September 2003 interim results. Other than changes
noted below, accounting policies adopted by the group are consistent with the
prior period.
Change in accounting policies since the release of the 31 March 2004 annual
results
UITF 38: Accounting for ESOP trusts
The group has adopted UITF 38 in respect of accounting for employee share
incentive trusts (ESOP trusts). In summary the impact on the adoption of the new
standard from prior accounting policies is as follows:
* Own shares held by the ESOP trusts (which have not vested to employees) are
deducted from shareholders` funds (previously included on balance sheet as
an asset under `own shares`).
* No gain or loss is recognised in the profit and loss account or statement
of total recognised gains and losses on the purchase, sale or cancellation
of the group`s own shares held by the ESOP trusts.
* The net finance costs of the ESOP trusts are charged to the profit and loss
account as they accrue.
Other than UITF 38, the changes in policies noted below were already included in
the 31 March 2004 annual results.
The impact of the change in accounting policies arising from the adoption of
UITF 38 is detailed below:
12 months to 31 March 2004
Date: 25/11/2004 09:00:26 AM Produced by the JSE SENS Department
