By Ray Faure

Dual-listed South African and UK specialist banking group Investec (INP, INL) surprised the market, reporting slightly better results than had been expected by many analysts for the last financial year.

Headline earnings per share for the 12 months ended March amounted to 103.4 UK pence - a 15.4% increase on the previous year's earnings of 89.6 pence per share.

Most analysts had been expecting the group's results to be more subdued, with earnings only between 5% to 10% higher.

The group's final dividend also surprised, coming in 7.4% higher at 58 pence a share compared with 54 pence previously. Many had been expecting a dividend of around 55 pence, with more conservative estimates as low as 30 pence per share.

Attributable profits reflected a 100% turnaround, amounting to 68.8 million sterling after a 62.6 million sterling loss the last time around.

The group said the financial year had been characterised by a more favourable market environment that had benefited the group's activities.

Operating profit before exceptional items and goodwill amortisation of the group's operations increased 54.1% from 85.8 million sterling to 132.1 million, which Investec CEO Stephen Koseff said was largely attributable to the strong performance from the group's Investment Banking and UK Treasury and Specialised Finance divisions as well as the elimination of the losses from the US operations.

"These factors were offset to some extent by the weaker performance from the SA Treasury and Specialised Finance activities and the decline in income from the SA life assurance activities," Koseff added.

Over the 12-month period, the group's ratio of total operating expenses to total operating income decreased from 80.0% to 72.7%.

Highlights of the year included the successful placing by Investec Bank (UK) Limited of a 200 million sterling 12-year subordinated note in the UK market to a diversified range of investors. They also included the issue by Investec Bank Limited of 1.5 billion rand (127.5 million sterling) non-cumulative, non-redeemable and non-participating preference shares.

During the course of the year, Investec also concluded an empowerment shareholding transaction with Peu Investment Group, Tiso Group and a broad- based Entrepreneurship Development Trust, issuing 5.6 million new shares worth some 46 million sterling.

Investec was recognized by consultancy BusinessMap as the 'Most Progressive Established Company of the Year' for its black economic empowerment and transformation initiatives in South Africa.

Providing a breakdown of the group's geographic performance for the year, Koseff noted that the Israeli operation had benefited from the cost cutting initiatives taken in the previous period and the improved economic and financial environment.

"Despite performance reported in nominal terms being weakened by negative inflation, operating profit before exceptional items and amortisation of goodwill increased by 69.3% to £5.9 million," he said.

Investec Bank (Israel) continues to leverage off the presence of the Israeli Desk in the US. Investec Bank (Israel) continues to grow market share in the Mutual Fund Custody business with assets under management increasing by 104% to NIS20.2 billion (£2.4 billion) from NIS9.9 billion (£1.3 billion).

The heavily reduced ongoing operations in the US, consisting of several fixed income trading operations and a small equities trading desk supporting Investec's Israeli clients, posted a modest operating profit before exceptional items and amortisation of goodwill of 0.4 million sterling.

"The fundamental restructuring of the US business was completed and, with the exception of run-off related activities, all other businesses in Investec USA and Investec Inc. ceased operating as of 31 May 2003," Koseff added.

The UK businesses recorded an operating profit before exceptional items and amortisation of goodwill of 38.7 million sterling - an increase of 71.7% over the previous period, while pre-tax profits from the Australian operations increased by 62.5% to 9.6 million sterling as a result of favourable market conditions.

Looking ahead, Koseff said the "operational health" of the group's activities was sound with significant measures taken to address the non- performing elements of the business, and through vigilant management of costs.

"The group is now leaner and more focused and in a better position to deal with external market and economic conditions which remain uncertain. The group strives to continue to build distinctive businesses in its core areas of operation focusing in regions where it believes it can compete effectively," he stated.

I-Net Bridge27 May 2004