Preliminary 2004 Investec plc Earnings Presentation - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

ARTHUR THOMPSON, CHAIRMAN, INVESTMENT ANALYSTS SOCIETY OF SOUTHERN AFRICA: Good afternoon, ladies and gentlemen. My name is Arthur Thompson. I am the Chairman of the Investment Analysts Society of Southern Africa. And it gives me great pleasure on behalf of the Society to welcome you all around the world and around the country as well. And to thanking Investec for coming and talking to us today and telling us about, not only the results which we have already seen this morning, but actually the numbers behind the results and the strategies that the Company is using to go forward in the world. Without further ado, I'm just going to say, thank you very much again, to thank you for the lunch and drinks which are to follow, and hand over to the Chief Executive, Mr. Stephen Koseff.

STEPHEN KOSEFF, CEO, INVESTEC: Good afternoon everybody and morning to people in the UK. And before we start, we have a sad moment. One of our Senior Independent Directors passed away yesterday afternoon and I would like everyone to stand up and have a minute of silence. The gentlemen's name is John Able (ph) who has been on our Board in London just over 10 years. And if we could have a minute of silence, and we wish his family well. It is a sad time. Thank you.

I think it was a tradition that we used to announce these results before you had all seen them, and fortunately or unfortunately now you see them before we announce them. I mean before we have this presentation. So probably some of you know a lot more than I do, because you have seen the book on the Internet where there is a hell of a lot of detail, but nevertheless let's go.

I think the strongest part of the results is clearly the increase in operating profit before goodwill amortization exceptional items, which is up 54 percent. And earnings before goodwill amortization exceptional items is up 18.3 percent, and EPS up only 8 percent. And the reason for the difference is clearly a significant rise in the tax rate, as well as an increase in the number of shares in issue from an earnings point of view. I think headline earnings for the South Africans in the UK that I look at this number was up 15.4 percent.

One restatement that needs to be mentioned because it does have an impact on the actual numbers is historically shares that were not (indiscernible) to the dividend are not included in the weighted numbers shares in issue. In order to match the weighted numbers here is an issue to the revenue recognition associated with certain schemes, which this is really the subject of. We have increased the weight of number of shares in issue on the vested portion of those schemes, notwithstanding the fact that no dividends are payable.

Had we not done that the earnings per share would have been 109 against a comparative number of 92.7 or 90 pence in the case of headline earnings per share. So the increase in the weighted numbers share in issue, which most analysts were aware was going to happen on the 15th of December, this in 2004 actually is coming in earlier. And that is why these numbers perhaps from your point of view are slightly lower than they would have otherwise have been.

Other highlights, I guess, is the increase in return on equity from 13.1 to 16. That is on total equity shareholders funds, and on tangible equity shareholders funds from 26 percent to 27.5 percent. We also saw quite a significant improvement in the cost of income ratio from 80 percent, which was very, very high done to 72.7 percent. And I will talk about what we can do with some of those issues later. And then assets under administration increased by about 18 percent to 48 million sterling -- billion sterling.

I think if we look at the past year, what you have got is a much leaner, a much more focused organization that also benefited from an improvement in the environment in which we operated in most of our activities. We had very strong performances from the investment bank and the private banking operations. We have a significant improvement, in fact one of the highlights of the results was a turnaround in the UK operations with a strong performance from Treasury and Specialized Finance, as well as the private bank. We eliminated the losses in the U.S. operations with significantly restructuring we took (technical difficulty) place last year. And we did have a weaker performance as you are well aware from our September release in our South African Treasury and Specialized Finance, but they did improve quite significantly at the second half of the year. So overall I would say that we had quite a satisfactory year.

I think other highlights we did conclude the impairment (ph) transaction which was announced in the 15th of May last year. That was included -- concluded in December. And we were also recognized by most BusinessMap as the Most Progressive Established Company of the Year for our rolling transformation and for our black empowerment initiative. And I think that is some recognition from the market for all the good work that we believe we've been doing over quite a long period of time.

We also significantly improved our capital structure. We issued a 200 million sterling, 12 year subordinated note in the UK to a well diversification range of investors. And we did issue the 1.5 billion rand noncumulative, nonredeemable, nonparticipating preference shares. So we didn't, other than the empowerment shares, ask equity shareholders for any money. And further it is our intention to do so from a long time to come.

If we look at our geographic overview, South African increased from 69.5 million sterling to 77.4 million sterling. That clearly was the strength of the rand, as we did not that the benefit of the significant restructuring profits coming out of the life insurance activity, so the numbers are from normal operating activities. The UK and the rest of the world from 16.3 to 54.7 million. That was a significant jump. If you look at the operating numbers, about 42 percent comes from the UK and the rest of the world, and 57.5 from South Africa, which is a significant improvement over the previous year.

Geographically assets 59 percent South Africa against 55 percent last year. It was again an improvement in the rand at the end of March compared to the end of March previous years, and UK from 37.5 down to 32. Austria up to 3 percent, Israel 4.7 and the U.S. very small at .2.

Coming to South Africa, I think we had what we would call a mixed performance because we had a very strong performance from the Investment Banking Division, a very good performance from our Private Banking Division, Private Client Division, a weak performance relative to prior years from our Treasury and Specialized Finance Division. (inaudible) did mention did improve in the second half. A very good performance from our Property Division. And then clearly the considerable decline in earnings from the assurance activities and Central Funding Division, which I will talk about later.

The UK, 71 percent increase in operating profit to 38.7 million sterling. Again, supported by very strong results from Private Banking and Treasury and Specialized Finance, and improved performance from the Investment Banking activities. We did not have the benefit of the large private equity gain that we had last year which actually made losses look a bit better than they really were. But the investment bank did turnaround from the reduction in costs and increased corporate activity.

And then we had a solid performance from Carr Sheppards. And the asset management business continues to perform well in its marketplace, however we are still not getting the desired level of earnings coming through. And then we mentioned at the investor briefing that we would have a decline in earnings from our Central Funding because of additional effect that we had shifted our funding from dollars to sterling at the time of the listing.

Austria continues to perform very well. It grew by 62.5 percent to 9.6 million sterling. We believe that business has got a lot of momentum. It sees itself as a …