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Investec - Unaudited interim consolidated financial results
Investec Bank Limited
(Registration number 1969/004763/06)
JSE Code: INLP & ISIN: ZAE000048393
Unaudited interim consolidated financial results for the six months to
30 September 2005
Consolidated income statements
Pro Pro forma*
forma*
IFRS IFRS IFRS IFRS
restated restated restated restated*
*
6 months 6 months Year 6 months Year to
to to to to
30 Sept. 30 Sept. 31 March 30 Sept. 31 March
(R millions) 2005 2004 2005 2004 2005
Interest received 3,639 3,246 6,905 3,179 6,764
Interest paid (2,644) (2,361) (5,050) (2,361) (5,050)
Net interest 995 885 1,855 818 1,714
income
Fees and 323 174 392 284 605
commissions
receivable
Fees and (21) (8) (22) (8) (22)
commissions
payable
Principal 331 177 600 177 600
transactions
Other operating - 14 (42) 14 (42)
income
Other income 633 357 928 467 1,141
Total operating 1,628 1,242 2,783 1,285 2,855
income
Impairment losses (37) (30) (134) (30) (134)
on loans and
advances
Net operating 1,591 1,212 2,649 1,255 2,721
income
Administrative (773) (579) (1,369) (579) (1,369)
expenses
Depreciation and (18) (18) (49) (18) (49)
impairment of
property, plant
and equipment
Operating profit 800 615 1,231 658 1,303
Loss on disposal - - (2) - (2)
of subsidiaries
Profit before 800 615 1,229 658 1,301
taxation
Taxation (178) (58) (203) (68) (221)
Profit after 622 557 1,026 590 1,080
taxation
Earnings 3 8 19 8 19
attributable to
minority
interests
Earnings 619 549 1,007 582 1,061
attributable to
shareholders
Earnings 622 557 1,026 590 1,080
attributable to
shareholders"
equity
Calculation of
headline earnings
Earnings 619 549 1,007 582 1,061
attributable to
shareholders
Headline (1) (14) 14 (14) 14
adjustments
Realisation of (1) - - - -
available for
sale instrument
Loss on disposal - - 2 - 2
of subsidiaries
Loss on the - - 12 - 12
impairment of
owner occupied
property
Revaluation of - (14) - (14) -
investment
properties
Headline earnings 618 535 1,021 568 1,075
attributable to
shareholders
Preference (62) (67) (131) (67) (131)
dividends paid
Compulsorily - (134) (214) (134) (214)
convertible
debenture
interest
Headline earnings 556 334 676 367 730
attributable to
ordinary
shareholders
Consolidated balance sheets at
30 Sept. 1 April* 31 March* 30 Sept.*
(R millions) 2005 2005 2005 2004
Assets
Cash and balances at 1,249 1,113 1,113 1,071
central banks
Loans and advances to banks 9,214 6,075 6,075 8,368
Reverse repurchase 793 2,148 2,148 489
agreements and cash
collateral on securities
borrowed
Cash equivalent advances to 4,806 3,960 3,960 4,119
customers
Trading securities 10,023 9,519 9,146 6,014
Derivative financial 7,963 9,488 9,499 9,754
instruments
Loans and advances to 53,037 45,983 45,737 41,331
customers
Loans to group companies 8,773 8,455 8,455 12,658
Other assets 621 634 636 596
Investment securities 1,361 1,095 1,468 2,028
Deferred taxation assets 187 174 128 24
Property, plant and 122 121 121 694
equipment
98,149 88,765 88,486 87,146
Liabilities
Deposits by banks 4,867 4,008 4,011 4,034
Repurchase agreements and 582 2,005 2,005 478
cash collateral on
securities lent
Derivative financial 6,476 8,725 8,725 9,326
instruments
Other trading liabilities 321 262 262 102
Customer accounts 52,105 44,661 44,322 46,218
Debt securities in issue 17,389 12,728 12,728 8,526
Other liabilities 4,093 4,204 4,199 5,148
Current taxation 295 275 275 89
liabilities
Deferred taxation 244 192 192 128
liabilities
86,372 77,060 76,719 74,049
Subordinated liabilities 3,173 3,204 2,961 2,961
(including convertible
debt)
89,545 80,264 79,680 77,010
Equity
Share capital 16 16 16 16
Share premium account 4,732 4,731 4,731 4,732
IFRS 2 equity settled 90 90 90 76
option reserve
Equity portion of 229 229 - -
convertible instruments
Compulsorily convertible - - 681 1,938
debentures
Perpetual preference shares 1,491 1,491 1,491 1,491
Other reserves 438 284 412 470
Profit and loss account 1,506 1,580 1,305 1,329
Shareholders" equity 8,502 8,421 8,726 10,052
excluding minority
interests
Minority interests 102 80 80 84
Total shareholders" equity 8,604 8,501 8,806 10,136
Total liabilities and 98,149 88,765 88,486 87,146
shareholders" equity
Statements of changes in equity
6 months 6 months* 12 months*
to to to
30 Sept. 30 Sept. 31 March
(R millions) 2005 2004 2005
Balance at the beginning of the 8,501 9,825 9,825
period
As previously reported 8,796 9,671 9,671
- IAS 17 - Leases # (73) (6) (6)
Changes in accounting policies
arising from adoption of IFRS
- Minority interest included within 5 29 29
reconciliation of reserves
- IAS 27/28/31 - consolidations, 78 131 131
associates and joint ventures
Restated balance as at 31 March 2005 8,806 9,825 9,825
- IAS 32/39 - financial instruments (305) - -
(adopted from 1 April 2005)
Foreign currency adjustments (3) 1 (6)
Earnings for the period attributable 619 582 1,061
to ordinary shareholders
Earnings for the period attributable 3 8 19
to minority interests
Compulsorily convertible debenture - (134) (214)
interest
Share based payments adjustments - 15 29
Fair value movements on available (33) (10) (26)
for sale assets
Dividends paid to ordinary (440) - (395)
shareholders
Dividends paid to perpetual (62) (67) (131)
preference shareholders
Movement on minorities on disposals 19 (84) (99)
and acquisitions
Buyback of debentures - - (1,257)
Balance at the end of the period 8,604 10,136 8,806
Consolidated cash flow statements
6 months 6 months* Year*
to to to
30 Sept. 30 Sept. 31 March
(R millions) 2005 2004 2005
Net cash inflow from operating 202 502 748
activities
Net cash (outflow)/inflow from (19) (7) 534
investing activities
Net cash inflow/(outflow) from 101 (1,425) (5,031)
banking activites
Net cash (outflow)/inflow from (299) (58) 2,873
financing activities
Net decrease in cash and cash (15) (988) (876)
equivalents
Cash and cash equivalents at the 1,398 2,274 2,274
beginning of the period
Cash and cash equivalents at the end 1,383 1,286 1,398
of the period
Cash and cash equivalents is defined as including: cash and balances
at central banks, on demand loans and advances to banks and cash
equivalent advances to customers (all of which have a maturity
profile of less than three months).
Segmental information
For the 6 months to 30 September 2005
Private Treasury &
Client Specialised Investment
(R millions) Activities Finance Banking Other Total
Total income 456 507 242 385 1,590
Operating expenses (306) (231) (80) (174) (791)
Operating profits 150 276 162 211 799
before taxation
and headline
adjustments
Headline 1 - - - 1
adjustments
Operating profit 151 276 162 211 800
before taxation
Cost to income 66.7 43.3 32.3 45.0 48.6
ratio (%)
Pro forma IFRS restated for the 6 months to 30 September 2004*
Private Treasury &
Client Specialised Investment
(R millions) Activities Finance Banking Other Total
Total income 387 350 183 278 1,198
Operating expenses (243) (170) (42) (142) (597)
Operating profits 144 180 141 136 601
before taxation
and headline
adjustments
Headline - - - 14 14
adjustments
Operating profit 144 180 141 150 615
before taxation
Cost to income 59.7 48.4 22.6 47.7 48.1
ratio (%)
These consolidated interim financial results are published to provide
information to holders of Investec Bank Limited"s listed non-
redeemable, non-cumulative, non-participating preference shares.
Commentary
Overview of results
We are pleased to announce that Investec Bank Limited, a subsidiary of
Investec Limited, posted a strong increase in headline earnings
attributable to ordinary shareholders of 66.5% from R334 million
(pro forma restated) to R556 million. The bank has benefited from
a solid performance from its businesses, supported by favourable
economic conditions.
Business unit review**
Salient operational features of the period under review include:
The Private Client Activities division posted a marginal increase in
operating profit from R144 million to R150 million. The impact of
IAS 18 has resulted in R247 million (Sept 2004: R125 million) of
lending fees in the Private Bank being deferred for recognition as
margin, 75% of which will be recognised as income by 31 March
2008. This adjustment has affected the cost to income ratio as
reflected in the tables above. The Private Bank has benefited from
a solid growth in total advances and strong performances recorded
across the majority of the division"s areas of specialisation.
Since 31 March 2005, the private client lending book has grown by
18.9% to R34.6 billion and the division has increased its retail
deposit book by 16.3% to R14.1 billion.
The Treasury and Specialised Finance division posted operating profit
of R276 million (2004: R180 million), an increase of 53.3%. Growth
was underpinned by a strong performance from the division"s
advisory, structuring, trading, asset creation and distribution
activities with advances increasing by 10.3% to R16.5 billion
since 31 March 2005.
Operating profit of the Investment Banking division increased by 14.9%
to R162 million (2004: R141 million). The Corporate Finance
division benefited from a sound deal pipeline and the Direct
Investments and Private Equity divisions continued to perform
strongly reflecting the bank"s increasing presence in this
activity.
Other Activities posted an increase in operating profit from R136
million to R211 million, largely as a result of a solid
performance by the Central Funding division which benefited from
an improved capital structure and favourable capital market
conditions.
For further information on the Investec group results, please refer to
the results of Investec plc (incorporating the results of Investec
Limited).
** Unless the context indicates otherwise, all comparatives relate to
the pro forma IFRS restated results for the six months ended 30
September 2004. Operating profit is before taxation and headline
adjustments.
Accounting policies and disclosures
Transition to International Financial Reporting Standards (IFRS)
From 1 April 2005 Investec Bank Limited is required to prepare its
consolidated results in accordance with IFRS. Previously these
were prepared in accordance with South African Statements of
Generally Accepted Accounting Practice (SA GAAP). The first set of
IFRS compliant financial statements that will be prepared by
Investec Bank Limited will be for the year ending 31 March 2006.
Our transition to IFRS has been performed in accordance with IFRS 1
"First-Time Adoption of International Reporting Standards" and
other relevant standards as expected to be applicable at 31 March
2006.
The following dates are applicable for the transition to IFRS:
- 1 April 2004 - date of transition to IFRS, being the start of the
earliest period of comparative information.
- 30 September 2004 - six month comparative period to 30 September
2005.
- 31 March 2005 - twelve month comparative period to 31 March 2006.
* In accordance with the provisions of IFRS 1, we have elected not to
apply the requirements of IAS 32, "Financial Instruments:
Disclosure and Recognition" and IAS 39, "Financial Instruments:
Recognition and Measurement" to the comparative period. The impact
of adoption of these standards is reflected as an adjustment to
the opening balance sheet at 1 April 2005. To facilitate
comparability, a pro forma income statement is presented which
incorporates the impact of the adoption of the revised IAS39 in
respect of the recognition of certain fees on an effective yield
basis.
A summary of the impact on Investec Bank Limited"s consolidated
results of the transition to IFRS for the year ended 31 March 2005
and for the six months ended 30 September 2004 is provided in the
tables below:
Key statements/impacts
Total
Earnings shareholder
attributable equity,
(R millions) to Assets Liabilities Shareholder including
shareholders funds-equity minorities
At 31 March
2005
As previously 1,154 88,376 79,575 8,796 8,801
reported
IFRS 2 - (29) - - - -
share based
payments
IAS 17 - (67) 30 103 (73) (73)
leases
IAS 27/28/31 3 80 2 3 78
- special
purpose
vehicles
Restated to 1,061 88,486 79,680 8,726 8,806
31 March 2005
IAS 32/39 - 279 584 (305) (305)
financial
instruments
Restated to 1 88,765 80,264 8,421 8,501
April 2005
At 30
September
2004
As previously 630 86,556 76,448 10,089 10,108
reported
IFRS 2 - (15) - - - -
share based
payments
IAS 17 - (33) 17 56 (39) (39)
leases
IAS 27/28/31 - 573 506 2 67
- special
purpose
vehicles
Restated to 582 87,146 77,010 10,052 10,136
30 September
2004
The most significant adjustments arising from the transition from SA
GAAP to IFRS are:
- IFRS 2 - share based payments
The inclusion of a fair value charge, for equity and cash settled
options granted to employees, recognised over the vesting period.
- IAS 27 - consolidations (including special purpose vehicles)
- Refinement to principles applied under SIC 12 which results in the
consolidation of certain special purpose vehicles and a gross up
of assets and liabilities on the group balance sheet
- IAS 32/39 - financial instruments (applied from 1 April 2005)
Refinements to the provisions under AC 133 which include:
- Revised interpretation relating to the recognition of certain fees
as part of the effective yield of a financial instrument
- Application of proposed amendments with respect to more stringent
rules applied to designation of financial instruments as held at
fair value through profit and loss
# Further restatement to prior year disclosures In the South African
economy it is common practice for operating lease agreements to
incorporate fixed rental escalation clauses. Under the provisions
of IAS 17 (consistent with the equivalent SA Gaap standard) lease
payments under operating leases are recognised as an expense on a
straight line basis over the lease term unless another systematic
basis is more representative of the time pattern of the user"s
benefits. The group has previously recognised fixed rental
escalations in the period in which they contractually applied. In
terms of the revised application of IAS 17 in the South African
market place these increments have been taken into consideration
in determining a straight line cost over the term of the lease.
This adjustment represents a correction to prior year disclosures
in accordance with IAS 8 - Accounting policies, changes in
accounting estimates and errors.
Future developments under IFRS The financial information contained in
this announcement has been prepared on the group"s expectation of
standards that will be applicable at 31 March 2006 (being the
first time that the group will prepare annual financial statements
under IFRS). Changes to information presented in this report may
be required due to one or more of the following reasons:
- Further standards and interpretations may be issued that could be
applicable to the financial year ending 31 March 2006.
- Interpretations may differ as practice develops.
- Tax legislation and tax related interpretations may develop
further.
On behalf of the Board of Investec Bank Limited
Hugh Herman Stephen Koseff Bernard Kantor
Chairman Chief Executive Officer Managing Director
S Noik
Company Secretary 17 November 2005
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. Dr M Z Nkosi. B Tapnack*. P R
S Thomas. F Titi. R A P Upton. *Executive
Company secretary: S Noik
Date: 17/11/2005 09:01:29 AM Produced by the JSE SENS Department
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