Final Results
Investec PLC
21 May 2003
Investec plc
Preliminary results for the year ended 31 March 2003
Investec plc (incorporating the results of Investec Limited)
Consolidated UK GAAP financial results in Pounds Sterling for the year ended 31
March 2003
Investec, the international specialist banking group, announces today its
preliminary results for the year ended 31 March 2003.
Financial highlights
• Operating profit of £84.8 million (2002: £158.6 million)*
- Operating profit: South Africa & Other of £68.5million, 80.9% of
overall (2002: £81.8 million, 51.6%)*
- Operating profit: UK & Europe, Australia, Israel and the US (including
discontinued operations) of £16.3 million, 19.1% of overall (2002: £76.8
million, 48.4%)*
• Profit before tax of £96.1 million (2002: £162.5 million)*
• Earnings per share of 97.6p (2002: 139.8p)*
• Total dividends per share remain unchanged at 54.0p (2002: 53.8p)
* before exceptional items and amortisation of goodwill
Business highlights
• Established Dual Primary Listing in London and Johannesburg in July 2002,
and raised £33.2 million Investec plc shares.
• Significant restructuring of the group throughout the year reducing costs
dramatically:
• US: closure of investment banking operation, sale of Private Client
Stockbroking business, sale of Clearing Division
• UK: closure of the Treasury and Specialised Finance's interest rate
repo desk
• Annuity income, as percentage of total operating income, increased from
68.7% to 71.3%.
Stephen Koseff, Chief Executive of Investec, said:
'The past year has been an extremely challenging one for the group, and
generally for the investment management industry world-wide. However against
this backdrop we have made some significant strategic advances during the year.
We successfully achieved a Dual Primary Listing in London and Johannesburg last
July, raising £33.2 million, and we have restructured many of our operations
significantly to reduce costs. We believe the decisions made this year will
benefit us going forward and we face the future with confidence.'
Bernard Kantor, Managing Director of Investec, said:
'The tough trading conditions have once again highlighted the value of a broad
and balanced portfolio of businesses with a wide geographic spread.'
For further information please contact:
Investec +27 11 286 7070 Citigate Dewe Rogerson 020 7638 9571
Stephen Koseff, Chief Executive Jonathan Clare
Bernard Kantor, Managing Director Simon Rigby
Rayanne Jacobson, Group Finance Sara Batchelor
Ursula Munitich, Investor Relations
A webcast of the presentation will be available at 11am (UK time) via
www.investec.com
Commentary
Overall performance
This has been an exceptionally challenging year for the group (comprising
Investec Limited and Investec plc) and generally for all investment banks and
the investment management industry world-wide. The protracted economic slowdown
has seen the FTSE All Share Index and the JSE All Share Index fall by 32.1% and
30.3% respectively over the past financial year.
Against this backdrop, basic earnings per share ('EPS') before exceptional items
and goodwill amortisation declined by 30.2% from 139.8 pence to 97.6 pence.
Headline EPS declined by 28.3% from 126.8 pence to 90.9 pence.
Although the 2003 financial year was a difficult one the group made significant
strategic advances.
Salient features of the 2003 financial year can be summarised as follows:
• Established Investec's Dual Listed Companies Structure in July 2002.
This long sought after achievement was a significant milestone in the
history of Investec.
• Issued 4 million Investec plc shares, for a consideration of £33.2 million,
in July, at a time when markets were exceptionally difficult.
• The group adjusted its cost base to compensate for the decline in revenues
and streamlined and rationalised many of its operations, particularly
in the United States ('US') and in the United Kingdom ('UK').
• The group continued to restructure and rationalise the life assurance
activities acquired from Fedsure Holdings Limited including implementing two
further transactions, namely, the reinsurance of the annuity business with
Capital Alliance Limited ('CAL'), and the reinsurance and transfer of some
of the businesses of Investec Employee Benefits ('IEB') to Liberty Group
Limited ('Liberty'). The group is satisfied that the Fedsure acquisition has
now been completed.
• Annuity income as a percentage of total operating income increased from
68.7% to 71.3%.
• Operating profit before exceptional items and goodwill amortisation declined
from £158.6 million to £84.8 million, impacted largely by the weaker
performances of the group's equity related activities, particularly in the
UK and US, as well as the 9% depreciation of the average Rand/Pound Sterling
rate during the period under review.
• The Board is recommending a final dividend of 28 pence per share which,
together with the interim dividend of 26 pence per share paid in December
2002, amounts to a total dividend of 54 pence, substantially the same as
that in respect of 2002. This year's dividend is covered 1.81 times by EPS
before exceptional items and goodwill amortisation and 1.68 times by
headline EPS, as determined in UK GAAP.
Presentation of financial information
Investec Limited and Investec plc
In July 2002 Investec Group Limited (since renamed Investec Limited) implemented
a Dual Listed Companies (DLC) structure, and listed its offshore businesses on
the London Stock Exchange. For further information please refer to Investec's
web site: www.investec.com/investorrelations.
Under the contractual arrangements of the DLC structure, Investec Limited and
Investec plc effectively form a single economic entity, in which the economic
and voting rights of shareholders are equalised. In accordance with this
structure, the directors of the two companies consider that for financial
reporting purposes, the fairest presentation is achieved by consolidating the
results and financial position of both companies using merger accounting
principles.
Accordingly, the preliminary results for Investec plc presents the results and
financial position of the combined DLC group under UK GAAP, denominated in
Pounds Sterling. The preliminary results for Investec Limited are also prepared
on a DLC basis under SA GAAP, denominated in South African Rand. All references
in the commentary below referring to Investec or the group relate to the
combined DLC group comprising Investec Limited and Investec plc.
SA GAAP differs in certain respects from UK GAAP. A high-level reconciliation of
the principal differences between SA GAAP and UK GAAP is provided.
The financial information contained in the 'commentary' section has been
prepared in accordance with UK GAAP. Rand values included in the 'commentary'
section of this announcement have been 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 year end
rate. Reuters quote the average Rand/Pound Sterling exchange rate at 15.04 and
13.65 for the years ended 31 March 2003 and 31 March 2002, respectively. This
represents depreciation of the Rand of some 9.2% during the period under review.
This depreciation of the Rand (in the first half of the year) has a negative
effect on the results expressed in sterling of those Investec businesses that
generate revenues and profits in Rand. Where the impact of Rand depreciation is
key to understanding the performance of the group's businesses, this has been
noted in the 'commentary' section.
Dividend declaration
The dividends per share declared by Investec Limited and Investec plc are
determined with reference to the group's consolidated EPS before exceptional
items and amortisation of goodwill, denominated in Pounds Sterling and prepared
in accordance with UK GAAP.
Commentary
Business unit review
Investment Banking
The Investment Banking division posted operating profit before exceptional items
and amortisation of goodwill of £17.3 million, a decline of 62.6%, reflecting
the prolonged weakness in financial markets and subdued trading volumes in all
geographies in which the division operates.
In South Africa ('SA'), Investment Banking reported declining results, largely
as a result of the lack of realisation opportunities in the direct investment
portfolio from which the division had benefited in the previous year. The lower
average volumes traded on the JSE Securities Exchange negatively affected the
agency business of Investec Securities but were partially offset by the strong
performance from the Structured Equity Desk. Investec Corporate Finance
continued to maintain its strong positioning and deal flow, focusing on
corporate restructuring activities, shareholder activism mandates and black
economic empowerment initiatives. Furthermore, the Private Equity division
enjoyed good quality deal flow.
In the UK, Investec Investment Banking and Securities posted an operating loss.
The division was severely impacted by the lack of corporate advisory and capital
market activity, with the number of deals concluded declining substantially over
the period. In the circumstances and given the lack of visible prospects of a
market recovery the division's costs were significantly reduced from a peak
annualised rate of £29 million to £18 million. Despite the difficult
environment, the division has strengthened its retained corporate client list
and increased its institutional market share. The UK Private Equity division
benefited from a significant realisation in one of the underlying funds
amounting to £9 million.
Investec Inc in the US, which was particularly vulnerable to the dramatic
decline in equity markets, posted operating losses. During the period under
review the group decided that it was not prudent to sustain the ongoing losses
in the US investment banking operations. A strategic decision was taken to wind
down the investment banking operations and it is expected that as a result of
the implementation of this decision all investment banking activities will have
ceased by the end of May 2003. The cost of closing this activity is recognised
as an exceptional item in these results.
In Australia, Investec Wentworth performed well advising on 20 deals valued at
A$2.5 billion for the period ended 31 March 2003. The weak equity markets
provided attractive private equity opportunities with Investec Wentworth Private
Equity well placed to take advantage thereof.
Private Client Activities
The Private Client Activities division, comprising both the Private Banking and
Private Client Portfolio Management and Stockbroking divisions, posted
operating profit before exceptional items and amortisation of goodwill of £40.9
million, marginally down on the prior year. A solid performance was recorded by
the group's Private Banking operations. The severe market conditions, however,
resulted in a weaker contribution from Private Client Portfolio Management and
Stockbroking which suffered as a result of the lower market prices and reduced
demand for equity and related investment products.
• Private Banking
The Private Banking division continued its creditable performance with operating
profit before exceptional items and amortisation of goodwill increasing 28.9% to
£34.6 million. This performance was driven by sturdy growth in total advances
and non-interest income, in SA, the UK and Australia. Since March 2002, the
group's private client lending book in SA grew by 24.6% in Rand terms to R17.2
billion (£1.4 billion), and the private client lending book in the UK grew by
17.0% in Sterling terms to £925 million.
In SA, Investec Private Bank, once again, posted a commendable performance as a
result of its integrated approach to wealth creation and wealth management.
The Private Banking division in the UK continues to perform well with solid
performances from all business areas, particularly structured property finance
and specialised lending. A major initiative completed during the year was the
relocation of the call centre of the division's deposit business to SA
generating an annual saving of £1.2 million. Despite a strong bias in the
lending book towards commercial and residential property exposures, the book is
well secured and the group believes that loan to value ratios are conservative.
In Australia, the private client group experienced a strong performance off the
back of solid growth in its loan portfolio. In addition, the private advisory
business strengthened its client base through referrals from existing clients
and other divisions within the group. The granting of the banking licence
enhanced the group's ability to attract deposits.
• Private Client Portfolio Management and Stockbroking
The Private Client Portfolio Management and Stockbroking division reported
operating profit before exceptional items and amortisation of goodwill of £6.3
million, a decrease of 59.8%.
As at 31 March 2003, Investec Securities in SA had total funds under management
of R25.6 billion (£2 billion), down from R27.3 billion at the prior year end.
The recent strength in the Rand resulted in Rand hedge stocks declining sharply
and diminishing Rand values of the asset swap portion of Investec Securities'
portfolios. However, the division focused on cost reductions and was able to
supplement its revenue stream with a number of new investment initiatives.
In the UK, Carr Sheppards Crosthwaite's ('CSC') performance was negatively
impacted by the fall in equity markets resulting in a decrease in total funds
under management to £4.7 billion from £6.0 billion in March 2002. Despite the
difficult operating environment, net new funds under management of £376 million
were generated with more than half of the new funds emanating from private
clients and trusts, and in excess of £100 million charity portfolio management
mandates were won. In addition, CSC administered a further £560 million of
Personal Equity Plan and Individual Savings Account funds for third parties in
the period ending March 2003. More recently, and yet to be reflected in the
funds under management, CSC was appointed by the Lord Chancellors Department to
be one of two Panel Private Client Fund Managers.
Treasury and Specialised Finance
The Treasury and Specialised Finance division posted operating profit before
exceptional items and amortisation of goodwill of £28.0 million, a decline of
46.0%. The UK & European operations reported an operating loss of £2.9 million,
while the South African operation's contribution decreased by 22.4% to £31.4
million.
The SA Treasury and Specialised Finance division's performance was lower than
expected, with the Banking Activities suffering from the low appetite of SA
corporates for structured deals and a provision required by the Project Finance
division amounting to approximately £2 million. The Trading Activities performed
well with strong contributions from the Interest Rate, Currency Trading and the
Equity Derivatives businesses. During the period the group's 100% held
subsidiary Securities Investment Bank was wound up and its activities absorbed
into the SA Treasury and Specialised Finance business.
In the UK, the Treasury and Specialised Finance division suffered from difficult
trading conditions. The interest rate repo desk was closed as it was capital
intensive and used significant counterparty lines. On a more satisfying note,
the division's Banking Activities made meaningful strides in establishing their
position in the local market with a solid flow of deals and mandates concluded
by the Structured and Project Finance businesses during the period.
In Australia, the Treasury and Specialised Finance businesses are being built up
with the result that costs have exceeded revenue in the current year. The
Project Finance division, which was established towards the end of the financial
period, achieved a mandate to advise one of the large mining houses and was
appointed as co-lead underwriter in relation to a new toll road, the largest
infrastructure project of its kind in Australia.
Asset Management
The Asset Management division, in the face of difficult equity market
conditions, delivered operating profit before exceptional items and amortisation
of goodwill of £19.5 million which represented growth of 4.0% in Rand terms and
a 6.8% decline in Sterling terms. Assets under management increased by 3.4% in
Sterling terms to £16.8 billion but declined by 20.0% in Rand terms to R210.6
billion. The major features of the past year were the excellent investment
performance achieved across the division's core activities, except for SA
balanced mandates, a decisive break into the UK institutional market, continued
sales market share growth in core retail markets, continued success in SA fixed
income and tight cost control.
The UK institutional business has won new business in excess of £950 million,
and gained acceptance from a spread of major consultants and multi-managers. The
performance of the London based investment team was key to this success. The UK
local authority fixed income business has continued to develop and grow, on the
back of strong performance.
Against industry norms, Investec Asset Management recorded net inflows of
retail funds of £190 million, representing a market share of 2.7% of net
industry sales, up from 0.8% two years ago.
In SA, Investec Asset Management successfully managed the transition of the
South African institutional offering from a predominantly balanced one to a
range of specialist products alongside the traditional balanced offering. The
specialist fixed income unit, created over the past four years, now manages R53
billion of funds. The sound financial performance of the South African Personal
Investments business endorses the strategic direction embarked on two years ago,
but the lack of domestic appetite for offshore investments and general
unwillingness to re-engage the equity markets among IFA's and their clients
makes the division enter the new financial year with some caution.
Assurance Activities
The group's SA life assurance activities, conducted by IEB reported operating
profit before exceptional items and amortisation of goodwill of £27.8 million a
decline of 10.6%. Operational earnings increased significantly from £15.5
million to £51.7 million. These results were largely attributable to further
restructuring of the business and its investment portfolios particularly in the
first half of the year. However, since embedded value accounting is applied, the
net movement in the value of in-force business is accounted for in the profit
and loss account, with the result that the current year's operational earnings
were offset by a negative adjustment of £23.9 million, compared to a positive
movement of £15.6 million in the prior year.
In the second half of the year the group concluded a deal with Liberty whereby
certain of the liabilities of the retirement fund administration business and
the existing disability claimants business were reinsured with Liberty with
effect from 31 March 2003. A profit of approximately R140 million (£11 million),
included in the operational earnings mentioned above, arising on the transaction
under SA GAAP is offset by a reduction in the value of in-force business of
approximately R90 million (£7 million) under UK GAAP, which has been recognised
in the current period.
Group Services and Other Activities
Group Services and Other Activities posted an operating loss of £32 million. The
Central Funding division achieved a significant improvement in its performance,
benefiting from effective capital management facilitated through the group's
restructure, as well as increased returns on shareholder's funds within IEB,
whose earnings were included for a full year in the current period as opposed to
ten months in the prior period. These gains were offset by the weaker
performance of the group's Traded Endowment Activities, which were affected by
poor trading conditions caused by the bonus rate cuts announced by life
insurance companies. The group's Property Activities performed reasonably well.
The SA business benefited from an increase in assets under administration as a
consequence of the Growthpoint restructure, the Melrose Arch mandate and the
Fedsure acquisition.
Geographic performance
The group's Southern African businesses accounted for 80.9% (2002:51.6%) of
Investec's operating profit before exceptional items and amortisation of
goodwill. Highlights of the developments and performance of the regions in which
the group operates follow.
Southern Africa
The operating profit of the group's South African businesses before exceptional
items and amortisation of goodwill decreased in by 16.2% to £68.5 million. The
solid performance from the group's Private Banking, Assurance and Property
divisions were partially offset by the negative variance in the earnings of the
Traded Endowments business of £11.5 million and by the weaker performances of
the Investment Banking and Treasury and Specialised Finance division's, as set
out in the Business Unit Review.
UK
In the UK, the group posted an operating profit before exceptional items and
goodwill amortisation of £22.3 million, a decrease of 65.6%. The strong
performance of the Private Banking business was negated by the poor performance
from the equities related businesses which were severely impacted by the adverse
market conditions.
US
Investec's business in the US was particularly vulnerable to the dramatic
decline in equity markets and operating losses before exceptional items and the
amortisation of goodwill of £15.6 million were incurred. The two main operating
entities Investec Ernst and Investec Inc, were dramatically restructured over
the past year by:
• The sale of the Private Client Stockbroking business to management in
May 2002.
• The sale of the Clearing Division of Investec Ernst to Fiserv Securities in
August 2002 for US$44 million.
• Winding down the Investment Banking operations involving the closure of the
research, equity sales and trading businesses and the sale of PMG
Advisors during the first few months of 2003. It is expected that all
Investment Banking activities will have ceased by the end of May 2003.
The remaining US operations now comprise of fixed income trading operations, an
Israeli Nasdaq equities trading desk funded by Investec Israel, and legal and
operating support for the rundown of the Investec Ernst business. The overall
headcount has been reduced to 131 from 688 at the prior year end.
The operational losses of these discontinued operations amounted to £16.7
million and an exceptional loss arose on termination of these businesses of £9.4
million. The latter represents £19.7 million reflecting the write down of
assets, closure costs (including settlement of legal and contract obligations)
and provisions for future costs to be incurred on the winding down of these
businesses. This was partially offset by a net profit of £10.3 million on the
disposals highlighted above. In addition, goodwill of £19.0 million was
written-off with respect to the termination and disposal of these businesses and
included as an exceptional item.
Israel
The deteriorating operating environment experienced in Israel during 2002
persisted into 2003. The results of the group's Israeli operations were
negatively impacted by margin compression and by a significant fall-off in
capital market activity. Notwithstanding this, the bank remained profitable,
posting a profit before exceptional items and goodwill amortisation of £3.5
million. On a positive note, the group has been successful in increasing its
mutual funds under custody from NIS5 billion in the previous year to NIS9.9
billion at the year end, with the result that Investec Israel is now considered
to be a dominant player in that activity.
Australia
Significant steps were taken during the period under review to develop
Investec's business in the Australian market, with overall performance improving
substantially. In August 2002, the bank was granted a banking licence and
towards the end of the period a Project Finance division was established and is
already providing a strong contribution to the Australian business.
Financial statements analysis
Operating income
Operating income of £509.9 million decreased by 17.6%. Excluding the impact of
the discontinued operations in both years would have resulted in a decline of
14.2%. The movements in total operating income are further analysed below.
The group's net interest income declined by 19.8% mainly as a result of the
winding down of the interest rate business in the UK, the closure of the
clearing and execution activities in the US and the lower average Rand/Sterling
exchange rate.
Fees and commissions were impacted by the weaker economic and equity
environment. The Investment Banking division in the UK, the Private Client
Portfolio Management and Stockbroking divisions and the sale of the Clearing and
Execution operations in the US were the primary contributors to this negative
variance. The Private Banking businesses experienced a significant increase in
fees and commissions largely as a result of increased lending turnover.
Dealing profits (trading income) declined by 8.6% to £45.2 million. The poor
performance of the Traded Endowments operation was the largest contributing
factor to this decline.
The performance of the group's long-term assurance activities is discussed in
the appropriate Business Unit Review.
Other operating income (investment income) reflected a decline of 18.4%, largely
as a result of the weaker performance of the group's direct investment
portfolios.
Administrative expenses
Total administrative expenses decreased by 8.4% from £428.5 million to £392.5
million principally due to rationalisation of the group's activities in North
America, ongoing focus on cost control, the depreciation of the Rand and a
reduction in incentive based remuneration in those businesses which experienced
a decline in profitability. Taking the above into consideration, the group has
effectively reduced its administrative cost base by 18.8% from £428.5 million
£348.2 million.
Notwithstanding this nominal value decrease, the ratio of operating expenses to
total operating income increased from 72.0% to 79.8%. The increase in the ratio
is largely attributable to the reduced revenues in the group's equity related
activities, particularly the Investment Banking division.
The cost to income ratio in SA increased from 58.2% to 62.6%, negatively
impacted by the poor performance of the Traded Endowments operations. The cost
to income ratio for the non-SA businesses increased from 80.4% to 92.6%.
Goodwill amortisation
The charge for goodwill amortisation and impairment (excluding exceptional
items) increased by 24.2% from £98.4 million to £122.3 million, of which £116.6
million relates to continuing operations. Included in this amount is £49.6
million relating to additional impairments on the businesses acquired through
the Fedsure acquisition, which was funded by the issue of shares of
approximately £20 per share.
Provision for bad and doubtful debts
Provision for bad and doubtful debts charged in the income statement increased
by 24.8% to £18.3 million largely as a result of increased provisions in the
Private Banking operations and the additional provisioning of approximately £2
million made by the Treasury and Specialised Finance division in SA.
The percentage of gross non-performing loans to core loans and advances
increased from 1.2% last year to 1.5%. Notwithstanding, total provision coverage
remains conservative both on a gross and net basis with the relevant percentages
being 136.7% and 337.4% respectively. In addition, the group's general provision
coverage as a percentage of net loans and advances increased from 1.1% to 1.3%.
Taxation
The taxation charge has decreased significantly to £5.4 million largely as a
result of recoverable tax charges and deferred tax assets raised in the group's
UK operations. The effective tax rate of the group's South African operations
has also declined from 27.0% in the prior year to 15.4%, mainly as a result of
losses brought forward in the long-term assurance business. Despite the losses
made in the group's US operations a net charge of £6.2 million arose due to the
write off of all deferred tax assets previously raised as a result of the
group's reduced potential to generate sizeable profits in the continuing
businesses which would absorb these tax losses.
Share of income of associated companies
The marked increase in associate income is attributable to the fact that the
group's interest in its main associate, CAL was acquired in October 2001. An
amount of R159.5 million (£11.3 million) has been accrued, representing
Investec's share in CAL's projected operating earnings for the twelve month
period ended 31 March 2003.
Exceptional items
The exceptional items fall into four categories, namely:
• Losses on termination and disposal of the group's discontinued operations as
discussed elsewhere in this announcement, amounting to £9.4 million.
• Goodwill of £19.0 million written-off in respect of the discontinued
operations.
• Negative goodwill released in relation to the termination of
operations previously conducted by the group's 100% held subsidiary,
Securities Investment Bank amounting to £5.8 million.
• Reorganisation and restructuring costs incurred in the group's continuing
operations as a result of actions taken by the Board over the year to reduce
operating costs amounting to £6.1 million.
Capital resources
Total capital resources increased by 5.6% to £1.0 billion.
Shareholders' funds decreased by £37.3 million, primarily reflecting:- 1)
Earnings before exceptional items and goodwill amortisation of £89.1 million 2)
Goodwill and exceptional items of £152.7 million and 3) Dividends of £53.4
million. This is offset by the net proceeds of share issues and cancellation of
shares of £75.3 million which includes the fresh issue of shares as well as the
conversion of all the instruments that took place at the time of implementing
the DLC structure. The balance of the change relates to the revaluation of
investment properties of £18.3 million and a currency translation loss of £13.9
million.
Loan capital increased by £86.2 million largely reflecting the raising of
subordinated debt of £44.4 million towards the end of the financial period and
the strengthening of the closing Rand/Sterling exchange rate of 22%.
Net tangible value attributable to ordinary shareholders has increased from
£349.4 million to £397.2 million.
The return on average tangible shareholders' funds declined from 37.2% to 23.8%
and the return on average shareholders' funds inclusive of goodwill declined
from 19.4% to 12.4%.
Investec plc and Investec Limited are adequately capitalised and exceed the
minimum South African Reserve Bank ('SARB') capital adequacy ratio of 10%. The
overall group capital adequacy applying SARB rules to the SA GAAP capital base
is 12.6% (2002: 13.1%), on a pure accounting consolidated capital adequacy
basis.
Total assets under administration
Total assets under administration decreased by 8.2% from £44.2 billion at 31
March 2002 to £40.6 billion at 31 March 2003. This was mainly attributable to a
decline in assets under management of £2.5 billion across all ranges of third
party funds due to depressed equity values and the winding down of the interest
rates business in the UK which had a significant effect on the level of
on-balance sheet assets of the group.
Accounting policies and disclosures
Share Options
In June 2002, Investec issued 6.7 million options to staff at a strike price of
R164.50 per share and 770 612 options at a strike price of R170 per share. These
options have vesting periods varying between 6 months and 5 years. In December
2002, Investec issued 2 million options to staff at a strike price of R111.32
and 1.2 million options at a strike price of £7.93. The Rand options vest in
tranches over 5 years and the Pound options vest in tranches over 9 years.
Future accounting standards are likely to require that options are valued at the
date of issue and expensed over the period that employees become entitled to
them. Had Investec applied this treatment to the options issued during the
current period, reported earnings would have decreased by £4 million (R60
million) in respect of the June options and £320,000 (R4 million) in respect of
the December options.
These charges have been calculated using a Black-Scholes model with an average
implied volatility for the Investec share price of 43%, independently projected
dividends, and a risk free rate appropriate to the period of the option. The
fair value of the options granted has been adjusted to take into account the
expected future staff turnover rates and the vesting periods, as will be
required by future accounting standards.
Restatements
Investec's accounting policy is to show trading profits net of the funding costs
of the underlying positions. During the year the group conducted a thorough
evaluation of the funding costs of trading desks as a result of which interest
charges were reallocated between trading and funding desks within the Treasury
division. Comparative figures have been restated to be consistent with this.
Goodwill
During the current year, the group changed its policy for the translation of
intangible assets in respect of foreign entities. Intangible assets are now
translated at the closing exchange rate instead of the exchange rate at the date
of acquisition. This change accords with both UK GAAP and SA GAAP. As a recent
exposure draft issued by the International Accounting Standards Board proposes
to make this treatment mandatory, the group considers it appropriate to change
the policy in the current period. The effect in SA GAAP of this change is an
increase in goodwill as at 31 March 2002 of R1.5 billion. The effect in UK GAAP
of this change in policy is a decrease in goodwill as at 31 March 2002 of £66.3
million. The difference in each case has been taken directly to foreign currency
translation reserves, resulting in a corresponding increase (in SA GAAP) /
decrease (in UK GAAP) in ordinary shareholders' funds as at 31 March 2002.There
is no effect on the tangible net asset value of the group.
Prospects
In the past year Investec has taken far reaching steps to streamline and
rationalise its operations recognising that weak market conditions could remain
for some time. The strong niche businesses that the group has created together
with renewed focus on core activities provide a solid platform to cope with the
current economic climate.
On behalf of the boards of Investec Limited and Investec plc
Hugh Herman Stephen Koseff Bernard Kantor
Chairman Chief Executive Managing Director
Dividend announcement
A final dividend (No. 2) of 28 pence per ordinary share has been proposed by the
board in respect of the year ended 31 March 2003.
The last day to trade cum dividend on the JSE Securities Exchange South Africa
('JSE') will be Friday 11 July 2003 and on the London Stock Exchange ('LSE') the
last day to trade cum dividend will be Tuesday 15 July 2003. The shares will
commence trading ex dividend on Monday 14 July 2003 on the JSE and on Wednesday
16 July 2003 on the LSE. The record date will be Friday 18 July 2003.
The Annual General Meeting at which the proposed dividend will be considered for
approval is scheduled to take place on Thursday 7 August 2003 and if approved,
payment will be made on Monday 11 August 2003.
Share certificates on the South African branch register may not be
dematerialised or rematerialised between Monday 14 July 2003 and Friday 18 July
2003, both dates inclusive, nor may transfers between the UK and SA registers
take place between Monday 14 July 2003 and Friday 18 July 2003, both dates
inclusive.
Shareholders registered on the South African register are advised that the
proposed final dividend (No 2) of 356 cents per share has been arrived at using
the Rand/Pound Sterling conversion rate, as determined at 11h00 (SA time) on
Tuesday 20 May 2003.
By order of the board
R Vardy
Secretary
20 May 2003
Consolidated profit and loss accounts
Year to 31 March 2003 Year to 31 March 2002*
Before Goodwill & Before Goodwill &
goodwill & exceptional goodwill & exceptional
exceptional items exceptional items
UK GAAP £'000 items Total items Total
Interest receivable - interest
income arising from debt
securities 171 066 - 171 066 205 398 - 205 398
Interest receivable - other
interest income 697 805 - 697 805 666 802 - 666 802
Interest payable (737 405) - (737 405) (708 370) - (708 370)
--------- --------- ---------- ----------
Net interest income 131 466 - 131 466 163 830 - 163 830
Dividend income 3 597 - 3 597 2 081 - 2 081
Fees and commissions receivable 331 375 - 331 375 415 918 - 415 918
- annuity 286 782 - 286 782 335 845 - 335 845
- deal 44 593 - 44 593 80 073 - 80 073
Fees and commission payable (54 768) - (54 768) (74 671) - (74 671)
Dealing profits 45 231 - 45 231 49 485 - 49 485
Income from long-term assurance
business 27 779 - 27 779 31 079 - 31 079
Other operating income 25 269 - 25 269 30 949 - 30 949
--------- --------- ---------- ----------
Other income 378 483 - 378 483 454 841 - 454 841
--------- --------- ---------- ----------
Total operating income 509 949 - 509 949 618 671 - 618 671
Administrative expenses (392 466) - (392 466) (428 510) - (428 510)
Depreciation and amortisation (14 417) (122 302) (136 719) (16 926) (98 435) (115 361)
- tangible fixed assets (14 417) - (14 417) (16 926) - (16 926)
- amortisation & impairment of - (122 302) (122 302) - (98 435) (98 435)
goodwill
Provision for bad and doubtful
debts (18 308) - (18 308) (14 668) - (14 668)
--------- --------- ---------- ----------
Operating profit / (loss) before 84 758 (122 302) (37 544) 158 567 (98 435) 60 132
exceptional items
Operating profit / (loss) from
continuing operations 101 427 (116 599) (15 172) 158 862 (92 654) 66 208
Operating losses from
discontinuing operations (16 669) (5 703) (22 372) (295) (5 781) (6 076)
Total operating profit / (loss)
before exceptional items 84 758 (122 302) (37 544) 158 567 (98 435) 60 132
Share of income of associated
companies 11 350 (1 644) 9 706 3 904 (821) 3 083
Exceptional items - (28 757) (28 757) - (17 529) (17 529)
--------- --------- --------- ---------- --------- ----------
Provision for losses on
termination and disposal of
Group operations - discontinued - (9 437) (9 437) - (7 056) (7 056)
Impairment of goodwill on
discontinued operations - (19 047) (19 047) - - -
Profits on termination and
disposal of Group operations -
continuing - 5 800 5 800 - 1 363 1 363
Reorganisation and restructuring
costs - continuing - (6 073) (6 073) - (11 836) (11 836)
====== ====== ====== ===== ====== =====
Profit / (loss) on ordinary
activities before taxation 96 108 (152 703) (56 595) 162 471 (116 785) 45 686
Tax on profit on ordinary
activities (5 357) - (5 357) (31 257) 2 717 (28 540)
Tax on profit on continuing
activities 858 - 858 (32 200) - (32 200)
Tax on loss on discontinued
activities (6 215) - (6 215) 943 - 943
Tax on provision for losses on
termination and disposal of
group operations - discontinued - - - - 2 717 2 717
Profit / (loss) on ordinary
activities after taxation 90 751 (152 703) (61 952) 131 214 (114 068) 17 146
Minority interests-equity (1 646) - (1 646) (1 586) - (1 586)
--------- ---------- ----------- ----------- ---------- ----------
Profit / (loss) attributable to
shareholders 89 105 (152 703) (63 598) 129 628 (114 068) 15 560
-
Dividends-including non-equity (53 428) - (53 428) (57 874) - (57 874)
--------- ---------- ----------- ----------- ---------- ----------
Retained profit / (loss) for the
year 35 677 (152 703) (117 026) 71 754 (114 068) (42 314)
====== ====== ====== ===== ====== =====
*Restated for changes to accounting policies and disclosures
Abridged consolidated profit and loss accounts for the year ended 31 March
UK GAAP £'000 Continuing operations Discontinued operations
2003 2002* % change 2003 2002* % change
Net interest income 127 407 151 029 (15.6) 4 059 12 801 (68.3)
Dividend income 3 597 2 081 72.8 - - -
Net fees and commissions
receivable 250 124 288 821 (13.4) 26 483 52 426 (49.5)
Annuity 207 968 213 308 (2.5) 24 046 47 866 (49.8)
Deal 42 156 75 513 (44.2) 2 437 4 560 (46.6)
Dealing profits 46 192 56 666 (18.5) (961) (7 181) 86.6
Income from long-term assurance
business 27 779 31 079 (10.6) - - -
Other operating income 26 263 31 089 (15.5) (994) (140) <(100)
Other income 353 955 409 736 (13.6) 24 528 45 105 (45.6)
--------- --------- --------- ---------- --------- --------
Total operating income 481 362 560 765 (14.2) 28 587 57 906 (50.6)
---------- --------- ----------- ---------- ---------- ----------
Administrative expenses (348 154) (370 885) 6.1 (44 312) (57 625) 23.1
Depreciation (13 473) (16 350) 17.6 (944) (576) (63.9)
Provision for bad and doubtful
debts (18 308) (14 668) (24.8) - - -
Operating profit / (loss) before
goodwill and exceptional items 101 427 158 862 (36.2) (16 669) (295) <(100)
Share of income of associated
companies before goodwill 11 350 3 904 >100 - - -
112 777 162 766 (30.7) (16 669) (295) <(100)
*Restated for changes to accounting policies and disclosures
Consolidated statements of recognised gains and losses
Year to Year to
UK GAAP £'000 31 March 2003 31 March 2002*
(Loss) /profit for the year attributable to shareholders (63 598) 15 560
Currency translation differences on foreign currency net
investments (13 870) (69 737)
Unrealised surplus on revaluation of investment properties 18 265 10 254
====== ======
Total recognised gains and losses for the year (59 203) (43 923)
====== ======
*Restated for changes to accounting policies and disclosures
Earnings per share
Year to Year to
UK GAAP 31 March 2003 31 March 2002
EPS excluding goodwill amortisation and exceptional items - pence per
share
Basic earnings per share excluding goodwill and exceptional items
(pence per share) are calculated by dividing the profit before
deducting goodwill amortisation and impairment and exceptional items
attributable to the ordinary shareholders in Investec by the weighted
average number of ordinary shares in issue during the period 97.6 139.8
====== =====
£'000 £'000
Earnings attributable to ordinary shareholders (63 598) 15 560
Goodwill and exceptional items 152 703 114 068
Preference dividends (421) (2 015)
------- --------
Earnings attributable to ordinary shareholders excluding goodwill and
exceptional items 88 684 127 613
-------- -------
Consolidated balance sheets
Year to Year to 31
UK GAAP £'000 31 March 2003 March 2002*
Assets
Cash and balances at central banks 348 343 457 222
Treasury bills and other eligible bills 243 019 197 767
Loans and advances to banks 2 758 797 2 583 205
Loans and advances to customers 4 898 226 4 780 480
Debt securities 1 931 265 4 377 877
Equity shares 147 638 204 352
Interests in associated undertakings 62 422 45 026
Intangible fixed assets 299 773 384 900
Tangible fixed assets 205 982 186 761
Own shares 82 922 42 130
Other assets 1 335 831 1 275 695
Long-term assurance business attributable to the shareholder 108 528 67 116
----------- -----------
12 422 746 14 602 531
Long-term assurance assets attributable to policyholders 2 536 319 2 354 401
------------ ------------
14 959 065 16 956 932
======== =======
Liabilities
Deposits by banks 2 129 292 3 645 308
Customer accounts 6 354 867 7 068 220
Debt securities in issue 1 089 756 606 246
Other liabilities 1 580 881 2 106 191
Accruals and deferred income 255 281 218 132
------------ ------------
11 410 077 13 644 097
Long-term assurance liabilities attributable to policyholders 2 536 319 2 354 401
------------ ------------
13 946 396 15 998 498
======== ========
Capital Resources
Subordinated liabilities (including convertible debt) 276 897 190 659
Minority interests - equity 38 804 33 473
Called up share capital 158 7 530
Share premium account 994 108 814 089
Shares to be issued 2 428 41 148
Revaluation reserves 29 160 11 202
Other reserves (173 877) (176 833)
Profit and loss account (155 009) 37 166
Shareholders' funds 696 968 734 302
- equity 696 968 691 201
- non-equity - 43 101
------------ -----------
1 012 669 958 434
---------- -----------
14 959 065 16 956 932
======= =======
Memorandum items
Commitments 496 638 506 330
Contingent liabilities 302 035 299 316
------------ ------------
798 673 805 646
======= =======
* Restated for changes to accounting policies and disclosures
Consolidated cash flow statements
Year to Year to
UK GAAP £'000 31 March 2003 31 March 2002*
Net cash inflow from operating activities 429 341 680 542
Net cash outflow from return on investments and servicing of
finance (23 235) (39 315)
Taxation (21 151) (19 380)
Net cash outflow from capital expenditure and financial investment (486 670) (461 662)
Net cash outflow from acquisitions and disposals (9 629) (95 655)
Ordinary share dividends paid (54 325) (58 606)
Net cash inflow/(outflow) from financing 34 396 (22 510)
------------ -----------
Decrease in cash (131 273) (16 586)
Cash and demand bank balances at beginning of the year 1 165 175 1 181 761
------------ ------------
Cash and demand bank balances at end of the year 1 033 902 1 165 175
======= ======
* Restated for changes to accounting policies and disclosures
Segmental geographical and business analysis of operating profit before
taxation, exceptional
items and amortisation of goodwill
For the year ended 31 March 2003
Southern UK & Disc. Total
UK GAAP £'000 Africa Europe Australia Israel USA Operation Group
Private Client Activities 14 473 23 273 1 700 1 465 - - 40 911
Treasury and Specialised
Finance 31 411 (2 850) (728) 118 - - 27 951
Investment Banking 5 871 6 915 2 711 1 797 - - 17 294
Asset Management 17 715 1 646 - 118 - - 19 479
Assurance Activities 27 779 - - - - - 27 779
Other Activities (28 706) (6 658) 2 293 (2) 1 086 - (31 987)
Discontinued Operations - - - - - (16 669) (16 669)
----------- --------- --------- --------- -------- --------- ---------
Total Group 68 543 22 326 5 976 3 496 1 086 (16 669) 84 758
====== ===== ====== ===== ==== ====== ======
For the year ended 31 March 2002*
Southern UK & Disc. Total
UK GAAP £'000 Africa Europe Australia Israel USA Operation Group
Private Client Activities 12 832 28 485 (2 655) 3 827 - - 42 489
Treasury and Specialised
Finance 40 466 9 726 1 273 319 - - 51 784
Investment Banking 18 567 20 255 2 724 4 747 - - 46 293
Asset Management 18 154 2 439 - 318 - - 20 911
Assurance Activities 31 079 - - - - - 31 079
Other Activities (39 301) 3 865 (110) (82) 1 934 - (33 694)
Discontinued Operations - - - - - (295) (295)
--------- -------- -------- -------- ------- -------- ---------
Total Group 81 797 64 770 1 232 9 129 1 934 (295) 158 567
===== ===== ===== ===== ===== ===== =====
* Restated for changes to accounting policies and disclosures
The financial information set out above does not constitute the company's
statutory accounts for the years ended 31 March 2003 or 2002. The auditors have
reported on the 2002 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 2003 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 comparative financial information for 2002 is derived from the
accounts as reported in the Preliminary Offering Circular which was prepared for
the listing of Investec plc on the London Stock Exchange and which has been
delivered to the Registrar of Companies. This will form the 2002 comparatives of
Investec plc (incorporating the results of Investec Limited) as a result of its
application of merger accounting.
Further Information
Information provided on the Company's website at www.investec.com includes:
• Copies of this statement.
• The year end results presentation.
• Additional report produced for the investment community including more detail
on the results.
• Excel worksheets containing the salient financial information both in UK GAAP
Pounds Sterling and SA GAAP Rands.
Alternatively for further information please contact the Investor Relations
division on e-mail investorrelations@investec.co.za or +27 11 286 7070.
This information is provided by RNS
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