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Business and geographic spread supports continued growth for Investec

15 November 2007 Investec Limited

Investec’s diverse and balanced revenue streams, geographic footprint and business mix has enabled the group to deliver continued growth for the six-months ending 30 September 2007.

The group reported an increase of 23.8% in operating profit before goodwill, non-operating items and taxation from GBP 205.3 million to GBP 254.3 million (39% in Rand terms to R3.6 billion).

All financial and growth targets have been achieved, supported by strong performance from the majority of businesses. South Africa and Australia delivered strong growth in operating profit before goodwill, non-operating items and taxation of 38.7% and 61.4%, respectively, while a solid performance from the UK was adversely affected by recent instability in the credit markets.

39% of operating profit before goodwill, non-operating items and taxation was generated outside of South Africa during the period under review.

Key earnings drivers for the group – core loans and advances to customers increased by 31.5% to GBP 11.8 billion (26.8% to R164.3 billion) and third-party assets under management by 21.9% to GBP 59.5 billion (17.6% to R831.7bn), respectively.

Commenting on the results, Bernard Kantor, Investec MD said: “We have again delivered on our growth targets yielding a sound overall performance in all businesses with the exception of the Capital Markets US Principal Finance division where performance was adversely affected by the credit market conditions.“

 

Financial Highlights

* Adjusted earnings per share (EPS) before goodwill and non-operating items grew 17.2% from 23.3 pence to 27.3 pence (or to 387.8 SA cents, up 31.5%). Investec’s target is UK RPI + 10%

* Earnings attributable to ordinary shareholders before goodwill and non-operating items increased 25% to GBP 160.8 million (2006: GBP 128.7 million) and 40.3% to R2.29 billion (2006: 1.62 billion).

* Annualised return on adjusted shareholders’ equity (including goodwill and CCDs) remained flat at 23.9%

* The Cost:income ratio target is <65% and for the six months it improved from 60% to 58.9%.

* The group’s capital adequacy ratios also met the target range of between 13 – 16%. (Investec plc: 17.7%; Investec Ltd: 13.7%

* Total capital resources grew to GBP3.1 billion and R43.9 billion (47.4% and 42.2%, respectively).

* Total assets grew to GBP 34.8 billion (up 51.4%), or R486.4 billion (up 46%).

* The weaker credit cycle did not affect performance of the group’s loan portfolios; the percentage of gross default loans to core loans and advances improved from 1.23% go 1.01%, demonstrating satisfactory asset quality

* The group’s effective tax rate decreased from 28.3% to 25.0%.

* Investec’s board declared a dividend of 11.5 pence per share (2006: 10 pence), an increase of 15.0 % (15.6 % in Rand terms to 159.5 cents), which equates to a dividend cover of 2.37 times in line with Investec’s dividend cover range of 1.7 to 2.3 times

During the period Investec plc acquired the business of Kensington Group plc, effective 8 August 2007. Significant restructuring continues in the business to maintain the platform until market activity returns and gain further efficiencies.

Divisional Performance

Strong performance from the majority of businesses supported continued growth. The overall performance of the business units below refers to operating profit before goodwill, non-operating items and taxation:

* Private Client Activities: operating profit grew 20% to GBP 100.1 million (2006: GBP 83.3 million) primarily as a result of strong lending turnover and transactional activity in Private Banking as well as new product initiatives and higher volumes of funds under management in Private Client Stockbroking and Portfolio Management.

* Operating profits from Capital Markets decreased by 24.3%, but still contributed GBP 43.2 million (2006: GPB 57.1 million). Advisory, structuring and asset creation activities continued to perform well, particularly in South Africa and Australia. Within this business, the US Prinicipal Finance division was affected by exposure to the sub-prime market in the US, with write-downs of £36 million taken on these portfolios in the period, primarily as a result of recent rating agency downgrades. Total exposure to the US sub-prime market represented 0.3% of the group’s loan portfolio.

* The Investment Banking business posted growth of 45.1% to GBP 51.9 million (2006: GBP 35.8) with strong contributions from private equity and direct investments and a good deal-flow pipeline into corporate finance across all geographies.

* Asset Management continued to benefit from good momentum in the UK and sound performance in South Africa. Profits grew 13.5% to GBP 36.2 million (2006: GBP 31.9 million).

* Operating profit from buoyant Property Activities improved 81.8% to GBP11.5 million (2006: GBO 6.4 million).

Looking ahead, Stephen Koseff, CEO of Investec said: “Market conditions in South Africa and Australia remain positive and we expect to deliver a good performance in these two geographies for the full year. Activities affected by current conditions in the UK credit markets are likely to be affected. Investec continues to be well capitalised with strong risk management disciplines and established platforms for growth.”

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