Mission statement - Investec · Mission statement “We aspire to be one of the world’s great...

Mission statement

“We aspire to be one of the world’s great specialist banking groups, driven bycommitment to our core philosophies and values”

PHILOSOPHIES

• Single organisation

• Meritocracy

• Focused businesses

• Differentiated, yet integrated

• Material employee ownership

• Creating an environment that stimulates extraordinary performance

VALUES

• We demand cast-iron integrity in all internal and external dealings, consistently and uncompromisinglydisplaying moral strength and behaviour which promotes trust

• We will break china for the client, having the tenacity and confidence to challenge convention

• We show concern for people, support our colleagues and encourage growth and development

• We thrive on change, continually challenging the status quo and recognising that success depends onflexibility, innovation and enthusiasm in meeting the needs of our changing environment

• We believe that open and honest debate is the appropriate process to test decisions, seek consensusand accept responsibility

• We are creative individuals who co-operate and collaborate unselfishly in pursuit of Groupperformance

• We respect the dignity and worth of the individual through openness and tolerance of difference andby the sincere, consistent and considerate manner in which we interact

• We require talented people with passion, energy and stamina, who exercise common sense in achievingeffective performance in a high pressure, multitask environment

• We promote entrepreneurial flair and the freedom to operate within the context of risk consciousness,sound judgement and the obligation to do things properly

1980

Investec acquires a banking licence. This enables itto expand its activities beyond leasing andinstalment finance into such areas as corporateand professional banking, treasury, corporatefinance and project finance. Regional offices areopened in Durban and Cape Town and a network ofinternational contacts is established.

1986

Having enjoyed a close relationship with MetboardLimited, a trust company established in 1937,Investec and Metboard are merged. Thisdevelopment adds portfolio management, aparticipating mortgage bond scheme and an in-house unit trust to the growing range of productsand services offered by Investec.

Investec Holdings Limited is listed on theJohannesburg Stock Exchange.

1988

In a major restructure, Investec Bank Limited (nowInvestec Group Limited) is listed separately. Animportant consequence of this listing is to placecontrol in the hands of Investec management andstaff, a factor which continues to be integral tothe success of the Group.

1990

Investec acquisitions include property managementcompany I Kuper & Company (Pty) Limited,Corporate Merchant Bank Limited (formerly HillSamuel Merchant Bank Limited) and leading tradefinance company Reichmans Limited.

1991

Investec forges a strategic alliance with lifeassurance company Fedsure Holdings Limited,through the creation of significant crossshareholdings. This alliance results in an increase

in the capital of both groups and facilitates anextension of the range of financial products andservices which both groups can offer.

1992

Investec acquires London-based Allied Trust BankLimited (ATB). This represents the firstinternational expansion by the Group.

1993

Investec acquires South Africa’s oldest confirminghouse, Gerber Goldschmidt Finance (Pty) Limited.

1994

Investec acquires control of the listed securitiestrading group, Sechold Limited (Sechold).

1995

Investec acquires fleet management company APANetwork Consultants (Pty) Limited, since renamedInvestec Fleet Management. Investec’s wholly-owned subsidiary Reichmans acquires GDM FinanceLimited.

Sechold is delisted.

Investec acquires London-based Clive DiscountCompany Limited (Clive), a development whichfurther enhances Investec’s capability as a nicheplayer within the UK securities market andsupports its ability to distribute South Africanfinancial instruments internationally.

Investec acquires the money broking operations ofCazenove & Company, subsequently merged intoClive.

At this point all of the Group’s UK tradingactivities fall under Clive.

Investec acquires stockbroking company Solms &Company Inc. and becomes an active member ofthe Johannesburg Stock Exchange.

INVESTEC GROUP LIMITED

History

BASIS OF PRESENTATION

1

SINCE INCEPTION AS a small finance company in 1974, the development of Investec has followed acarefully charted course. Based on the core philosophy of building well-defined businesses focused onserving the needs of select market niches, Investec’s steady expansion in the years since then has beenfirmly rooted in the recognition of a clearly defined strategy for the Group.


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1996

Investec acquires local stockbroker, Fergusson Bros.Limited. This is then integrated with other tradingactivities to form Investec Securities Limited.

Investec Bank (Jersey) Limited, a private bankbased in Jersey, is established, a developmentmotivated by the need to give clients even greateroffshore advantages.

Investec acquires a controlling interest in IsraelGeneral Bank Limited (IGB), the eighth largest bankin Israel. The acquisition is motivated by a desireto cement the already strong relationship betweenSouth Africa and Israel and to develop some of theobvious synergies between the two countries.

Investec acquires London-based stockbroker andprivate client portfolio management company, CarrSheppards Limited.

1997

ATB is renamed Investec Bank (UK) Limited.

Investec and Credit Suisse First Boston enter intoan agreement relating to corporate financeactivities, the stated intention of which is for thetwo banks to work together on cross-bordermergers and acquisitions, corporate restructuringand privatisations.

The Group engages in an internal restructurewhereby all banking operations fall under InvestecMerchant Bank Limited. Investec Bank Limitedchanges its name to Investec Group Limited andsimultaneously, Investec Merchant Bank Limitedchanges its name to Investec Bank Limited.

Investec establishes a grass roots operation inAustralia.

Investec acquires the Mauritian-based bank,Banque Privée Edmond de Rothschild (OceanIndien) Ltée.

Investec opens representative offices in Hong Kongand establishes an effective gateway into SouthEast Asia.

The Group establishes asset managementoperations in Botswana and Namibia. Listings onthe Namibian and Botswana Stock Exchangesfollow. Investec Securities (Botswana) (Pty) Limitedis registered and a licence to trade is approved.

NDH Bank Limited, one of the Sechold Banks, issold to Capital Alliance Group.

1998

Investec acquires New York-based registeredbroker-dealer Ernst & Company.

All Clive trading operations are merged intoInvestec Bank (UK) Limited.

Investec acquires, from the Bank of Yokohama,Guinness Mahon Holdings PLC (“Guinness Mahon”).The purchase includes 42% of Guinness FlightHambro Asset Management Limited (GFH).

Investec acquires Hambros PLC which includes afurther 42% of GFH.

Investec sells Fleet Management to ABN AmroLease Holding N.V.

Investec acquires management’s stake in GuinnessFlight Hambro

Investec sells District Securities Bank Limited, oneof the trading banks acquired under Sechold, to R.Cadiz & Company.

Investec Australia acquires local fund managersthe ACSIS Group of Companies.

Guinness Flight Hambro Asset Management mergeswith Investec Asset Management and is renamedInvestec Guinness Flight Limited.

Ernst & Company acquires New York retail brokerStuart Coleman & Company.

1999

Investec Bank (UK) Limited and the bankingbusiness of Guinness Mahon merge. Investec Bank(UK) Limited now also incorporates InvestecHenderson Crosthwaite, Investec Private Equity andInvestec Insurance.

The private client portfolio management andstockbroking activities of Henderson Crosthwaitemerge with Carr Sheppards and the company isrenamed Carr Sheppards Crosthwaite Limited.

Investec sells Securities Investment Bank Limitedinto Saflife Limited.

Investec acquires the Johannesburg RetailStockbroking division of HSBC Simpson McKie (Pty)Limited.

INVESTEC GROUP LIMITED • INVESTEC HOLDINGS LIMITED

%INVESTEC GROUP LIMITED 1999 1998 Increase

Headline earnings attributable to ordinary shareholders (R’millions) 857,0 572,0 49,8Headline earnings per share (cents) 1077,5 790,1 36,4Diluted headline earnings per share (cents) 1089,9 782,4 39,3Dividends per share (cents) 475,0 350,0 35,7Net tangible asset value per share (R) 65,7 76,5 (14,1)Total assets (R’billions) 113,0 83,0 36,1Assets under management (R’billions) 361,0 196,0 84,2Capital and reserves to total assets 7,8% 8,7%

Capital adequacy ratios

Capital and reserves to risk-weighted assets 15,2% 19,8%Tier one 14,4% 15,8%Tier two 0,8% 4,0%

INVESTEC HOLDINGS LIMITED

Headline earnings attributable to ordinary shareholders (R’millions) 377,0 266,0 41,7Headline earnings per share (cents) 927,2 699,6 32,5Diluted headline earnings per share (cents) 994,5 677,0 46,9Dividends per share (cents) 425,0 300,0 41,7Net tangible asset value per share (R) 47,5 61,7 (23,0)Total assets (R’billions) 113,0 83,0 36,1Assets under management (R’billions) 361,0 196,0 84,2

Investec Group Limited Investec Group Limited Investec Holdings LimitedDiluted headline earnings per share Dividends per share Diluted headline earnings per share(cents) (cents) (cents)

Financial Highlights

3

90 91 92 93 94 95 96 97 98 990

200

400

600

800

1000

1200

90 91 92 93 94 95 96 97 98 990

50

100

150

200

250

300

350

400

450

500

90 91 92 93 94 95 96 97 98 990

100

200

300

400

500

600

700

800

900

1000

INVESTEC HOLDINGS(Fully diluted)


INVESTEC IS AN independent banking group, with management and staff owning a significantstake in both Investec Group Limited and its holding company, Investec Holdings Limited. The directinterest of management and staff in the fortunes of the Group continues to play an important role in itsperformance.

Shareholder Analysis

RISK MANAGEMENT

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INVESTEC GROUP ORDINARY SHARES

Number of % of total Number of % of issuedshareholders Holdings shareholders shares share capital

2 995 1 – 500 79,1 433 170 0,5331 501 – 1 000 8,7 261 234 0,3300 1 001 – 5 000 7,9 691 869 0,9

60 5 001 – 10 000 1,6 423 431 0,565 10 001 – 50 000 1,7 1 367 464 1,716 50 001 – 100 000 0,4 1 127 948 1,421 100 001 and over 0,6 76 054 716 94,7

3 788 100,0 80 359 832 100,0

43,5%

Management, Staff and Associates

33,0%

Corporates and Institutions

20,8%

Fedsure

2,7%

Individuals

INVESTEC GROUP(Fully diluted)

50,1%

Investec Holdings

44,7%

Corporates and Institutions

3,0%

Management and Staff

1,4%

Individuals

0,8%

Fedsure


SHARE PERFORMANCE

INVESTEC GROUP’S SHARE price has increased from375 cents on 1 April 1988 to R229,00 on 31 March1999. This steady growth in the share price hasresulted in a 10-year compound growth rate of49,3% compared with 26,0% compound growth inthe Bank index over the same period.

Investec has enjoyed an excellent rating from theinvestment community, with the increase in itsshare price exceeding growth in earnings anddividends, both in absolute terms and relative tothe Bank index. As a result of the rating of itsunderlying investment, Inhold’s share price hasincreased from 375 cents on 1 April 1988 toR212,00 on 31 March 1999, a 10-year compoundgrowth rate of 59,4%.

Relative Share Price Index 1990 = 100

* Prior to 1998 the graph shows the banks andfinancial services index. In March 1999 theindex was split, and the 1999 figure shows thebanks index only.

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INVESTEC HOLDINGS ORDINARY SHARES

Number of % of total Number of % of issuedshareholders Holdings shareholders shares share capital

1 724 1 – 500 72,0 228 632 0,6220 501 – 1 000 9,2 168 687 0,4294 1 001 – 5 000 12,3 629 142 1,6

54 5 001 – 10 000 2,2 382 850 0,963 10 001 – 50 000 2,6 1 377 487 3,411 50 001 – 100 000 0,5 748 531 1,828 100 001 and over 1,2 37 234 466 91,3

2 394 100,0 40 769 795 100,0

Inhold

Investec Group

Bank Index*

90 91 92 93 94 95 96 97 98 990

1 000

2 000

3 000

4 000

5 000

6 000

7 000

5

a. Calculations are based on profits excluding exceptional items.b. Calculations are based on average total assets.c. Total shareholders’ funds include all convertible instruments

and minority shareholders’ interest in subsidiaries.d. Cash and short-term funds include short-term negotiable secu-

rities.e. Calculation is based on the number of shares in issue assuming

conversion of the debentures.f. The convertible debentures have been valued at the market

price of the ordinary shares as at 31 March.g. US Dollar information is converted at a rate of R6,1925 to US

Dollar.

Investec Group Limited Net Tangible Asset Value Per Share (Rand)

Investec Group Limited Assets Under Management (R’billion)

Investec Group Limited Market Capitalisation (R’million)

90 91 92 93 94 95 96 97 98 990

10

20

30

40

50

60

70

80

90 91 92 93 94 95 96 97 98 990

50

100

150

200

250

300

350

400

90 91 92 93 94 95 96 97 98 990

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

22000


10 Year 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990For the years ended 31 March Rand Compound US$g RAND RAND

Growth


Profitsa

Headline earnings attributable to ordinary shareholders (millions) 50,9% 138 857 572 375 235 148 80 54 33 24 18

Return on average shareholders’ funds 18,8% 18,8% 17,8% 18,1% 15,5% 17,1% 20,4% 15,5% 19,9% 22,4% 23,5%

Return on average risk-weighted assets 2,5% 2,5% 2,5% 2,5% 2,5% 2,3% 2,0% 1,8% 1,4%b 1,5%b 1,6%b

Balance sheet

Total assets (billions) 60,4% 18 113 83 63 48 15 11 6 4 3 1

Ordinary shareholders’ funds (millions) 58,2% 1 047 6 481 5 941 3 293 2 046 1 683 724 425 300 131 83

Total shareholders’ fundsc (millions) 63,0% 1 414 8 756 7 194 4 447 3 074 2 259 1 185 658 437 201 83

Cash and short-term fundsd as a percentage of total assets 65,3% 65,3% 65,9% 68,5% 73,4% 43,6% 46,5% 31,0% 22,6% 27,4% 18,9%

Assets under management (billions) 58 361 196 139 70 24 19 10 9 7 4

Share statistics

Diluted headline earnings per share (cents) 31,6% 176,0 1 089,9 782,4 572,1 419,8 310,7 224,2 176,8 145,4 117,6 87,5

Dividends per share (cents) 31,0% 76,7 475 350 260 200 150 115 90 70 56 40

Dividend cover (times) 2,2 2,2 2,3 2,2 2,2 2,2 2,2 2,1 2,2 2,1 2,2

Net tangible asset value per sharee (Rands) 34,8% 12,35 65,70 76,45 48,87 39,10 27,10 20,50 14,13 11,27 6,76 4,13

Share price (cents) 49,3% 3 698 22 900 25 600 13 800 9 000 6 500 4 500 2 800 2 050 1 400 675

Number of shares in issue on a diluted basis (millions) 92,48 92,48 79,89 76,95 68,94 60,00 47,38 40,00 32,88 23,00 23,00

Weighted number of shares in issue on a diluted basis (millions) 85,17 85,17 77,72 72,36 63,37 53,28 41,65 35,59 25,78 22,25 20,00

Market capitalisation on a diluted basis (millions)f 74,0% 3 420 21 178 20 451 10 619 6 205 3 900 2 132 1 120 674 322 155

Personnel

Number of employees in the Group 3 721 3 721 2 706 2 238 1 659 1 345 1 067 826 806 704 602

Net contribution per employee basedon average number of employees (thousands) 25,6% 52 323 270 240 178 139 108 78 47 38 29


Profitsa

Headline earnings attributable to ordinary shareholders (millions) 47,0% 61 377 266 175 107 65 34 24 20 16 10

Return on average shareholders’ funds 16,1% 16,1% 17,7% 18,4% 14,7% 14,8% 17,9% 16,9% 18,2% 20,6% 20,9%

Share statistics

Diluted headline earnings per share (cents) 38,1% 160,6 994,5 677,0 490,9 332,0 244,6 166,3 128,1 99,4 77,8 53,4

Dividends per share (cents) 38,8% 68,6 425 300 220 150 96 72 56 36 28 20

Dividend cover (times) 2,1 2,1 2,3 2,5 2,4 2,7 2,2 2,2 2,8 2,8 2,7

Share price (cents) 59,4% 3 423 21 200 24 540 13 500 7 500 5 500 3 800 2 000 1 525 710 390

Number of shares in issue on a diluted basis (millions) 52,28 52,28 44,55 40,57 36,54 33,00 26,00 23,10 20,00 20,00 20,00

Weighted number of shares in issue on a diluted basis (millions) 46,08 46,08 43,02 38,04 34,76 29,83 23,88 22,39 20,00 20,00 20,00

Market capitalisation on a diluted basis (millions)f 73,8% 1 628 10 081 10 933 5 477 2 740 1 815 988 462 305 142 78

Ten Year Review

4

Hugh HermanChairman

Investec Group Limited


OPERATING ENVIRONMENT

THE VICISSITUDES OF global investor sentimentduring the period rendered financial marketseverywhere unusually volatile and the operatingenvironment more than usually difficult. This wasparticularly the case in South Africa, whereemerging market concerns made themselvesacutely felt, to the subsequent marked detrimentof local markets and the domestic economy.

In hindsight, calendar 1998 was an extraordinaryyear, if only because of the sheer scale of themarket extremes experienced during that time.Whether for bonds, equities, foreign exchange,money markets or commodities and whether forfirst, second or third world economies, the periodwill be remembered as a very turbulent andenormously volatile one. Although the year beganfavourably enough, with international confidencebeginning to return after the various economiccrises of the previous year, this quickly provedshort-lived. Subsequent sharp currencydepreciations in Korea and Indonesia paved theway for new, increasingly widespread, marketconcerns. These were to last for much of the yearand although initially confined to emergingeconomies alone, later gave rise to near-universalinvestor anxiety, a dramatic flight to quality, asevere widening in international credit spreads andoutright fears of both a global credit crunch andensuing systemic weakness.

As it happens, these fears were overdone. Theimmediate response of the US authorities was tolower US interest rates, on several occasions, anofficial response that was mirrored to varyingdegrees elsewhere. Following on from this, marketcalm and confidence began to return, graduallybuilding momentum, to the point where, by early

1999, successive new stock market highs wereonce again being established in several developedeconomies. Within emerging markets, however,confidence remained fairly brittle, a developmentunderscored by the continuing realities of fiercedeflation and involuntary, often massive, balanceof payments adjustments.

In South Africa, too, these realities hit hard.Deepening global concerns about the prospects foremerging economies and a sudden withdrawal offoreign investment capital from local marketsresulted in the rand’s losing almost 40% of itsvalue, a substantial depletion of foreign exchangereserves and an interest rate increase of almost8%, all within a matter of weeks. Althoughfinancial stability was, in time, restored, thisoccurred at the expense of the real economywhich, by year-end, had weakened substantiallyand which, despite successive interest rate cuts inearly 1999, entertained little real prospect ofmeaningful recovery until at least the second halfof the year.

That the Group managed to attain fine results,against a generally invidious operatingenvironment, is a tribute to its formulatedstrategy, the benefits of earlier acquisitions andthe tireless efforts by its staff to ensure theGroup’s increased recognition as a niche,specialist, banking group.

DEVELOPMENTS

IN LINE WITH the Group’s stated objective ofconcentrating only on core areas of competence,Investec sold some non-core interests during theperiod. These included Investec Fleet Management,District Securities Bank and Securities Investment

FOR THE TWENTIETH successive year, the Investec Group has posted another strong performance.Headline earnings in 1999 increased by 49,8% to R857 million, with diluted headline earnings per shareregistering a 39,3% increase, to 1089,9 cents. A final dividend of 300 cents was declared, which brings to475 cents the dividend for the full year, an increase of 35,7% on that of the previous year. The Group nowhas a 10-year compound growth in diluted headline earnings per share of 31,6% per annum. A significantfeature of the Group’s overall performance last year was the 84,2% growth in assets under management,in large measure due to acquisitions. A more detailed breakdown of results is to be found in the ChiefExecutive Officer’s and Managing Director’s Review but last year’s performance clearly also occurred as aconsequence of strong organic growth.

Chairman’s Statement

RESULTS

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Bank, the latter two of which had been acquiredunder Investec’s 1994 acquisition of Sechold.

The period under review saw clear benefits arisingas a consequence of the Group’s increasedinternational presence. Having early in the periodannounced the purchase of Guinness FlightHambro Asset Management, Guinness Mahon PLCand Hambros PLC, the Group later acquired StuartColeman & Company in New York, ACSIS in Sydneyand, subsequent to the year-end, theJohannesburg-based retail brokerage operation ofHSBC Simpson McKie (Pty) Limited. Although thebenefits generated by these acquisitions had not,in all instances, fully come through by the end ofthe financial year, very considerable gains hadnonetheless been made, to the clear advantage ofthe Group’s aggregate performance, whether interms of financial contribution or in terms ofaugmenting critical mass.

The period also saw the centralisation of allInvestec’s London-based interests in its new officesat 2 Gresham Street in the City. Having previouslybeen scattered in several different locations, theGroup’s UK operations now have a clear identityand locale. Modelled on 100 Grayston inJohannesburg, 2 Gresham Street is also open-planand, in the short-time since everyone has movedin, has played a powerful role as a motivating andintegrating mechanism for the diverse people, andfunctions, contained therein.

Headquartered in Johannesburg, the Group remainsfirmly committed to South Africa and the region.Last year saw the Group obtain a banking licencein Botswana while the strategic importance ofMauritius as an operating base for the Groupbecame increasingly apparent, with very significantvolume growth in the types of business andtransactions that can be sourced from there.Indeed, the Group expects significant benefits toaccrue over time from its exposure to theseeconomies, both of which have frequently beenidentified as among Africa’s, and the developingworld’s, most dynamic.

PROSPECTS

IN THIS, THE election year during which PresidentMandela steps down, the eyes of the world willonce again be on South Africa. Although thecountry has no reason to fear renewed media orinvestor scrutiny, since policy consistency,credibility and continuity are hallmarks ofgovernment, some domestic shortcomings willnonetheless be clearly identified. The most obvious

of these relate to continued sub-par economicperformance and a wholly inadequate degree oflabour absorption into the formal workplace. Thatboth of these should remain so conspicuous bytheir absence reflects, in part, the inevitable timedelays associated with recent structural reform.Furthermore, it reflects considerations, such asemerging market “contagion” and ensuingcommodity cycle realities, that are largely externalto South Africa. However, the country’s persistentunderperformance in recent years also reflectsconsiderations that do fall under government’simmediate sphere of influence which, for whateverreason, have not yet been addressed. These includeprivatisation, civil service reform, reducedgovernment dis-saving, a reduced tax burden andthe creation of an enabling environment for smalland medium business, all of which must be moreforcefully tackled, if South Africa is to retain thelong-term confidence of global investors.

In a continent long dogged by so-called Afro-pessimism, it is all too easy to become pessimisticabout South Africa’s long-term economicprospects, particularly when set against the litanyof structural and other woes bestowed by previousadministrations. However, it is common cause that”when you are inside the frame, you don’t see thepicture“. In truth, the ANC government deserves amuch greater degree of credit for getting to gripswith unwinding, albeit in gradual and incrementalmanner, the many structural constraints whichhave hitherto served to hamper domestic economicgrowth. An alternative, and by far the easiestpolitical route, would have been to succumb to thetemptation of populism, particularly during lastyear’s emerging markets crisis when South Africa,among others, was singled out for punishment.

To many, however, the positive changes broughtabout in the ANC’s first term of office count fornought when set against the seemingly over-arching sense of negativity that permeates day-to-day reality in South Africa as a consequence ofcompletely unacceptable levels of violent crime.The need to change this collective mind-set istherefore the single most important imperative forthe incoming administration and this can reallyonly be done through evidence that it intends toaddress crime, with emphasis and with vigour, inthe months ahead. Sustaining confidence is pivotalif long-term investment is to be ignited as a forcefor more robust growth in South Africa and, in thisrespect, domestic confidence is every bit asimportant as that of the potential foreign investorson whom long-term growth will clearly ultimatelydepend. We are confident, however, thatgovernment knows what has to be done to relieve

the more pressing of current business concerns.More importantly, we believe that remedial actionby government will be forthcoming.

Even the most cursory glance at Investec’s currentprofile, when compared with that of some four orfive years ago, provides striking confirmation ofthe Group’s very deliberate strategic orientation inrecent years. Modelled on a desire to replicateoutside of South Africa the formula that hasproved so successful in South Africa, the Group’sdesire to become an equally significant playeroutside of South Africa in no way reflects a loss offaith in its country of origin. Quite the contrary.The Group retains its passion for, and deeply-heldbelief in, the long-term potential of South Africa.That said, we, like many others, are concernedabout certain aspects of the operating environmentwhich render long-term business planning moredifficult than would be the case in an environmentunconstrained by South Africa’s peculiar emergingmarket realities.

Mindful of the role which it too must play, SouthAfrican business has already made a very activecontribution to bridging those national constraintswhich have hitherto served to limit a moredramatic reversal of recognised socio-economicdeficiencies in South Africa. Continued activesupport from business, in many different areas, canbe expected in future and Investec fully supports,and participates in, ongoing initiatives such asthose represented by Business Against Crime andthe SA Foundation’s Business Initiative.

Against the acute recognition that if people’sneeds are not met, political instability usuallyunfolds, the most immediate future challenge forSouth Africa is to confer on large numbers of thepopulation the sense of self worth and dignity thatgoes hand in hand with having a job.

Job creation, therefore, will continue to be themain challenge for both government and businessin the years ahead and, driven by a mutual desireto build a winning nation, both sides are clearlysolicitous of working together, to the long-termbenefit of the economy and its people.

For Investec’s part, while it is fully recognised thatthe fundamental raison d’etre for business is tocreate shareholder value, it is also recognised thatbusiness cannot be expected, nor indeed does ittry, to operate in a vacuum. It remains one of theGroup’s goals to play as full a role as possible incontributing to the various regions in which itoperates but, of these, nowhere is the need for asocial conscience more obvious than in South

Africa. To this end, Investec has chosen to placeconsiderable emphasis on the need to augment thecountry’s education base, details of which are tobe found in the Group’s Corporate and SocialInvestment Review in this report. As will be seen, anew Group initiative relates to the recent decisionby Investec to provide a property in theJohannesburg central business district for thepurpose of creating a micro entrepreneurial centre.This will house a cluster of different services aimedat providing local micro entrepreneurs with thenecessary access to finance, training, information,technology, networking and support. Itself a visibleproduct of the power of entrepreneurialism,Investec is particularly delighted to be associatedwith this project and wishes hearty success to themany future micro-entrepreneurs likely to beassociated with it. Investec looks forward toworking closely with all operators involved withthis project.

CORPORATE GOVERNANCE

AS WILL BE seen from the detail elsewhere in thisreport, the Group has put in place a number ofmeasures designed to ensure a high standard ofcorporate governance in each of the regions inwhich it operates. Motivated by a desire toenhance shareholder value and foster the interestsof all stakeholders in the Group, Investec fullyendorses the King Report and operates in broadcompliance with this, and all equivalent codes inthe other jurisdictions in which the Group isrepresented.

MANAGEMENT AND STAFF

INVESTEC’S STRONG PERFORMANCE last year waslargely due to the effort, energy and enthusiasmshown by all management and staff, often in tryingcircumstances. Indeed, it is largely thanks toongoing staff endeavours that Investec’s name isnow inevitably associated in the market place withthe simultaneous promotion of ideas, creativity,innovation and excellence of service. As anorganisation, however, Investec is very much morethan the sum of its parts and I would like toexpress my appreciation, and personal thanks, toall staff everywhere for their continuing efforts onbehalf of the Group. Driven by the Group’s uniqueculture and a strong adherence to its values,Investec staff have developed a very keen sense ofself, as opposed to net, worth, which can only beof benefit to us all, whether as individuals or aspart of the broader Group, as well as to allstakeholders.


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A warm vote of appreciation is also due to the non-executive directors for their unwavering dedicationand commitment to the efforts of the Group and toour clients and shareholders everywhere, whosevalued support has been an important element ofthe Group’s continued success.

FAREWELL TO PRESIDENT MANDELA

AS PRESIDENT MANDELA now formally exits publiclife, I would like, on behalf of the Investec Group,to extend to him our sincere thanks and deepappreciation for the role which he has played inpromoting both reconciliation and renewed self-confidence in South Africa. That this country hasmatured to a point barely imaginable whenPresident Mandela first took office, is largelyattributable to the personal efforts of Madibahimself and he is owed an enormous debt ofgratitude as a consequence. We salute him as anicon of our times, a tremendous inspiration to allthose who will follow in his footsteps and wishhim a long, healthy and happy retirement.

LOOKING AHEAD

AFTER TWENTY CONSECUTIVE years of stronggrowth, Investec’s track record speaks for itself, iscommonly accepted and has resulted in manifoldnew opportunities for the Group. The new financialyear brings a strong sense of internal drive andcommitment, unwavering morale and Group-widedetermination to secure an even firmer positioningin those markets and regions in which it operates.Clearly, in an environment as acutely competitiveas that represented by financial services, there areno grounds for complacency and, despite both thepersonal demands and sacrifices which sustainedGroup performance requires and the uncertaintiessometimes imposed on the Group by broader socio-economic realities, I am confident that Investec ison course for another strong year of growth. In thisnew information age, where intellectual capital is aclear driver of growth, the Group is well positionedto make even further advances in its chosen fields,to the clear and continued benefit of allshareholders. As a Group, we look forward to theyear ahead, to the challenges and opportunitiesthat it will bring and to reaping the ongoingbenefits of our continuing strategic endeavours.

Hugh HermanChairman

Stephen KoseffChief Executive OfficerInvestec Group Limited

Bernard KantorManaging Director

Investec Group Limited

INDUSTRY REVIEW - INTERNATIONAL

THAT THE TYPES of activity in which the bankshave traditionally engaged has been in decline,has been apparent for some years. Formerlycontent to rely on taking deposits and lending outthe proceeds, banks everywhere, prompted by theadvent of both deregulation and meaningfullyincreased competition, have seen an activity thatwas previously solely their preserve fall victim toincreasing degrees of disintermediation.Confronted by this, banks have clearly beenforced to change and their obvious need toincrease returns has effectively boiled down toeither of two options, to reduce costs or toincrease revenues. While recent technologicaladvances have certainly assisted in respect of theformer, cutting costs is often difficult, so pursuitof the latter, frequently by banks moving intoother types of non-traditional business, has beenseen to be their preferred competitive response.

This has resulted in an unprecedented degree ofconsolidation in banking, a trend most visiblymanifest in the number of mega-mergers thathave occurred in the industry in recent years andthe subsequent creation of a number of bothglobal, and regional, banking behemoths.Perceived to be a clear driver of value in financialmarkets, this global trend can be expected topersist over the medium-term, despite therecognised difficulty of making acquisitions in anenvironment where, in part facilitated by thecontinuing global bull market, the value offinancial assets is being constantly drivenupwards.

Whereas the perpetuation of frenzied mega-merger activity in banking, as well as clearevidence of a desire by banks to diversify theirearnings into annuity-rich types of business, has,in recent years, appeared to suggest that sizewould be the sole determining factor of success


Chief Executive Officer’s andManaging Director’s Review

22

in the financial services industry, this perceptionhas since changed, largely on the recognition thatsize does not necessarily equate with success.That big is not necessarily better from a bankingperspective means that there is now seen to be aclear role for the niche player as well, with manyplayers now actively seeking to differentiatethemselves in this manner.

INDUSTRY REVIEW - SOUTH AFRICA

RECENT TRENDS WITHIN the domestic financiallandscape have to a large extent echoed thosebeing experienced globally. The environment hasbecome increasingly competitive, largelyprompted by the post-1994 move by many largeforeign players into the local market, and this hasprompted many domestic players to reshapeexisting structures and/or to seek alliances with aforeign partner. The global trend towards mergersand acquisitions in financial services is clearlyalso being replicated in South Africa, where thereare now increasing signs of consolidation amongthe larger players, as well as visible movestowards a simplification of ownership structures.The financial landscape is also currentlycharacterised by the development of a market forbancassurance, largely as a response to anaggressive move by many banks into the marketfor the distribution of life assurance products.

Other current trends are more unique to SouthAfrica. These include moves towardsaccommodating the banking needs of thepreviously unbanked sections of the population,this giving rise to the emergence of a number ofmicro-lending initiatives, and the current desireby a number of corporate entities to migrateaway from South Africa so as to advance theircore capital-raising requirements. In respect ofthe latter, at least part of the motivation forwanting to migrate from South Africa is a desire

LAST YEAR’S CRISIS in global financial markets inevitably served to cast a spotlight on banks andbanking, and the perceived risks contained therein. Although much of this focus was initially directed atthe general usefulness of the risk management techniques commonly deployed in the industry, banks werealso subjected to additional scrutiny as a consequence of the changing realities in an industry whereincreased risk-taking has become one of the more obvious ways of reducing traditional reliance on marginincome. As an unintended consequence, last year’s global crisis served to expose some of thevulnerabilities in an industry continuing to experience quite significant change.


23

on the part of those corporates concerned tobuild their international investor base away fromwhat, until now, has been generated out ofalmost exclusively emerging market investmentinterest. By listing outside of South Africa and bybeing included in the indices of first worldjurisdictions, these companies can immediatelywiden their investor base to include the so-called“tracker funds” which represent a much broader-based investment interest. For these companies,electing to pursue a lower cost of capital, in aworld where capital is clearly a scarce resource, isan entirely rational decision, even if the resultingapparent shrinkage of the Johannesburg StockExchange has prompted an emotional responsefrom those who have interpreted these corporatemoves as a desire to flee South Africa. However,while these moves have undoubtedly generated adegree of controversy, they have really only beenpursued by those companies whose globalaspirations have hitherto been constrained by thecontinuing existence of domestic exchangecontrols.

In contrast to many other examples elsewhere,banks in South Africa weathered last year’s globalfinancial crisis well. The sector is fortunate inbeing profitable, healthy and well supervised andclear differentiating factors in South Africa’sfavour have been the absence of “cronycapitalism”, officially directed lending or highratios of either non-performing or short-termforeign loans in the banking sector. While thestrength of the domestic banking systemundoubtedly enabled the financial sector towithstand last year’s shocks, with subsequentadjustment and normalisation in the sectoroccurring at a pace that has caused no materialdamage to either the sector or its viability, banksnonetheless continue to experience some falloutas a consequence of last year’s very unfortunatedevelopments on the interest rate front. Domesticborrowers remain under considerable pressure,not least because of continued high levels ofpersonal indebtedness, as a result of which thelending environment is likely to remainunfavourable for some time to come.

Recent developments in banking in South Africainclude the introduction of the new nationalpayments system, the successful move towards amoney market repo system and clear signs thatlocal banks continue to keep pace withtechnological innovation, with electroniccommerce and direct banking likely to grow at anaccelerated pace over the medium-term. Bankinginstitutions appear reasonably ready for Y2K, withthe Reserve Bank already declared completely

compliant and most other institutions fastapproaching this goal. One less positive aspect ofthe current environment, however, relates tocontinued delays in the implementation ofSTRATE, or the move by the JSE towards the useof electronic scrip, which is taking much longerthan anticipated, generally undermining thecredibility of the local financial environment andcausing obvious frustration to both foreign andlocal investors.

Although the financial services industry in SouthAfrica in general has been characterised by quitesignificant recent change, with many local banksopting for a change in direction, Investec has not.The Group has chosen to remain focused on itsareas of core competence rather than broaden itsbase of activities in South Africa. This isconsistent with Investec’s philosophy of being abanking group that “is not all things to allpeople” and has enabled Investec to be clearlydifferentiated from other South African-basedbanking groups.

RESULTS

THE GROUP ENJOYED another very successful year,with earnings and dividends advancing stronglyduring the period.

The salient features of the Group’s 1999 resultshave been discussed in the Chairman’s Statement.In elaborating on underlying trends, however, it isimportant to note that, quite apart from thebenefit of international acquisitions, last year’sperformance was driven by strong organic growth,particularly from such areas as Corporate Financeand Specialised Finance, Securities Trading andAsset Management. Organic growth in totalincome amounted to 37,3% while organic growthin net income amounted to 54,9%.

Total shareholders’ funds increased from R7,2billion to R8,8 billion, a figure that reflects newcapital of R1,43 billion.

Previously 19,8%, the Group’s risk-weightedcapital to assets ratio fell to 15,2%, a figure thatreflects the Group’s increased asset base and thegoodwill element of recent acquisitions. Thisfigure remains substantially in excess of bothinternational statutory requirements and domesticindustry norms.

Total assets increased to R113 billion, an increaseof 36,0%. Total assets under managementincreased to R361,3 billion, an increase of 84,2%,


24

of which 15% represented balance sheet growthand 69,2% represented growth in third partyassets under management.

The Group’s Income Statement reveals totalincome of R3,3 billion, a figure 88% higher thanthat of the previous year. Of this, 37,3% isorganic while the balance is attributable to theinclusion of acquisitions. Net interest incomeafter provision for bad and doubtful debtsincreased by 42%, despite a significantlyincreased charge (114,4%) for bad and doubtfuldebts. This reflects not only a 30,7% increase ingrowth in advances during the year but the needfor prudence in a domestic environment stillreeling under the burden of successive interestrate shocks, high personal indebtedness and risingbad debts.

“Other income” increased by 123,8%, to R2,2billion, through acquisitions and strongperformances by the Group’s Corporate andInvestment Banking, Securities Trading and AssetManagement operations. The annuity componentof “other income” rose by 136,8%.

Although slightly down on the previous year,recurring or annuity income accounts for 77% oftotal income. The non-rand component of totalincome increased to 51% in 1999, from 37% in1998.

Operating expenses increased by 104,4% last year,to R2,1 billion, a figure that largely reflects theinternational acquisitions made by the Groupduring the period. The Group’s aggregate expensesto total income ratio rose to 58,9% in 1999, from54,7% in 1998, a figure that can be furtherbroken down into a ratio of 48,4% for SouthAfrica and 66,7% for the Group’s internationalactivities (73% in the UK and 55,5% elsewhere).A further subdivision of the Group’s expense ratiois that between Group banking and non-bankingactivities, for which the respective ratios were54,6% and 71,1%.

The after-tax profit per employee increasedduring the year to R320 000 from R270 000.

OPERATIONAL ISSUES

AGAINST LAST YEAR’S environment of markedlyincreased financial volatility, and subsequent callsfor changes to the manner in which banksmanage risk, the importance traditionally placedby the Group on the need for independent andprudent risk management reaped enormous

dividends. The Group was well-positioned towithstand the successive shocks experiencedduring the course of the period, emergingrelatively unscathed. Investec continues to payvery considerable attention to this critical areaand a separate chapter in this report outlines thevarious techniques and processes used by theGroup to manage all of the various risks, acrossall geographies, to which it is exposed.

Investec has traditionally prided itself onmaintaining levels of capital adequacy well inexcess of those stipulated by the BasleCommittee. However, in recent years, this ratio,while still well above domestic industry norms,has fallen to levels deemed more appropriate tothe Group’s activities. Furthermore, Groupemphasis will, in future, be placed on the need toincrease return on equity (ROE), as opposed tonominal capital. As part of its determination todeploy capital more productively, the Group hasset ambitious targets for a return on averageshareholders funds, core capital employed and areturn on risk-weighted assets over the medium-term.

Although Investec reports a generally favourableefficiency level, it remains a core objective forthe Group that key cost ratios should becontained even further. With this in mind, theGroup has identified a target cost to income ratioof 40% for its South African operations and anequivalent target cost to income ratio of 60% forits international operations. While the latterimplicitly recognises the inherently higher costsassociated with doing business in foreignjurisdictions, these costs arising most obviously inrelation to rent and personnel, the efficiencytarget which the Group has set for its foreignoperations is clearly demanding and will requiredisciplined pursuit on the part of all thoseinvolved. That said, as integration progresses, costratios will naturally decline.

Last year saw significant progress in a number ofoperational areas, most particularly in relation tothe Group’s numerous IT initiatives. The Group hasnow reached advanced levels of Y2K preparedness,with all core system testing to be completed byJuly 1999, and recent project emphasis has turnedto the risk projects relating to clients, suppliersand counter parties, and the development ofcontingency planning. Another notableachievement on the IT front was the successfullaunch of the Investec Call Centre, InvestecConnect, which provides Internet-enabled foreignexchange trading for corporate clients and equitytrading for private clients. Yet another project


25

close to fruition is the launch of the InvestecPrivate Bank card account.

As mentioned elsewhere in this report, Investeccontinues to devote much time and attention tothe need to address historic shortcomings ineducation in South Africa. Much of the Group’scorporate and social investment policy is devotedto this end but South Africa continues toexperience an acute shortage of skills, a problemthat is further compounded by current emigrationrealities. It is therefore encouraging that, againstthis invidious background, Investec continues toattract top notch people, of the calibre requiredto entrench the Group’s position as a leading,niche, player, both here and abroad. Attractedboth by the challenging work environment thatthe Group provides, as well as by its uniqueculture and underlying philosophies, newcomersto Investec are openly encouraged to participatein all internal Group dynamics. Great emphasis isplaced on the quality of the Group’s humancapital base and all employees are urged toadvance themselves in their chosen fields, anendeavour greatly assisted by the existence of anin-house Business School and a number of tailor-made training courses and skills developmentprogrammes.

GROUP POSITIONING AND PROSPECTS

THE GROUP’S STRATEGIC goals and objectives aremotivated by a desire to be one of the world’sgreat specialist banking groups, through theactive, and increasingly international, pursuit ofclearly established core competencies in the areasof Corporate and Investment Banking, PrivateBanking and Asset Management. To this end,Investec made significant international advanceslast year. As is well known, the Group’s globalambitions revolve around a three-prongedstrategy: to follow Investec’s customer base; togain domestic competence and critical massthrough selective acquisitions in each of theregions in which the Group establishes apresence; and, to build additional domesticcapability by means of cross-border emphasis. Anumber of international acquisitions during thecourse of last year further bolstered the Group’salready recognised international presence -Guinness Mahon Holdings PLC, Guinness Flightand Hambros PLC in the UK, ACSIS in Australia,Stuart Coleman & Co in the US - and the Groupalso obtained a banking licence in Botswana.

A key consideration last year was the need tointegrate recent acquisitions into the broader

Group. Indeed, looking back, it is quite remarkablejust how quickly the integration process hasproceeded, defying both internal and externalexpectations, particularly when it is consideredthat the actual finalisation of the GuinnessMahon and Hambros PLC acquisitions onlyoccurred several months into the financial year.Examples of recent integration include HambrosPLC and Guinness Mahon, both of which havebeen subsumed into Investec Bank UK (IBUK);Investec Asset Management and Guinness FlightHambro Asset Management, which have beenmerged into Investec Guinness Flight; and, CarrSheppards and Henderson Crosthwaite, who havebecome Carr Sheppards Crosthwaite. Quite apartfrom these obvious changes in name, however,these businesses have also taken on much of theidentity of the broader Investec Group, the resultsof which will be more clearly visible in time.Somewhat less formally, additional integrationefforts occurred between Reichmans and theregional offices of Mauritius, Hong Kong andLondon.

However, of recent integration endeavours, noneis more evident than in the case of Investec’s UKoperation, IBUK, all of whose activities wererecently rehoused in Investec’s new UK headoffice, located at 2 Gresham Street in the City.While the most visible manifestation of thisintegration is clearly to be found in IBUK’s newphysical space, it can also be seen in the benefitsof a more focused marketing approach. Lessvisible, perhaps, but even more important, is thepalpable sense of energy that now drives the UKbusiness, an energy level that, in a matter ofmonths, has served to migrate IBUK away frombeing the UK adjunct of an essentially SouthAfrican-based operation to a vibrant domesticbusiness with its own pulsating core.

That this should now be so, particularly given theenormous contrasts between the operatingenvironments in South Africa and the UK, is atribute to the unceasing efforts by the Executive,senior management and our long-standingresident consultants to “Investecise” theseoperations. On the premise that the open plan,open door, open access environment that hasworked so well in South Africa should also reapthe necessary benefits in the UK, last year sawtremendous attention paid by everyone in IBUK onthe need to engage in deliberate Investec process,much of which was devoted towards the need forthe various teams to strategise, debate, discuss,challenge, argue and resolve, all with a view toestablishing and identifying IBUK’s team prioritiesand challenges going forward. This has now been


26

done and the Group is very confident about theprospects that lie ahead.

Although immediately apparent in terms of theGroup’s meaningfully increased UK presence, lastyear was significant, too, for the fact that theGroup has visibly increased the overall globalreach of its core areas of activity. Alreadyboasting one single Private Bank and one singleAsset Management business around the world, itremains the Group’s clear goal that the Corporateand Investment Banking and Securities Tradingbusinesses, already both increasinglyinternational, should follow suit, in time alsobecoming one seamless operation across allgeographies.

Although often regarded as essentially acquisitive,an obvious misperception in view of evidence ofstrong organic growth within the Group in recentyears, the Group’s deliberate programme ofinternational expansion has clearly moved beyondthe point of merely seeking to platform build.Rather, future acquisitions will have to bemotivated by the prospect of either a high returnon equity, additions to critical mass or to securefurther Group positioning in its chosen markets.While remaining alert to opportunities to bolsterthe Group’s international presence and productoffering, Investec anticipates that the year aheadwill essentially be a year of consolidation for theGroup, with much time and attention stillrequired for bedding down and further integratingrecent acquisitions.

By remaining true to its stated intent of “notbeing an all things to all people” type of bank,Investec has strategically positioned itself,through steadfast pursuit of its recognised corecompetencies, to become one of the world’s great,specialist, banking groups. Last year saw the firstreal evidence of how the Group has evolved frombeing a specialist niche player in South Africa tobeing a specialist niche player on a significantlyincreased international scale, with concomitantbenefits to the Group and to all its stakeholders.Secure in the strategic direction that it haschosen and confident of further success, theGroup looks forward to the year ahead and to thechallenges and opportunities that it will bring.

ACKNOWLEDGMENTS

That last year was a highly successful year is, ofcourse, thanks to the hard work, energy anddetermination of all Investec employees. Wewould like to convey our gratitude to each and

every member of staff for his or her uniquecontribution to recent Group performance, as wellas to our Chairman and members of the Board, fortheir unstinting enthusiasm and support. We lookforward to another challenging, if demanding,year ahead.

STEPHEN KOSEFF BERNARD KANTORChief Executive Officer Managing Director


As everyone now knows, global financial stabilitywas eventually restored as a consequence of quickofficial action to provide global liquidity,principally by means of lower interest rates aroundthe world. However, effective measures of damagecontrol aside, the essentially coincidental andhighly inter-related nature of last year’sdevelopments, with obvious scope for contagionand chain reaction, has left policy-makers and riskmanagers everywhere grappling to identify thereasons why such systemic turbulence occurred inthe first place. Perhaps more importantly, peoplehave begun to focus on what can be done toprevent this from happening again?

Many of these questions still remain and, nodoubt, will do so for some time to come. In seekinganswers, however, much market focus hasinevitably centred on such macro issues asrequisite banking supervision, financial marketsurveillance and the management of globalsystemic risk. While these initially prompted callsfor a radical reform of the world’s internationalfinancial architecture, such calls have inevitablybeen frustrated by the near-impossibility ofreaching global consensus on the need for newinstitutions. As a consequence, focus has sinceshifted away from the architecture to theplumbing, with attention now being placed on theneed for regulators to strengthen linkages betweenthem, so as to provide more timely early warningsystems and to orchestrate more effectiveresponses. From a micro perspective, an equallypressing concern has been the perceivedshortcomings in risk management and operationalcontrols in many banks around the world and thepossibility of deficiencies in the risk and portfoliomanagement models and techniques now socommonly used by banks everywhere.

RISK MANAGEMENT IN INVESTEC

IN ITS OWN approach to risk management, longdeemed a priority for the Group, Investec hassought to comply to the fullest possible extentwith international best practice. Indeed, theimportance traditionally placed by the Group onwell defined, effective and disciplined riskmanagement reaped obvious dividends during thesuccessive crises of last year, with the Group wellpositioned to withstand the enormous increases involatility which occurred in many of the markets inwhich it operates.

Over the years, Investec has sought to ingrain acomprehensive and independent risk managementprocess throughout the Group, such that all riskscan be consistently identified, understood andproperly managed at all times. While the primaryresponsibility for risk management rests with theindividual business units in managing the risksthat arise from the transactions in which theyengage, the final responsibility for Group riskmanagement in Investec falls within a specificallydedicated, centralised and independent division. Assuch, there is a very clear division between riskapproval and operational management within theGroup.

The Group’s basic risk philosophy is that no newproducts or markets will be traded in or enteredinto unless, and until, all associated risks havebeen fully identified and assessed and ensuingrisk/reward ratios have been approved by bothmanagement and the Board of Directors. The Grouprisk management division has specific Group-wideresponsibility for setting prudential limits for allareas of activity, for systematically measuring allrisks and for constantly monitoring and reviewingall Group exposures. While the logistics of cateringfor a number of different geographies across the

OF THE VARIOUS lessons learned during last year’s global financial crisis, when market volatilityincreased to twice its historic average, none hit hardest than the clear reminder of the critical importanceof effective risk management in an environment vulnerable to sudden and dramatic shifts in sentiment.Triggered by events in Russia and the ensuing near-collapse of US hedge fund, Long Term CapitalManagement, global financial markets succumbed to a sudden wholesale re-assessment and re-pricing offinancial risk. Accompanied by a re-balancing and de-leveraging of international portfolios that wasaccentuated by marked risk avoidance, outright market illiquidity and extreme price movements that cutacross equity, fixed income, currency and derivative markets in mature and emerging economies alike, theunprecedented magnitude of last year’s market turbulence at one point threatened to culminate in acomplete freezing up of the global financial system, as a fierce credit crunch took hold.

Risk Management Review

27


28

Group have resulted in regional line responsibilityup to a pre-defined amount, any decisions onlimits in excess of this must be referred to Grouprisk management in Johannesburg for finalapproval. The Group risk management function isalso responsible for maintaining standards andensuring consistency across all divisional andregional risk management functions.

As Investec has expanded in recent years, so hasthe number of highly skilled professionals devotedto the objective of Group risk management. TheGroup boasts a very high level of technical andanalytical expertise in its risk managementendeavours and these have been furthercomplemented by the use of recognisedinternational surveillance techniques and risk-control methodologies. As previously mentioned,the Group was well-placed to withstand last year’sfinancial shocks, largely because of the traditionalimportance placed by both the Executive andmanagement on the ongoing pursuit ofinternational best-practise in the Group’s internalrisk management endeavours.

Investec’s comprehensive risk management processmanifests itself, across all of the differentjurisdictions in which the Group operates, in anumber of different decision-making bodies, thepurpose of each of which is to identify, analyse,monitor and review the particular types of risk towhich the Group is exposed. Essentially, theseconstitute market risk, arising from a change invalue in portfolios, liquidity risk, relating to thefunding of the Group’s activities and the liquidityof the markets in which the Group operates, creditrisk, relating to the quality of counterparties withwhom the Group deals, as well as to their potentialfor default, cross border risk, relating to thepossibility that actions by foreign governmentsmay prevent counterparties from meeting theircontractual obligations, operating risk, relating tothe potential for loss arising from a breakdown incontrols and the implementation of safeguards toensure the proper functioning of people, systemsand facilities, legal risk, arising out of the need toensure that all work undertaken by the Groupmeets the strictest standards of legislation anddocumentation, and, compliance, arising out of thehighly regulated and often stipulatory nature ofthe industry in which the Group operates.

MARKET RISK

MARKET RISK REPRESENTS the potential change inthe value of a financial or derivative instrumentcaused by fluctuations in interest and foreignexchange rates, equity, bond and commodity prices,and credit spreads.

Investec trades primarily in the foreign exchange,equity, capital and money markets, both asprincipal and agent, in all of the regions where itis located. The Group also participates in thederivatives markets, again both as principal andagent.

The Group’s approach to managing market risk isto ensure that all risks are clearly identified, onthe basis of both current and future expectations,and to ensure that all trading activities occurwithin previously defined, broadly acceptable,parameters. In this regard, the Group hasstructured its risk management functionsubstantially in compliance with internationallyrecommended practices and with the recentintroduction by the South African Reserve Bank ofcapital adequacy reporting (CAR) for all tradingactivities on a daily basis.

An independent, centralised, price risk function isresponsible for monitoring all of the Group’s

GROUP RISKMANAGEMENT FORA

BOARD

AUDIT COMMITTEETax

Financial ControlCompliance

Regulatory EnvironmentInternal Controls

IT

CREDIT COMMITTEECredit and Counterparty Risk

Price risk

DEAL COMMITTEEPrice RiskLegal Risk

Documentation RiskInvestment Risk

ASSET AND LIABILITY COMMITTEEInterest Rate Risk

Liquidity RiskCurrency Risk

CROSS BORDER COMMITTEECountry ReviewsCountry Limits

market risk, across all national and internationalsubsidiaries of the Group. Investec’s tradingpositions are marked to market daily, by pricingmodels that use mid-market valuations. The riskimplied by the use of financial modelling is, inturn, addressed by regular, ongoing, reviews byboth the Group’s external auditors and expertinternational consultants, to ensure that thesemodels correctly reflect the value of all financialinstruments.

Trading activities are further monitored by theestablishment of appropriate limits, the size ofwhich are determined by the degree of Group risktolerance to the nature of the markets and/orproducts traded, the liquidity and maturity of themarket and the Group’s desired risk/return profile.All trading limits are approved by both seniormanagement and the Board of Directors. The Grouphas also implemented Algorithmics RiskWatch forthe automated monitoring of all market risksacross the Group.

The price risk of the portfolio is measured by useof the “value-at-risk” method, which is determinedby probability analysis based upon a commonconfidence interval and time horizon. Thosecomponents of market risk considered across theterm structure include change in price, convexity,volatility, time decay, correlation and the risk freerate. The price function monitors all portfolios andpositions daily, on the basis of value at risk againstapproved limits and, if required, triggers anappropriate management response. The portfoliosand positions are measured against two limits,these comprising a 95% one-day value at risk limitand a disaster scenario. This latter is based on anextreme movement in the underlying marketinstrument (usually a 15 standard deviation move)and a longer holding period. The portfolios andpositions are also stress tested, using a wide rangeof scenarios in order to better understand thenature of the risks involved. In addition, profitsand losses are analysed on a daily basis. Thisensures that the sources of revenue are understoodand that they are consistent with the risksinvolved.

The table in the next column represents theGroup’s value at risk at the end of the financialyear.

Value at Risk Limit(Rm) (Rm)

Capital Market 5,983 10,500Domestic Interest Rates 4,002 7,000Money Market 5,530 8,000Foreign Exchange 5,331 8,500Equity Contracts 620 6,800UK Operations 1,753 2,650US Operations(Ernst & Co.) 4,402 5,300

TOTAL 27,622 48,750

MARKET RISK - DERIVATIVES

THE RISKS ASSOCIATED with the use of swaps,futures, forwards, options and other derivativeinstruments are monitored in the same highlysystematised manner as those for the underlyinginstruments. Risks are also measured across theproduct range in order to take into account anycorrelation that might exist.

Derivative instruments have been classified intodealing and hedging transactions. Hedgingtransactions are those used to reduce price risk inthe funding activities of the bank. All otherderivatives are entered into for proprietary tradingpurposes. The table below shows the Group’sderivative portfolio at the end of the financialyear, on the basis of the notional principal and thefair value of all derivatives.

The notional principal gives an indication of theGroup’s activity in the derivatives market andrepresents the aggregate size of total outstandingcontracts at year-end. The fair value of aderivative financial instrument represents thepositive or negative cash flows which would haveoccurred if the rights and obligations arising fromthat instrument were closed out by the Group inan orderly market transaction at year-end. Boththese amounts reflect only derivatives exposureand exclude the value of the physical financialinstruments used to hedge these positions.

Notional Principal (Rm)

Capital Market 88 526

Money Market 179 811

Foreign Exchange 9 761

Equity Contracts 27


29

ALCOAsset Liability Committee

1 month 3 months 6 months 12 months(4 000)

(2 000)

0

2 000

4 000

6 000

8 000

10 000

12 000

14 000R million

1month 3 months 6 months 12 months0

5 000

10 000

15 000

20 000

25 000R million


30

Fair Value (Rm)

Capital Market 296

Money Market 35

Foreign Exchange 222

Equity Contracts (12)

LIQUIDITY RISK

LIQUIDITY RISK ARISES in the course of Investec’sgeneral funding activities and in the managementof the balance sheet. This risk includes both thatof being unable to raise funding with appropriatematurity and interest rate characteristics and thatof being unable to liquidate an asset in a timelymanner at a reasonable price.

Responsibility for the management of both interestrate and liquidity risk in the various regions inwhich the Group operates falls to the relevantAsset and Liability Committee (ALCO) in each area.This committee is responsible for setting,monitoring and ensuring compliance with theGroup’s lending and borrowing policies, takingcognisance of both interest rate and liquidity risk,as well as capital adequacy. Varying managementdisciplines are represented at ALCO and highlysophisticated computer simulations of a range of“what-if” scenarios are deployed during thedecision-making process, from which the Group’sloan and statutory investment policy andappropriate money market desk managementphilosophies are derived. Although the Group’sinternational subsidiaries engage in their ownALCO process, these are reviewed by the GroupALCO, to ensure that none of the Group’s foreignsubsidiaries is undertaking disproportionate orintolerable levels of liquidity and/or interest raterisk.

Funding and Liability Management

Investec’s ALCO policy, across all regions, precludestaking substantial interest and currency mismatchpositions and a core area of focus for the variousALCO teams is the need to manage the interestrate margin in such a way that it remains asneutral as possible. A prudential liquidity policyalso dictates that, on a daily basis, the Treasury ineach jurisdiction should hold surplusrediscountable assets and/or surplus cash on callwith other banks, and have access to resourcesamounting to a minimum value as determined byGroup ALCO. This evolves from the Group’s statedintention of maintaining a continuous surplusliquidity position, based on a percentage of itsdeposit base in each jurisdiction.

The Group’s repricing and cumulative liquidity gapsat the end of the financial year are shown below.The Group’s repricing gap represents the extent towhich assets and liabilities are sensitive to interestrate movements. The cumulative liquidity gap atyear-end represents the magnitude of cash flowsrequired by the Group, under normal operatingconditions, to repay depositors should the needarise. The year-end figures depicted assume normalmarket conditions and an ability by the Group torealise its equity and tradeable instruments withinthe specified time frames.

Cumulative Liquidity Gap

Cumulative Repricing Gap

Interest RateForecast

Balance SheetForecast

Loan andInvestmentActivities

Money MarketDesk

Management


31

CREDIT RISK

CREDIT RISK IS that represented by the possibilityof financial loss to the Group as a consequence ofdefault by a counterparty to a transaction. Itincludes loan loss risk, settlement risk andreplacement risk. Financial instruments that createcredit risk include loans and advances andcommitments to extend securities and derivatives.

The fundamental principles that Investec applies tothe need to manage this most basic of risksinclude a clear definition of its target market; arigorous assessment, both qualitative andquantitative, of the creditworthiness of all existingcounterparties; an analysis of all related and risks,including those associated with concentration; aregular monitoring of all existing and potentialexposures once facilities have been approved; and,a high level of both executive and non-executiveinvolvement in all decision-making and review.

The interest rate shocks administered to the localSouth African economy in the past year havenecessitated particular vigilance as far as themonitoring of domestic credit risk is concerned. Arecent initiative in this regard is the introductionof a regular forum to discuss industry or sectorspecifics, in recognition of both the essentiallycyclical nature of much economic activity and thefrequent differences in individual industry cycles.Quite apart from the rigours required by purelydomestic considerations, however, the Group’scredit risk department has made considerablestrides in ensuring improved methods formeasuring and monitoring credit risk, both atproduct and portfolio level, across the Group. In anattempt to move towards international standardsof credit risk management, a Global Credit RiskManagement System was implemented last year.

Some of the more pertinent details relating to thequality of the Group’s loan book are shown in theaccompanying graphs.

CROSS BORDER RISK

WHEN TRANSACTING OUTSIDE its nationalboundaries, the Group is exposed to cross borderrisk. This arises, essentially, when conditions in aforeign country adversely affect the ability ofcounterparties in that country to meet theircontractual obligations, ie. as a consequence ofpolitical instability, civil war, the re-imposition ofexchange controls, debt moratorium or any otherrestrictions on the remittance of funds.

Investec manages its control of cross border risk bymeans of a regular cross border forum, at whichthose countries to which the Group is currently, orpotentially, exposed are subject to both formalreview and the setting of country limits. These arereviewed at least semi-annually, although this canoccur more regularly, depending on prevailingcircumstances. The cross border forum is attendedby varying management disciplines within theGroup as well as by executive and non-executivedirectors.

Group Loan Portfolio 1999

By Asset

By Client

By Geography

61%

Short Term Loans

Residential Properties13%

Commercial Property

9%

Lease and InstalmentDebtors

3%

Trade Finance

14%

44%

Medium Corporate

32%

Corporate16%

Professional

8%

Other

54%

South Africa

18%

UK17%

Other

11%

Israel


32

Bad Debt Charge

Non Performing Loans

Specific Provisions

Investec Group Limited: Asset Quality, Specific andGeneral Provisions (Rm)

1999 1998

Total loans and advances 22 430 17 006Managed book 781 437Net loans and advances 21 648 16 569Specific provisions 494 229General provisions 236 136Total provisions 730 365

Investec Group Limited: Asset Quality, Specific andGeneral Provisions (%)

General provisions as % of 1,1 0,8net loans and advances

Total provisions as % of 3,2 2,1total loans and advances

Non performing loans (Rm) 679 444

Specific provisions as % of 72,7 51,5non-performing loans

Non-performing loans as a 3,0 2,6% of total loans and advances

OPERATING RISK

THIS RELATES TO the potential for losses whicharise from internal and external fraud, systemsfailures, incomplete data and inadequate internalcontrol procedures.

The Group takes active measures to limit potentialrisks by acting to prevent, detect and recover anylosses incurred. While primary responsibility forthis type of risk management is to be found atoperational management level, the Group hasnonetheless taken a number of steps to ensure thatthe operational risk to which it is exposed isminimised. The most important policy measure isthat represented by Group determination to instillin all employees a sound culture, ethics and valuesethos. This is supplemented by strong managementcommitment to a number of recognised internalcontrol procedures, which include effective andefficient accounting methods, administrativecontrols, disaster recovery and business resumptionprocesses.

Both internal and external auditors review theseinternal control processes and, if necessary,

93 94 95 96 97 98 990,0

0,2

0,4

0,6

0,8

1,0

1,2

% of Average Advances

95 96 97 98 990,0

0,5

1,0

1,5

2,0

2,5

3,0

% of Total Loans and Advances

95 96 97 98 990

10

20

30

40

50

60

70

80

% of Non-Performing Loans


33

recommend enhancements. Independent auditorsand risk managers are represented on a number offocused divisional audit sub-committees,consisting of a mix of operational managementand executive directors. Material issues arediscussed and brought to the attention of theGroup Board via the quarterly Group AuditCommittee.

As an additional buffer against potentialoperational risk, the Group has extensive insurancecover for any material losses which might arise.

YEAR 2000

FOR SOME CONSIDERABLE time, the Group hasconcentrated its efforts on ensuring overallreadiness for the advent of the new millennium.The Group has reached an advanced stage ofpreparedness, with virtually all in-house testingnow complete and official Y2K project focushaving shifted to the compliance status of allexternal stakeholders. Please refer to page 76 for afull report on Y2K.

LEGAL RISK

LEGAL RISK ARISES when inadequatedocumentation and legal controls exist.

The legal risk team evaluates the vulnerability andbusiness implications of legal issues. In particular,it continues to focus on the review of areas wheresophisticated legal documentation is required togive effect to more complex and structuredtransactions, such as those in the SpecialisedFinance, Treasury and Trading divisions.

COMPLIANCE

GROUP COMPLIANCE AIMS to address and co-ordinate best practice from both an industry andGroup perspective, bearing in mind the differentrequirements in the different jurisdictions in whichthe Group operates. Designed as a means ofenhancing management control, the GroupCompliance function addresses the pervasiveregulations associated with the industry in whichthe Group operates, draws on the internal riskmanagement processes of the Group and monitorsthe specific regulations and rules necessary forGroup compliance. The continually evolvingcompliance requirements of the domesticenvironment are being addressed through astrengthening of internal operational processes and

in utilising best practice from the internationalmarkets where the Group operates, which aresubject to vigorous compliance requirements.

LOOKING AHEAD

AGAINST THE BACKGROUND of the ever changingnature, structure and dynamics of the internationalmarkets in which the Group operates, enormousimportance will continue to be placed by theGroup on the need for effective internal controlsand risk management methodologies. Mindful of itsresponsibility but confident in its pursuit of worldbest practice, whether in terms of human skillsand/or technological tools, the Group’s RiskManagement function enjoys Group-wide supportas a critically important element in the Group’shistoric success and future performance.


The following tables expand on certain of the data presented in earlier graphs.

REPRICING GAP AT 31 MARCH 1999

Greater than Non-rate(R million) Up to 1 month 1-3 months 3-6 months 6-12 months one year sensitive Total

Assets 82 707 3 728 5 930 1 742 4 079 14 720 112 906Liabilities 60 630 13 356 11 023 7 017 2 575 9 549 104 150Equity – – – – – 8 756 8 756Repricing Gap 22 077 (9 628) (5 093) (5 275) 1 504 (3 585) –Cumulative Repricing Gap 22 077 12 449 7 356 2 081 3 585 – –

LIQUIDITY GAP AT 31 MARCH 1999

Greater than(R million) Up to 1 month 1-3 months 3-6 months 6-12 months one year Total

Cash and shortterm funds 29 758 998 5 693 262 36 711

Short termnegotiableinstruments 36 022 992 37 014

Investment andtrading securities 2 033 1 761 4 043 7 837

Other assets 4 388 165 114 73 126 4 866

Advances 5 304 1 788 1 269 953 12 622 21 936

Associate companies 1 498 1 498

Fixed assets 924 924

Intangible assets 2 120 2 120

Assets 77 505 7202 7 076 5 331 15 792 112 906

Liabilities 65 452 16 613 11 184 6 743 4 158 104 150

Equity – – – – 8 756 8 756

Liquidity Gap 12 053 (9 411) (4 108) (1 412) 2 878 –

CumulativeLiquidity Gap 12 053 2 642 (1 466) (2 878) – –

Notes

34


35

The following table expands on certain of the data presented in earlier graphs.

BREAKDOWN OF LOANS AND ADVANCES (INCLUDING OFF BALANCE SHEET ITEMS) AT 31 MARCH 1999

Lease andTotal Residential Commercial Instalment Trade Other

(R million) Property Property Debtors Finance loans

Medical and Professional 3 624 1 130 273 573 - 1 648

Private Clients/Medium Corporates 10 238 2 015 2 033 683 431 5 076

Large Corporates 7 565 19 334 765 175 6 272

Other 1 934 98 477 190 – 1 169

TOTAL 23 361 3 262 3 117 2 211 606 14 165

Notes


The developments of last year gave rise to growingsympathy for the view that market disciplines asapplied to the industrial world may not, in fact, beappropriate for emerging economies and that toooften market disciplines are really only imposed onordinary citizens and not on the actual suppliers ofglobal capital. However, whereas the events of lastyear may have added obvious poignancy to suchdebate, the identified need for a ”kindercapitalism” is by no means new. The concept ofcorporate and social responsibility, for instance,has been in vogue for several years and revolvesaround the extent to which a firm should stretchits acceptance of responsibilities beyond itsprimary role as an economic agent, to includesocial duties as well. While a body of internationalliterature, and theory, has now developed aroundthis subject, Investec’s corporate and socialinvestment philosophy is based on the simplerecognition that the realities of the economic andsocial landscape in which the Group operatessimply cannot be ignored.

While this applies to each of the jursidictions inwhich the broader Group operates, nowhere is theneed for Investec to act as a responsible corporatecitizen greater than in South Africa at present.Operating in, and out of, South Africa, a country inwhich the backlog of national socio-economicrequirements is simply enormous, and wheregovernment’s ability to address these requirementsis clearly limited, the Investec Group is patentlyaware of the role that it must play in underpinningsocial and political stability in its country oforigin. As its preferred response, the Group haschosen to pursue the advancement of education inSouth Africa, seeing this as the most criticalingredient in improving peoples lives on apermanent basis.

Disbursements to a multi-faceted and very widerange of charitable causes constitute an important,

but secondary, role in the Group’s overall endeavourstowards greater social upliftment in South Africa.While the Group has made a conscious choice topursue education as the principal focus of itsCorporate and Social Investment Policy, it has notignored its social responsibility to other sectors ofthe community and has responded generously tothe many requests which have been made byinstitutions and organisations, including thosefrom the President’s Office, on behalf of the lessfortunate members of our society. As such, theGroup renders ongoing assistance to a broadspread of cultural, educational and charitablecauses. Investec is also very closely associated withthe ongoing work of the National BusinessInitiative, the SA Foundation, Business AgainstCrime and the Business Trust.

Substantially implemented through the InvestecSocial Investment Trust, which was created by aformal deed of Donation and Trust in early 1994,and which is funded through a percentage ofInvestec’s annual after-tax profits, Investec’scorporate and social investment activities havebeen specifically aimed at increasing the skillsbase within the local economy. Investec has, formany years, been actively involved in furtheringeducational opportunities at a number of SouthAfrican universities, mainly through the provisionof substantial financial assistance to these tertiaryestablishments. Apart from its ongoinginvolvement with the Universities of the North, theWestern Cape, Fort Hare and Zululand, the Group isnow also closely associated with the Universities ofthe Witwatersrand and Rhodes, the former throughthe establishment of the Investec School ofEconometrics and the latter through theestablishment of the Investec School of Economicand Management Sciences. The Group has alsodonated funds towards the establishment of aspecialist MBA course aligned to the bankingindustry at the University of Natal and is currently

OF THE MANY consequences of last year’s global financial crisis, one of the more durable has beenthe notion that capitalism must be seen to project a more human side. As is now well known, last year’scrisis, prompted by a sudden reversal of the global capital flows that had previously been directed atemerging economies, gave rise to enormous social ramifications in these economies, with many millions ofpeople being pushed below the poverty line and many millions losing their jobs as recession took hold. Asa clear consequence, internal and national debate in many of these economies gravitated back to theidentified need for ”people-centred development”, with official attention not so much on the niceties offinetuned monetary and fiscal policy but on the urgent need to create jobs, minimise social disruption andget growth back on track.

Corporate and Social Investment Review

37


38

in the process of finalising a programme offinancial assistance for the University of theWestern Cape. The Group is also involved with ahost of other universities and technikons in SouthAfrica in many other ways.

Quite apart from the direct financial assistancewhich Investec makes to tertiary educationalestablishments in South Africa, the Group has alsopledged funds for the specific purpose of providingselected students with an opportunity to pursueinternational post-graduate degrees. To this end,university scholarships for MBA courses areavailable, on an ad hoc basis, at the University ofNijenrode in the Netherlands.

A new initiative, launched last year and run inconjunction with Investec’s Human Resourcesdivision, is that represented by the InvestecBursary Forum, according to which Investec willprovide funding for tertiary education for thosestudents that the Group has identified as potentialrecruits. This programme has got off to a verypositive start and is expected to grow substantiallyover the medium-term.

Another local initiative on the education front isthat represented by the Educational EnrichmentProgramme in Vosloorus, which assistsmatriculants with extra lessons to help them passtheir exams, to which Investec has donated anumber of computers. The Group also participatesin The Star Newspaper’s “Adopt a School”campaign, according to which Investec providesnumerous copies of the daily newspapers to theAlafang High School in Katlehong.

Aside from its external initiatives on the educationfront, a number of additional initiatives have beenexplored within Investec itself. Through theauspices of Investec’s Business School, whichenjoys very wide support from both managementand staff, customised training and developmentschemes have been created to provide thenecessary theoretical and practical grounds forindividual self-development and personaladvancement for all Investec employees.

In pursuing its Corporate and Social InvestmentPolicy as outlined above, Investec hopes to makeits own unique contribution to rectifying some ofthe pressing and neglected legacies of SouthAfrica’s past. A new initiative, to have significantimpact in the new financial year, is thatrepresented by the imminent launch of Investec’sCentre for Entrepreneurialism which, it is intended,will become a cluster of services for emergingmicro-entrepreneurs. As part of a soon-to-be

launched programme, Investec has given over oneof its properties in the central business district ofJohannesburg, free of rent, to a number of serviceproviders to emerging micro-entrepreneurs for useas a central meeting point. Therein, entrepreneurswill have access to training, finance, technology,information and opportunities for networking, allof which will be clustered under one roof. Againstmuch international evidence which suggests thatnations that support entrepreneurship have grownand prospered, while nations that have placedbarriers on the growth of small business have donepoorly, Investec hopes that it can, through thisproject, help sow the seeds of prosperity for thoseinvolved. The Group is very excited about theenormous potential represented by this project andwill be very closely associated with it on anongoing basis.

INVESTEC GROUPLIMITEDReg. No. 04/02833/06

EXECUTIVE DIRECTORS

Hugh S Herman (58)BA LLB

Chairman Director of Investec HoldingsLimited, Fedsure Holdings Limited,Investec Investment Trust Limited,Pick ’n Pay Holdings Limited andPick ’n Pay Stores Limited.

Stephen Koseff (47)BCom CA(SA) H Dip BDP MBA

Chief Executive OfficerDirector of Fedsure HoldingsLimited, The Bidvest Group Limited,Investec Holdings Limited andInvestec Investment Trust Limited.

Bernard Kantor (49)Managing Director Director of Investec HoldingsLimited.

David M Lawrence (48)BA(Econ) (Hons) MCom

Managing Director of Corporateand Investment Banking.

Bradley Tapnack (52)BCom CA(SA)

Chief Financial Officer

NON-EXECUTIVE DIRECTORS

Sam E Abrahams (60)FCA CA(SA)

Director of Super Group Limited,Foschini Limited and Relyant RetailLimited

Arnold I Basserabie (54)BSc FIA ASA FILPA

Group Chief Executive of Fedsure

Holdings Limited. Director ofDel Monte Royal Foods Limited,Investec Holdings Limited and IrishLife International. Chairman ofSaambou Holdings Limited, SouthAfrican Druggists Limited, ThebeFinancial Holdings Limited,Deputy Chairman of FCB FidelityBank Holdings Limited and FCBHoldings Limited.

Dr Hilton K Davies (66)BCom D Econ (Sc)

Director of Boart Longyear Limited,LTA Limited and Autopage HoldingsLimited. Chairman of AlliedTechnologies and BTW GrowthConsultants (Pty) Ltd.

Graham H Davin (43)BCom BAcc CA(SA) MBA

Director of Investec HoldingsLimited. Director and ChiefFinancial Officer of Insinger SA.

Donn E Jowell (57)BCom LLB

Senior Partner of Jowell, Glyn &Marais Inc. Director of AnglovaalMining Limited, Global CapitalLimited, SIB Holdings Limited andSouth African Druggists Limited

Ian R Kantor (54)BSc(Eng) MBA

Chairman of Investec HoldingsLimited. Chief Executive Officer ofInsinger SA. Director of BalticInvestments SA.

David H Mitchell (65)Deputy Chairman of FedsureHoldings Limited. Chairman of SABuilder (Pty) Limited. Director of DFCorlett Construction Group andInvestec Holdings Limited.

Daphne R Motsepe (42)BR B Compt MBA

Director of Highveld Steel andVanadium Corporation Ltd

Dr Morley Z Nkosi (64)BSc MBA PhD

Director of Avmin Limited.

Dr F van Zyl Slabbert (59)DPhil.

Director of Adcorp HoldingsLimited, CTP Holdings Limited andWooltru Limited.

Peter R S Thomas (54)CA(SA)

Director of Investec HoldingsLimited.

Directorate


9


Non-Executive Director of InvestecGroup Limited.


Non-Executive Director of InvestecHoldings Limited and InvestecGroup Limited.

Jonathan Blackmore (33)*BCom CA(SA)

Partner of Ernst & Young

Glynn R Burger (42)BAcc CA(SA) H Dip BDP MBL

Group Risk Manager of InvestecGroup Limited and Directorof Investec Holdings Limited.

Ruth Credo (42)*BCom CA(SA)

Accounts and Finance Manager.



Colin Fiddes (39)*BCom BAcc CA(SA)

Group Compliance Officer.

Donn E Jowell (57)ChairmanBCom LLB

Senior Partner of Jowell, Glyn & Marais Inc.


Chief Executive Officer of InvestecGroup Limited and Directorof Investec Holdings Limited.

Ilan Lessick (36)*BCom CA(SA) MBA

Risk Management Review Manager.

John Louw (46)*CA(SA)

Partner of KPMG.

Bill McClure (56)*CA(SA)

Partner of Ernst & Young.

Tracy Middlemiss (35)*BCom BAcc CA(SA)

Partner of KPMG.

Simon Shapiro (40)*BCom (Hons) MBA

Chief Technology Officer.


Chief Financial Officer and Directorof Investec Group Limited.



*By invitation

Group Audit Committee


10

INVESTEC HOLDINGSLIMITEDReg. No. 85/05574/06

DIRECTORS

Ian R Kantor (52)BSc(Eng) MBA

ChairmanDirector of Investec Group Limited andBaltic Investments SA. Chief ExecutiveOfficer of Insinger SA.

Bas Kardol (Dutch) (72)Deputy ChairmanChairman of Investec Bank (UK)Limited and Insinger SA.


Group Chief Executive of FedsureHoldings Limited. Director of DelMonte Royal Foods Limited, InvestecGroup Limited and Irish LifeInternational. Chairman of SouthAfrican Druggists Limited, SaambouHoldings Limited and Thebe FinancialHoldings Limited. Deputy Chairman ofFBC Fidelity Bank Holdings Limitedand FCB Holdings Limited.


Director of Investec Bank Limited.


Director of Investec Group Limited.Director and Chief Financial Officer ofInsinger SA.

Hugh S Herman (58)BA LLB

Chairman of Investec Group Limited.Director of Fedsure Holdings Limited,Pick ’n Pay Holdings Limited and Pick’n Pay Stores Limited.

Bernard Kantor (49)Managing Director of Investec GroupLimited.


Chief Executive Officer of InvestecGroup Limited. Director of FedsureHoldings Limited and The BidvestGroup Limited.

David H Mitchell (65)Deputy Chairman of Fedsure HoldingsLimited. Chairman of SA Builder (Pty)Limited. Director of DF Corlett ConstructionGroup and Investec Group Limited.


Director of Investec Group Limited.

Directorate


11


INVESTEC BANKLIMITEDEXECUTIVE DIRECTORS

Stephen Koseff (47)Chief Executive OfficerBCom CA(SA) H Dip BDP MBA

Bernard Kantor (49)Managing Director

Reg S Berkowitz (62)Natal Law Certificate


Richard P M A Forlee (38)BCom CA(SA) MBA

Sam Hackner (43)BCom (Hons) CA(SA)

David M Lawrence (48)BA(Econ) (Hons) MCom

Andy W J Leith (39)BCom CA(SA)

M Carole L Mason†† (38)BA (Econ) (Hons) MSc (Econ)


NON-EXECUTIVE DIRECTORS

Hugh S Herman (58)Non-Executive ChairmanBA LLB



Alan Benn (71)CA(SA)

(Retired 14 April 1999)


Prof. Dennis M Davis (48)

Donn E Jowell (57)BCom LLB

Ian R Kantor (52)BSc (Eng) MBA

David Kuper (64)

Renosi D Mokate (41)BA MA PhD

Dr Morley Z Nkosi (64)BSc MBA PhD


Russel A P Upton (64)CA(SA)

DIVISIONAL DIRECTORS OFPRIVATE AND INVESTMENTBANKING DIVISIONS

Glen H Gerber (36) BA (Hons) MBA

Stuart D Hain (50) BCom

Steven J Heilbron (33)CA(SA)

P Robin Jacobson (55)BCom LLB MBA

Neil R MacNeillie (49)BCom CA(SA)

Errol A Richa (56)

Simon M Shapiro (40)BCom (Hons) MBA

David Shenker (50)BCom CA(SA)

J K Ciaran Whelan†† (36)CA (Irish) H Dip Tax

John Witter (44)BCom PG Dip Acc CAIB (SA)

REGIONAL BOARDS

Cape Regional Board

Hugh Herman (58)ChairmanBA LLB

Arthur Ansley (42)BCom CAIB (SA)

Sam Hackner (43)BCom(Hons) CA(SA)

Keith Hall (58)

Bernard Kantor (49)

Brian Kantor (56)BCom BA Hons

Monty Kaplan (70)CA(SA)

Stephen Koseff (47) BCom CA(SA) H Dip BDP MBA

Julian Leibman (50)BCom

David Shenker (50)BCom CA(SA)

Roy Slack (40)BCom (Hons) CA(SA)

Hendrik du Toit (37)BCom(Hons) MCom MPhil

Russel Upton (64)CA(SA)

Natal Regional Board


Gary Alport (42)BCom CA(SA)

Alan Benn (71)CA(SA)

Reg Berkowitz (62)Natal Law Certificate

Colin Crowhurst (56)

Glen Gerber (36) BA Hons CA(SA)

Sam Hackner (43) BCom (Hons) CA(SA)

Bernard Kantor (49)


Neil MacNeillie (49)BCom CA(SA)

Logan Naidoo (46)BScQS MAQS A.A. ARB

Steven Saunders (39)BA Economics MA Agricultural Science, MBA

Anthony Stiebel (58)

SubsidiaryAnd Divisional Boards

12

†† Irish


INVESTEC GUINNESSFLIGHT (PTY) LIMITED

Howard Flight (50)Joint ChairmanMA MBA

Timothy Guinness (51)Joint ChairmanBA(Hons) MBA

Hendrik du Toit (37)Chief Executive OfficerBCom(Hons) MCom MPhil

George Brits (40)PhD, MBA

Brett Comley (40)BCom CA(SA)

Domenico Ferrini (30)BCom

Rhett Hammond (37)BCom (Hons)

Hugh Herman (58)BA LLB

Bernard Kantor (49)


David Kuper (64)

Kim Mc Farland (35)B(Acc), CA(SA), MBA

INVESTEC PROPERTYGROUP LIMITED

David Kuper (64)Executive Chairman

Sam Leon▲ (49)Managing DirectorLLB (London)



Donn Jowell (57)BCom LLB

Bernard Kantor (49)


Ronald Sevitz (55)


INVESTEC SECURITIESLIMITED


Steve Elliott (44)Managing DirectorBCom


Peter Clucas (65)CTA

Colin Crowhurst (56)

Paul Deuchar (34)BCom

Lee Dix (36)

Chris Elliott (37)

Jonathan Feigin (36)

Mike Fergusson (55)

Colin Fiddes (39)BCom BAcc CA(SA)

Nicolas Goodwin (39)

Keith Hall (58)

Craig Hudson (33)

Raymond John (39)BCom (Hons)

Bernard Kantor (49)

David Kantor (44)

Avi Kaplan (32)BCom (Hons)


Eric Levine (55)CA(SA) MBA

M Carole L Mason (38)BA (Econ) (Hons) MSc (Econ)

Ian Millard (31)BCom

Chris Murray (67)BCom MA UED CTA

Evelyn O’Byrne (35)

Keld Randleff-Rasmussen (42)BSc (Chem Eng)

Dominic Rey (30)

Eureka Redelinghuys (39)BCompt (Hons) CTA

Angus Robertson (37)BCom

Jonathon Rogoff (28)BCom

Steve Rubenstein (39)BCom MBA

Hennie Vermeulen (43)BCom (Hons)

Andrew Vogel (40)BCom CA(SA)

Clinton Wood (38)BCom BAcc CA(SA)

REICHMANS LIMITED


Brian Clark (44)BCom CAIB

Robin Jacobson (55)BCom LLB MBA

Bernard Kantor (49)


Michael Leisegang (52)BCom CA(SA)

Philip Maisel (52)CA(SA)

Selwyn Noik (52)CA(SA)

Howard Tradonsky (36)MBA LLB


13

▲ Italian


INVESTEC INVESTMENTTRUST LIMITED


Bernard Kantor (49)


Clinton Wood (38)BCom BAcc CA(SA)

INVESTEC INSURANCEBROKERS (PTY) LIMITED

David Kuper (64)Chairman

Brenda Atkinson (49)Managing Director



INVESTEC BANK (UK)LIMITED

Bas Kardol† (72)Chairman

David Potter (54)Deputy ChairmanMA (OXON)

Resigned 30 April 1999

Barry Kalkhoven (46)Managing DirectorBCom

Michael Jameson-Till* (54)Deputy Managing Director

John Abell* (67)MA (Hons)

Hugh Herman (58 )BA LLB

Bernard Kantor (49)

Ian Kantor (52)BSc(Eng) MBA


Alan Tapnack* (52)Chief Executive OfficerBCom CA(SA)

Colin Wakelin* (62)

CARR SHEPPARDSCROSTHWAITE LIMITED

Francis Carr (54)Chief ExecutiveBA (Oxon) MSI

Nicholas Bagshaw (53)MA (OXON) MSI

Clive Brangwin (56)MSI

Alan Burr (48)MSI

Patrick Crosthwaite (56)MSI

Guy Davenport (50)FCA MSI

Alun Evans (43)BSc (Econ) Hons


Christopher Hills (45)MA (Cantab)

Bernard Kantor (49)


Robert Leach (58)MSI

Tim May (46)BSc PhD MSI

Ian Maxwell Scott (53)MSI

Grant Nowell-Mitchell (56)AMI Mec E MSI

Michael Pickford (56)FCA MSI

Mark Redmayne (50)FCA MSI

Anthony Richards (54)MSI

Alan Tapnack* (52)BCom CA(SA)

John Yeldham (59)MSI

ISRAEL GENERAL BANKLIMITED


Johnathan Irroni (49)Managing Director and Chief Executive Officer.BA

Moshe Arad (65)LLB

David Golan (58)MBA

Michael Herzberg (61)LLB

Bernard Kantor (49)


Mordechai Limon (75)MBA

Zeev Rotem (43)Ph.D

Daniel Rothschild (53)MSA

Zvi Zur (76)


14

† Dutch * British


INVESTEC ERNST &COMPANY

William Behrens (60)BA (Econ)

William Burdett (59)BSc (Hons)

Daniel Cristofano (65)BS Finance


Bernard Kantor (49)


Derek Solomon (48)

Eliezer Yones (48)MBA

INVESTEC AUSTRALIALIMITED

Julian Block (65)Dip Law H Dip Tax LLM M Taxation

Jonathan Braude (53)ACA MBA

Sam Hackner (43)BCom (Hons) CA(SA)



David Lawrence (48)BA (Econ) (Hons) MCom

Eric Melman (43)BCom (Hons)

INVESTEC BANK(MAURITIUS) LIMITED

Désiré Basset (50)BA LLB

Stuart Hain (50)BCom



David Lawrence (48)BA (Econ) (Hons) MCom

Sir Hamid Moollan QC (66)LLB (London)

(Resigned on 19 April 1999)

Sacheedanand Veerasamy (67)


15

† Dutch * British

INVESTEC GROUP L IMITED

Corporate FinanceInvestment BankingDirect Investment

Private Equity Finance

Structured FinanceEmerging Markets FinanceMining & Resource Finance

Project & Infrastructure Finance

Balance Sheet ManagementDomestic Trading & Derivatives

Foreign ExchangeCorporate TreasuryInternet Treasury

Financial Products

Correspondent BankingTrade Finance

Documentary ServicesInternational Banking

Exchange Control

CORPORATE BANKING SERVICES

INTERNATIONAL BANKING

TREASURY

SPECIALISED FINANCE

CORPORATE FINANCE

SA AUSTRALIAUK MAURITIUS

Corporate & Investment Banking

International Private BankingPrivate Banking

Investec Connect

FactorsCapital Acceptances Limited

Property Trading and DevelopmentProperty Administration

Property Asset ManagementProperty Fund Management

PROPERTY

REICHMANS

INVESTMENT MANAGEMENT SERVICES

PRIVATE BANKING DOMESTIC

PRIVATE BANKING INTERNATIONAL

SA CHANNEL ISLANDS UKISRAEL AUSTRALIA

Private Banking Group

SA BOND TRADING

RESEARCH

SA BOND BROKING

CORPORATE BROKING

PRIVATE CLIENT STOCKBROKING

INSTITUTIONAL STOCKBROKING

SA ISRAELUK USA BOTSWANA

Securities Trading & Distribution

Equities, Bonds, CashSpecialist & Balanced Mandates

US MUTUAL FUNDS

INTERNATIONAL MUTUAL FUNDS

UK UNIT TRUSTS

SA UNIT TRUSTS

INSTITUTIONAL PORTFOLIO MANAGEMENT

SA UK USA HONG KONGIRELAND GUERNSEY NAMIBIA BOTSWANA

Asset Management

ACCOUNTING & FINANCE ECONOMIC RESEARCH FACILITIES HUMAN RESOURCES INFORMATION TECHNOLOGY MARKETING RISK MANAGEMENT SECRETARIAL LEGAL AND TAX STRATEGIC RESEARCH

Group Services

In South Africa, Investec’s Corporate andInvestment Banking Division comprises an eclecticgroup of sophisticated and specialised businessunits, each of which is highly successful in its ownright. The common element running through thevarious sub-groupings in the division, is an abilityto supply complex high-value added service to alargely common client base, which includes topdomestic and international corporates,governments and parastatal entities, and otherfinancial institutions.

Structured into several discrete, stronglyautonomous, business units, the Corporate andInvestment Banking Division enjoys a stronglycollaborative mutual interplay between its variousteams, to the obvious benefit of both clients andthe wider Group. The division, taken as a whole,enjoys a strong level of acceptance and supportfrom its various client bases which, during the pastyear, contributed to the very successful profitgeneration emanating from the combinedendeavours of the various teams within thedivision.

The division, in aggregate, enjoys recognisedmarket strength as a top class service provider ofchoice, largely as a consequence of the skills baseof its employees, their high energy and drive andtheir very solid grounding in highly technical anduniquely innovative financial expertise.

Financial Results, Corporate & Investment Banking(Rm)

1999 1998 %Increase

Total Assets 30 852 20 789 48,4

Total Income 901 481 87,3

Contribution 435 294 48,0

% Contributionto Group 35 37

Cost/Income Ratio 44,7


Corporate and InvestmentBanking Activities

41

PREDOMINANTLY SOUTH AFRICAN-BASED, the Group’s Corporate and Investment Bankingendeavours have nonetheless recently expanded to include a significantly increased internationalcapability, largely as a consequence of the Group’s meaningfully increased international presence. There isnow substantial regional interaction between the Corporate and Investment Banking teams in all of theareas where the Group is located and this should translate, in time, into one consolidated global corporateand investment banking business, along the lines of what the Group has already achieved in the areas ofPrivate Banking and Asset Management.

35%

Corporate &Investment Banking

19%

Private Banking

17%

Asset Management

14%

Group Services &Other Activities

8%

Securities Activities

7%

Insurance

Contribution Analysis


42

CORPORATE & INVESTMENT BANKING,AUSTRALIA

INVESTEC AUSTRALIA LIMITED

INVESTEC AUSTRALIA WAS established in June1997 as a Merchant and Private Bank, to providethe Group with a continuous conduit for itsinternational financial operations. Since inceptionas a grass roots operation, it has grown from asingle representative into a multi-product financialservice provider with a staff in excess of forty.

Year under review

As a wholly owned subsidiary of a South Africanbank, Investec Australia is recognised aspotentially one of the premier facilitators of crossborder investment between Australia and SouthAfrica. With this in mind, towards the end of lastyear, Investec expanded into the corporate financesector of the local market, servicing bothindividuals and the mid- and small cap sectors ofthe Australian market. Since then, it has facilitateda number of cross border business investments, co-ordinating both the finance and structure of thesetransactions. This has enabled key investors toleverage off the strength of their parent’s balancesheet to successfully enter the Medical, Retail,Information Technology and Manufacturing sectorsof the Australian market.

Looking ahead

Although growing from a small base and not yet acore focus, recognised similarities betweenAustralia and South Africa and increasing levels ofcross-border activity between the two countries,suggest substantial medium-term potential from acorporate finance perspective, with InvestecAustralia now strategically well-placed to takeadvantage of a broader range of opportunities thatmay arise.

CORPORATE & INVESTMENT BANKING,ISRAEL

ISRAEL GENERAL BANK LIMITED

ISRAEL GENERAL BANK is one of the most activemembers of the Tel-Aviv Stock Exchange and, byvirtue of a number of subsidiaries and specialistdepartments, has long-established relationshipswith its corporate client base. It enjoys significantmarket share.

Year under review

Against a generally unfavourable economic andpolitical background in Israel last year, corporateactivity was reasonably muted.

Looking ahead

As a consequence of the more favourable politicaland economic prospects implied by the recentelection result, the new financial year promisesrenewed corporate activity in the domesticeconomy, most particularly in relation to IPO’s andthe opportunities likely to be generated by arenewed official structural economic reform thrust.

CORPORATE & INVESTMENT BANKING,MAURITIUS

INVESTEC BANK (MAURITIUS) LIMITED

HAVING ACQUIRED AN offshore banking licence inMauritius in mid-1997, Investec is the only SouthAfrican bank to trade under its own name on theisland and initially confined its activities tostructuring transactions for its South African andinternational client base. In the short time thatInvestec has maintained its presence in Mauritius,however, business volumes have increaseddramatically and have expanded to includecorporate transactions, trade finance and limitedtreasury activities for both its South African,international and a growing Mauritian client base.

Year under review

Investec Mauritius registered a strong performanceduring the period, seeing a significant growth inbusiness volumes in both previously established fieldsof endeavour and new areas of focus. InvestecMauritius also enjoyed significantly increased supportfrom the broader Group during the period with theBank’s regional presence being used to facilitatemany aspects of Group-wide activity. Towards theend of the year, for instance, Investec Mauritiusassumed administrative responsibility for all ofReichmans’ international trade finance and bankingrequirements. The staff complement of the Bankincreased quite substantially during the period whilea significant marketing drive was embarked upon.

Looking ahead

Investec Mauritius remains very optimistic aboutmedium-term prospects. Quite apart from its


43

established and growing areas of activity on theisland, the Bank is seeking to take advantage ofMauritius’ recognised favourable business andlabour market realities to establish a localprocessing capability that would meet therequirements of many of the Group’s operatingdivisions around the world.

CORPORATE & INVESTMENT BANKING,SOUTH AFRICA

CORPORATE FINANCE

INVESTEC’S CORPORATE FINANCE Division enjoysvery strong market recognition for the strength ofits franchise and for its very substantial growth inboth market share and market penetration inrecent years. The team’s success continues to bebased on the timely delivery of top notchsolutions, meticulous execution and a perceivedwillingness to go the extra mile in order to satisfyclient requirements. Investec’s Corporate FinanceDivision has, through the various transactions inwhich it has engaged over the years, shown astrong underlying capability, and preference for,transactions of a high value-added, non-vanilla,nature which, at times, has translated into awillingness, subject to careful evaluation and riskmanagement, to use the Group’s own balancesheet so as to advance and facilitate clienttransactions.

The key to the continued success of Investec’sCorporate Finance Division has, over the years,been the energy and commitment of anexperienced team of professionals, who have beenextremely successful in generating innovative andhigh value added solutions for their clients,resulting in the realisation of clear added value forshareholders. The size and quality of the division’sclient base continues to grow and based on itscore belief in pursuing partnership arrangementswith all targeted clients, irrespective of size, thedivision enjoys the benefit of long-term trustedadvisor relationships with its established clientbase.

Year under review

Largely driven by corporate unbundlings andreorganisations, corporate finance activity in SouthAfrica has witnessed explosive growth in recentyears. 1998 was another such year and, despite theobvious effects of the international financial crisiswhich might have been expected to reduce theaggregate level of domestic activity, the overall

value of mergers and acquisitions increased bysome 89% on the previous year. Indeed, ifanything, the domestic consequences of last year’scrisis merely served to reinforce what has nowbecome conventional wisdom within the SouthAfrican corporate environment, ie. that thedemands of globalisation can only be met througha concentration on core activities, the attainmentof critical mass and meaningfully increasedparticipation in the global economy.

With the obvious exception of privatisation, lastyear’s domestic corporate finance endeavoursencompassed the full spectrum of activities in thisfield. Investec’s Corporate Finance Divisionparticipated strongly in these market dynamics,closing 117 reported corporate financetransactions, with an aggregate value of R58,8billion. This compares with an equivalent 89 dealsby the division in the previous year, with anaggregate value of R22,7 billion. On the basis ofthe 1998 annual Ernst & Young Review of Mergersand Acquisitions Activity, Investec ranked secondin the number of transactions by value, and thirdby volume, in a market whose ongoing buoyancywas barely dented as a consequence of ongoinginternational financial difficulties.

Of the many deals in which the division engagedlast year, a few are worthy of particular mention.These include the R4,7 billion purchase of HambrosPLC by the Investec Group, one of the six largestdeals that occurred in South Africa last year andthe single largest outward investment registered bya South African company during the period.Another was the very intricate but successfulrestructuring and refocusing of formerly listed JCILimited, the clear purpose of which was to extractshareholder value. Yet another was the blackempowerment initiative represented by the sale ofDe Beers’ interest in the Marsfontein mine, to anempowerment consortium. Also notable was therole played by the division in the acquisition of theRennies Group on behalf of Bidvest, as was thepost- year-end acquisition of SA Druggists byInvestec, this motivated by a desire to realign andrefocus this particular corporate entity.

Quite apart from the reputational enhancementgenerated by the many newsworthy corporate dealsin which it engaged last year, Investec’s CorporateFinance Division earned further market recognitionfor its now well regarded advisory capability. Inthis respect, Investec’s participation in such dealsas the Libvest ”fair and reasonable” holds outfuture promise for similar such participation inother transactions of this type.


44

Since Investec is the only South African bankinggroup with a truly international dimension, itscorporate finance division is well placed to takeadvantage of the ongoing desire by many SouthAfrican companies to internationalise and expandoffshore. Last year effectively saw theestablishment of Investec’s investment bankingcapability abroad and much time and attention wasdevoted by members of the South African corporatefinance team to exploring possible synergies withInvestec Henderson Crosthwaite in the UK. This willremain a key area of focus over the medium-term,but the Group’s South African corporate client baseis already assured that it will receive the same levelof international service as that to which it hasbecome accustomed domestically. Of course, just asit follows that the Group’s international capabilitywill be able to assist local corporate clients lookingbeyond South Africa, so it will be able to assistpotential international corporate interest in SouthAfrica as well.

Looking ahead

Although an essentially volatile and cyclical areaof activity, Investec’s Corporate Finance Divisionis confident that the new financial year will alsoprove favourable. The ongoing need for localcompanies to reposition themselves in anenvironment now characterised by markedlyincreased competition, the perceived urgencyassociated with unlocking shareholder value andthe gradual removal of exchange controls meansthat the environment will be dominated byfavourable structural considerations that willsustain and underpin activity levels over themedium-term. This, of course, will be furthercomplemented, where appropriate, by theinternational dimension that can be brought tobear on the division’s domestic corporate financeactivities. Indeed, in this regard, the new year hasalready seen a joint advisory initiative byInvestec’s South African Corporate Finance Teamand Investec Henderson Crosthwaite in relation tothe GBP122,4 million acquisition by Bidvest ofBooker PLC’s food distribution interests in the UK.

The challenges for the year ahead clearly revolvearound the need to strengthen the Group’scorporate finance reach beyond South Africa, soas to develop a potent ability to operateeffectively in an integrated manner in differentlocations. Along the lines of what has alreadybeen achieved by the Group in the areas of bothPrivate Banking and Asset Management, thiswould afford Investec an additional degree ofcompetitive advantage and, unmatched by its

peers, would consolidate already well establishedendeavours on the domestic front.

Another thrust for the division in the year aheadwill be to drive a wedge into those areas of themarket not currently served by Investec, as well asto increase the visibility of its efforts in pursuingan identified pipeline of activity. Finally, thedivision anticipates a more concentrated efforttowards building a discrete private equitycapability, as distinct from Intrust.

INVESTEC INVESTMENT TRUST LTD (Intrust)

THE CORPORATE FINANCE division also managesIntrust, Investec’s Investment Trust which is listedin the Financial-Investment Trusts sector of theJohannesburg Stock Exchange. Historically, Intrusthas invested on a long-term view in establishedcompanies offering above average growthopportunities.

Year under review

A decision by the Board of Directors to strategicallyrefocus Intrust was put into effect in August 1998,when Intrust members approved the partialunbundling of Intrust’s investment portfolio by wayof a distribution in specie, aggregatingapproximately R522 million. Despite havingunbundled over half of its investment portfolio fivemonths into the financial year, Intrust enjoyedanother strong performance, primarily as a reflectionof the excellent results of its core investment in theBidvest Group. The discount at which Intrust’s sharestrade on the Johannesburg Stock Exchange has,however, continued to be a concern to management,and reflected a 21% discount at year end.

Looking ahead

Intrust was established at a time when theinvestment trust industry (in which Intrustoperates) was a fairly unknown investment marketto South African investors and Intrust sought toprovide a “one-stop” entry into quality companieslargely ignored by the institutional investor. Today,however, institutions invest directly in a widerrange of investments and the “effectiveness” ofIntrust has diminished, as evidenced by theconsistent and widening discount to net assetvalue at which Intrust trades.

Accordingly, subsequent to year-end, a decisionwas taken, subject to certain regulatory approvals,


45

to unbundle the balance of Intrust’s investmentportfolio to its members, thereby unlockingshareholder value.

SPECIALISED FINANCE

THE SPECIALISED FINANCE Division provides arange of finely-targeted financial products,solutions and services to a very wide array ofclients.

The sub-groupings of activity within the divisioninclude project and infrastructure finance,structured finance, emerging markets finance andmining finance.

The division enjoys a very strong reputation, bothin South Africa and abroad, because of itsrecognised degree of skill and technical expertiseand because of the innovation, energy and drivethat have come to be associated with the division’soverall endeavours.

Year under review

The Specialised Finance Division had a particularlystrong year last year, defying all expectations interms of anticipated performance. Strong growthin contribution occurred in all sub-units andoperating teams.

Having previously set pricing and contractualbenchmarks for project finance in road transportthrough its ongoing involvement with the MaputoToll Road Scheme, the division’s project andinfrastructure team has seen its success in thisarea act as a catalyst for its entrée into other roadprojects in South Africa, where it acts in anadvisory capacity to the government and maintainsvery strong relationships with the various consortiainvolved in this industry. Having since seen itsactivities extend to include rail transport and theports, in both an advisory and structured financecapacity, Investec’s project and infrastructurefinance team was cited by Global FinanceMagazine as one of the top 25 project financeteams world-wide and, in particular, the leadingproject finance team in Africa in thetransportation sector.

With the increased use of public/privatepartnerships very much on the South Africangovernment’s agenda as a necessary and integralpart of its long term capital expenditureprogramme, the project and infrastructure financeenvironment is characterised by a number of new

opportunities for private sector participation, manyof which include cross border dimensions,particularly in Southern Africa. In Investec’s case,the team secured advisory mandates amounting tosome R6 billion last year and it is currentlyinvolved with a wide and diverse range of projectsthat includes prisons and correctional services,casinos, water and waste concessions and powerdevelopment, many of which have the potential tobecome role models for similar developments inother traditional areas of public sector activity.

Investec’s involvement in the field of project andinfrastructure finance also extends to the UK,where last year the Group was appointed asfinancial advisor to the English FootballAssociation for its acquisition and redevelopmentof the Wembley Stadium. During the period, theGroup also won a mandate for structuring andfinancing the refurbishment of catering equipmentin all schools and social services in the district ofLewisham.

The structured finance team enjoyed another verystrong year in 1999, writing new business to thetune of some R2,1 billion. A recognised marketleader in terms of both the scope and depth ofproduct which it can offer its client base, the teamsaw strong growth in such areas as propertyfinance, structured loans, share incentive schemes,cross border leasing loan transactions andequipment finance. Some of the more notabledeals in which the team engaged last year includedthe provision of some GBP15 million in crossborder finance for SA Druggists, a R270 millionstructured loan for ABI, a R45 million sharescheme for Relyant Retail and both a R60 millionstructured loan for Avmin for the development of anew mine and a R500 million mandate for thefinancing of new plant. The team, which currentlyoperates out of Johannesburg, Durban and CapeTown, has also seen a clear expansion in terms ofcross-border activity and this focus will becomplemented in the new financial year by theestablishment of a dedicated structured financeteam in London.

The emerging markets finance team, which focuseson the provision of long-term project finance inthe emerging economies of Africa, also had a goodyear, with a number of sizeable deals kicking in asa consequence of the team’s long-standing trustedrelationships with its client base. A morefavourable margin environment also contributed toimproved performance. Despite the recognisedmarket volatility associated with operating in andout of Africa, the team maintains a close workingrelationship with Group Risk Management and all


46

exposures are closely monitored on an ongoingbasis. The team has also developed an increaseddegree of interaction with Investec Mauritius inpursuit of its endeavours in its chosen market, soas to develop synergies where appropriate.

The mining finance team, which providesspecialised financial services to the internationalmining and resource industry, enjoyed a successfulyear, despite a number of negative developmentswhich served to render the operating environmentmuch less conducive than in the previous year.These arose essentially as a consequence of theongoing emerging markets crisis, the ensuingcollapse in the international commodity cycle, andrenewed war and/or civil disturbance in severalcountries in Africa, the principal jurisdiction inwhich the team pursues its endeavours. Businessvolumes, which had commenced the year in verybuoyant fashion, quickly retraced as a consequenceof a very marked deterioration in investorconfidence and many of the mandates initiallysecured were delayed indefinitely. However,although the more traditional forms of lendingactivity in which the team engages effectivelyseized up during the course of last year, these weresubstituted for by a significant increase in bothadvisory and corporate finance-type activity, inturn enabling the team to make a sound overallcontribution to bottom line. Underscoring theteam’s, and indeed Group’s, ongoing commitmentto the international resource sector, the teammade a significant investment in the African LionFund last year which, aimed at the provision ofventure capital to the African mining industry,made two initial investments in ventures inTanzania. The team also established a physicalpresence in Investec Bank UK, with London’simportance as a centre for mining and resourcefinance providing clear justification for this move.

Looking ahead

The Specialised Finance division is confident thatprospects for the year ahead are highly positive.Many of the operating teams have secured a goodpipeline of business, with an expected recovery inthe domestic operating environment likely to elicitadditional business flows. The benefits of recentrestructuring and a continued focus on core areasof activity will also be instrumental in sustainingrecent growth momentum, as will the pursuit ofcross border synergies, where appropriate.

Essentially longer-term in focus, the project andinfrastructure team has secured strong mandatesthat will result in sustained growth in volumesover the medium-term. In similar fashion, thestructured finance team has built a steadytransactional flow, from which further strong gainsare expected this year. The emerging marketsfinance team also anticipates another year ofstrong performance while the mining finance team,having increased its staff complement in the pastfinancial year, is well positioned to take advantageboth of the expected near-term turnaround in thecommodity cycle and the excellent opportunitiesnow available at deeply discounted prices toinvestors in its target market.

TREASURY

TREASURY PROVIDES A central funding capabilityfor the Group’s South African operations, andhouses all of the Group’s proprietary tradingfunctions in South African financial instruments.The Treasury Division is sub-divided into desks thatincorporate foreign exchange, domestic tradingand derivatives, liability and interest ratemanagement, bonds and options, corporate tradingand Internet treasury.

An important sub-grouping within Treasury isrepresented by the financial products team, whichdevelops innovative structures and tailors creativesolutions for its client base, in areas such as debtorigination and structuring, investment productsand derivative structuring.

Year under review

Despite the sudden and sharp reversals in both thelocal currency and domestic interest rates whichgenerated a very uncertain trading environmentlast year, Treasury, through a combination of acontinued adherence to conservative asset andliability management, a very substantial advance inits structuring activities and a dramatically-increased penetration of all markets, across allproducts, made a very substantial contribution toaggregate Corporate and Investment Bankingperformance during the period.

The Treasury function underwent a significantrestructuring and consolidation drive last year,designed both to elicit greater synergies and costsavings and to enhance the range of value-addedspecialist products that Treasury provides. Nolonger constituting a mere trading orientation, theTreasury team has embraced the notion of adding


47

value and providing solutions to clients and is nowa fully integrated operation, combining traders,financial engineers, mathematicians andtechnicians all operating within the same team.

With much global attention paid during the courseof last year to the types of trading risks to whichinvestment banks are frequently exposed,Investec’s Treasury function, in conjunction withGroup Risk Management, strives at all times toensure that the risks inherent in this business arewell understood, managed, mitigated and/orhedged. As mentioned elsewhere in this report, theattention traditionally paid by Investec to this corediscipline paid clear dividends during last year’speriods of markedly heightened market volatility.Other areas of focus for the division remain theneed for continual technological advances, bymeans of systems upgrades, and a refining ofinternal administrative and operational processes.

To enthusiastic client response, the Treasury teamlaunched its new product, MarketMaker, last year.The first real time Internet treasury dealing systemto be introduced in the local market for clients,with proposed further refinements, this is expectedto be a clear value driver for Treasury over themedium-term. Additional strides in the utilisationof technology to grow business volumes, whetherfor Investec and/or its clients, will continue to beexplored by the team, where appropriate.

The financial products team enjoyed a verysuccessful year, with notable highlights for theteam including two further official bond launchesin Botswana, the launch of the first CapitalGuaranteed Investment Product, high growth inpreference share activity, continued success infinancial engineering/derivative structuring in thecorporate market and the commencement of acredit derivatives structuring and trading function.The team also extended its activities into the UKduring the period. This additional representationwill, it is believed, facilitate the exchange of ideasand development of new products, as well ascreating a channel through which to realisesynergies between Investec’s London and SouthAfrican operations.

Looking ahead

There are clear additional structural efficiencies tobe gained by maintaining the recent momentum inTreasury’s refocusing drive, many of which willbecome apparent in the new financial year andmany of which will extend to the efficiencies andopportunities that can be identified from the

perspective of the Group’s greatly increasedinternational presence. The division anticipatesanother year of very strong performance, across allsub-units and teams.

The financial products team, too, anticipatesanother good year. Strong growth is expected toemanate from such developments as: the expectedlaunch of additional new products in so-calledCapital Guaranteed Structures, to which end theteam will use the existing retail distributioncapability of the Private Bank; further promotionand development of the corporate bond market,with attendant transactional potential; ongoingdeal flow from the corporate market; continuedgrowth in the market for credit derivatives and thefurther development, through additionalresourcing, of the team’s equity derivativesstructuring capability.

CORPORATE BANKING SERVICES

THIS DIVISION FOCUSES on the need to offer highvalue-added service to its targeted corporate clientbase by means of a unique form of “relationshipbanking” and by leveraging off the wider Group’srecognised products and skills base.

Year under review

The division continued to focus on developingclose long-term relationships with the majorcorporates in South Africa and once again playeda key role in contributing to aggregate deal flowwithin the Corporate and Investment BankingDivision during the period. The division plays akey role in marketing, in an integrated andeffective manner, the attributes of the widerdivision and the Group, with clients using theresources of the division as an obvious point ofentry into the wider Investec with its manyspecialist groupings.

The recognised success of the team is attributableto the individuals involved, to the creation oftrusted relationships with their clients and to acontinued enhancement of individual skills so asto keep abreast of industry realities.

Looking ahead

The team anticipates further solid progress in theyear ahead, particularly given levels of client andGroup acceptance of the role that it plays and theconcept that it embodies. Significant further


48

penetration of its target market, with attendantbenefits, is expected over the period.

FINANCIAL INSTITUTIONS GROUP

THIS WING OF the Corporate and InvestmentBanking Division provides a logical extension tothe division’s many other activities and seeks tosupport many client and Group objectives,particularly those relating to cross bordertransactions. It incorporates the activities of theFinancial Institutions Division and the ExchangeControl team.

Year Under Review

Having previously invested much time and effort inestablishing strong correspondent banking linkagesto a very wide range of major financial institutionsaround the globe, the Financial Institutions Grouphas seen this reap enormous dividends in the pastfew years, particularly when advancing andfacilitating both the Group’s internationalexpansion and capital raising requirements.

As the Group has grown in recent years, so has theneed to co-ordinate and consolidate theresponsibilities of the Group’s Financial Institutionsfunction across each of the regions in which theGroup now operates. To this end, some internalrestructuring was required during the period, thepurpose of which was to render this key functionmore effective, by centralising, aggregating andconsolidating all activities through Johannesburg.

TRADING BANKS

AS MENTIONED ELSEWHERE in this report, the twotrading banks, Securities Investment Bank andDistrict Securities Bank, were sold during thecourse of last year, the former into SaflifeHoldings, now known as SIBH, in which Investecmaintains a significant minority holding, and thelatter to R. Cadiz & Company, which has sincelisted and in which Investec again retains aminority shareholding.

CORPORATE & INVESTMENT BANKING,SOUTHERN AFRICA

Investec has, over the years, sought to expand onits presence in the region. Complementing itsregional operation in Mauritius, Investec has alsoestablished itself in both Botswana and Namibia,

predominantly in the fields of Asset Management,Securities Trading and Private Banking. The Grouphas, however, also aquired a notable reputation forits endeavours in developing the regional capitalmarket and is a long established player in bothstructured and debt finance in the region.

The Group’s activities in Southern Africa are co-ordinated through a dedicated sub-division withinCorporate & Investment Banking in South Africa.The African Regional Division works closely with alloperating divisions within the Group and has beengiven the specific mandate of building on theGroup’s regional activities, through the deploymentof top class local talent in each country,supplemented by the use of transactionalspecialists from South Africa.

Year under review

Following the earlier acquisition of a bankinglicence in Botswana, the period saw the Groupestablish a local Treasury operation in this country,designed to facilitate the Group’s private bankingaspirations and to develop a wholesale fundingcapability.

Looking ahead

The Group remains optimistic about the long-termpotential for increased Corporate & InvestmentBanking activity in the region. Building on theadvances which it has already made in the field ofAsset Management and Securities Trading and,more recently, Private Banking, the Group will seekto advance its reputation and level of involvementin the region wherever possible, with probablemedium-term focus on the potential formeaningfully increased activity in Namibia.

CORPORATE & INVESTMENT BANKING,UNITED KINGDOM

INVESTEC HENDERSON CROSTHWAITE

IN JULY 1998, Investec acquired the CorporateFinance operations of both Guinness Mahon andHenderson Crosthwaite. In September 1998, thesebusinesses were merged and renamed InvestecHenderson Crosthwaite Corporate Finance.

Investec Henderson Crosthwaite Corporate Financeis a relationship driven advisory business whoseactivities include flotations, mergers andacquisitions, fund raising, restructuring and private


49

equity transactions. It acts for over 80 corporateclients in sectors as diverse as those of media,telecoms, information technology, leisure,electrical, food producing, food retailing, generalretailing, oil and gas, aerospace and defence,engineering, diversified industrials, supportservices, special situations and mining.

Year under review

Despite difficult trading conditions during theJuly-October period of last year, especially withinthe small to mid-cap sectors and the IPO market,Investec Henderson Crosthwaite Finance enjoyed asuccessful year, benefiting from further growth inits client list. Over 40 major transactions werecompleted during the period under review, coveringa range of activities including the GBP450 millionacquisition by Siebe of Eurotherm plc, the placingand open offers for Fitness First and HITEntertainment plc and the flotation of Sports andOutdoor Media International.

Last year’s growth occurred in a year in which thecorporate finance business saw majordevelopments. Investec Henderson CrosthwaiteCorporate Finance and Investec HendersonCrosthwaite Securities, formally HendersonCrosthwaite Institutional Brokers, effectivelybecame one business. The effect of the merger isexpected to have a major impact on the focus andshape of the enlarged division, with corporatefinance activities expected to derive clear benefitfrom the firm’s in-house research capability andexpertise.

Looking ahead

Alongside a steady deal flow from a strong existingclient base, increased corporate activity is likely tocome from arranging private equity financing,M&A work and cross border transactions betweenSouth Africa and the UK. So far this year, examplesof such activity include the GBP10 milliondevelopment funding of Alpha Telecom, the GBP30million disposal of Provend to Bunzl and a jointLondon/Johannesburg advisory role on Bidvest’sGBP122,4 million acquisition of Booker PLC’s UKfood distribution operations.


The Investec Group has long been a participant inthis market, with a traditionally strong privatebanking background in South Africa having, inrecent years, been augmented by an increasinglyinternational private banking capability. As a resultof the Group’s recent acquisitions, Investec cannow boast a private banking offering that includesnot only the various jurisdictions in which theGroup is represented but a very strong degree ofinteraction and integration between all of these.Investec’s private banking activities nowencompass Australia, Israel, South and SouthernAfrica, the UK (which incorporates the ChannelIslands) and Zurich and embraces a fully self-contained suite of private banking services.

As with the broader strategy of the Investec Group,Investec’s Private Banking activities revolve aroundthe clear desire to follow Investec’s client base andto supplement domestic competence and criticalmass with the additional benefits of cross-borderemphasis. The Group’s private banking ambitionsrevolve around the clear desire to be the dominantprovider of the best integrated financial solutionsfor its selected client base in each of the regionsin which it operates.

Financial Results, Private Banking (Rm)

%1999 1998 Change

Total Assets 14 221 12 368 14,98



% contribution to Group 19 22

Cost/Income ratio 60,2

Group Contribution Analysis

DESPITE THE TEMPORARY ”hiccup” represented by last year’s financial crisis, the global wealthexplosion continues largely unabated. Driven by the ongoing realities of financial deregulation,liberalisation and privatisation around the world, as well as by the rapid growth of entrepreneurialbusinesses and stock market appreciations, the sheer magnitude of global wealth creation in recentyears has spawned greatly increased international banking focus on the opportunities presented byprivate banking.

Private Banking Activities

51

19%

17%

14%8%

7%

35%


Private Banking

Asset Management



Insurance


52

PRIVATE BANKING ACTIVITIES - AUSTRALIA

INVESTEC AUSTRALIA WAS established in June1997 as a Merchant and Private Bank to providethe Group with a conduit for its internationalfinancial operations. Based in Sydney, theoperation focuses on the provision of boutiquefinancial solutions to the professional and highnet worth market. It engages in such areas ofactivity as loan and specialist finance, crossborder finance with specific focus ontransactions between South Africa and Australia,structured leases, operating and financial leases,guarantees, cross-currency loans, specialisedletters of credit and syndicated loans.

Year under review

Of all the economies adversely impacted upon bylast year’s prolonged financial crisis, Australia isalmost unique for having been able to shrug offany lasting consequences. As such, the domesticenvironment remained broadly favourable duringthe period, a consideration that enabled InvestecAustralia to make further advances in its chosenareas of activity. Investec Australia enjoyedsignificant growth in volumes during the periodand, whereas, on inception, it had sought topursue its private banking activities by means ofleveraging off the ex-South African emigrantbase, where name recognition is strong, by lastyear a full 60% of Investec Australia’s privatebanking business was sourced from residentAustralians.

During the period, as can be seen in the chapteron the Group’s Asset Management Activities,Investec Australia acquired the ACSIS Group ofCompanies, a move designed to provide it with aplatform for entering the growingsuperannuation sector of the Australian market.

Looking ahead

The new financial year is expected to be anotherfavourable one, with plenty of underlying growthpotential. Conscious that its activities have notyet attained critical mass, Investec Australia willremain alert to all possible opportunities toaugment, by means of strategic acquisition, itscurrent position.

PRIVATE BANKING ACTIVITIES - ISRAEL

ISRAEL GENERAL BANK (IGB), which was acquiredby Investec in 1996, has a niche profile verysimilar to that of the wider Investec Group. Itfocuses on the private banking needs of anexclusive clientele made up of high net worthindividuals and corporate clients and offers ahighly personalised service in this regard.

Year under review

Although the general economic environmentduring the period was not a particularlyconducive one, last year’s liberalisation of thedomestic foreign exchange market nonethelessgenerated new opportunities for private banking,particularly on the international front, and theperiod gave rise to notable interaction betweenIGB and the Group’s other regional privatebanking activities in pursuit of these.

Having previously launched an Internet bankingsite, IGB saw further significant growth involumes via this medium during the period.

Looking ahead

Amid expectations that the medium-term willgenerate significantly increased levels of bothcorporate and economic activity in Israel, theprognosis for IGB’s private banking activitiesappears highly positive. The advent of InitialPublic Offerings in the corporate arena as well asfurther developments in relation to Israel’salready well-established comparative advantagein the field of information technology, suggestample opportunities for both wealth creation andwealth management within IGB’s targeted clientbase.

PRIVATE BANKING ACTIVITIES, SOUTH AFRICA

- Private Banking Division- Investec Investment Management Services (IMS)

Private Banking Division

Charged with the twin tasks of creating andmanaging wealth for its select client base,


53

Investec’s South African private bankingactivities are long established, highly regardedand embrace the activities of each of the CapeTown, Durban, East London, Johannesburg,Pietermaritzburg, Port Elizabeth and Pretoriaregions.

In what has, in recent times, become anincreasingly competitive environment for privatebanking, the essential value proposition providedby Investec’s private banking arm is therecognition that is clearly differentiated withinthe marketplace by virtue of its skills base andthe added value that it can generate. In anindustry quite distinctly motivated byrelationship management, not product offering,Investec seeks to develop a unique understandingof each targeted client’s balance sheet, with aview to designing a customised financial strategyfor that client which includes advisory-basedproducts and services, and incorporates suchelements as local and international lending,investment, fiduciary and structured productsand services.

Year under review

Having spent much of the previous yearformalising its medium-term strategy, the periodunder review saw aggressive moves by the privatebanking division towards the implementation ofpreviously-agreed strategic endeavours. The yearwas therefore one of strong internal delivery,with continued upskilling by all private bankemployees, the development of a comprehensiveinternal information infrastructure, theintroduction of a number of new technology-based products and services and the launch of anaggressive marketing programme designed to re-inforce the strength of Investec’s private bankingbrand within the market-place.

The domestic operating environment, as has beenconsistently mentioned throughout this report,was largely unfavourable during the period, withthe rand’s sharp depreciation, successive interestrate rises and a sharply weakening economy allserving to generate a very unfavourable lendingenvironment. Despite this, the domestic privatebanking division managed to grow its fundsunder management, increase its level ofadvances, increase both margin and fee income

and enjoy new revenue streams as a consequenceof its move into new areas of business, such asadvisory and foreign exchange, with last year’sacquisition of Insinger Trust PLC also adding todomestic fiduciary capacity. While the privatebanking book was inevitably stress tested duringthe period, the increase in bad debts was held toremarkably low levels, a consideration which paystestimony to the strong risk managementcapability within the division.

Looking ahead

A more accommodating domestic environment inthe new financial year, with less variability inmargin income, augurs well for increasedbusiness activity within the private bankingdivision. Quite independently of externalconsiderations, however, the new year will seethe launch of the Private Bank Card Account,additional new product development, increasedemphasis on technologically based products withfull use of the Internet, full and proper use ofthe International Private Banking infrastructureand a continued determination to capitalise onthe mileage created by means of a recently-launched bold, and highly successful, marketingcampaign. Of course, meaningfully increasedbrand recognition for the Private Bank assumesenormous importance in view of the increasedvisibility and spillover benefits for the widerGroup.

Additional new opportunities for the privatebanking division are also likely to be forthcomingin the new year as a consequence of the Group’srecent acquisition of HSBC Simpson McKie’sJohannesburg Retail Stockbroking arm.

The private banking division has set ambitiousinternal targets for requisite performance overthe medium-term. Against a number of nowconcrete and readily identifiable measurables forperformance, it continues to place enormousemphasis on the competence aspects required byall employees and, to this end, encouragesongoing multiskilling on their part, aconsideration greatly enhanced by an in-housededicated private banking college. Last year’slaunch of Investec Connect, a 70-seater callcentre that distributes retail products andservices through state of the art technology, also


54

places strong demands on associated employeesin terms of requisite skills and knowledge, achallenge to which all have respondedenthusiastically and with clearly visible results.

Investec Investment Management Services (IMS)

IMS DEVELOPS AND markets a range ofsophisticated, investment-linked products thatare designed to meet the investment, tax andretirement needs of South African investors. Itdeals exclusively through a select number ofindependent and corporate financial advisors andenjoys a strong degree of market penetration.

Year under review

Despite the marked deterioration in the localfinancial environment which occurred during theperiod, last year was an extremely successful onefor IMS. Returning to profit after several years oflargely systems-induced poor performance, IMShas successfully repositioned itself as a majorservice provider in the domestic market for theadministration of retail investment products. Thishas occurred largely as a consequence ofsteadfast determination to resolve internalsystems and administrative shortcomings as wellas the launch of some new investment productsto its clearly defined target market.

Looking ahead

The new financial year promises to be anotherfavourable one. Renewed market stability hasseen IMS’ assets under administration return topre-crisis levels while the advent of a number ofnew products, some of which are still subject toregulatory approval, is expected to add quitemarkedly to business flow in the year ahead.Although the industry remains characterised bychange, uncertain direction and is currently in astate of flux, IMS remains confident about futurepotential and foresees an increasingly evolvingrole for itself, from investment administrator toinvestment advisor. To this end, it intendsembarking on an appropriate recruitment drive inthe year ahead.

PRIVATE BANKING ACTIVITIES, SOUTHERN AFRICA

A RELATIVELY RECENT area of focus, the InvestecGroup is now seeking to pursue private bankingopportunities in both Botswana and Namibia and,to this end, established a dedicated privatebanking team in Botswana during the course oflast year.

PRIVATE BANKING ACTIVITIES, UNITED KINGDOM

IBUK MAINTAINS TWO distinct areas of emphasiswithin its private banking activities. A longestablished domestic private banking focus, withparticular strengths in the residential andcommercial property markets, has now beencomplemented by an international privatebanking arm, with last year’s acquisition ofGuinness Mahon giving IBUK the necessaryadditional capacity to deliver on the promisesimplied by a comprehensive international privatebanking offering. As with its counterpart inSouth Africa, IBUK offers specialist expertise andproducts to professional and high net worthindividuals while the international privatebanking arm, which concentrates its efforts inthe areas of banking, gearing, investments andfiduciary services, also incorporates the activitiesof both the Channel Islands and Zurich.

Year under review

Against a generally conducive lendingenvironment, IBUK’s private banking divisionenjoyed a good year. On the domestic front,strong performances were registered in the areasof medical lending, property finance, specialistlending and asset finance. The internationalprivate banking arm, too, had a good year,enjoying strong organic growth and the benefitsof expansion through acquisition.

Looking ahead

Growth prospects for the year ahead appearhighly positive. Continuing advances in the UKmarket are likely to coincide with considerablepotential on the international private bankingfront, where IBUK’s operation is recognised asbeing low on the growth curve. With many of thebusiness integration issues already dealt with,the various teams within IBUK are well


55

positioned to benefit from further organicgrowth, increased distribution capability and anaggressive marketing programme.


The Investec Group has long been a participant inthis market, with a traditionally strong privatebanking background in South Africa having, inrecent years, been augmented by an increasinglyinternational private banking capability. As a resultof the Group’s recent acquisitions, Investec cannow boast a private banking offering that includesnot only the various jurisdictions in which theGroup is represented but a very strong degree ofinteraction and integration between all of these.Investec’s private banking activities nowencompass Australia, Israel, South and SouthernAfrica, the UK (which incorporates the ChannelIslands) and Zurich and embraces a fully self-contained suite of private banking services.

As with the broader strategy of the Investec Group,Investec’s Private Banking activities revolve aroundthe clear desire to follow Investec’s client base andto supplement domestic competence and criticalmass with the additional benefits of cross-borderemphasis. The Group’s private banking ambitionsrevolve around the clear desire to be the dominantprovider of the best integrated financial solutionsfor its selected client base in each of the regionsin which it operates.

Financial Results, Private Banking (Rm)

%1999 1998 Change

Total Assets 14 221 12 368 14,98



% contribution to Group 19 22



DESPITE THE TEMPORARY ”hiccup” represented by last year’s financial crisis, the global wealthexplosion continues largely unabated. Driven by the ongoing realities of financial deregulation,liberalisation and privatisation around the world, as well as by the rapid growth of entrepreneurialbusinesses and stock market appreciations, the sheer magnitude of global wealth creation in recentyears has spawned greatly increased international banking focus on the opportunities presented byprivate banking.

Private Banking Activities

51

19%

17%

14%8%

7%

35%


Private Banking

Asset Management



Insurance


52

PRIVATE BANKING ACTIVITIES - AUSTRALIA

INVESTEC AUSTRALIA WAS established in June1997 as a Merchant and Private Bank to providethe Group with a conduit for its internationalfinancial operations. Based in Sydney, theoperation focuses on the provision of boutiquefinancial solutions to the professional and highnet worth market. It engages in such areas ofactivity as loan and specialist finance, crossborder finance with specific focus ontransactions between South Africa and Australia,structured leases, operating and financial leases,guarantees, cross-currency loans, specialisedletters of credit and syndicated loans.

Year under review

Of all the economies adversely impacted upon bylast year’s prolonged financial crisis, Australia isalmost unique for having been able to shrug offany lasting consequences. As such, the domesticenvironment remained broadly favourable duringthe period, a consideration that enabled InvestecAustralia to make further advances in its chosenareas of activity. Investec Australia enjoyedsignificant growth in volumes during the periodand, whereas, on inception, it had sought topursue its private banking activities by means ofleveraging off the ex-South African emigrantbase, where name recognition is strong, by lastyear a full 60% of Investec Australia’s privatebanking business was sourced from residentAustralians.

During the period, as can be seen in the chapteron the Group’s Asset Management Activities,Investec Australia acquired the ACSIS Group ofCompanies, a move designed to provide it with aplatform for entering the growingsuperannuation sector of the Australian market.

Looking ahead

The new financial year is expected to be anotherfavourable one, with plenty of underlying growthpotential. Conscious that its activities have notyet attained critical mass, Investec Australia willremain alert to all possible opportunities toaugment, by means of strategic acquisition, itscurrent position.

PRIVATE BANKING ACTIVITIES - ISRAEL

ISRAEL GENERAL BANK (IGB), which was acquiredby Investec in 1996, has a niche profile verysimilar to that of the wider Investec Group. Itfocuses on the private banking needs of anexclusive clientele made up of high net worthindividuals and corporate clients and offers ahighly personalised service in this regard.

Year under review

Although the general economic environmentduring the period was not a particularlyconducive one, last year’s liberalisation of thedomestic foreign exchange market nonethelessgenerated new opportunities for private banking,particularly on the international front, and theperiod gave rise to notable interaction betweenIGB and the Group’s other regional privatebanking activities in pursuit of these.

Having previously launched an Internet bankingsite, IGB saw further significant growth involumes via this medium during the period.

Looking ahead

Amid expectations that the medium-term willgenerate significantly increased levels of bothcorporate and economic activity in Israel, theprognosis for IGB’s private banking activitiesappears highly positive. The advent of InitialPublic Offerings in the corporate arena as well asfurther developments in relation to Israel’salready well-established comparative advantagein the field of information technology, suggestample opportunities for both wealth creation andwealth management within IGB’s targeted clientbase.

PRIVATE BANKING ACTIVITIES, SOUTH AFRICA

- Private Banking Division- Investec Investment Management Services (IMS)

Private Banking Division

Charged with the twin tasks of creating andmanaging wealth for its select client base,


53

Investec’s South African private bankingactivities are long established, highly regardedand embrace the activities of each of the CapeTown, Durban, East London, Johannesburg,Pietermaritzburg, Port Elizabeth and Pretoriaregions.

In what has, in recent times, become anincreasingly competitive environment for privatebanking, the essential value proposition providedby Investec’s private banking arm is therecognition that is clearly differentiated withinthe marketplace by virtue of its skills base andthe added value that it can generate. In anindustry quite distinctly motivated byrelationship management, not product offering,Investec seeks to develop a unique understandingof each targeted client’s balance sheet, with aview to designing a customised financial strategyfor that client which includes advisory-basedproducts and services, and incorporates suchelements as local and international lending,investment, fiduciary and structured productsand services.

Year under review

Having spent much of the previous yearformalising its medium-term strategy, the periodunder review saw aggressive moves by the privatebanking division towards the implementation ofpreviously-agreed strategic endeavours. The yearwas therefore one of strong internal delivery,with continued upskilling by all private bankemployees, the development of a comprehensiveinternal information infrastructure, theintroduction of a number of new technology-based products and services and the launch of anaggressive marketing programme designed to re-inforce the strength of Investec’s private bankingbrand within the market-place.

The domestic operating environment, as has beenconsistently mentioned throughout this report,was largely unfavourable during the period, withthe rand’s sharp depreciation, successive interestrate rises and a sharply weakening economy allserving to generate a very unfavourable lendingenvironment. Despite this, the domestic privatebanking division managed to grow its fundsunder management, increase its level ofadvances, increase both margin and fee income

and enjoy new revenue streams as a consequenceof its move into new areas of business, such asadvisory and foreign exchange, with last year’sacquisition of Insinger Trust PLC also adding todomestic fiduciary capacity. While the privatebanking book was inevitably stress tested duringthe period, the increase in bad debts was held toremarkably low levels, a consideration which paystestimony to the strong risk managementcapability within the division.

Looking ahead

A more accommodating domestic environment inthe new financial year, with less variability inmargin income, augurs well for increasedbusiness activity within the private bankingdivision. Quite independently of externalconsiderations, however, the new year will seethe launch of the Private Bank Card Account,additional new product development, increasedemphasis on technologically based products withfull use of the Internet, full and proper use ofthe International Private Banking infrastructureand a continued determination to capitalise onthe mileage created by means of a recently-launched bold, and highly successful, marketingcampaign. Of course, meaningfully increasedbrand recognition for the Private Bank assumesenormous importance in view of the increasedvisibility and spillover benefits for the widerGroup.

Additional new opportunities for the privatebanking division are also likely to be forthcomingin the new year as a consequence of the Group’srecent acquisition of HSBC Simpson McKie’sJohannesburg Retail Stockbroking arm.

The private banking division has set ambitiousinternal targets for requisite performance overthe medium-term. Against a number of nowconcrete and readily identifiable measurables forperformance, it continues to place enormousemphasis on the competence aspects required byall employees and, to this end, encouragesongoing multiskilling on their part, aconsideration greatly enhanced by an in-housededicated private banking college. Last year’slaunch of Investec Connect, a 70-seater callcentre that distributes retail products andservices through state of the art technology, also


54

places strong demands on associated employeesin terms of requisite skills and knowledge, achallenge to which all have respondedenthusiastically and with clearly visible results.

Investec Investment Management Services (IMS)

IMS DEVELOPS AND markets a range ofsophisticated, investment-linked products thatare designed to meet the investment, tax andretirement needs of South African investors. Itdeals exclusively through a select number ofindependent and corporate financial advisors andenjoys a strong degree of market penetration.

Year under review

Despite the marked deterioration in the localfinancial environment which occurred during theperiod, last year was an extremely successful onefor IMS. Returning to profit after several years oflargely systems-induced poor performance, IMShas successfully repositioned itself as a majorservice provider in the domestic market for theadministration of retail investment products. Thishas occurred largely as a consequence ofsteadfast determination to resolve internalsystems and administrative shortcomings as wellas the launch of some new investment productsto its clearly defined target market.

Looking ahead

The new financial year promises to be anotherfavourable one. Renewed market stability hasseen IMS’ assets under administration return topre-crisis levels while the advent of a number ofnew products, some of which are still subject toregulatory approval, is expected to add quitemarkedly to business flow in the year ahead.Although the industry remains characterised bychange, uncertain direction and is currently in astate of flux, IMS remains confident about futurepotential and foresees an increasingly evolvingrole for itself, from investment administrator toinvestment advisor. To this end, it intendsembarking on an appropriate recruitment drive inthe year ahead.

PRIVATE BANKING ACTIVITIES, SOUTHERN AFRICA

A RELATIVELY RECENT area of focus, the InvestecGroup is now seeking to pursue private bankingopportunities in both Botswana and Namibia and,to this end, established a dedicated privatebanking team in Botswana during the course oflast year.

PRIVATE BANKING ACTIVITIES, UNITED KINGDOM

IBUK MAINTAINS TWO distinct areas of emphasiswithin its private banking activities. A longestablished domestic private banking focus, withparticular strengths in the residential andcommercial property markets, has now beencomplemented by an international privatebanking arm, with last year’s acquisition ofGuinness Mahon giving IBUK the necessaryadditional capacity to deliver on the promisesimplied by a comprehensive international privatebanking offering. As with its counterpart inSouth Africa, IBUK offers specialist expertise andproducts to professional and high net worthindividuals while the international privatebanking arm, which concentrates its efforts inthe areas of banking, gearing, investments andfiduciary services, also incorporates the activitiesof both the Channel Islands and Zurich.

Year under review

Against a generally conducive lendingenvironment, IBUK’s private banking divisionenjoyed a good year. On the domestic front,strong performances were registered in the areasof medical lending, property finance, specialistlending and asset finance. The internationalprivate banking arm, too, had a good year,enjoying strong organic growth and the benefitsof expansion through acquisition.

Looking ahead

Growth prospects for the year ahead appearhighly positive. Continuing advances in the UKmarket are likely to coincide with considerablepotential on the international private bankingfront, where IBUK’s operation is recognised asbeing low on the growth curve. With many of thebusiness integration issues already dealt with,the various teams within IBUK are well


55

positioned to benefit from further organicgrowth, increased distribution capability and anaggressive marketing programme.


Investec remains highly optimistic about thepotential for this industry over the long-term. TheEuropean and Japanese pension and mutual fundrevolutions, for instance, have only just begunwhile sensible arrangements for retirementprovision are also being instituted across theemerging market universe. Moreover, despite therecognised maturity of the Anglo-Saxon markets,relative full employment in these economiescontinues to fuel cash flows into national pools ofretirement savings. As such, the wealth explosionin the developed world and the consequent growthin offshore private banking and financial planningbode well for providers of offshore financialservices. The Investec Group, through InvestecGuinness Flight, is well positioned to exploit thesetrends given its portfolio of established onshoreinstitutional and retail products and its strongglobal offshore franchise.

While Investec Guinness Flight constitutes the coreof the Group’s institutional and retail assetmanagement activities, private client fundmanagement services are provided throughInvestec Australia, Israel General Bank, InvestecPrivate Bank and Investec Securities in SouthAfrica and Carr Sheppards Crosthwaite in the UK.

Financial Results, Asset Management Activities(Rm)

%1999 1998 Increase

Third Party AssetsUnder Management (bn) 231,3 162,8 42,1



% Contribution to Group 17 12



AGAINST THE RECOGNISED ageing of mature nations and widespread global moves towards welfarereform, the Group’s global asset management activities are well positioned to benefit from the continuedglobal trend towards funded pension schemes. Although the past financial year was characterised byunusual levels of volatility in financial markets which inevitably impacted on the global asset managementbusiness, the strong recovery of equity markets during the first quarter of 1999 has since re-establishedgrowth expectations for the asset management industry worldwide.

Asset Management Activities

57

17%

14%

8%

7%35%

19%


Private Banking

Asset Management



Insurance


58

BACKGROUND TO INVESTEC GUINNESS FLIGHT

WITH R130 BILLION under management and 435people working in offices in London, Cape Town,Johannesburg, Hong Kong, Los Angeles, Dublin,Guernsey, Windhoek and Gaborone, InvestecGuinness Flight is one of the 150 largest non-USfund management groups in the world. The businessstems from last year’s successful merger betweenInvestec Asset Management and Guinness FlightHambro, subsequent to the Investec Group’sacquisition of the latter during the period.

Investec Guinness Flight is a thoroughly moderninvestment management firm, involved in three keyareas of activity: investment, increasinglysophisticated marketing and distribution capabilityand operations, which include administration andtechnology. For the modern multi-market, multi-product firm, these three areas are equallyimportant. Investec Guinness Flight retains controlover all three areas of activity, although parts ofeach may be outsourced from time to time.

First presented to the market as a new brand on 11November 1998, Investec Guinness Flight is run asone global entity and one business, driven by onemanagement team. The key functional areas areglobally integrated and co-ordinated along bothgeographic and product lines. This unique matrixstructure ensures a high degree of marketresponsiveness as well as a maximum leveraging ofexisting skills and capabilities within the firm.

Within Investec Guinness Flight, an investment teamof 70 people operates from 3 locations (London,Cape Town and Hong Kong) and is globally co-ordinated along asset class lines. During the comingyear the equity team will complete its move towardssector-based analysis. Investec Guinness Flight’sinvestment philosophy seeks to embrace the powerof individual specialisation and flair, with a highdegree of disciplined teamwork. While the assetmanagement industry has clearly moved on from thenotion that gifted individuals can somehowoutguess markets on a consistent basis, InvestecGuinness Flight affords its staff the opportunity towork in a team environment, supported by rigorousprocesses for asset allocation, stock selection, creditassessment and portfolio construction andtransaction execution.

Year under review

The year to March 1999 was a watershed year forInvestec Guinness Flight. Not only did it completeits programme of internationalisation with theacquisition of Guinness Flight Hambro, it also

maintained the strong growth momentum and theexcellent investment performance associated withits core South African business, formerly known asInvestec Asset Management.

More than R12 billion of new business wasgenerated in South Africa last year and both retailand institutional product ranges performed wellduring the period. On the institutional side, InvestecGuinness Flight was ranked top performer over boththree and five years while obtaining second placefor the one year period to December 1998, in theAlexander Forbes survey for large managers in theSouth African market. For the period ended March1999, Investec Guinness Flight again featured firstover three years, second over five years and secondover a one year period.

On the retail side, Investec Guinness Flight achievedsecond place in the Plexus Survey for overall unittrust performance. Its Opportunity Fund ranked asthe top retail fund in the South African market forthe 1998 calendar year, as well as first for the yearended March 1999. The Commodity Fund alsofeatured among the top five funds across allcategories. For the year ended March 1999, itfeatured as the number one performer in itscategory over a six-month, one year and two yearperiod, while notching up the second spot over athree year period. For the year to March 1999, theOpportunities Fund once again came first out of theentire universe of South African unit trusts. Also inthe industry Top 10 were the Commodities Fund inthird position and the Worldwide Fund in sixthposition. The Gilt, Managed and General EquityFunds all maintained their excellent long term trackrecords during the year.

The Worldwide and Money Market Funds were thebig commercial successes of the past year. TheWorldwide Fund ended the year second in itscategory, but grew from a mere R350 million to overR2 billion during the period, while the domesticinterest rate environment, combined with anexcellent portfolio management and marketingeffort, enabled the Money Market Fund to growfrom R1.9 billion to R4.3 billion.

Investec Guinness Flight’s overall Unit Trust businessin Southern Africa grew by 40% during the period,to end the year at R14 billion. Investec GuinnessFlight produced 20% of all net flows in South Africaduring the period, with overall market share nowexceeding 14%. Towards the end of the reportingperiod, two exciting new funds were launched, theMicrocap Fund and the Select Fund of Funds. Thelatter is aimed at both the client who wants to buythe best of Investec but is not sure which fund topick and the client with limited funds who may not

otherwise be able to afford the minimuminvestment required for a spread of InvestecGuinness Flight funds.

Investec Guinness Flight’s business continued toexpand across the Southern African region duringthe period. Whereas volumes in Botswana are slowlymoving to critical mass, the Namibian business hasshown excellent growth and, following a verysuccessful foray into the Namibian institutionalmarket, Investec Guinness Flight also entered theretail market during the period. Indeed, the InvestecGuinness Flight Namibian Equity fund notched up abrilliant performance of 116% in its first year,against a market performance of -22%!

During the past year, Investec Guinness Flight’sDublin operation came of age. This has beenorganically grown on the back of the initialrelaxation of South African exchange controlregulations in 1996 and, by March 1999, InvestecGuinness Flight funds listed in Dublin, which areprimarily distributed to South African institutionalclients, had exceeded $650 million. A notablesuccess in this stable was the Global TechnologyFund, which managed to outperform the Nasdaq by28% (a 64% absolute return) at a time whentechnology stocks were all the rage, a developmentthat again confirms the success of InvestecGuinness Flight’s sector-based investment model.Soon after the financial year-end, Investec GuinnessFlight expanded its office in Dublin and this isexpected to result in significant savings andimproved client service over the medium-term.

Investec Guinness Flight’s UK-based activitiesperformed remarkably well during the period,despite the obvious burden of last year’s merger. Theinstitutional team acquitted themselves well byretaining all key clients in the face of attendantuncertainties. Half of the R68 billion of businesssourced from the UK forms part of the fast growingcash management business. This team has achievedthe top spot in the William Mercer survey in two ofthe past four years, including last year. During thepast six months Investec Guinness Flight addedapproximately R13 billion of new business from thissource. Although this business has historicallyfocused on UK municipalities, it has recentlyexpanded into the insurance and corporate markets,both of which hold the promise of excitingpotential. Although cash management fees aresignificantly lower than those of traditionalmandates, the stable nature of this business isclearly highly attractive.

Investec Guinness Flight’s UK unit trust businessremains below critical mass and, despite excellentperformance in the small company area, core

product performance needs to be improved andrelationships with major distributors strengthened.This process is already underway. The investmenttrust business is currently performing superbly - notonly did Investec Guinness Flight manage to raiseR600 million by launching a new trust in Octoberlast year but the other funds in the stable performedvery strongly during the year. These include TempleBar, City of Oxford, Archimedes and Hambros AsianSmaller Companies Trust. This area represents anexciting, high margin niche business, whichleverages off the larger UK investment team and theoperational capabilities of the overall business.

Offshore fund performance last year was good, withmore than 70% of all funds in the upper half oftheir Micropal categories. Assets under managementremained constant, but the market is becomingincreasingly competitive, as the major US housesmove into the offshore business. Investec GuinnessFlight needs to improve offshore distribution bymeans of appropriate alliances and this will remaina core focus.

During the year, as part of its post-acquisition re-organisation, Investec Guinness Flight closed downits former Asian (ex-Japan) investment capacity inLondon and transferred these responsibilities to theHong Kong team. Despite a very difficult year inAsia, the team in Hong Kong has risen to thechallenge and Investec Guinness Flight remainsoptimistic about the medium-term potential to sellits Asian expertise in the US as well as in Europe, inboth the retail and institutional markets. Asignificant drive to raise assets in Hong Kong iscurrently underway.

Investec Guinness Flight maintains a modestoperation in the USA, focusing on the no-load,specialist market. On the performance side, theInternational Government Bond Fund was first in itscategory in the US for the 12 months to 30September 1998, sixth out of 203 funds for the 12months to 31 December 1998 and fifth for the yearto March 1999. During the past year, thedistribution of Investec Guinness Flight’s Asianproduct, for which it is well known in the US no-load channel, was hampered by the now welldocumented Asian crisis. Investec Guinness Flightresponded by launching its Wired Index Fund inDecember. A unique product, it benefited fromcontinued market interest in technology stocks andhad attracted net flows of $58 million by the end ofthe financial year. These subsequently broke the$100 million barrier. Even though the US operationis far from critical mass, Investec Guinness Flightbelieves that participation in the world’s largest andmost sophisticated mutual fund market makes aninvaluable contribution to organisational learning.


59


60

The past year was extremely demanding from anoverall operational perspective. Integrating diversesystems platforms, business processes and themanagement of a range of different regulatoryregimes is not easy. Euro and Y2K compliance alsodemanded significant efforts from the operationsteam. However, Investec Guinness Flight remainsconvinced that good investment managementbusinesses should acknowledge that they are notsimply in the portfolio management and marketingbusinesses but in those of administration andinformation technology as well. It continues toidentify these areas of activity as high priority.

Looking ahead

Following on the considerable advances of last year,the new financial year promises to be one ofconsolidation and capacity creation for InvestecGuinness Flight. In order to sustain desired growthrates, it intends ensuring that necessary operationalcapacity and infrastructure investments are made,with its current e-commerce initiative key in thisregard. Investec Guinness Flight is confident that itwill be able to cope with the challenges posed by Y2K.

Much time, energy and attention will continue to bedevoted to people since Investec Guinness Flightremains committed to creating an environment inwhich the best in the investment managementindustry can thrive.

Investec Guinness Flight will continue to mould itsportfolio of products and capabilities into a tightlyknit, focused unit. The cost base must be furthersqueezed by the elimination of marginal activitiesand continuous advances in operational efficiency.

A major focus in the new year will be a revision ofthe manner in which Investec Guinness Flightdistributes and packages its investment products.The Internet has changed the world in which we livein a most profound way and both the technologyexplosion and changes in customer demand haveprompted a rethink of traditional delivery methods.To succeed beyond 2000, it is clearly recognisedthat Investec Guinness Flight needs to come toterms with market demands for better and moreefficient product packaging and, to secure itsposition as a large mainstream manufacturer ofquality investment product, it will also have to offeradministrative capabilities that satisfy the needs ofits hard won clients. Further growth will require thepursuit of high quality alliances with a range ofdistributors. While Investec Guinness Flightrecognises the enormity of this challenge, it alsorecognises the potential benefits that would flow asa consequence.

As the asset management industry continues toglobalise, the pressure on medium sized businesseswill increase. The industry is expected to adopt a“barbell” shape, with a dominant cluster of brandedglobal institutions on the one side and a plethora ofowner-managed boutiques on the other. Medium-sized firms like Investec Guinness Flight will have tobe clear about which side of the barbell they wouldlike to end up on. Given Investec Guinness Flight’sstated intention of offering a high quality globaland domestic product in each of its chosen markets,it acknowledges that it needs to continue to growrapidly over the next few years. That said, it isnevertheless convinced that this industry is stillfragmented enough to allow space for a competentmedium sized business to prosper. Theunprecedented levels of mergers and acquisitionswhich continue to characterise the global fundmanagement industry also represent a clear sourceof opportunity, with blue chip institutional clientsand consultants likely to be looking around for newnames to add to their search lists. For that matter,high quality professionals, who neither want to be aminute cog in a huge wheel nor to confront theinevitable hassles associated with a startup, will beattracted to the entrepreneurial and collegiateculture of the Investec Group.

Investec Guinness Flight is confident that it nowhas adequate financial and human resources, andample opportunities, to build an asset management“superboutique” that is capable of holding its ownagainst the best in the world in its chosen markets.In a world characterised by “sausage machine”asset gathering, Investec Guinness Flight intendsdifferentiating itself by emphasising theimportance of creative people and relationships,without in any way sacrificing the discipline sointegral to success.

PRIVATE CLIENT FUND MANAGEMENT, AUSTRALIA

Investec Australia

IN NOVEMBER 1998, Investec Australia acquiredthe ACSIS Group of Companies with A$170 millionof funds under management, a development thatprovides a platform for entering the growingsuperannuation sector of the Australian market. Thecompany has an excellent track record and operatesten definitive funds. Investment is made on a fundof fund basis to ensure effective asset allocationand manager selection via a master trust. A similarsuite of unit trusts products was also establishedthis year, bringing total funds under managementto A$200 million. Compulsory superannuation of7% of salaries provides excellent growthopportunities in this area. Australia is currently


61

ranked number seven in the world in terms ofpension fund assets and is projected to grow tonumber four by the year 2030.

PRIVATE CLIENT FUND MANAGEMENT, ISRAEL

Israel General Bank

ISRAEL GENERAL BANK (IGB) is a highly recognisedplayer in domestic markets and engages in privateclient fund management activities through itssubsidiaries, Calil-Clali for Consultancy and PortfolioManagement Limited, and Mutual FundsManagement Company of Israel General BankLimited. Both outlets adopt an investment policythat is conservative in relation to stocks andaggressive in relation to the debenture markets.Israel General Bank’s Mutual Funds ManagementCompany runs a number of mutual funds, several ofwhich are recognised as the best in their field. Afterseveral years of steady growth, the new yearpromises a number of new investment opportunitiesfor clients, as local financial markets benefit fromstructural economic reform, increased foreigninvestment and new company listings.

PRIVATE CLIENT FUND MANAGEMENT, SOUTH AFRICA

Investec SecuritiesPrivate Banking Division

AS DISCUSSED ELSEWHERE in this report, bothInvestec Securities and Private Banking divisions inJohannesburg engage in private client fundmanagement activities on behalf of their targetedclient base.

Investec Securities Private Client Stockbroking had agood year, despite the vagaries of the market duringthe period. Continued strong growth in volumesoccurred, in part because of the division’srecognised capability in relation to asset swaps.

Private Banking division, for its part, saw its effortsto make inroads into the provision of assetmanagement activities for high net worthindividuals make significant advances during theperiod.

PRIVATE CLIENT FUND MANAGEMENT, UNITEDKINGDOM

Carr Sheppards Crosthwaite

FORMED OUT OF the amalgamation of CarrSheppards and Henderson Crosthwaite, the former

having been acquired by Investec in late 1996 andthe latter through Investec’s 1998 acquisition ofGuinness Mahon, Carr Sheppards Crosthwaite is asignificant player in the UK market for privateclient investment management services, as well asfor out-sourced administration services to otherUK financial institutions.

Year under review

Notwithstanding the obvious difficultiesgenerated by last year’s global financial crisis,Carr Sheppards Crosthwaite had a very good year,enjoying strong organic growth in both itsprivate client fund management business andsignificant growth in its administrative servicesbusiness, in part because of sizeable newbusiness flow. During the year, Carr SheppardsCrosthwaite won a number of new investmentmandates from both charities and small pensionfunds while also being awarded a Micropal awardfor fund performance.

Much of the year was taken up with working outthe details of Carr Sheppards’ merger withHenderson Crosthwaite. Complicated and intricate,largely given the differences between the twofirms in areas such as information technology,charging structures and remuneration systems, themerger took some ten months to finalise butculminated in the combined move to IBUK’s newpremises at 2 Gresham Street at the beginning ofMarch. The merger is now largely digested and hasbeen successfully bedded down, although there aresome clear areas where homogenisation needs tobe improved.

Looking ahead

Carr Sheppards Crosthwaite anticipates anothergood year, with new business likely to flow as aconsequence of earlier marketing endeavours,some cross referrals from the broader InvestecGroup, increased internal efficiencies and agenerally more supportive domestic financialenvironment. Objectives for the year include acontinued focus on excellence of service, bymeans of ongoing in-house training anddevelopment, and improved quality of investmentadvice, through ongoing advances in internalresearch capability. IT developments will also be atthe forefront of internal focus for much of theperiod.


The apogee of last year's global market fearsoccurred in September, when conditions close tooutright panic prevailed in all major markets.Following on the previous month's devaluation ofthe Russian rouble and a moratorium on Russiangovernment debt, September gave rise to adramatic flight to quality, a severe widening incredit spreads and outright fears of a global creditcrunch, all of which led directly to the failure anddramatic rescue of US hedge fund, Long TermCapital Management. The immediate response ofthe US Federal Reserve was to lower the fed fundstarget rate by 25bps in September, October andNovember. Elsewhere around the world similar suchinterest rate action also took place, in varyingdegrees of magnitude.

By the end of the financial year, however, despitewar in the Balkans, the financial world was seen tobe a safer place, largely thanks to the reflationaryefforts spearheaded by the US authorities. The UScontinued its robust growth, Wall Street attainedrecord highs, the leaner and more flexible Asianeconomies were well on the way to recovery andeven Japan seemed to be coming out of intensivecare. The only factor common to all economies in1998/99 was the notable absence of inflationarypressures, in itself partly attributable to earlierfallout in Asia.

In what was, therefore, an extraordinarily volatileperiod for global financial markets, extreme marketmovements occurred in virtually each of themarkets in which Investec pursues its securitiestrading operations. These include Israel throughIsrael General Bank, South and Southern Africa,through Investec Securities Limited in both SouthAfrica and Botswana, the United Kingdom, throughInvestec Bank (IBUK), IBL Trading and InvestecHenderson Crosthwaite Securities and the UnitedStates, through Investec Ernst & Company.

Financial Results, Securities Trading Activities (Rm)

%1999 1998 Increase

Total Assets 59 605 45 380 48,4




Cost/Income Ratio 75,4


WHETHER FOR BONDS, equities, foreign exchange, money markets or commodities, the past yearwill long be remembered as a very turbulent and enormously volatile period in international markets.Although the year began favourably enough, with international confidence beginning to return after thevarious Asian economic crises of the previous year, this quickly proved short-lived, with subsequent verymarked currency depreciations in Korea and Indonesia paving the way for renewed, increasinglywidespread, emerging market concerns. These were to last for much of the year and, although initiallyconfined to emerging economies alone, later gave rise to near-universal investor anxiety, in large partbecause of fears relating to the possibility of global systemic weakness.

Securities Trading Activities

63

8%

7%

35%

19%

17%

14%


Private Banking

Asset Management



Insurance


64

SECURITIES TRADING - ISRAEL

Israeli macro-economic and financialdevelopments.

QUITE APART FROM broad global influences lastyear, the local economy was subjected to a numberof negative cyclical developments during theperiod. Continued stringency on the broad policyfront gave rise to increasingly obvious economicdeceleration, with global developments towardsthe end of 1998 subjecting Israel to the currencypressures previously experienced elsewhere in theemerging market universe. Generally unsupportiveunderlying economic realities aside, however,developments on the domestic political front werenot particularly conducive either, with the late1998 collapse of the coalition government andvery uncertain progress towards theimplementation of the Wye Agreement serving tohighlight the continuing vagaries of the regionalsecurity situation. Towards year-end, however,resumed interest rate declines in response to ameaningfully improved inflation outlook, hadenabled the local equity market to once againadvance. Subsequent to the financial year-end, thegeneral election resulted in a notable win for theLabour Party, a development which encouragedrenewed market confidence that the peace processwould be revived and that official structuraleconomic reform would be more vigorouslyenforced.

SECURITIES TRADING, ISRAEL GENERAL BANK (IGB)

A FORMER SUBSIDIARY of the Edmond deRothschild Group, Investec acquired a controllinginterest in IGB in April 1996. The eighth largestbank in Israel, IGB is a recognised player in thelocal securities markets and is known as "thebroker's broker". IGB offers professional tradingservices to member and non-member brokers aswell as to private investment portfolio managers,private clients and corporate clients. It isparticularly active in the market for preciousmetals and gold bullion and finances more than aquarter of Israel's annual imports of gold.

Year under review

Last year merely saw a further continuation of thecrisis that has dogged the domestic capital marketssince 1994. Characterised by widespread investoruncertainty, which served to depress volumes, thereporting period was, again, difficult from asecurities trading perspective. Towards the end of

the period, however, there was a notable pick-upin market activity, as local interest rates began tofall and optimism regarding the general electionoutcome began to filter through.

During the course of the period, IGB was given aseat on the board of the Tel Aviv Stock Exchangein recognition of its prominence as one of the fivelargest players in the local capital market, whilethe bank also successfully launched an Internettrading site for local securities, the first of its kindin the domestic market. The period also saw adetermined drive to explore synergies with the restof the Group's securities trading operations, with aview to formally launching the distribution ofIsraeli equity product in both the UK and the US inthe new financial year.

Looking ahead

The new financial year has begun in highlyfavourable fashion, amid a dramatic increase involumes and renewed investor optimism regardingthe market opportunities that will follow on amore stable political and economic environment.Plans are firmly advanced for tapping intodedicated UK and US institutional interest inIsraeli stocks, this by means of the establishmentof an in-house research team, to be based in TelAviv, and an expansion of the Group's existingSouth African desk in London to include Israelisales as an augmented component of its emergingmarket offering.

SECURITIES TRADING - SOUTH AFRICA

South African macro-economic and financialdevelopments.

THE DOMESTIC FINANCIAL environment adoptednear-schizoid tendencies during the period.Alternating between periods of euphoria, duringwhich local markets scaled new highs, and outrightperiods of depression, in which local marketsplumbed five-year lows, the period was marked byquite extraordinary volatility, most of whichoriginated in the ebb and flow of global investorsentiment towards emerging economies in generaland South Africa, at times, in particular.

The early part of the 1999 financial year sawbroad-based market gains, largely founded onrecognition that the domestic economic cycle hadfinally turned, that interest rates had begun to fall,that inflation was set to decline and that the randwould remain comparatively strong. This early bull


65

run, however, quickly evaporated in the face ofmounting global investor concerns regarding theperceived relative attractiveness of the so-calledemerging market bloc.

Following on from the mid-1997 devaluation ofthe Thai Baht, international currency speculatorshad, in the early months of 1998, begun to settheir sights on those other emerging marketcurrencies deemed to be vulnerable, thistranslating into a ferocious subsequent assault onboth the Korean Won and the Indonesian Rupiah.When it became apparent that the consequencesof domestic currency collapse in Indonesia mightinclude outright political collapse, what hadpreviously been a case of predominantly localisednegative sentiment towards the Pacific Rimeconomies spilled over into a full-blown emergingmarket crisis, at which point South Africa, too, wasdrawn into the fray.

South Africa's crisis initially manifested itself in awithdrawal of previously-invested foreign portfoliocapital in South Africa, during which phase therand moved from a previous R5,00 against thedollar to a figure slightly below R5,50.Subsequently, however, the rand moved in twodistinct ratchet movements, from R5,50 to R6,10and from R6,10 to just below R6,80, each of whichwas motivated by investor response to mainlydomestic considerations, these relating in the mainto perceptions that the domestic authorities hadbadly mishandled the assault on the local currency.As a consequence of the rand's pronouncedweakness, which, at its worst, reflected a declineof some 35%, interest rates were forced from18,25% to 25,5%, a level previously seen some 12years earlier. In the face of both pronouncedcurrency weakness and the dramatic rise in thecost of capital, local markets imploded, with longbonds increasing from an earlier low of 12,5% to arate just under 22% and with the All-Share Indexlosing some 45% of its value, from peak to trough.

The dying months of 1998 saw renewed stabilitywithin the domestic context, despite mountinginternational anxiety regarding the health of theglobal financial system. In part as a consequenceof widespread international moves towardsmonetary policy relaxation, local interest rates,too, began to reverse, a process which clearlypicked up pace in the early months of 1999, bywhich time, of course, the real economicconsequences of 1998's market havoc had onlybegun to become apparent. The financial yearended amid the recognition that the local economywould remain weak for much of calendar 1999 butwhere prospects of continuing interest rate

declines would serve to minimise the consequenceson earnings of an otherwise generally adverseenvironment. By year-end, equities had retraced36% from their 1998-low, while bonds, at a year-end rate of 14,85%, had responded not just tofalling interest rates but to a considerably morestable rand, favourable budget realities and theexpectation that inflation was set to fall smartlyover the medium-term.

SECURITIES TRADING, INVESTEC SECURITIESLIMITED

THE AMALGAMATION OF Investec's 1996acquisition of local stockbroking firm FergussonBros. and the previously formed Investec Equities,Investec Securities Limited provides a completerange of stockbroking services to its institutional,corporate and private client base.

Year under review

Despite the largely unfavourable securities tradingenvironment which predominated as a consequenceof last year's successive emerging market crises,giving rise on occasion to both markedly depressedvolumes and increased illiquidity, the period was agenerally favourable one for Investec Securities.This manifested itself not just in terms ofsubstantially higher revenue but also in terms ofthe division's achieving a number of previouslyidentified internal objectives and goals.

The most tangible measure of Investec Securities'performance last year is clearly to be found in itstotal nominal contribution to Group earnings,which increased quite substantially. The period wasalso notable, however, for the fact that, in verylarge part, it symbolised the culmination ofprevious management endeavours to moreappropriately position the division to meet bothclient needs and competitive demands. To this end,the period saw meaningfully increased emphasis onthe need to distinguish between InvestecSecurities' two core businesses and respectiveclient bases, ie. between Institutional Clients andPrivate Clients, and, by year-end, these hadeffectively been separated.

Addendum

Subsequent to the financial year-end, Investecacquired the Johannesburg arm of HSBC SimpsonMcKie's retail private broking operation. To berenamed Investec Integrated Investments, this


66

22-person operation will clearly complementalready existing activities within InvestecSecurities in the areas of both private client andcorporate stockbroking.

Institutional Clients, Year Under Review

Although Investec Securities' institutional, ie.wholesale, business embraces a number ofdifferent dimensions (research, dealing,settlements) it has, over the years, adopted anincreasingly research-centric focus. This, in turn, ismotivated by the widespread recognition that, inan industry where much the greater amount oftotal industry brokerage is apportioned to just thetop five securities firms, there is a clear need forresearch to be "best of breed". In the face ofenormous competitive pressure, the clear focus ofInvestec's recent research thrust, therefore, hasbeen to refine and expand its research offering, soas to initially secure, and thereafter sustain,Investec Securities' ranking among the top fivestockbroking firms in South Africa.

Last year saw visible progress in this regard.Previously ranked the top domestic stockbrokingfirm but falling somewhat short of the top five byvirtue of the presence of a number of substantialinternational players, last year saw InvestecSecurities move sharply up the industry benchmarkrankings, from seven to four on a pure equity-weighted basis, a performance of which bothInvestec Securities and the broader Group arejustifiably proud.

That Investec Securities' institutional business hassecured more favourable industry ratings is in largepart due to a greatly improved and focused researcheffort, one that has prompted highly favourableclient response. The research team is made up of aunique combination of seasoned, rated, investmentanalysts and sector/industry experts, each of whichstrives to bring incremental insight to his/her fieldof endeavour. The research team scored particularlyhighly for its work in such areas as diamonds, steel,chemicals, derivatives, investment strategy andAfrican research during the period.

The overall research capability of the team wasvisibly augmented during the year, with theexpansion of the "media and technology","financial services" and "industrial holdings"teams, the establishment of a new researchcapability in the field of pharmaceuticals and thecreation, through an amalgamation of existing andnew resources, of a highly experienced resourcesteam, the latter assuming cross-border dimensions.

It was also decided to merge the Group's macro-economic research capability with the equityresearch team, both to widen the degree ofexpertise within Investec Securities and to adddepth to management in the research area.

The institutional dimension of Investec Securities'business enjoyed a much greater degree ofintegration between its research and salesendeavours last year and this will continue toconstitute a core objective over the medium-term.Although the sales function is not a readilyentrenched characteristic of the South Africanfinancial environment in the way that it iselsewhere, there are clear and obvious benefits tobe generated from a symbiotic working relationshipbetween sales and research, which the combinedteams intend to pursue aggressively in the newfinancial year.

The London sales and trading arm of InvestecSecurities made further solid progress last year,gaining in both breadth and depth. Despite theglobal financial crisis, which saw much of theprevious international interest in emerging marketsand equities dissipate, the London unit wasnonetheless well-positioned to take advantage ofthe number of successful primary listings by SouthAfrican companies in the UK market, while alsoenjoying a very substantial increase in secondarytrades out of Europe.

The year under review saw gradually unfolding, andsubsequently significantly increased, collaborationbetween Investec Securities Limited and InvestecHenderson Crosthwaite, the niche UK stockbrokingfirm acquired when the Investec Group purchasedGuinness Mahon PLC in 1998 (specific details onInvestec Henderson Crosthwaite are to be foundelsewhere in this chapter). This increased co-operation confers two immediate benefits, in thatit sows the seeds for a more focusedinternationalisation of the Group's researchoffering to its South African institutional clientbase, while also holding out the prospect of accessto a wider UK institutional client base for SouthAfrican equity product (hitherto confined toemerging market funds), more immediately inrelation to those domestic companies pursuing aprimary listing in London.

In similar vein, last year also saw increasedcollaboration between Investec Securities and IsraelGeneral Bank, motivated by a joint desire to explorethe possibility of augmenting the Group's securitiestrading and distribution capability, in those areaswhere the Group is represented, to include Israeliequities, supported by Israeli research.


67

Last year also saw a number of technologicaladvances, with the JET trading system increasinglymaking way for the near-term introduction ofApplication Programme Interfaces (API’s) which, inturn, will allow for direct trading with institutionalclients. Unfortunately however, it now appears thatthe initial preparatory work in this regard will notbe put to immediate use, since the introduction ofAPI's has been delayed by the JSE until the middleof 2000.

Private Clients, Year Under Review

Although the private client business alsoexperienced a fall-off in volumes as a consequenceof the market's successive reversals last year, theprivate client dimension of Investec Securitiesnonetheless registered a strong performance.Despite a clear preference on the part of privateclients to retain their portfolios in cash rather thanbonds or equities during the period, theintroduction of asset swaps, referrals of businessfrom Investec's Private Banking arm and furthergrowth in the proportion of funds under fulldiscretion earning management fees allcontributed to the bottom line and were theprincipal factors behind last year's growth. Towardsthe end of the financial year, moreover, the privateclient business unveiled its new Internet tradingsite, which, within a matter of just weeks, hadresulted in a very significant flow of new business.

Much internal strategising occurred within theprivate client arm of Investec Securities during thecourse of last year, most of which revolved arounda proposed greater degree of integration betweenthe private client business and Investec's PrivateBank. Subject to Investec's either being granted anadditional stockbroking licence by theJohannesburg Stock Exchange or opting todivisionalise the different operations within itssecurities business, the private client business,while maintaining very close working links withInvestec Securities, will pursue obvious synergieswith the Private Bank in the new financial year.

Corporate Clients, Year Under Review

Much time, energy and focus was devoted duringthe year to nurturing and furthering the extensiverelationships which Investec Securities enjoys withits corporate client base. Although businessvolumes fell in line with depressed marketconditions during the period, Investec Securitiesnonetheless enjoyed much market visibility lastyear, in particular for the number of Sponsoring

Broker mandates which it won. Indeed, on thebasis of the 1999 Ernst & Young Mergers andAcquisition review, Investec ranked joint second interms of the number of transactions on which itacted in this regard last year, a figure thatcompares with its seventh position the yearbefore.

INVESTEC SECURITIES, LOOKING AHEAD

Although the economy remains weak and domesticfinancial markets still have some way to go toreclaim the position prevailing prior to last year'scrash, Investec Securities anticipates a greaterdegree of market buoyancy in the new financialyear. For instance, it is expected that a re-rating ofSouth African financial markets by foreigninvestors, continued consistency in domesticeconomic policy, as well as the adoption of moreaggressive official structural reform post-election,will generate new market opportunities. However,while more favourable externalities wouldobviously contribute to the division's bottom lineover the medium-term, successive restructuringmeasures by Investec Securities in recent years willalso contribute to sounder long-term performance.The division, as currently constituted, is now firmlypositioned to build on the successes of the pastyear and is poised to grasp a number of newopportunities that lie ahead.

Institutional Clients, Looking Ahead

A clear priority for the Institutional Client businessin the new financial year will be that representedby the need to commence distribution of SouthAfrican equities, supported by research, in theUnited States. This, it is intended, should occur bymeans of the Group's existing presence in NewYork, through Investec Ernst & Company (seerelevant section later in this chapter), and isscheduled to commence once all necessary USregulatory and compliance issues have beenresolved. It is also intended that the Group'ssecurities operations be expanded to include thedistribution of Israeli equities, in both London andNew York, again backed up by research.

As previously mentioned, Investec Securities enjoysa close working relationship with InvestecHenderson Crosthwaite. It is intended that the newfinancial year will see further integration betweenthe two teams, particularly in relation to theircombined research endeavours, and that this shouldalso increase to incorporate increased interactionwith Israel General Bank in relation to the proposed


68

distribution of Israeli equities and research in boththe US and UK institutional markets.

The recent trend by South African corporates topursue the benefits of an offshore primary listingwill persist in the new year and offers clearopportunities for the Group's London-based salesand trading arms, as well as for increasedintegration between the research teams of InvestecHenderson Crosthwaite and Investec Securities.

A key objective of Investec Securities remains thatof forging closer working relations with Investec'sCorporate Finance department, so as to pursue theconcept of an investment banking pipeline.Obviously, this relationship must respect and workwithin the confines of Chinese wall realities, butthis requirement aside, there are clearopportunities for the respective expertise ofInvestec's corporate finance and research teams tobe combined in pursuit of investment opportunitiesfor the wider Group. These will be aggressivelyexplored, where appropriate, in the new year.

The new year will also see ongoing attempts tobroaden the research base, this by specific meansof the recruitment of professionals with industryexpertise. An additional human resources or skillingobjective in the year ahead will be to add tocapacity at a more junior level, both so as toprovide a degree of relief to current analyticalstretch and to cater to the longer-term objective ofsuccession planning within the research team.Active risk management will remain a key objectivefor the division in the new year, with market, priceand counterparty risk all constituting importantareas to be regularly monitored by the division, inconjunction with central Group Risk Management.Last year's focus on tightening and strengtheningsettlement procedures within the division is alsoexpected to produce benefits over the medium-term. A widespread Y2K testing of all trading anddealing systems will be an obvious feature of theearly months of the new financial year while thenew year will also bring further advances towardsthe Johannesburg Stock Exchange's planned July1999 target of the electronic settlement of selectedsecurities through STRATE, to be followed by thecomplete adoption of STRATE in 2000.

Private Clients, Looking Ahead

A clear objective for the Private ClientStockbroking division in the new financial year willbe that of advancing and promoting its Internetcapabilities within the marketplace. Already veryfavourably received, the division's Internet facilityrepresents a very strong comparative advantage

that is expected to represent a very strong futuregrowth vector for the team. The private client teamwill also focus on building total discretionaryfunds under management in the new year, anobjective which should draw obvious benefit froma closer working relationship with Investec'sprivate banking arm and the mutual opportunitiesfor a two-way referral of business which this willprovide. Although there is currently some marketspeculation about whether the asset swapmechanism will be retained, Investec Securitiesranks as one of the very few stockbroking firms tohave secured a licence for this type of transactionand will obviously benefit from any further growthin this field of activity.

Corporate Clients, Looking Ahead

The Corporate Client arm of Investec Securities hassecured a pipeline of corporate accounts andmandates that ought to sustain further growth inthe new year, even in the absence of any markedimprovement in the external environment. Theteam has expanded in size, redefined its corecapabilities and identity going forward andanticipates being able to benefit from a moresupportive environment, to make a robustcontribution to bottom line.

SECURITIES TRADING - UNITED KINGDOM

UK macro-economic and financial developments.

LONDON, AS A major financial and investmentcentre, is inevitably subject to prevailing globalmarket influences, these being much as has beendescribed elsewhere in this report, as indeed it wasduring the period. Over and above these, however,there were significant additional domestic markettrends during the year.

The independent Monetary Policy Committee(MPC), created after the Labour election victory in1997, entered its second year of operation. In June,the MPC surprised the market with a 0,25% rise inofficial lending rates, bringing these to 7,5%. Thegrounds for the rise were the observed strength ofaverage earnings growth, a statistic that wassubsequently officially discredited, giving rise tonotable market criticisms of the MPC’s interestrate response.

By September, the aftermath of economic collapsein Asia, Russian devaluation and debt moratoriumand fears of a global credit shortage were taking asavage toll on UK consumer confidence. At the


69

same time, the persistent strength of Sterling wascausing severe problems for the domesticmanufacturing sector. The MPC’s response was avigorous series of rate cuts in each of the next fivemonths. By year-end official rates had fallen to5,5% but, surprisingly, sterling was just as strongas ever, in part perhaps because of its perceivedsafe-haven qualities in the run-up to the officiallaunch of the Euro.

In March 1999, Gordon Brown presented his thirdBudget, which, after initial market fears that itmight loosen the fiscal stance to an unexpecteddegree, was favourably received. The overallpicture of the UK economy, going forward,continues to look remarkably sound, with inflationat or around the 2,5% target level, lowunemployment, low long-term interest rates, soundgovernment finances, a strong currency and risingequity and property markets.

SECURITIES TRADING, IBUK

THE SECURITIES TRADING dimension of IBUKconstitutes the activities of the former CliveDiscount Company (Clive), as well as the Londondesk of IBL Trading.

Year under review

The major developments in each of the sub-sectorsof IBUK's aggregate trading operations last yearare outlined below.

Foreign Exchange. As mentioned elsewhere, themarket volatility of August and September wasparticularly acute in emerging markets. Thisprovided excellent trading opportunities in theRand where IBUK’s established team of marketmakers was able to take full and profitableadvantage. In the second half of the year,following Investec's purchase of Guinness Mahon,the desk was expanded from two traders to four,with the introduction of an additional corporatesales capability. The resultant broadening of theproduct ranges has been well received by bothcorporate customers and the market.

For the non-rand forex desks, the year underreview was notable for the number of changes,both external and internal, which occurred. Boththe global emerging markets crisis and thedevelopments surrounding the introduction of thenew European currency provided significantlyincreased volatility, in which business and volumeswere able to flourish. The recent merger of staff,

balance sheets and customer base in the new IBUKstructure has also created a number ofopportunities that will be aggressively pursued anddeveloped in the new financial year.

Repo & money markets. This division enjoyed a verysuccessful year. A 600% increase in the matchedrepo book and the general widening of creditspreads in the June/December period, togetherwith a 200 basis point fall in official interest rateson the unmatched book, produced the mostprofitable year in this division's history.

Equity lending. This division has worked extremelyhard to maintain its share of the intermediarymarket but the rise in direct borrowing and lendingcontinues to exert very strong competitivepressures on the UK domestic equity business. Thedivision is diversifying into the Eurozone and, aftersix months of preparation, commencedinternational operations at the beginning of April1999.

Central Treasury. The merger of Investec Bank (UK)Limited (IBUK) and Guinness Mahon on January 11999 provided the opportunity to bring the retailand wholesale operations of Investec and GuinnessMahon into a single central Treasury. The team isresponsible for liquidity, funding and themanagement of IBUK's capital and establisheditself firmly in the final quarter of the year underreview.

IBL Trading. As mentioned earlier, the London salesand trading arm of Investec Securities had a goodyear, consolidating its presence in London, despitethe obvious difficulties associated with emergingmarkets during the period.

Looking ahead

While the recognised vagaries of investorsentiment make predicting future marketmovements a near-impossible task, IBUK's tradingoperations are nonetheless reasonably confidentabout prospects in the new financial year. Keygoals include maintaining growth in low risk nicheareas whilst adding corporate and institutionalclient flows to the existing professional business.The centralisation of Group business in London andthe hedging of currency exposures created,continue to take priority. Constant development ofnew product and technology remains essential tothe success of the various areas and the newMarketMaker system, already employed withconsiderable success in Johannesburg (please referto the chapter on Corporate and Investment


70

Banking for further details), will go a long way toenhancing client access to domestic markets.

SECURITIES TRADING, INVESTEC HENDERSONCROSTHWAITE

IN JULY 1998, Investec acquired HendersonCrosthwaite Institutional Brokers, since renamedInvestec Henderson Crosthwaite Securities. Thisoperation has a long established track record and ahigh profile as a sector focused, institutionalstockbroker, offering a research, sales and tradingservice to major institutional fund managers. Inaddition, Investec Henderson CrosthwaiteSecurities acts as a corporate broker to over 50companies within its targeted sectors, workingclosely with the Corporate Finance Division in fundraisings and deal origination.

Areas of sector specialisation include media,telecoms, information technology, support services,leisure, electricals, food producers, food retailers,general retailers, oil & gas, aerospace and defence,engineering, diversified industrials, specialsituations and mining.

Year under review

Despite the difficult trading conditions whichcharacterised much of the period, InvestecHenderson Crosthwaite Securities had a good year,benefiting from the continued close workingrelationship with Corporate Finance, which led toover 20 separate fundraisings during the period.Traditional agency broking also showed steadygrowth, underpinned by a strong commission flowfrom FTSE 100 stocks in the division's targetsectors.

Co-operation with the Group's South Africansecurities operation, Investec Securities, got off toa good start during the year, with a joint SouthAfrican Breweries roadshow prior to its UK listing.

Looking Ahead

The new financial year promises to be a year offurther development and expansion. Steady growthis likely to come from traditional agency brokingdriven by a continued focus on sector basedresearch, sold into Investec HendersonCrosthwaite’s UK institutional base and anexpanding portfolio of international clients. Theintegration of the London-based Middle East andAfrican equity sales and trading team into Investec

Henderson Crosthwaite Securities should furtherenhance the Group's ability to provide seamlesstrading, financing and advice throughout SouthAfrica and the UK, with obvious scope for growthalso emanating from a continued migration ofSouth African corporates into London.

SECURITIES TRADING - UNITED STATES

US macro-economic and financial developments.

THE US ECONOMY continued to grow at a verystrong pace during the period, while inflationremained at unusually low levels, with the mutualcoincidence of these occurrences allowing for veryfavourable market conditions for most of theperiod. Indeed, such was the degree of overalleconomic benevolence last year, that analystsincreasingly began to cite evidence that the USeconomy had entered a “new paradigm” ie. afundamental positive shift that would enable it togrow faster than its historical trend, on apermanent basis. Although marked uncertainties ininternational markets resulted in a downturn in theUS markets during the summer months, subsequentmoves by the Federal Reserve to reduce rates by 75basis points enabled US equities to make a strongrecovery. By year-end, local markets were onceagain flirting with all-time highs.

SECURITIES TRADING, INVESTEC ERNST &COMPANY (ERNST)

INVESTEC ACQUIRED ERNST in January 1998 toserve as a strategic base for the Group in theUnited States. Investec Ernst & Company is aregistered broker-dealer in securities and is amember of the New York Stock Exchange, NationalAssociation of Securities Dealers, Chicago BoardOptions Exchange and other regional exchanges.Its lines of business include: securities clearanceservices for other broker-dealers; institutional andretail commission brokerage; market making inNASDAQ and OTC securities; equity, option andfixed income execution services; and securitieslending activities.

Year Under Review

This was the first full year for which theCompany’s operating results are included withthose of the Group. The additional regulatorycapital which was provided by the Group inJanuary 1998, provided a significant increase tothe level of business which Investec Ernst is able


71

to conduct and it experienced growth in all linesof business based on this increased capacity.

The sustained rise of the US equities markets overthe year and the related increase in transactionflow provided a favorable environment for InvestecErnst’s activities. These favorable conditionsenabled it to grow core businesses and exit non-strategic activities while maintaining strongprofitability.

In January 1999, Investec Ernst acquired a retailbrokerage firm located in New York City. Itsactivities have been combined with the existingretail brokerage operation to form a consolidatedPrivate Client Group. The internal researchoperation has been expanded and producesbranded research to support both the Private ClientGroup and Investec Ernst’s correspondent clearingrelationships.

Investec Ernst also extended business activitieswith Group companies in South Africa, the UK andIsrael during the period. These intercompanyrelationships include securities clearance, USequity execution and securities lending.

Looking ahead

The US economy and financial markets appear tobe headed for another year of expansion andincreased activity which will provide a favourablebackdrop to Investec Ernst’s activities. Localmanagement continues to focus on the organicgrowth of its core businesses as well as on theacquisition of strategic assets.

In the coming year, Investec Ernst will be activelymarketing Internet trading and account access tocorrespondents and customers. Substantialinvestments in technology will also be maderelating to other new product offerings andpreparation for Year 2000.


Other Services essentially comprise those areas ofactivity within the Group that fall outside of theGroup’s four core sources of operational focus.They include Investec Property Group Limited (IPG),which engages in property trading, property fundmanagement and property administration, andReichmans Limited, which offers specialised tradefinance and related activities to importers andexporters, both inside and outside of South Africa.

For the most part, Group and Other Services arelocated within South Africa, although, clearly,there will be some replication of these keyfunctions in each of the jurisdictions in which theGroup now operates.

Financial Results, Group & Other Services (Rm)

%1999 1998 Increase

Contribution 178 75 137



CENTRALISED GROUP SERVICES provide essential human, professional and technical resources toall of the operating divisions within the Group. Centralising these services is seen as an importantintegrating mechanism for the Group and ensures the highest levels of business practice and consistencyacross the organisation. Where necessary or appropriate, specialist dedicated resources are decentralisedto the operating divisions and information technology, financial accounting and legal disciplines provideinstances of where such decentralisation has taken place.

Group and Other Services

73

14%

8%

7%

35%

19%

17%


Private Banking

Asset Management



Insurance


74

ACCOUNTING AND FINANCE

THE ACCOUNTING AND Finance Division seeks tomaximise the value of financial information to theGroup and is responsible for ensuring that effectivefinancials controls exist throughout the Group.

The division ensures that the Group complies withbest international practices relating to accountingpolicies, disclosure and corporate governance. It isresponsible for adherence to various statutoryrequirements relating to a listed internationalbanking group.

Sophisticated financial accounting systems aremaintained and supported within the division,which provides this service to the major operatingdivisions in order to ensure that the Group’sinternal and external reporting requirements areadequately met. The division is responsible forinternal financial reporting to Group managementand external reporting to shareholders, regulatorybodies, rating agencies, investment analysts andother interested parties.

The division manages the TOPP programme, aprogramme developed for aspirant South AfricanChartered Accountants, in conjunction with thehuman resources and group risk divisions. Thisprogramme is aimed at producing CharteredAccountants who are financial services experts. Inits first year, the candidates on the programmeattained a 100% pass rate in the Boardexamination.

Responsibility for the management of group sharecapital, and South African fixed assets and creditors,is also housed in the Accounting & Finance division,as is the Group’s centralised procurement office,which seeks to maximise the value of the Group’sbuying power through the provision of expertnegotiation and contracting skills.

BANQUETING

LOCATED IN JOHANNESBURG, the Group’sBanqueting division ensures that all of the internalcatering needs of the Group’s employees andclients are catered for, through the provision of afive-star service in 100 Grayston’s restaurant andbraai areas and in all meeting and function rooms,refreshment stations and executive dining rooms.The creation of this division has minimised the useof outside catering and conference facilities andservices, resulting in better utilisation of, andreturns on, all of the resources and facilitiesavailable in the bank.

ECONOMICS RESEARCH

THE GROUP’S ECONOMICS Research function isdesigned to provide internal and external clientswith relevant information relating to the natureof, and changes in, the domestic macro-economicoperating environment. As such, the team helpsto identify the economic parameters againstwhich the individual operating divisions and theirclients, frame their activities. The unit providesactive support to all of the operating divisionswithin the bank, through the provision of regularwritten and verbal analyses of economic andmarket conditions and these are also widelyavailable to clients and other interested parties.The unit provides regular presentations to staff,clients and numerous external bodies and makesregular contributions to domestic economic policydebate through its participation in appropriateexternal bodies and regular interaction with themedia. A centralised facility, based inJohannesburg, the team recently relocated toInvestec Research, which combines the Group’smacroeconomics capability with that of the widerresearch team in Investec Securities.

FACILITIES AND PROJECTS

THIS DIVISION IS primarily responsible for theprovision of safe, comfortable and efficientaccommodation to house the Group’s variedactivities. The division also provides a wide rangeof support functions including stationery,maintenance, mail, security, messenger services,furniture and cleaning and hygiene. The safety andhealth of all staff is also facilitated through theprovision of adequate evacuation procedures andmedical facilities.

HUMAN RESOURCES

MOTIVATED BY THE need to select, retain anddevelop Investec staff, the Human Resourcesdivision engages in five key areas of activity:recruitment, compensation and benefits, employeerelations, the staff share scheme and the InvestecBusiness School.

The recruitment function, which seeks to providethe business units across the Group with thehighest possible calibre of local and internationalhuman resource capability, embraces both internaland external dimensions. From an internalperspective, the focus of the recruitment team ison existing staff in Investec and on ensuring thatthe Group is fully utilising the potential of all staff


75

members by means of the provision of an activecareer development service. An additional facet ofthe team’s internal focus is the provision of acomprehensive analysis and feedback service to alloperating divisions through the exit interviewprocess. The external focus of the recruitmentteam is on the recruitment of potential staff toInvestec, by means of a number of differentmethods but which revolve around Investec’sGraduate Recruitment Programme, its advertisingstrategy, its relationships with preferredemployment consultancies and extensivenetworking.

As will have been seen elsewhere in this report,Investec places enormous emphasis on augmentingthe existing skills base in South Africa and a greatdeal of the Group’s Corporate and SocialInvestment endeavours are motivated by this clearneed. In addition to this, the Recruitment teampursues a number of additional initiatives, the aimof which is to enable Investec to identify potentialrecruits to the Group. These include the TrainingOut of Public Practice Programme (TOPP), whichenables future South African CharteredAccountants to complete their articles withInvestec, instead of by means of the traditionalaccounting firm route, and the hosting of theSAICA Winter School, through which the Grouphopes to assist in increasing the number of blackChartered Accountants in South Africa. Morespecifically, however, last year saw the launch ofInvestec’s Graduate Recruitment Programme, thepurpose of which is to enable Investec to securetop talent at a number of our local universities, aswell as the launch of Investec’s Bursary Forum, bymeans of which Investec will provide funding fortertiary schooling to those students that Investecwould like to employ on the completion of theirstudies.

The focus of the Group’s compensation andbenefits orientation is to enable employees tostructure their remuneration, within the Group’stotal Cost of Employment method, according totheir individual needs. The options currentlyavailable to staff include a choice of provident andpensions funds, travel allowance and company car,the provision of life and disability cover andmedical aid. The Group also pays fullmaternity/paternity leave and provides studybursaries.

Investec subscribes to the philosophy ofwidespread distributory ownership and to this endadministers a staff share scheme. Every staffmember is offered shares after six months ofpermanent employment and last year saw the

introduction of additional schemes designed toensure that the Group remains competitive inproviding as wide a degree of share ownership toits employees as possible.

In line with the Group’s philosophy of personalempowerment, the employee relations functionwithin Human Resources is motivated by a desireto ensure that management/employee interactionsare managed. In this way, the Group strives tobalance the efficient operation of business withstrong performance measures as well as with fairemployment practice. Governed by the guidelinesin the Code of Good Practice for Employers as wellas by recent labour market initiatives in SouthAfrica, such as the Labour Relations Act and theEmployment Equity Act, the Group’s employeerelations function is designed to act in neutralfashion to resolve any disputes that might arisewithin the Group and to assist employees, wherenecessary, to obtain appropriate externalassistance for resolving either personal or work-related difficulties.

A final area of activity within Human Resources isthat relating to the Investec Business Schoolwhich, in conjunction with the various operatingdivisions, has developed a wide number of learninginterventions aimed at enhancing staff potential.Designed to generate solutions that meetidentified business requirements and yield visibleresults in subsequent staff performance, theBusiness School offers programmes in genericbusiness skills, management and executivedevelopment, induction, specialist financialtraining, academic programmes, computer trainingand self-development.

Clearly, there is a Human Resources function ineach of the jurisdictions in which the Groupoperate. However, it is intended that Group HumanResource practices should all be consolidated, intime, into an International Human ResourcesForum.

INFORMATION CENTRE

THE INFORMATION CENTRE, situated inJohannesburg, provides an information andresearch service to all the business units inaccordance with their information requirements.The Information Centre co-ordinates therequirements of the Group on a centralised basisensuring that required information is relayedtimeously and cost effectively. The expertiseavailable from the Information Centre providesemployees with access to both an accumulated


76

body of recorded information, and to internallygenerated information via the Information CentreIntranet, through a blend of traditionalinformation storage and the most moderninformation feeds, networks and systems.

INFORMATION TECHNOLOGY

INVESTEC’S INFORMATION TECHNOLOGY division isresponsible for the development, review andmonitoring of all Group information technologyrequirements, architecture and standards. Thedivision operates out of a strong central core butdecentralises business analysis and applicationsystems development into the main operatingdivisions. The group’s information technologyphilosophy is designed to ensure that theinfrastructure and application systems are welltested and meet the ever changing demands of abusiness of this nature.

During the year, the division introduced a numberof initiatives aimed at improving the overallresponsibility of the IT environment of the Group,one of which included rolling out a centralisedspend and risk project and change controlenvironment for all internal IT projects. Anotherimportant IT development during the period wasthat of the move to Investec UK’s new premises,with the IT divisions of all business units in Londonresponsible for the relocation of the informationtechnology infrastructure to the new premises at 2Gresham Street, London. The opportunity was takento install a modern, efficient and robustinfrastructure in the UK, which is well integratedinto our wider global infrastructure.

The current emphasis within Group IT includesensuring that the Group is well prepared for theYear 2000. As mentioned elsewhere in this report,a dedicated project team is managing the Year2000 programme for the Group through the turn ofthe century and is currently at an advanced stageof overall preparedness. One of the most importantinitiatives which the Group faces over themedium-term, this project has the full support ofthe Executive on the implicit recognition that theY2K problem is as much a business as a technologyone. Clearly, the compliance issue for a companysuch as Investec is twofold, that posed by internalInvestec systems and the external exposure toclients and business partners that will also beaffected by the “millennium bug”. For this reasoneach of the operating units accepts fullresponsibility for Y2K compliance in its area, withall divisional activities co-ordinated, facilitatedand supported by the Central Project Team.

Approach to the Year 2000

As previously mentioned, Investec fully appreciatesthe risks and consequences relating to the Year2000 issues that may arise both internally andexternally and is pursuing a formal Year 2000Project, using a methodology based on global bestpractices.

Project Status: Investec is satisfied that the projectis currently on track to take the Group through theturn of the century without threat to thecontinuity or viability of the Group. Of course, thisassumes that systemic risks such as theinfrastructures for energy, water, transport,communication and financial services do notdisrupt the Group’s business beyond what can bemitigated against by the Group’s own contingencyplanning.

By the end of July 1999 all internal mission criticalsystems in all jurisdictions have now beencompleted and tested, with Y2K project focus nowhaving shifted to the status of externalstakeholders, and the development of contingencyplanning.

Expenses Incurred: Special budgetary provisionshave been made for the Y2k Project. Investec iscurrently well within the budget provision and theGroup does not anticipate any major expense thatwould change this status. Costs to date have beenexpensed. These have not been significant andhave not materially affected the Group’s bottomline. Costs still to be incurred will be treated in thesame manner.

Target Date for Completion: All projects across thegroup will have contingency plans in place by theend of November. Year 2000 work will, however,continue to be performed throughout Decemberand through to April 2000. This will comprise theactual contingency management processes andprocedures. Post roll over events will then beperformed from January through to April to ensurethat the Group successfully passes though the leapyear and the financial year-end in March. TheInvestec Group approach is that the Year 2000project is not complete until all the contingencymanagement results have been collated,management is satisfied that the proceduresfollowed have been successful, all operations andsystems, if affected, are restored to optimal, andthe financial impacts have been correctlyaccounted for and disclosed.

A further emphasis of Group IT is to ensure ahigher level of use of the Group’s generic systems


77

across the Group’s international business units andto ensure the re-use of technology and capabilitieswherever appropriate.

LEGAL, SECRETARIAL AND TAX

THE LEGAL, SECRETARIAL and Tax divisionsprovide these specialised professional services insupport of Group requirements and ensure thatthe Group complies with the complex legislationwhich governs its business in all of thejurisdictions in which it now operates. Thesedivisions provide a useful blend of compliancefunctions as well as decision support functions inrelation to specialised transactions, acquisitionsand the development of new products throughoutthe Group. Senior members of these divisionsrepresent the interests of the Group on a numberof external bodies, thereby seeking to bothpromote and advance the interests of the Group,and the industry, wherever appropriate.

MARKETING

THE MARKETING DIVISION is the custodian of boththe Investec brand and its corporate image and isthus responsible for building and maintaining thebrand globally. The division is also responsible forpromoting the specialist products and services thatthe Group offers.

Marketing comprises a number of focused teams,which serve to develop and implement themarketing strategies of the various strategicbusiness units in the Group. Within these teams, anumber of individuals specialise in the variouselements of the marketing mix, ie. promotions andevents, corporate communications and brandmanagement.

While emphasis is placed on meeting the differentmarketing needs of the operating units in eachcountry, these activities must nonetheless adhere tothe overall international marketing strategy of theGroup. The marketing division is also responsible forengendering a marketing consciousness in theminds of all employees of Investec.

STRATEGIC RESEARCH

THE GROUP’S STRATEGIC Research function, inpartnership with the individual divisions, focuseson the development and formulation of the Group’soverall strategic direction. In addition, it assiststhe divisions in developing the capacity for

strategic thinking, thereby ensuring that allemployees are kept continually abreast of thedynamic trends characterising the businessenvironment in which the Group operates, bothlocally and internationally.

Group objectives and operating parameters areagreed upon after taking into account changingmarket conditions as well as the constraints andopportunities facing the Investec Group as awhole. Within this framework, the divisionsformulate individual strategic objectives, which areidentified through effective process, the realisationof which assists them in building their distinctpositioning in defined market niches.

OTHER SERVICES

INVESTEC PROPERTY GROUP (IPG)

A WHOLLY OWNED subsidiary of the InvestecGroup, IPG operates throughout South Africa aswell as in certain neighbouring states. Largelyarising out of Investec’s 1990 acquisition ofproperty management company I Kuper & Company(Pty) Limited, IPG’s core activities translate intothe three areas of property trading, property fundmanagement and property administration.

Year under review

The magnitude of last year’s interest rate andmacro-economic shocks in South Africa was feltmost acutely in the local property market which,already characterised by shrinking investorappetite and an institutional overhang, contracteddramatically. Amid the recognition that thelengthy time lags associated with the propertycycle would prevent any marked degree ofmedium-term recovery, IPG decided to consolidatesome areas of activity, the net result of which is areduced degree of involvement and focus onproperty by the broader Investec Group.

That said, IPG retains its focus as a highly selectiveniche player, seeking quality, limited risk, propertyopportunities. Although adopting a very cautiousand conservative stance during the period, largelybecause of the relative paucity of exitopportunities in the sector, IPG was nonethelessalert to the scope provided by the sector’s overallweakness to take advantage of favourable long-term growth opportunities. Of note in this regardwas its purchase of a prime site in Johannesburg’snorthern suburbs, to be developed for commercialpurposes at a later stage.


78

Last year also saw further selective advances onthe property management side of IPG’s business.Investment in new technology and the acquisitionof a new property administration system lays thebasis for future growth.

IPG also continues to maintain responsibility forthe management of two JSE listed funds, Metpropand Growthpoint, with the listed property sectoralready having begun to respond in a positivemanner to recent declines in local interest rates.

Looking ahead

Although the overall prognosis for the domesticproperty market remains poor, IPG is confident thatincreasing signs of economic stabilisation andlower interest rates will translate into selectopportunities over the medium-term and these willbe explored wherever appropriate. An exciting newdevelopment will be the October 1999 launch ofIPG’s Beacon Bay retail development in EastLondon. Some 25 000 square metres in size, thecentre is already almost completely pre-let andwill be anchored by most of the major retailingand banking names in South Africa.

REICHMANS LIMITED

ACQUIRED BY INVESTEC in 1990, ReichmansLimited is a significant niche player in the marketfor specialised asset and trade finance. It providesthese services, which are aimed principally atcompanies at early stages of their growth cycle,through three core areas of activity, namelyinventory finance, receivables finance and capitalequipment finance. Reichmans is also representedin New York, through its ongoing joint venturewith Gerber Trade Finance Inc. Reichman’s formerpresence in both London and Geneva wasstreamlined during last year, with the Group’sregional presence in Mauritius now acting as analternative conduit for the pursuit of itsinternational activities. A sound credit and riskmanagement philosophy continues to underscoreReichmans’ success.

Year under review

Reichmans notched up a favourable performancelast year, despite the fact that prevailing domesticeconomic circumstances rendered the operatingenvironment very difficult. Hugely impacted upon bynegative macro-economic and forex realities duringthe period, Reichmans experienced a clear decline in

business volumes as a consequence. However, itconcentrated its efforts on pursuing a number ofinitiatives designed to leave it more favourablyplaced for an eventual stabilisation and recovery inthe operating environment. These included theintroduction of a new factoring system, thestreamlining of operations in both London andGeneva into Mauritius and the complete control ofCapital Acceptances.

Looking ahead

Although not a core areas of focus for Investec,Reichmans’ operation remains a solid source ofrevenue for the Group. The dominant player in themarket for local trade finance, Reichmans hassecured a strong pipeline of activity for the yearahead, with additional benefits likely to accruefrom clear signs that the domestic macro-economic environment has begun to stabilise, anaggressive marketing programme, the return ofbusiness originally lured away as a result of lastyear’s spate of new company listings and thelaunch of new product offerings, more particularlyin relation to credit reinsurance.


Index to thefinancial statements

80 DIRECTORS’ RESPONSIBILITIES AND GOVERNANCE


82 Auditors’ report

83 Directors’ report

85 Balance sheets

86 Income statements

87 Cash flow statements

88 Statement of changes in shareholder funds

89 Accounting policies

92 Notes to the financial statements

104 Group derivative instruments

105 Group currency profile

106 Principal subsidiary and associated companies

108 Capital adequacy statement

109 Income and expense analysis


111 Chairman’s statement



114 Financial statements


INVESTEC BANK LIMITED


119 Consolidated Balance sheet

120 Consolidated Income statement



80

RESPONSIBILITY

The directors are responsible for monitoring andreviewing the preparation, integrity and reliabilityof the Group’s financial statements, accountingpolicies and information contained in Investec’sannual report.

This responsibility is supported by internal controland risk processes implemented by Investecmanagement, and independently monitored foreffectiveness.

GOVERNANCE

The Group endorses the King Code of CorporateGovernance and operates in broad compliance withits recommendations. International business unitsoperate in accordance with the governancerecommendations of the jurisdictions in which theyoperate, but with clear reference at all times toGroup values and culture.

The Group recognises its responsibility as a financialinstitution to conduct its affairs with care and goodfaith and to safeguard the interests of allstakeholders.

Board of directors

The Board of Directors meets on a regular basis toevaluate performance, assess risk and review thestrategic direction of the Group. Boardappointments are based on a required mix of skillsand experience to ensure the ongoing success of theGroup. Non-executive directors provide objectivityand independence to board deliberations andinternal decision making processes.

The chairman of the board is independent of theexecutive directors. Each strategic business unitappoints its own board to oversee operations,anticipate and manage risk and to implement Groupstrategy and vision.

The board is supported by various internalcommittees and functions in executing itsresponsibilities.

Remuneration of the board is reviewed andapproved by an independent committee which

advises the chairman of the board. Directors do nothave service contracts.

Management

Operational management is appointed by the board,based on the skill and experience necessary toperform the function envisaged.

Various processes are in operation which promoteinteractive dialogue, decision making andindependent review between Group managementand the executive directors.

Internal financial control

Financial controls throughout the Group focus oncritical risk areas. These areas are identified byoperational management, confirmed by Groupmanagement, monitored by the board, reviewed byGroup risk management and evaluated by theindependent auditors.

The directors report that the Group’s system ofinternal financial control is designed to:• provide reasonable assurance of both the

integrity and reliability of financial information• adequately safeguard, verify and maintain

accountability of assets• prevent and detect fraudInternal financial controls are based on establishedpolicies and procedures. Controls are reviewed andevaluated regularly for appropriateness andeffectiveness. Best practices are reinforced throughactive risk management processes and initiatives.

Management is responsible for implementinginternal financial control, ensuring that personnelare suitably qualified and that an appropriatesegregation exists between duties and independentreview.

Processes are in place to monitor internal controleffectiveness, identify and report materialbreakdowns and to ensure that timely andappropriate corrective action is taken.

Going concern

The financial statements contained in this report areprepared on the going concern basis. The directors

Directors’ Responsibility andGovernance


81

are of the opinion, based on enquiries made andtheir knowledge of the Group, that adequateresources exist to support the group on the goingconcern basis.

Risk Management

The identification, anticipation and management ofrisks inherent in the operations of the Group issubject to rigorous evaluation. The Group strives tounderstand and measure risks in order to makeconsidered judgements and decisions and to limitloss situations. The independent Group riskmanagement division is responsible for theimplementation of risk awareness and knowledgetransfer.

Audit committee

An audit committee comprising a majority of non-executive directors meets regularly to review andassess both the internal control environment andthe audit process, to review the interim and annualfinancial reporting and to highlight matters whichare considered to be of high risk.

In turn, the audit committee is, supported byoperational audit sub-committees, designed toassess, implement and report.

The Group Risk Management Division, the bankingsupervision department of the SA Reserve Bank andthe Group’s independent auditors, have unrestrictedaccess to the audit committee.

Employee participation and skills

Ownership of the Group is devolved on employeesthrough the Staff Share Scheme, and is activelyencouraged.

Skills enhancement is achieved through thedevelopment and presentation of internal andexternal training courses and support of employeeswishing to further their skills at recognised externalinstitutions. The Group’s culture values employeeparticipation in the decision making process, andencourages communication throughout the Group.

Values

The Group has a strong culture of entrenched valueswhich forms the cornerstone of the expectedbehaviour of the Group towards all stakeholders,

both internal and external. These values arecontinually reinforced.

Regulation and supervision

The Group is subject to external regulation andsupervision by various statutory bodies andregulators. The Group strives to achieve an open andactive dialogue with its regulators and to complywith the various regulatory and supervisoryrequirements.

Where appropriate, the Group participates inindustry committees and discussion groups tomaintain and enhance the regulatory environmentin which it operates.

FINANCIAL STATEMENTS FOR INVESTEC GROUPLIMITED

The financial statements have been prepared inaccordance with generally accepted accountingpractice. The directors are satisfied that theinformation contained in the financial statementsfairly presents the results of operations for the yearand the financial position of the company and ofthe Group at the year-end. The financial statementsappearing on pages 83 to 107 were approved by theBoard of Directors on 18 May 1999 and are signedon its behalf by

Hugh Herman Stephen KoseffChairman Chief Executive Officer

FINANCIAL STATEMENTS FOR INVESTEC HOLDINGSLIMITED

The financial statements have been prepared inaccordance with generally accepted accountingpractice. The directors are satisfied that theinformation contained in the financial statementsfairly presents the results of operations for the yearand the financial position of the company at theyear-end. The financial statements appearing onpages 113 to 116 were approved by the Board ofDirectors on 18 May 1999 and are signed on itsbehalf by

I R Kantor B KardolChairman Deputy Chairman


82

To the members of Investec Group Limited

We have audited the annual financial statementsand Group annual financial statements set out onpages 83 to 107 for the year ended 31 March 1999.These financial statements are the responsibility ofthe company’s directors. Our responsibility is toexpress an opinion on these financial statements,based on our audit.

SCOPE

We conducted our audit in accordance withstatements of South African Auditing Standards.Those standards require that we plan and performthe audit to obtain reasonable assurance that thefinancial statements are free of material mis-statement. An audit includes:• Examining on a test basis, evidence supporting

the amounts and disclosures in thefinancial statement.

• Assessing the accounting principles used andsignificant estimates made by management.

• Evaluating the overall financial statementpresentation.

We believe that our audit provides a reasonablebasis for our opinion.

AUDIT OPINION

In our opinion, the financial statements fairlypresent in all material respects, the financialposition of the Company and of the Group at31 March 1999 and the results of their operationsand cash flows for the year then endedin accordance with generally accepted accountingpractice and in the manner required by theCompanies Act.

KPMG Ernst and YoungChartered Accountants Chartered Accountants(SA) (SA)Registered Accountants Registered Accountants and Auditors and AuditorsJohannesburg18 May 1999

Report of theIndependent Auditors


83

NATURE OF BUSINESS

Investec Group Limited is a bank controllingcompany which, through its subsidiaries, conductsa wide range of Corporate and Investment Banking,Private Banking, Asset Management and SecuritiesTrading activities.

AUTHORISED AND ISSUED SHARE CAPITAL

The authorised share capital remained unchangedduring the year.

During the year, 4 091 040 ordinary shares wereissued for a total of R911 million, 3 694 300 inrespect of acquisitions made by the Group and 396740 to the Share Incentive Trust.

During the year, 140 595 convertible debentureswere converted into ordinary shares, on a one forone basis at an average of R24,20 per share.

As a result of the above issues and conversions,share premium of R907 million was raised afteraccounting for share issue expenses of R4 million.

FINANCIAL RESULTS

The results of the company and the Group are setout in the financial statements and accompanyingnotes.

1999 1998Dividends Rm Rm

Ordinary dividendsThe following ordinary dividendswere declared:Interim dividend of 175 centsper share (1998 – 130 cents) toshareholders registered on6 November 1998 – paid on20 November 1998 140 94Final dividend of 300 centsper share (1998 – 220 cents)to shareholdersregistered on 4 June 1999 –paid on 18 June 1999 241 175

381 269Preference dividendsThe following preferencedividends were paid or accrued:Redeemable preference shares(included in interest paid) 253 83

DIRECTORS AND SECRETARY

Details of the directors and secretary are reflectedon pages 9 and 125 respectively.

Messrs, S E Abrahams, A I Basserabie, D E Jowell,B Kantor, S Koseff and Dr M Z Nkosi retire byrotation, but being eligible, offer themselves forre-election.

On 31 March 1999 the directors beneficially held39 068 shares in the company (1998 – 75 468).The directors’ future entitlements under the shareincentive trusts are 287 103 (1998 – 241 975)Investec Holdings Limited ordinary shares.

SHARE INCENTIVE TRUSTS

At 31 March 1999 the Group operated thefollowing share incentive trusts:

1. Investec Bank Merger Agreement Share Trust2. Investec Holdings Share Trust3. Investec Bank Share Purchase Trust

The first trust operates as a closed trust, with nonew participants being admitted and no furtherallocations of shares. The second and third trustsare active and any repurchases of shares made interms of the trust deeds governing the first trustare transferred to the pool administered by theTrustees of the second and third trusts.

During the year the following changes took place:

Investec Investec InvestecGroup Holdings Bank

Ordinary Ordinary ConvertibleShares Shares Debentures

Balances subjectto the rules of thetrusts at 1 April 1998 76 120 4 842 329 -

New issues to staff 70 600 16 540 608 720Acquired by staff orrepurchased bythe trusts (20 650) (1 269 292) -

Balances subject tothe rules of the trustsat 31 March 1999 126 070 3 589 577 608 720

In terms of the Investec Bank Share Purchase Trust,options in respect of 1 540 805 (1998 – 758 100)

Directors’ Report


84

Investec Group Limited shares which have not yetbeen exercised, have been granted to employees.Included in advances and other accounts is anamount of R793 million (1998 – R392 million)owing by the staff share trusts.

It has become necessary to consolidate and updatethe Terms and Conditions of the Investec BankLimited Share Purchase Trust. Members arereferred to the insert in the Annual Report whichcontains the Salient features of the amendingTrust deed which will be styled as the ”InvestecGroup Limited Security Purchase and OptionsScheme Trust.”

Audit committee

An audit committee comprising executive andnon-executive directors meets regularly withsenior management, the external auditors, riskmanagement review and the Group’s financeand accounting division to consider the natureand scope of the audit reviews and theeffectiveness of the Group’s risk and controlsystems.

Contracts

None of the directors and officers of thecompany had an interest in any contract ofsignificance during the financial year.

Subsidiary and associated companies

Details of principal subsidiary and associatedcompanies are reflected on pages 106 and 107.The interest of the company in the aggregateprofits after tax of its subsidiary companies forthe year is R876 million (1998 – R362 million)and its share in aggregate losses isR66 million (1998 – R44 million).

Special resolutions

On 23 September 1998, special resolutions werepassed in terms of which the main business andobject of the company was amended to that ofan Investment Holding and Bank controllingCompany and a new memorandum of associationwas adopted. The special resolutions wereregistered by the registrar of companies on28 September 1998.

ACCOUNTING POLICIES AND DISCLOSURE

The Group strives to comply with bestinternational practices with regard to accountingstandards and disclosure. Accounting policies areset having regard to commercial practice,international accounting standards, as well asSouth African generally accepted accountingpractice.

Post balance sheet events

Subsequent to the financial year end, the Groupacquired the Johannesburg Retail Stockbrokingdivision of HSBC Simpson McKie (Pty) Limitedwith effect from 1 June 1999.


For the year ended 31 March

Group Company

(R millions) Notes 1999 1998 1999 1998

Capital employed

Ordinary share capital 1 48 46 48 46

Compulsorily convertibledebentures 2 1 715 286 176 4

Reserves 3 6 433 5 895 5 252 4 903

8 196 6 227 5 476 4 953

Interest of minority shareholdersin subsidiaries 560 967 – –

Total shareholders’ funds 8 756 7 194 5 476 4 953

Liabilities

Deposits and other accounts 5 103 909 75 680 40 20

Shareholders for ordinary dividend 241 175 241 175

112 906 83 049 5 757 5 148

Assets

Cash and short-term funds 6 36 711 36 381 – –

Short-term negotiable securities 7 37 014 18 310 – –

Investment and trading securities 8 7 837 5 466 – –

Other assets 9 4 866 3 170 – –

Advances 10 21 936 16 777 2 2

Subsidiary companies – – 4 954 3 299

Associated companies 11 1 498 2 130 801 1 847

Fixed assets 12 924 695 – –

Intangible assets 13 2 120 120 – –

112 906 83 049 5 757 5 148

85

Balance Sheets



Group Company

(R millions) Notes 1999 1998 1999 1998

Interest received 15 9 544 6 257 11 44

Interest paid 8 246 5 396 – –

Net interest income 1 298 861 11 44

Provision for bad and doubtful debts 20 223 104 – –

1 075 757 11 44

Other income 14 2 204 985 353 465

Total income 3 279 1 742 364 509

Operating expenses 14 2 064 1 010 – –

Exceptional items 14 22 2 455 –

Income before taxation 1 193 730 819 509

Taxation 16 307 168 23 15

Income after taxation 886 562 796 494

Share of income of associated companies 17 78 81 52 77

Net income 964 643 848 571

Earnings attributable tominority shareholders 37 27 – –

927 616 848 571

Convertible debenture and convertible bond interest 92 46 13 1

Earnings attributable to ordinary shareholders 835 570 835 570

Ordinary dividends 18 381 269 381 269

Retained income for the year 454 301 454 301

Transfers to – general reserves (417) (276) (430) (246)

Transfers to – equity accounted reserves (37) (25) (24) (55)

Retained income at end of year – – – –

Earnings per share (cents) 23 1 050,2 787,9

Headline earnings per share (cents) 23 1 077,5 790,1

Diluted headline earnings per share (cents) 23 1 089,9 782,4

Dividends per share (cents) 475,0 350,0

86

Income Statements



Group Company

(R millions) Notes 1999 1998 1999 1998

Cash retained from operating activities

Cash generated by operating activities 19.1 1 520 885 86 191

Dividends received from associates 19.2 36 24 23 26

Taxation paid 19.3 (263) (97) (15) (15)

Cash available from operating activities 1 293 812 94 202

Dividends paid 19.4 (315) (207) (315) (207)

Debenture and convertible bond interest paid (92) (46) (13) (1)

Net cash inflow/(outflow) from operating activities 886 559 (234) (6)

Cash utilised in investing activities

Net cash or cash equivalents acquired 19.5 (2 245) (144) – (559)

Decrease in minority shareholding – (120) – –

Net investment in associated companies (294) (22) (867) –

Net investment in fixed assets (167) (151) – –

Net cash outflow from investing activities (2 706) (437) (867) (559)

Cash flows from banking activities

Movement in deposits and other accounts 17 840 14 873 20 (39)

Movement in income earning assets 19.6 (20 399) (319) – 106

Net cash (outflow)/inflow from banking activities (2 559) 14 554 20 67

Cash flow from financing activities

Proceeds on issue of ordinary shares 906 498 906 498

Net proceeds on issue of convertible debentures 1 432 – 175 –

Net cash inflow from financing activities 2 338 498 1 081 498

Net (decrease)/increase in cash andshort-term funds (2 041) 15 174 – –

Cash and short-term fundsat beginning of year 19.7 38 752 21 207 – –

Cash and short-term funds at end of year 36 711 36 381 – –

87

Cash Flow Statements


88


Group Company

(R millions) 1999 1998 1999 1998

Share capitalBalance at beginning of year 46 42 46 42Issue of shares 2 2 2 2Conversion from bonds – 2 – 2

Balance at end of year 48 46 48 46

Compulsorily convertible debenturesBalance at beginning of year 286 295 4 13Issues of debentures 1 432 – 175 –Conversion to ordinary shares (3) (9) (3) (9)

Balance at end of year 1 715 286 176 4

Share premiumBalance at beginning of year 3 027 2 282 3 027 2 282Issue of shares 904 745 904 745Conversion from debentures 3 3

Balance at end of year 3 934 3 027 3 934 3 027

General reservesBalance at beginning of year 769 426 570 324Transfer from retained earnings 417 276 430 246Negative goodwill written off (76) – – –Non distributable reserve arisingon acquisition of subsidiaries – 67 – –

Balance at end of year 1 110 769 1 000 570

Secondary reservesBalance at beginning of year 1 999 468 1 207 268Movement in general doubtfuldebts provision 100 26 – –Movement in revaluations (847) 1 505 (1 012) 939

Balance at end of year 1 252 1 999 195 1 207

Equity accounted reserves ofassociated companiesBalance at beginning of year 100 75 99 44Transfer from retained income 37 25 24 55

Balance at end of year 137 100 123 99

Statement of changesin shareholders funds

Basis of consolidation

The Group annual financial statements incorporatethe financial results of the Group and itssubsidiaries. All subsidiaries are consolidated fromthe effective dates of acquisition and up to theeffective dates of disposal.

Goodwill arising on the acquisition of subsidiariesis written off against income, over a period notexceeding 20 years. Negative goodwill arising onthe acquisition of monetary assets is taken toincome in the year of acquisition.

The effect of all inter-group funding transactionshas been eliminated from the annual financialstatements.

The results of operating subsidiaries have beenequity accounted in the company.

Foreign currency transactions

The net assets of foreign subsidiaries have beentranslated at the ruling exchange rates on thereporting date. A portion of the exchangedifference arising on translation, is considered tobe compensation for the differential in interestrates between foreign and local markets.

The differential is calculated using the averagedifference between the wholesale rates in thecountries concerned and applying this to the netamount of foreign investments, and is included inthe income statement as interest received. Note 18shows the effect of the interest rate differential onthe net income of the Group. The balance of thetranslation difference is included in secondaryreserves, as part of revaluation reserves.

The recognition of a portion of exchangedifferences as interest received is considered topresent the situation more fairly in view of themonetary nature of the relevant investments andthe way in which they are funded.


THE ANNUAL FINANCIAL statements have been prepared on the historical cost basis in conformitywith generally accepted accounting practice. The following are the principal accounting policieswhich are consistent with those of the previous year except for the addition of a policy relating tonegative goodwill.

Accounting Policies

BASIS OF PRESENTATION

89

Foreign exchange balances and trading positions,including spot and forward exchange contracts, arevalued at current market rates and profits andlosses are included in the income statement.

Interest bearing securities

All interest bearing securities are marked to marketand shown at fair value, except where theinstrument is part of a synthetic product.

Securities sold subject to repurchase agreementsare recorded as assets. Obligations for therepurchase of these securities are included underdeposits and other accounts.

Securities purchased under an agreement to resellthe securities at a future date are reflected in thebalance sheet as cash and short-term funds.

Stock borrowing and lending transactions that are notcash collateralised are not included in the balancesheet, but are disclosed as assets under management.

Derivatives

The Group is a participant in the markets for off-balance sheet financial instruments such asfutures, interest rate swaps, option and relatedrepurchase agreements. Open positions are markedto market and profit and losses are included in theincome statement.

Profit and losses relating to financialinstruments that are designated as hedges arerecognised on the same basis as the hedgedasset or liability.

Synthetic products are treated as financialinstruments in their own right and are marked tomarket. These synthetic products consist of acombination of financial instruments, held tomaturity, which result in known future cash flows.


90

Equity investments

Listed equity investments are stated at marketvalue. Unlisted equity investments are stated atthe lower cost or directors’ valuation, where noformal market exists.

Profits and losses arising from the revaluation oftrading investments are included in income.

Group associated companies are accounted for onan equity basis.

The excess of market value of long-terminvestments, including associates, over cost orequity accounted value, is taken to reserves, whilstany deficit arising will be reflected in the incomestatement. On disposal of such investments, therevaluation will be reversed and the full differencebetween historical cost and the amount realised isshown in the income statement.

Other Investments

Other investments are valued at market valuewhere a formal market exists or in the case ofinvestments such as insurance policies or equityfunds at the value of the underlying investments.Where no formal market exists investments arevalued at the lower of cost or directors’ valuation.

Instalment credit, leases and rental agreements

Amounts outstanding on these contracts, net ofunearned finance charges, are included in advancesand other accounts. Finance charges on lease andinstalment sale transactions are credited to incomein proportion to the capital balances outstanding.

Specific and general provisions

Advances and other accounts are disclosed net ofspecific provisions. Specific provisions for bad anddoubtful debts are made against identifieddoubtful advances, including amounts in respect ofinterest that is not serviced. The charge forprovision for bad and doubtful debt in the incomestatement includes the unserviced interest whichhas been transferred to specific provisions.

A general provision is maintained against advancesnot specifically identified as doubtful. The generalprovision is included with secondary reserves.

Property and equipment

Property and equipment are stated at original costDepreciation is provided on a straight line basisover their useful lives. Leasehold improvements areamortised over the remaining period of the leases.Freehold land and investment properties are statedat cost and are not depreciated.

The annual rates used to depreciate assets are asfollows:Computer equipment 33%Infrastructure 20%Pool vehicles 20%Office equipment 20%Furniture and fittings 10%

Deferred taxation

Deferred taxation is provided on the comprehensivebasis using the liability method on temporarydifferences arising from the recognition of incomeand expenditure in different periods for accountingand tax purposes. Deferred tax assets are onlyaccounted for when, in the opinion of the directors,recovery is assured beyond reasonable doubt.

Trust and fiduciary activities

The Group acts as a trustee or in other fiduciarycapacities that result in the holding, placing ormanaging of assets for the account of and at therisk of clients.

As these are not assets of the Bank, they are notreflected on the balance sheet but are included atmarket value as part of assets under management.

Other income

Other income includes trading income,commissions, fees and investment income, net ofprofit sharing arrangements which are incomebased.

Trading income is shown net of the funding cost ofthe underlying positions, and includes theunrealised profits and trading portfolios which aremarked to market daily.

Commissions and fees include fees earned fromproviding advisory services, portfolio managementand the arranging of financing for clients. All suchcommissions and fees are recognised as revenuewhen the related services are performed.


91

Investment income includes realised profits and losseson disposal of investments and dividends received.

Retirement benefits

The Group provides a pension fund, governed bythe Pension Fund Act, 1956 and a disability fundfor the benefit of employees. Membership ofthese funds is compulsory for all employees. TheGroup pension fund is structured as a moneypurchase scheme and accordingly can have nofunding deficit. The scheme provides that at alltimes an employee will receive from the fund theamount that has been contributed together withthe Group’s contribution (after two years ofservice) plus interest and capital appreciation.Life cover is incorporated in the fund.

The Group also offers the optional benefits of aprovident fund and a deferred compensationfund. The funds are administered by AlexanderForbes Consultants and Actuaries (Tvl) (Pty)Limited. The Group has no liabilities for otherpost retirement benefits.

Comparative figures

Comparative figures are restated where necessaryto allow for more meaningful comparison.


For the year ended 31 MarchGroup Company

(R millions) 1999 1998 1999 1998

1. Ordinary share capitalAuthorised105 000 000 (1998 – 105 000 000) ordinaryshares of 60 cents each. 63 63 63 63Issued80 359 832 (1998 – 76 128 197) ordinaryshares of 60 cents each. 48 46 48 46The unissued shares are under the controlof the directors until the next annualgeneral meeting.

2. Compulsorily convertible debentures2.1 CompanyAuthorised10 000 000 (1998 - 10 000 000) unsecured subordinatedcompulsorily convertible debentures of 60 cents each. 6 6 6 65 000 000 (1998 - 0) Class A Series I unsecuredsubordinated compulsory convertible debenturesof 60 cents each. 3 - 3 -Issued43 708 (1998 - 184 303) unsecured subordinatedcompulsorily convertible debentures of 60 centsissued at various premiums. 1 4 1 4Interest is payable monthly in arrears on 1 Apriland 1 October of each year at a variable rate calculated on R18.50 per debenture. For the year to March 1999 the debentures attracted a rate between20,05% and 20,6% From 1 April 1999 the interestescalates by 2% per annum to 24% per annumprovided that the rate of interest payable will notexceed the prime overdraft rate minus 2%.These debentures will automatically convert intoordinary shares, on a one for one basis, on13 November 2001, or at the election of theholders on 31 March 2000, or on the last dayof each succeeding financial year.1 000 000 (1998 - 0) Class A Series I unsecuredsubordinated compulsorily convertible debenturesof 60 cents issued at a premium of R174.40 each. 175 - 175 -Interest is payable six monthly in arrears on31 March and 30 September of each year at avariable rate of 3% below the official rate as definedin the 7th schedule of the Income tax Act of 1962.The Class A Series I convert into ordinary shares, ona one for one basis, at the election of the holders.If not converted by election, they will automaticallyconvert on 1 October 2008.The unissued debentures are under control of thedirectors until the next annual general meeting.

92

Notes to the Group Financial Statements



(R millions) 1999 1998 1999 1998

2.2 SubsidiaryIssued3 573 994 (1998 - 3 573 994) unsecuredsubordinated compulsorily convertible debenturesof 50 cents issued at a premium of R78.50 each. 282 282 – –Interest is payable six monthly in arrears on31 January and 31 July of each year at a rateof 15,25 %.The compulsorily convertible debentures willconvert into Investec Bank Limited ordinary shares ona one for one basis on 31 July 2008. The company at itsdiscretion, may at the request of the holder convertat an earlier date, but not before 31 July 2002.The Investec Bank Limited shares arising out ofconversion have been sold forward by the holderthereof to Investec Holdings Limited in exchange for4 033 507 Investec Holdings ordinary shares. TheInvestec Bank Limited shares have been simultaneouslysold by Investec Holdings Limited to InvestecGroup Limited in exchange for 3 573 994Investec Group Limited ordinary shares.5 000 000 ( 1998 – 0) Class A unsecured subordinatedcompulsorily convertible debentures of 50 cents eachissued at a premium of R159.50, net of issue expenses. 797 - – –1 000 000 (1998 – 0) Class A Series II unsecuredsubordinated compulsorily convertible debenturesof 50 cents issued at a premium of R159.50. 160 - – –1 500 000 (1998 – 0) Class B unsecured subordinatedcompulsorily convertible debentures of 50 cents eachissued at a premium of R199.50. 300 - – –Interest is payable six monthly in arrears on15 June and 15 December of each year at a rate of15% for Class A and Class A Series II and 12% forClass B debentures.The Class A and Class A Series II debentures willconvert into Investec Bank Limited ordinary shareson a 3.5 for one basis on 15 December 2004. Class Bdebentures will convert on a 2.8 for one basison the same day resulting in the issue of 2 250 000Investec Bank Limited shares.The 2 250 000 Investec Bank Limited sharesarising out of the conversion have been soldforward by the holders thereof to Investec GroupLimited in exchange for 7 500 000 Investec GroupLimited ordinary shares, of which 6 800 000 havebeen simultaneously sold to Investec Holdings Limitedin exchange for 7 480 000 Investec Holdings Limitedordinary shares.All the convertible debentures are issued as part ofthe Group’s employee share ownership initiatives andare exempt from the requirements of AC125.Total compulsorily convertible debentures 1 715 286 176 4

93




(R millions) 1999 1998 1999 1998

3. ReservesShare premium 3 934 3 027 3 934 3 027General reserves 1 110 769 1 000 570Secondary reserves 1 252 1 999 195 1 207Equity accounted reserves of associatedcompanies 137 100 123 99

6 433 5 895 5 252 4 903Secondary reserves comprise:Revaluation of investments 1 260 2 278 200 1 193Foreign currency revaluation 296 125 (5) 14Goodwill written off (540) (540) – –General provision for bad anddoubtful debts 236 136 – –

1 252 1 999 195 1 207See note 19.2 for additionalinformation on movements inequity accounted associates

4. Preference share capital4.1 Subsidiary

Authorised4 000 000 variable rate redeemable cumulative preference shares of R1 each 4 4500 000 variable rate redeemablecumulative preference shares of one cent each – –

4 44.2 Company

Authorised50 000 variable rate redeemable cumulative preference shares of 60c each – – – –

5. Deposits and other accountsCategory analysisDeposits and loans from banks 10 375 13 853 – –Demand and savings deposits 14 352 6 640 – –Fixed and notice deposits 16 465 14 696 – –Negotiable certificates of deposit 5 257 3 402 – –Other deposits and loan accounts 2 924 2 197 – –Liabilities in respect of repurchase agreements 37 575 29 689 – –Stock borrowed 7 654 954 – –Deferred taxation (note 16.3) 72 58 – –Creditors and other accounts 9 235 4 191 40 20

103 909 75 680 40 20Maturity analysisOn demand to one month 65 452 48 112 1 14One month to six months 27 384 18 983 39 6Six months to one year 6 743 7 129 – –Greater than one year 4 330 1 456 – –

103 909 75 680 40 20

94




(R millions) 1999 1998 1999 1998

6. Cash and short-term fundsCash and gold coins 2 2 – –Balances with Central Bank 2 617 1 852 – –Balances with other banks 12 355 11 817 – –Loans under resale agreements 14 645 19 901 – –Secured stock lending 4 830 – – –Other short-term funds 2 262 2 809 – –

36 711 36 381 – –

7. Short-term negotiable securitiesAnalysis by portfolioInvestment 790 1 505 – –Trading 36 224 16 805 – –

37 014 18 310 – –

8. Investment and trading securitiesCategory analysisGovernment and government guaranteed 2 033 1 913 – –Listed securities 1 761 1 717 – –Unlisted securities and investments 4 043 1 836 – –

7 837 5 466 – –

Analysis by portfolioLiquid assets 2 265 875 – –Trading 625 1 343 – –Investment 4 947 3 248 – –

7 837 5 466 – –

9. Other assetsSettlement debtors 3 157 2 527 – –Other debtors and prepayments 1 709 643 – –

4 866 3 170 – –

10. AdvancesCategory analysis*Commercial property loans 3 117 2 839 – –Residential mortgages 3 262 3 040 – –Leases and instalment debtors 2 212 1 846 – –Trade finance debtors 606 1 027 – –Other loans and advances 13 233 8 254 2 2

22 430 17 006 2 2Specific provision against doubtful debts 494 229 – –

21 936 16 777 2 2

95




(R millions) 1999 1998 1999 1998

10. Advances

(Continued)Maturity analysisOn demand to one month 5 304 1 684 – –One month to six months 3 057 2 422 – –Six months to one year 953 1 133 – –One year to five years 7 182 7 712 2 2Greater than five years 5 934 4 055 – –

22 430 17 006 2 2

Geographical analysisSouth Africa 12 256 10 875 2 2United Kingdom 4 041 2 725 – –Israel 2 353 1 703 – –Other 3 780 1 703 – –

22 430 17 006 2 2

* See also pages 31 and 32

11. Associated companies Listed shares at cost 618 286 141 194Equity accounted share of retained earnings 137 101 123 99

755 387 264 293Revaluation surplus transferred to reserves 743 1 743 537 1 554Book value at end of year 1 498 2 130 801 1 847The only significant associate is Fedsure HoldingsLimited which is a related party. The significantactivities between the Group and Fedsure, all ofwhich are on an arms length basis, are:

1. The Group offers its client base linked life annuityinvestments which are underwritten by theFedsure Group.

2. The Group’s asset management activities includeplacing investments on behalf of brokers andclients in Fedsure managed products. The valueof these investments at year end wasR14,6 million (1998 : R24,7 million).

3. The Group operates its medical aid fund through Fedsure Health Assurance Limited, a subsidiary of Fedsure Holdings Limited. Net risk contributions for the 1998 calendar year amounted to R6,7 million (1997 – R4,6 million).

The Fedsure Holdings Limited financial statements for theyear ended 31 December 1998 include the followingfinancial highlights:-Attributable Income R471,9 million (1998: R333,8 million)Attributable Earnings per share 318,4 c (1998: 289,5 c)Total Assets R32 374 million (1998: R20 908 million)

96




(R millions) 1999 1998 1999 1998

12. Fixed assetsOperational properties and leasehold improvements

– Cost 670 449 – –– Accumulated depreciation 92 54 – –

Net book value at end of year 578 395 – –

Vehicles, furniture and equipment– Cost 618 461 – –– Accumulated depreciation 332 216 – –


Investment properties at cost 60 55 – –

A register of investment and operational properties is available for inspection at the registered office of the company


Analysis of movementsBalance at beginning of year 695 627

Net additions 311 119

– Operational properties 121 (57)– Vehicles, furniture and equipment 120 123– Investment properties and leasehold

improvements at cost 70 53

Depreciation of vehicles, furniture and equipment (78) (49)Depreciation of operational properties (4) (2)

Balance at end of year 924 695

13. Intangible assetsGoodwillBalance at beginning of year 120 65Net amount on acquisitions 2 161 147Negative goodwill written off 15 –Goodwill amortised (176) (92)

Balance at end of year 2 120 120

97




(R millions) 1999 1998 1999 1998

14. Other income, operating expenses andexceptional items

Other income comprisesNet trading profit 173 136 – –Commissions and fees 1 677 706 – –Dividends received 46 30 75 147Profit on disposal of investments 308 113 – –Equity accounted earnings of associates and subsidiaries – – 278 318

2 204 985 353 465

Operating expenses includePersonnel remuneration 1 030 518 – –Pension fund contributions 81 31 – –Auditors’ remuneration 19 – – –

audit fees 17 11 – –fees for other services 2 1 – –

Directors’ emoluments paid by subsidiary*(* non executive directors receive market-relatedfees based on attendance at meetings)Executive Directors 7 6

Remuneration 7 5Other benefits – 1

Depreciation 82 51 – –

Exceptional items compriseNet surplus on disposal of subsidiaries and associates 63 133 455 –Goodwill amortised (176) (92) – –Net loss on disposal of fixed assets – (43) – –Negative goodwill written off 91 – – –

(22) (2) 455 –

15. Foreign currency gains and losses

Foreign currency gains 214 39 – 43Foreign currency losses (23) (2) – –

Interest rate differential 94 85 – –

In terms of the accounting policy for foreigncurrency transactions, a portion of the exchangedifference arising on translation of foreignsubsidiaries are included in Net Income asinterest received.

Had the differential in interest rates not beenincluded in interest received, net income wouldhave been R870 million (1998 – R558 million).


98



(R millions) 1999 1998 1999 1998

16. Taxation16.1 Tax charge for the year

Taxation on incomeSouth African normal taxation– current 24 15 – –– deferred 3 4 – –Secondary tax on companies 25 22 23 15

Total South African taxation 52 41 23 15Foreign taxation 126 42 – –Total taxation on income 178 83 23 15Transaction and other taxationTax related charges 65 51 – –Regional services council levies 16 6 – –Stamp duty 1 2 – –Value added tax charge onexpenditure, net of input credits 47 26 – –Total transaction and other taxation 129 85 – –Total taxation 307 168 23 15

16.2 Tax rate reconciliationIncome before taxation as per income statement 1 193 730 819 509Less– Debenture interest (92) (46) (13) (1)– Transaction and other taxation (129) (85) – –

Taxable income 972 599 806 508Total taxation on income 178 83 23 15Less secondary tax on companies (25) (22) (23) (15)Normal taxation 153 61 – –Effective rate of taxation on income 16% 10% 0% 0%The standard rate of South African normal taxation has been affected by– dividend income 5% 8% 9% 10%– accumulated tax losses 5% 3% 0% 0%– foreign earnings 11% 10% 0% 0%– change in tax rate (1%) – – –– other permanent differences (1%) 4% 26% 25%Standard rate of SA normal taxation 35% 35% 35% 35%Total taxation 307 168 23 15Effective rate of total taxation 32% 28% 3% 3%

16.3 Deferred taxation due to timing differencesarising from:Accelerated allowances 125 100 - –Income and expenditure accruals (53) (42) - –

72 58 - –16.4 Future tax relief

Estimated tax losses available for set-off against future taxable incomeSouth Africa 234 380 - –Foreign 469 47 - –

703 427 – –


99



(R millions) 1999 1998 1999 1998

17. Share of income of associated companies

The attributable share of earningsof associated companies is based on thelatest available audited financial statementsplus an estimate of earnings for the perioduntil 31 March 1999. 78 81 52 77

18. Ordinary dividendsInvestec Group LimitedInterim of 175 cents (1998 – 130 cents) 140 94 140 94Final of 300 cents (1998 – 220 cents) 241 175 241 175

381 269 381 269

19. Cash flow information

19.1 Cash generated by operating activitiesNet income before taxation 1 193 730 819 509Depreciation 82 49 – –Profit on disposal of associate – – (455) –Provision for bad and doubtful debts 223 104 – –Exceptional items (see note 14) 22 2 – –Equity accounted income from subsidiaries – – (278) (318)

1 520 885 86 191

19.2 Dividends received from associatesEquity accounted reserves at beginning of year 100 75 99 44Earnings for the year 78 81 52 77Realised during the year (5) (32) (5) 4Equity accounted reserves at end of year (137) (100) (123) (99)

36 24 23 26


100



(R millions) 1999 1998 1999 1998

19. Cash flow information(continued)

19.3 Taxation paidTaxation balances at beginning of year (112) (41) (18) (18)Amounts charged to income statement (307) (168) (23) (15)Taxation balances at end of year 156 112 26 18

(263) (97) (15) (15)

19.4 Dividends paidAmounts unpaid at beginning of year (175) (113) (175) (113)Income statement charge (381) (269) (381) (269)Amounts unpaid at end of year 241 175 241 175

(315) (207) (315) (207)

19.5 Net cash or cash equivalents acquiredInvestment in subsidiaries – – – (559)Deposits and other accounts 6 006 2 026 – –Investments and trading securities (2 833) (151) – –Advances and other assets (3 190) (2 005) – –Fixed Assets (130) – – –Goodwill (2 161) (147) – –Profit on disposal of subsidiaries 63 133 – –

(2 245) (144) – (559)

19.6 Movement in income earning assetsShort term negotiable securities (17 373) (3 935) – –Investment and trading securities 78 1 313 – –Advances (3 814) 3 328 – 98Other assets 710 (387) – 8

(20 399) (319) – 106

19.7 Cash and short term fundsCash and short term funds 36 381 21 207 – –Effect of exchange rate changes 2 371 – – –

38 752 21 207 – –

20. Specific and general provisionsReconciliation of movements in Groupspecific and general provisions for badand doubtful debts.

Balance at beginning of year 365 248 – –Income statement charge 223 104 – –Bad debts written off againstprovisions net of recoveries (141) (10) – –Provisions purchased on acquisitions 283 23 – –

Balance at end of year 730 365 – –

101




(R millions) 1999 1998 1999 1998

21. Assets under managementCategory analysis– Unit trust funds 33 838 10 410– Properties managed for third parties 2 638 2 037– Portfolios administered 197 555 69 758– Acceptances on behalf of clients 135 268– Off balance sheet funding activities 14 214 30 659

248 380 113 132On balance sheet assets 112 906 83 049Total assets under management 361 286 196 181

22. Contingent liabilities and commitmentsGuarantees and letters of credit 4 440 1 744Acceptances on behalf of clients 141 131Commercial bills of exchange rediscounted – 1 512Forward repurchase agreements 2 213 –Other 494 –

7 288 3 387

23. Earnings per shareEarnings attributable to ordinary shareholders 835 570Exceptional items 22 2Headline earnings attributable to ordinary shareholders 857 572

Earnings per share (cents) 1 050,2 787,9Headline earnings per share (cents) 1 077,5 790,1Weighted average ordinary shares inissue (millions) 79,5 72,3Earnings per share is calculated using earningsattributable to ordinary shareholders, divided by theweighted average number of shares in issue. Headlineearnings per share is calculated on a similar basisusing headline earnings as the numerator.Earnings attributable to ordinary shareholders 835 570Increased after tax earnings as a result ofconversion of convertible debentures (see note 2) 71 36Diluted earnings attributable to ordinary shareholders 906 606Exceptional items 22 2Diluted headline earnings attributableto ordinary shareholders 928 608Diluted earnings per share (cents) 1 064,5 780,3Diluted headline earnings per share (cents) 1 089,9 782,4Fully diluted weighted average ordinary shares in issue (millions) 85,2 77,7Diluted earnings per share is calculated usingdiluted attributable earnings divided by the fullydiluted weighted average number of shares in issueafter taking account of the conversion ofcompulsorily convertible debentures (see note 2).Diluted headline earnings per share is calculatedon a similar basis using diluted headline earningsas the numerator.

102




(R millions) 1999 1998 1999 1998

24. Segmental informationIncome before tax 1 193 730Share of income of associated companies 78 81Earnings attributable to minority shareholders (37) (27)Contribution before tax 1 234 784

Contribution Total assets1999 1998 1999 1998

Business unit analysis – before taxCorporate and Investment Banking 435 294 30 852 20 789Private Banking 231 171 14 221 12 369Securities Activities 99 66 59 605 45 830Asset Management 208 97 8 493 1 455Insurance 83 81 4 2 104Group Services and Other Activities 178 75 (269) 502Total Group 1 234 784 112 906 83 049

Income after tax 886 562Earnings attributable to minority shareholders (37) (27)Contribution after tax 849 535Geographical analysis – after taxSouth Africa 433 339 28 596 28 030United Kingdom 211 160 69 285 46 990Other 205 36 15 025 8 029Total Group 849 535 112 906 83 049

25. Related party transactionThe Group’s personal account trading policy requiresall employees who participate in equity markets todeal on an arms length basis through Investec SecuritiesLimited. There is no material effect on InvestecSecurities or the Group’s earnings.Refer to Note 11 for details of the Group’s activitieswith Fedsure Holdings Limited which is a related party.During the year the Group sold its interest in DistrictSecurities Bank and Securities Investment Bank. Guaranteeswhich had been in place in respect of these companies’financial markets obligations were still in effect at thefinancial year end. The details of the guarantees are:-

In favour of R’m Notice Period

Eskom 80 30 daysSA Reserve Bank 135 60 daysTransnet 100 30 days

The Group has ongoing financial markets transactions, in the ordinary course of business with DistrictSecurities Bank and Securities Investment Bank.

103



For the year ended 31 March 1999Over the counter Exchange traded Total

Notional Fair Notional Fair Notional FairR millions principal value Principal value principal value

Capital MarketBond options 25 492 89 1 070 22 26 562 111Interest rate swaps 61 919 184 – – 61 919 184Swaptions 45 1 – – 45 1

87 456 274 1 070 22 88 526 296

Money MarketForward rate agreements 96 987 (39) 5 812 78 102 799 39Interest rate swaptions 1 825 (4) 11 – 1 836 (4)Interest rate futures – – 21 316 (3) 21 316 (3)Interest rate options – – 53 860 3 53 860 3

98 812 (43) 80 999 78 179 811 35

Foreign exchangeForward exchange contracts 8 080 197 1 681 25 9 761 222

Equity contractsEquity index – – (12) 28 27 (12)

Derivative instrumentsDerivative instruments have been classified intodealing and hedging transactions. Hedgingtransactions are those used to reduce priceand interest rate risk in the activities ofthe bank. All other derivatives are enteredinto for proprietary trading purposes. The abovetable shows the Group’s proprietary trading exposures.

Notional principalThe notional principal gives an indication of theGroup’s activity in the derivatives market andrepresents the aggregate size of total outstandingcontracts at year end. This figure cannot be used inassessing the market risk associated with the position.

Fair valueThe fair value of a derivative financial instrumentrepresents the positive or negative cash flows whichwould have occurred if the rights and obligationsarising from that instrument were closed out by theGroup in an orderly market transaction at year end.Fair values are obtained from quoted market prices andinstrument pricing models where appropriate.

Risk management informationShareholders should refer to pages 27 to 35 containingfurther risk information which form an integral part ofthe annual financial statements.

104

Group Derivative Instruments


For the year ended 31 March 1999R millions ZAR GBP USD NIS Other Total

Liabilities and shareholders’ funds

Deposits and other accounts 30 025 54 450 14 950 3 742 742 103 909

Outside shareholders’ interest 560 – – – – 560

Compulsorily convertible instruments 1 715 – – – – 1 715

Share capital and reserves 6 481 – – – – 6 481

Shareholders for ordinary dividend 241 – – – – 241

39 022 54 450 14 950 3 742 742 112 906

Assets

Cash and short term funds 4 890 21 755 7 655 1 706 705 36 711

Short term negotiable securities 4 323 32 467 57 129 38 37 014

Investment and trading securities 4 695 1 604 397 914 227 7 837

Other assets 1 531 2 439 361 21 514 4 866

Advances 12 977 3 949 3 152 1 430 428 21 936

Associated companies 1 428 – – 7 63 1 498

Fixed assets 495 262 16 144 7 924

Intangible assets 1 678 266 160 – 16 2 120

32 017 62 742 11 798 4 351 1 998 112 906

ASSETS UNDER MANAGEMENT

Unit trust funds 32 941 733 – 105 59 33 838

Properties managed for third parties 1 944 694 – – – 2 638

Portfolios administered 126 746 62 213 6 172 1 703 721 197 555

Acceptances on behalf of clients 120 – – 15 – 135

Off balance sheet funding activities 1 578 12 636 – – – 14 214

163 329 76 276 6 172 1 823 780 248 380

On balance sheet assets 32 017 62 742 11 798 4 351 1 998 112 906

195 346 139 018 17 970 6 174 2 778 361 286

This Group currency profile analyses the consolidated assets and liabilities in terms of their originatingcurrencies. These totals are then expressed in Rands. Consequently this profile does not reflect any offbalance sheet hedges entered into by the Group. The following exchange rates were used for conversion ofassets and liabilities as at 31 March.

US Dollar $1 = R6,1925 British Pound £1 = R9,99346 Israeli Shekel NIS1 = R1,541307

105

Group Currency Profile


Principal subsidiary Nature Issued Holding Shares at Netcompanies of business ordinary book Indebtedness

capital valueR % 1999 1998 1999 1998

Rm Rm Rm Rm

Direct subsidiaries of Investec Group LimitedInvestec Bank Ltd Banking institution 2 548 000 000 100 3 204 2 920 (1 484) 211Investec Assurance Ltd Investment holding 10 000 000 100 10 10 – 1Investec Property Group Ltd Investment holding 3 000 100 – – 11 11Investec Guinness FlightHoldings (Pty) Ltd Investment holding 100 100 – – 23 23IFI Finance (Pty) Ltd Investment holding 2 100 – – 3 177 –Investec Overseas Finance (BVI) Ltd Financing company $100 100 3 2 (1) 103Other subsidiaries 11 18 – –

3 228 2 950 1 726 349Indirect subsidiaries of Investec Group LimitedCarr Sheppards Crosthwaite Ltd* Stockbroking and £10 461 000 100

portfolio managementInvestec Ernst and Company Ltd∆ Stockbroking and portfolio $26 197 088 100

ManagementIsrael General Bank Ltd# Banking institution NIS 305 956 365 67Intrust Management Company Investment management 100 000 100(Pty) LtdInvestec Ltd Investment holding 15 113 776 100Investec Guinness Flight (Pty) Ltd Portfolio Management 50 000 100Investec Australia Limited∆ Banking institution AU$80 000 005 100Investec Bank (UK) Ltd* Banking institution £322 364 957 100Investec Insurance Brokers Insurance broking 2 100(Pty) LtdInvestec International Holdings Investment holding 2 134 680 100(Pty) LtdInvestec Investment Trust Ltd Investment management 569 077 452 52Investec Guinness Flight Unit Trust management 8 000 000 100Management Company LtdInvestec Bank (Mauritius) Ltd • Banking institution $408 391 464 100Investec SA° Investment holding £75 333 000 100Investec Securities Ltd Stockbroking and 172 000 100

Portfolio managementIPG (Property Trading and Property trading 1 174 100Development) (Pty) LtdMetboard Property Fund Property portfolio 2 000 000 69Managers (Pty) Ltd ManagementReichmans Ltd Trade financing 58 700 007 100Westrust (Pty) Ltd Trust company 1 100

Principal Subsidiary and Associated Companies

106


Principal subsidiary Nature Issued Holding Shares at Netcompanies of business ordinary book Indebtedness

capital valueR % 1999 1998 1999 1998

Rm Rm Rm Rm

Indirect subsidiaries of Investec Group Limited(Continued)100 Grayston Drive Property (Pty)Ltd Property holding 2 100Investec Insurance (UK) Ltd* Insurance broking £950 000 100Invego Investments Ltd Investment holding 159 615 365 100Investec Bank (Botswana) Ltdo Banking institution Pula 50 000 000 100Investec 1 Ltd* Investment holding £13 181 677 100Marvel Resources Limited# Financing company $79 875 856 100Investec Group (UK) PLC Holding company £391 828 548 100Investec Bank (UK) Ltd Banking institution £285 000 000 100Investec Asset Finance PLC Leasing company £71 400 100Investec Bank (Jersey) Ltd Banking institution £5 000 000 100Guinness Mahon Guernsey Ltd Banking institution £7 000 000 100Bank Guinness Mahon Flight AG Banking institution CHF7 000 000 100Henderson Crosthwaite Institutional stockbroking £1 600 000 100Institutional Brokers LtdInvestec Group Investment holding £7 000 000 100Investments (UK) LtdInvestec Property PLC Property holding £114 200 100Investec Guinness Flight Ltd Fund management £670 992 100Guinness Mahon Holdings Ltd Holding company £22 120 090 100Guinness Mahon Group Ltd Holding company £34 663 002 100

Principal associated company of Investec Group LimitedFedsure Holdings Ltd Investment holding 15 1 249 1 847

Israel General Bank’s year end is 31 December in line with Israeli statutory requirements.Fedsure Holdings Ltd’s year end is 31 December.

Details of subsidiary and associated companies which are not material to the financial position of the Group are notstated above.* British ∆ Australian ° Luxembourg# Israeli •Mauritian ∆ USAo Botswana

Principal Subsidiary and Associated Companies

107


Risk- Total Risk-weighted Risk-weightedweighting assetsa assets assets

R million (%) 1999 1999 1998

Money, interbank depositsand claims on Central Government 0 12 621 0 0Irrevocable letters of credit on behalf ofpublic-sector bodies in RSA 5 64 3 1Land Bank and other public sector bodies 10 243 24 16Trade transactions with recourse to other banks 20 15 074 3 015 1 587Residential mortgage loans 50 2 357 1 179 1 721All other assets 100 29 907 29 907 23 860Impairments (202)

Total assets – banking activitiesa 60 266 33 926 27 185Trading assets subject to CAD 57 325 - 3 272c

Total assets 117 591 33 926 30 457

Risk-weighted capital requirement – bankingactivities at 8% (1998 – 8%) 2 714 2 437

Net qualifying capitalb – banking activities 5 172 6 040Qualifying capital as a percentageof banking risk-weighted assets 15,2% 19,8%Tier 1 14,4% 15,8%Tier 2 0,8% 4,0%

Notesa. This balance includes off balance sheet items against which capital is required to be held.b. Net qualifying capital includes only 50% of revaluations, and is after deducting capital required for

trading activities.c. This figure represented the banking risk weighted equivalent of UK assets subject to CAD. As CAD is now

applicable in South Africa, all Group trading assets subject to CAD have been shown separately in the totalassets column.

NET QUALIFYING CAPITAL – BANKING ACTIVITIES

R millions 1999 1998

Primary capital and reserves 4 886 4 821Ordinary share capital and premium 3 982 3 073General reserves 1 147 769Equity accounted reserves 99 101Minority shareholders’ interest 560 967Capital reserved against trading activities (902) (89)Secondary capital and reserves 286 1 219Compulsorily convertible debentures 1 715 286General provisions 236 136Foreign currency reserves 296 125Goodwill write off and impairments (2 321) (120)50% of net revaluation reserves 360 792Net qualifying capital 5 172 6 040

108

Capital Adequacy Statement


109

OPERATING PROFIT CONTRIBUTION ANALYSIS

35%

19%

17%

14%

8%

7%


Private Banking

Asset Management



Insurance

SOURCE OF INCOME – RECURRING AND DEAL

77%

Annuity

23%

Deal

SOURCE OF INCOME – FOREIGN AND DOMESTIC

51%

Foreign

49%

Domestic

EXPENSE ANALYSIS

55%

Personnel

23%

Business

11%

Equipment

6%

Premises

5%

Marketing

Group Income and Expense Analysis


Index to thefinancial statements


111 Chairman’s statement



114 Financial statements



111

Chairman’s Statement

As a consequence of another very strongperformance by its subsidiary, Investec GroupLimited, Investec Holdings Limited (Inhold) ispleased to announce a very favourable set ofresults for the year ending 31 March 1999. Inholdreports a 41,7% increase in headline earnings, withdiluted headline earnings per share increasing by46,9%, to 994,5 cents.

A final dividend of 275 cents per share wasdeclared, bringing the total dividends per share to425 cents, an increase of 41,7%.

Inhold has achieved a 10-year compound growthrate in diluted earnings per share and dividendsper share of 38,1% and 38,8% respectively.

The prospects for Inhold in the coming year aredirectly related to those of Investec Group Limited.As can be seen from the preceding pages in thisreport, we remain confident of another excitingyear ahead. I would like to join the Board ofDirectors in extending my thanks to all of ourcolleagues within the Group who have contributedto the ongoing success of our business.

Ian KantorChairman

18 May 1999


112

To the members of Investec Holdings Limited

We have audited the Company annual financialstatements set out on pages 113 to 116 for the yearended 31 March 1999. These financial statements arethe responsibility of the company’s directors. Ourresponsibility is to express an opinion on thesefinancial statements, based on our audit.

SCOPE

We conducted our audit in accordance with statementsof South African Auditing Standards. Those standardsrequire that we plan and perform the audit to obtainreasonable assurance that the financial statements arefree of material mis-statement. An audit includes:• Examining on a test basis, evidence supporting the

amounts and disclosures in thefinancial statements.



We believe that our audit provides a reasonable basisfor our opinion.

AUDIT OPINION

In our opinion, the financial statements fairly presentin all material respects, the financial position of thecompany at 31 March 1999 and the results of theiroperations and cash flows for the year then endedin accordance with generally accepted accountingpractice and in the manner required by the CompaniesAct.

CONSOLIDATED FINANCIAL STATEMENTS

We concur with the directors decision not to presentconsolidated financial statements for the reason setout in the director’s report.




Directors’ Report

113

Nature of business

Investec Holdings Limited (Inhold) is thecontrolling company of Investec Group Limited,which through its subsidiaries conducts a widerange of Corporate and Investment Banking,Private Banking, Asset Management and Securitiestrading activities.

Share capital

Details of the share capital are set out in note 1 tothe financial statements on page xxxDuring the year 250 000 ordinary shares wereissued to the Investec Bank Share Purchase Trustfor a total of R39 million.

Dividends 1999 1998Rm Rm

Ordinary sharesThe following dividendswere declared:Interim dividend of 150 centsper share (1998 – 110 cents)to shareholders registered on6 November 1998 – paid on20 November 1998 61 42

Final dividend of 275 centsper share (1998 – 190 cents)to shareholders registered on4 June 1999 – paid on18 June 1999 112 77

173 119

Preference sharesThe following preference dividends were paid or accruedRedeemable 4 6

Directors and secretary

Details of the directors and secretary are reflectedon pages xxx and xxx respectively. In terms of theArticles of Association Messrs H S Herman,B Kantor, I R Kantor, S Koseff and P R S Thomas,retire and being eligible, offer themselves for re-election. On 31 March 1999 the directors of thecompany beneficially held directly or indirectly atotal of 5 676 109 (1998 – 5 627 470) ordinaryshares. Directors individually holding both directlyand indirectly 1% or more of the issued sharecapital at 31 March 1999 are:

No. of shares % holding

I.R. Kantor 2 219 288 5,44B. Kantor 804 269 1,97S. Koseff 752 771 1,85

Since 31 March 1999 there have been no changesto the above figures.

At 31 March 1998 their holdings were:

No. of shares % holding

I.R. Kantor 2 511 078 6,20B. Kantor 809 621 2,00S. Koseff 757 023 1,87

The directors’ future entitlements under the shareincentive trusts are 287 103 ordinary shares.

Share incentive trusts

Particulars of the Group’s share incentive trusts arefully disclosed in the Investec Group Limiteddirectors’ report on page xxxxxx .

Financial results

The directors are of the opinion that as thecompany’s only significant asset is its controllinginterest in Investec Group Ltd, the presentation ofconsolidated annual financial statements wouldnot be meaningful.

The Inhold group annual financial statements arepresented in the form of consolidated annualfinancial statements for Investec Group Ltd shownon pages 83 to 107 and the financial results of thecompany shown on page 114.

Had consolidated financial statements beenprepared, Group headline earnings of R377 million(1998: R266 million) and Group earnings of R367million (1998: R265 million) would have beenshown. The Group earnings per share are equal tothe company earnings per share shown on page114 as the company equity accounts for theearnings of its subsidiary.


For the year ended 31 March 1999 Company(R millions) Notes 1999 1998

Balance sheetShareholders’ funds 1 2 567 2 370

Deposits and other accounts 2 –

Shareholders for dividends 112 77

2 681 2 447

Subsidiary companies 2 2 681 2 447

Income statementInterest (paid)/received (1) 1

Dividends received 169 123

Equity accounted earnings of subsidiary 205 148

Total income 373 272

Taxation 2 1

Income after taxation 371 271

Preference dividends 4 6

Earnings attributable to ordinary shareholders 367 265

Ordinary dividends 173 119

Retained income for the year 194 146

Transfer to general reserves (194) (146)

Retained income at end of year – –

Earnings per share (cents) 3 902,6 696,9

Headline earnings per share (cents) 3 927,2 699,5

Diluted headline earnings per share (cents) 3 994,5 677,0

Cash flow statementIncome before taxation 373 272

Equity accounted earnings of subsidiary (205) (148)

Taxation paid (2) (3)

Ordinary dividends paid (138) (88)

Preference dividends paid (4) (6)

Movements in deposits and other accounts 2 (14)

Net proceeds on issue of ordinary shares 39 860

Redemption of preference shares (36) (10)

Cash generated 29 863

Cash utilised in investment and loans to subsidiaries 29 863

Financial Statements

114


Company

(R millions) 1999 1998

1. Shareholders’ funds

Ordinary share capital 4 4Preference share capital 15 51Reserves 2 548 2 315

Total shareholders funds 2 567 2 370

1.1 Ordinary share capitalAuthorised57 000 000 (1998 - 57 000 000) ordinary shares of 10c each 6 6

Issued40 769 795 (1998 - 40 519 795) ordinary shares of 10c each 4 4

The unissued shares are under the control of thedirectors until the next annual general meeting

1.2 Cumulative redeemable preference shares

Authorised25 000 (1998 - 25 000) cumulative redeemable preferenceshares of 50 cents each – –

Issued1 500 (1998 - 1 860) cumulative redeemable preferenceshares of 50c each issued at various rates and premiums 15 51

The unissued preference shares are under the control ofthe directors until the next annual general meeting.

1.3 Reserves

Share premium 1 484 1 445General reserves 691 497Secondary reserves – revaluation reserves 373 373

2 548 2 315

The movement in general reserves was attributableto a transfer from retained earnings of R194 million.

2. Subsidiary companies

Shares at cost 1 503 1 503Equity accounted earnings 1 074 869Net indebtedness 104 75

2 681 2 447

Notes to the Financial Statements

115


Company


3. Earnings per share

Earnings attributable to ordinary shareholders 367 265Increased earnings as a result of conversion of Investec Group Limitedconvertible debentures 81 25

Diluted earnings attributable to ordinary shareholders 448 290

Earnings per share (cents) 902,6 696,9

Headline earnings per share (cents) 927,2 699,5

Weighted average ordinary shares in issue (millions) 40,7 38,0

Earnings per share is calculated using earnings attributable to ordinary shareholders, divided by the weighted average number of shares in issue. Headline earnings per share is calculated on a similar basis using headline earnings as the numerator.

Diluted earnings per share (cents) 972,8 674,6Diluted headline earnings per share (cents) 994,5 677,0Fully diluted weighted average shares in issue (millions) 46,1 43,0

The company has entered into a forward purchase of Investec Bank Limited Ordinary Shares which will result from the conversion of the Investec Bank Limited compulsorily convertible debentures, in exchange for 4 033 507 ordinary shares in the company. The Investec Bankordinary shares have simultaneously been sold to Investec Group Limitedin exchange for 3 573 994 ordinary shares in that company.

The company has also entered into a forward purchase of 6 800 000Investec Group Limited shares in exchange for 7 480 000 ordinaryshares in the company.

Diluted earnings per share is calculated using diluted earningsattributable to ordinary shareholders divided by the fully dilutedweighted average number of shares in issue. Diluted headline earningsper share is calculated on a similar basis using diluted headline earningsas the numerator.

Notes to the Financial Statements

116


Index to extracts*

from the audited financial statementsINVESTEC BANK LIMITED


119 Consolidated Balance sheet

120 Consolidated Income statement


* A full set of financial statements are available from the company secretary on request.


118

To the members of Investec Bank Limited

We have audited the Group annual financialstatements for the year ended 31 March 1999. Extractsof these financial statements are set out on pages119 to 124. These financial statements are theresponsibility of the company’s directors. Ourresponsibility is to express an opinion on these financialstatements, based on our audit.

SCOPE

We conducted our audit in accordance with statementsof South African Auditing Standards. Those standardsrequire that we plan and perform the audit to obtainreasonable assurance that the financial statements arefree of material mis-statement. An audit includes:• Examining on a test basis, evidence supporting the

amounts and disclosures in thefinancial statements.



We believe that our audit provides a reasonable basisfor our opinion.

AUDIT OPINION

In our opinion, the financial statements fairly presentin all material respects, the financial position of theGroup at 31 March 1999 and the results of theiroperations for the year then ended in accordance withgenerally accepted accounting practice and in themanner required by the Companies Act.




For the year ended 31 March 1999Group Group

(R millions) Notes 1999 1998

Capital employedOrdinary share capital 1 12 12Compulsorily convertible debentures 2 1 539 282Reserves 3 4 928 4 217

6 479 4 511

Interests of minority shareholdersin subsidiaries 560 967

Total shareholders’ funds 7 039 5 478

LiabilitiesDeposits and other accounts 4 102 486 75 608Loans from group companies 10 1 646 -

111 171 81 086

AssetsCash and short-term funds 5 36 630 36 335Short-term negotiable securities 6 37 014 18 310Investment and trading securities 7 7 731 5 498Other assets 8 4 790 3 099Advances 9 21 773 16 706Loans to group companies 10 - 361Associated companies 11 253 23Fixed assets 12 860 634Intangible assets 13 2 120 120

111 171 81 086

Consolidated Balance Sheet

119


For the year ended 31 March 1999Group Group


Interest received 9 513 6 224Interest paid 8 240 5 419Net interest income 1 273 805

Provision for bad and doubtful debts 223 1061 050 699

Other income 2 021 891Total income 3 071 1 590

Operating expenses 1 890 921Exceptional items (8) 6Income before taxation 1 189 663

Taxation 266 147Net income 923 516

Earnings attributable to minority shareholders 38 27

885 489

Convertible debenture interestEarnings attributable to 78 43ordinary shareholders 807 446

Ordinary dividends 71 145Retained income for the year 736 301

Consolidated Income Statement

120


For the year ended 31 MarchGroup Group


1. Ordinary share capitalAuthorised105 000 000 (1998 – 105 000 000) ordinary shares of 50 cents each 52 52Issued25 000 000 (1998 - 25 000 000) ordinary shares of 50 cents each 12 12The unissued shares are under the control of the directors until the next annual general meeting.

2. Compulsorily convertible debenturesAuthorised10 000 000 (1998 – 10 000 000) unsecured subordinated compulsorily convertibledebentures of 50 cents each 5 55 000 000 (1998 – 0) unsecured subordinated compulsorily convertibledebentures of 50 cents each 3 –1 000 000 (1998 – 0) Class A Series II unsecured subordinated compulsorily convertibledebentures of 50 cents each 1 –1 500 000 (1998 – 0) Class B unsecured subordinated compulsorily convertibledebentures of 50 cents each 1 –Issued3 573 994 (1998 – 3 573 994) unsecured subordinated compulsorily convertible debentures of 50 cents each issued at a premium of R78.50 each 282 282Interest is payable six monthly in arrears on31 January and 31 July of each year at arate of 15,25%The compulsorily convertible debentures willautomatically convert into Investec Bank Limitedordinary shares, on a one for one basison 31 July 2008. The company at its discretion,may at the request of the holder convert at anearlier date, but not before 31 July 2002.The Investec Bank Limited shares arising outof conversion have been sold forward by theholder thereof to Investec Holdings Limited inexchange for 4 033 507 Investec Holdings ordinaryshares. The Investec Bank Limited shares havebeen simultaneously sold by Investec HoldingsLimited to Investec Group Limited in exchangefor 3 573 994 Investec Group Limited ordinary shares.5 000 00 (1998 – 0) Class A unsecured subordinatedcompulsorily convertible debentures of 50 cents eachissued at a premium of R159,50, net of issue expenses 797 –1 000 000 (1998 – 0) Class A Series II unsecuredsubordinated compulsorily convertible debenturesof 50 cents each issued at a premium of R159.50 160 –

Notes to the Consolidated Financial Statements

121




2. Compulsorily convertible debentures(Continued)1 500 000 (1998 – 0) Class B unsecured subordinated compulsorily convertible debenturesof 50 cents each issued at a premium of R199.50 300 –Interest is payable six monthly in arrears on 15 June and 15 December ofeach year at a rate of 15% for Class A and Class A Series II and 12 % forClass B Debentures.The Class A and Class A Series II debentures will convert into ordinaryshares on a 3.5 for one basis on 15 December 2004. Class B debentureswill convert on a 2.8 for one basis on the same day resulting in the issueof 2 250 000 shares.The 2 250 000 shares arising out of the conversion have been sold forwardby the holders thereof to Investec Group Limited in exchange for 7 500 000Investec Group Limited ordinary shares, of which 6 800 000 have beensimultaneously sold to Investec Holdings Limited in exchange for 7 480 000Investec Holdings Limited ordinary shares.The above debentures may be redeemed at an earlier date by agreementbetween the company and the debenture holders holding at least 75% of thedebentures then in issue.All unissued debentures are under the control of the directors until the next annual general meeting.Total compulsorily convertible debentures 1 539 282

3. ReservesReserves comprise:General reserves 4 025 3 363Secondary reserves 903 854

4 928 4 2174. Deposits and other accounts

Category analysisDeposits and loans from banks 9 291 13 853Demand and saving deposits 14 352 6 640Fixed and notice deposits 16 465 14 697Negotiable certificates of deposit 5 257 3 402Other deposits and loan accounts 2 700 2 195Liabilities in respect of repurchase agreements 37 575 29 689Stock borrowed 7 654 –Deferred taxation – 58Creditors and other accounts 9 192 5 074

102 486 75 608Maturity analysisOn demand to one month 65 446 48 085One month to six months 27 346 18 973Six months to one year 6 649 7 094Greater than one year 3 045 1 456

102 486 75 6085. Cash and short-term funds

Cash and gold coins 2 2Balances with Central Bank 2 617 1 852Balances with other banks 12 275 10 727Loans under resale agreement 14 645 20 945Secured stock lending 4 830 –Other short-term funds 2 261 2 809

36 630 36 335


122




6. Short-term negotiable securities

Analysis by portfolio– Investment 790 1 505– Trading 36 224 16 805

37 014 18 310

7. Investment and trading securities

Category analysisGovernment and government guaranteed 2 033 1 913Listed securities 1 744 1 961Unlisted securities 3 954 1 624

7 731 5 498

Analysis by portfolio

– Liquid assets 2 265 875

– Trading 401 1 206

– Investment 5 065 3 417

7 731 5 498

8. Other assets

Settlement debtors 3 157 2 527Other assets 1 624 572Deferred tax asset 9 -

4 790 3 099

9. Advances and other accounts

Category analysisCommercial property loans 3 161 2 839Residential mortgages 3 262 3 040Leases and instalment debtors 2 212 1 846Trade finance debtors 606 1 020Other loans and advances 13 026 8 190

22 267 16 935Specific provisions against doubtful debts 494 229

21 773 16 706

Maturity analysisOn demand to one month 5 304 1 684One month to six months 3 034 2 414Six months to one year 953 1 133One year to five years 7 042 7 695Greater than five years 5 934 4 009

22 267 16 935

10. Loans to group companies

Loan from holding company – Investec Group Limited 1 457 (252)Loans to fellow subsidiaries (3 103) 613

(1 646) 361


123




11. Associated companies

Listed shares at cost 267 22Equity accounted reserves (3) (3)

264 19Revaluation surplus transferred to secondary reserves (11) 4

Book value 253 23

12. Fixed assets

Operational properties and leasehold improvements– Cost 669 448

– Accumulated depreciation 91 54

Net book value 578 394

Vehicles, furniture and equipment– Cost 601 445– Accumulated depreciation 323 208

Net book value 278 237

Investment properties at cost 4 3

A register of operational and investment properties is available for inspection at the registered office of the company.

860 634

13. Intangible assets

Goodwill

Balance at beginning of year 120 65

Amount on acquisitions 2 176 147

Goodwill amortised (176) (92)

Balance at end of year 2 120 120


124

Financial year end 31 March

Annual general meeting 1999

ReportsAnnouncement of results for half year OctoberAnnouncement of annual results and final dividend MayAnnual financial statements

Dividend paymentsInterim NovemberFinal June


Members’ Diary

Secretary and Registered Office

125

Investec Group Limited Investec Holdings LimitedReg. No. 04/02833/06 Reg. No. 85/05574/06100 Grayston Drive 100 Grayston DriveSandown SandownSandton 2196 Sandton 2196

Secretary SecretaryS Noik (52) S Noik (52)CA(SA) CA(SA)

Auditors AuditorsErnst and Young Ernst and YoungKPMG KPMG

Transfer Secretaries Transfer SecretariesMercantile Registrars Limited Mercantile Registrars Limited8th Floor 8th Floor11 Diagonal Street 11 Diagonal StreetJohannesburg 2001 Johannesburg 2001

1. To receive and adopt the annual financialstatements for the year ended 31 March 1999together with the reports of the auditors andof the directors.

2. To determine the remuneration of thedirectors.*

3. To sanction the dividends paid.**

4. Auditors: To re-appoint Ernst & Young andKPMG and approve the auditors’ remuneration.

5. To elect directors in a single resolution.

6. To re-elect Messrs S.E. Abrahams,A.I. Basserabie, D.E. Jowell, B. Kantor andS. Koseff and Dr. M.Z. Nkosi who retire byrotation, but being eligible, offer themselvesfor re-election.

7. To consider and if deemed fit to pass, with orwithout modification, the following resolutionsas special and ordinary resolutions of thecompany:

SPECIAL RESOLUTION NO.1

- That the Articles of Association of the companybe amended by the addition of the followingnew Article 12.5 immediately after Article 12.4:

“12.5. approve the acquisition of sharesissued by the company in terms of section85 of the Companies Act, 1973, asamended.”

The reason for special resolution No. 1 is toenable the company to purchase its ownshares.


– That the Articles of Association of the companybe amended by the addition of the followingnew Article 80 immediately after Article 79:

“80. A company secretary shall beappointed in accordance with theprovisions of Chapter IXA of the CompaniesAct, 1973, as amended.”

The reason for special resolution No. 2 is toprovide for the appointment of a companysecretary.

SPECIAL RESOLUTION NO. 3

- That, subject to the passing and registration ofspecial resolution No. 2, the Articles ofAssociation of the company be amended by theaddition of the following new Article 81immediately after Article 80:

“81. Uncertificated Securities

The company shall comply with the provisionsof Section 91A of the Companies Act, 1973, asamended, to facilitate the concept of theJohannesburg Stock Exchange of sharetransactions totally electronic (STRATE) and toenable members to dematerialise their sharecertificates for as long as the shares of thecompany are listed on the Johannesburg StockExchange.”

The reason for special resolution No. 3 is tofacilitate the Johannesburg Stock Exchange’sconcept of STRATE and to enable members todematerialise their share certificates.



“82. Payment to Shareholders

The directors and shareholders of the companyshall have regard to the provisions with regardto the payment by the company to its


NOTICE IS HEREBY given that the annual general meeting of members of Investec GroupLimited will be held in the boardroom on the 2nd Floor, 100 Grayston Drive, Sandown, Sandtonon 23 September 1999 at 09:00 for the purpose of transacting the following business:

Notice to Members

126


127

shareholders as provided for in Section 90 ofthe Companies Act, 1973, as amended.”

The reason for special resolution No. 4 is toprovide for the payment by the company to itsshareholders as determined in Section 90 ofthe Companies Act, 1973, as amended.

ORDINARY RESOLUTION NO. 1

- That all the unissued shares and convertibledebentures of the company be and are herebyplaced under the control of the directors of thecompany until the next annual general meetingand that subject to the provisions of theCompanies Act, 1973 and the Banks Act, 1990,the directors be authorised to allot or issuesuch shares and debentures at their discretion.


- That, subject to the passing of the aboveordinary resolution, the Listings Requirements ofthe Johannesburg Stock Exchange and the BanksAct, 1990, the directors be and they are herebyauthorised to issue ordinary shares of 60 centseach and convertible debentures of 60 centseach for cash as and when suitable situationsarise, subject to the following limitations:- this authority shall not extend beyond 15

(fifteen) months from the date of thisgeneral meeting;

- a paid press announcement giving fulldetails, including the impact on net assetvalue and earnings per share, will bepublished at the time of an issuerepresenting, on a cumulative basis withinone year, 5% or more of the number ofshares in issue prior to such issues;

- that issues in aggregate in any onefinancial year will not exceed 10% of thenumber of ordinary shares and convertibledebentures in issue and further, that anysuch issues will not in aggregate in anythree year period exceed 15% of thecompany’s issued share capital, includinginstruments which are compulsorilyconvertible;

- that, in determining the price at which anissue of shares may be made in terms ofthis authority, the maximum discountpermitted will be 10% of the average rulingprice of the shares in question, asdetermined over the 30 days prior to thedate of the announcement or where noannouncement is made, the date of issue ofthe instruments.

8. Approval and adoption of the Investec GroupLimited Security Purchase and Option SchemeTrust.

9. To transact such other business as may betransacted at an annual general meeting.

A member of the company entitled to attendand vote at this meeting is entitled to appointa proxy to attend, speak and, on a poll, vote inhis stead. A proxy need not be a member of thecompany. Proxy forms should be forwarded toreach the office of the transfer secretaries atleast 24 hours before the commencement ofthe meeting.

By order of the board

S NoikGroup Secretary6 August 1999

100 Grayston DriveSandownSandton, 2196

* Note to the financial statements** Note to the financial statements


2. To sanction the dividends paid.

3. To determine the remuneration of the directors.


5. To elect directors in place of those retiring byrotation.In accordance with the company’s Articles ofAssociation, the directors retiring by rotationare Messrs H S Herman, B Kantor, I R Kantor,S Koseff and P R S Thomas, all of whom beingeligible, offer themselves for re-election.


7. To consider and if deemed fit, to pass, with orwithout amendment, the following resolutionsas special and ordinary resolutions of thecompany:


– That the Articles of Association of the companybe amended by the addition of the followingnew Article 16.7 immediately after Article 16.6:

“16.7. approve the acquisition of sharesissued by the company in terms of Section85 of the Companies Act, 1973, asamended.”


SPECIAL RESOUTION NO.2

– That the Articles of Association of the compnaybe amended by the addition of the followingnew Article 110 immediately after Article 109:


The reason for special resolution No. 2 is toprovide for the appointment of thecompany secretary.


– That, subject to the passing and registration ofspecial resolution No. 2, the Articles ofAssociation of the company be amended by theaddition of the following new Article 111immediately after Article 110:





– That, subject tot he passing and registration ofspecial resolution No. 3, the Articles ofAssociation of the company be amended by theaddition of the following new Article 112immediately after Article 111:


The directors and shareholders of the companyshall have regard to the provisions with regardto the payment by the company to shareholders


NOTICE IS HEREBY given that the annual general meeting of members of InvestecHoldings Limited will be held in the boardroom on the 2nd Floor, 100 Grayston Drive, Sandown,Sandton on 23 September 1999 at 09h15 for the purpose of transacting the following business:

Notice to Members

128


129

as provided for in Section 90 of the CompaniesAct, 1973, as amended.”



– That all the unissued shares of the company beand are hereby placed under the control of thedirectors of the company until the next annualgeneral meeting and that subject to theprovisions of the Companies Act, 1973 and theBanks Act, 1990, the directors be authorised toallot or issue such shares at their discretion.


- That, subject to the passing of the aboveordinary resolution, the Listings Requirementsof the Johannesburg Stock Exchange and theBanks Act, 1990, the directors be and they arehereby authorised to issue ordinary shares of10 cents for cash as and when suitablesituations arise, subject to the followinglimitations:- this authority shall not extend beyond 15



- that issues in aggregate in any onefinancial year will not exceed 10% of thenumber of ordinary shares in issue andfurther, that any such issues will not inaggregate in any 36 months period exceed15% of the company’s issued share capital,including instruments which arecompulsorily convertible;



A member of the company entitled to attendand vote at this meeting is entitled to appointa proxy to attend, speak and, on a poll, vote inhis stead. A proxy need not be a member of thecompany. Proxy forms should be forwarded toreach the transfer secretaries, MercantileRegistrars Limited, 11 Diagonal Street,Johannesburg 2001, at least 24 hours beforethe commencement of the meeting.


S Noik

Secretary

6 August 1999



Form of proxy for annual general meeting on 23 September 1999 at 09h00.Investec Group LtdReg. No. 04/02833/06

I/We

of

being a member(s) of Investec Group Limited and

entitled, on a poll, to votes

hereby appoint

of

or failing him

of

or failing them, the chairman of the meeting as my/our proxy to vote for me/us and on my/our behalf at theannual general meeting of the company to be held on 23 September 1999 at 09:00 and at any adjournmentthereof.

Please indicate with an “X” in the appropriate spaces how you wish your votes to be cast. Unless this is done theproxy will vote as he thinks fit.

In favour of Against Abstain

1. To adopt the annual financial statements

2. To determine the remuneration of the directors

3. To sanction the dividends paid

4. To re-appoint Ernst & Young and KPMG and approve the auditors’ remuneration

5 To elect directors in a single resolution

6. To re-elect directors

7. Special Resolutions:

No. 1

No. 2

No. 3

No. 4

Ordinary Resolutions:

No. 1

No. 2

8. Approval and adoption of the Investec Group LimitedSecurity Purchase and Option Scheme Trust

Signature Date

Form of Proxy


A member entitled to attend and vote at the annual general meeting is entitled to appoint a proxy (who need notbe a member of the company) to attend, speak and, on a poll, to vote in his place. In the event of the poll, amember or his proxy shall have one vote for every share held.

Notes

1. The date must be filled in on this form of proxy when it is signed.

2. This proxy must be received by the Transfer Secretaries:

Mercantile Registrars Limited

8th Floor,11 Diagonal Street, Johannesburg 2001PO Box 1053, Johannesburg 2000

not later than 24 hours before the commencement of the meeting.


Form of proxy for annual general meeting on 23 September 1999 at 09h15.Investec Holdings LtdReg. No. 85/05574/06

I/We

of

being a holder(s) of ordinary shares of 10 cents each;

do hereby appoint

of

or failing him

of







4. To elect directors in a single resolution



7. Special Resolutions

No. 1

No. 2

No. 3

No. 4


No. 1

No. 2

Signature Date

Form of Proxy



Notes






Financial year end 31 March

Annual general meeting 1999

ReportsAnnouncement of results for half year OctoberAnnouncement of annual results and final dividend MayAnnual financial statements

Dividend paymentsInterim NovemberFinal June


Members’ Diary

Secretary and Registered Office

125

Investec Group Limited Investec Holdings LimitedReg. No. 04/02833/06 Reg. No. 85/05574/06100 Grayston Drive 100 Grayston DriveSandown SandownSandton 2196 Sandton 2196

Secretary SecretaryS Noik (52) S Noik (52)CA(SA) CA(SA)

Auditors AuditorsErnst and Young Ernst and YoungKPMG KPMG

Transfer Secretaries Transfer SecretariesMercantile Registrars Limited Mercantile Registrars Limited8th Floor 8th Floor11 Diagonal Street 11 Diagonal StreetJohannesburg 2001 Johannesburg 2001


2. To determine the remuneration of thedirectors.*

3. To sanction the dividends paid.**



6. To re-elect Messrs S.E. Abrahams,A.I. Basserabie, D.E. Jowell, B. Kantor andS. Koseff and Dr. M.Z. Nkosi who retire byrotation, but being eligible, offer themselvesfor re-election.

7. To consider and if deemed fit to pass, with orwithout modification, the following resolutionsas special and ordinary resolutions of thecompany:


- That the Articles of Association of the companybe amended by the addition of the followingnew Article 12.5 immediately after Article 12.4:

“12.5. approve the acquisition of sharesissued by the company in terms of section85 of the Companies Act, 1973, asamended.”



– That the Articles of Association of the companybe amended by the addition of the followingnew Article 80 immediately after Article 79:


The reason for special resolution No. 2 is toprovide for the appointment of a companysecretary.









The directors and shareholders of the companyshall have regard to the provisions with regardto the payment by the company to its


NOTICE IS HEREBY given that the annual general meeting of members of Investec GroupLimited will be held in the boardroom on the 2nd Floor, 100 Grayston Drive, Sandown, Sandtonon 23 September 1999 at 09:00 for the purpose of transacting the following business:

Notice to Members

126


127

shareholders as provided for in Section 90 ofthe Companies Act, 1973, as amended.”



- That all the unissued shares and convertibledebentures of the company be and are herebyplaced under the control of the directors of thecompany until the next annual general meetingand that subject to the provisions of theCompanies Act, 1973 and the Banks Act, 1990,the directors be authorised to allot or issuesuch shares and debentures at their discretion.


- That, subject to the passing of the aboveordinary resolution, the Listings Requirements ofthe Johannesburg Stock Exchange and the BanksAct, 1990, the directors be and they are herebyauthorised to issue ordinary shares of 60 centseach and convertible debentures of 60 centseach for cash as and when suitable situationsarise, subject to the following limitations:- this authority shall not extend beyond 15



- that issues in aggregate in any onefinancial year will not exceed 10% of thenumber of ordinary shares and convertibledebentures in issue and further, that anysuch issues will not in aggregate in anythree year period exceed 15% of thecompany’s issued share capital, includinginstruments which are compulsorilyconvertible;


8. Approval and adoption of the Investec GroupLimited Security Purchase and Option SchemeTrust.


A member of the company entitled to attendand vote at this meeting is entitled to appointa proxy to attend, speak and, on a poll, vote inhis stead. A proxy need not be a member of thecompany. Proxy forms should be forwarded toreach the office of the transfer secretaries atleast 24 hours before the commencement ofthe meeting.


S NoikGroup Secretary6 August 1999


* Note to the financial statements** Note to the financial statements


2. To sanction the dividends paid.

3. To determine the remuneration of the directors.


5. To elect directors in place of those retiring byrotation.In accordance with the company’s Articles ofAssociation, the directors retiring by rotationare Messrs H S Herman, B Kantor, I R Kantor,S Koseff and P R S Thomas, all of whom beingeligible, offer themselves for re-election.


7. To consider and if deemed fit, to pass, with orwithout amendment, the following resolutionsas special and ordinary resolutions of thecompany:


– That the Articles of Association of the companybe amended by the addition of the followingnew Article 16.7 immediately after Article 16.6:

“16.7. approve the acquisition of sharesissued by the company in terms of Section85 of the Companies Act, 1973, asamended.”


SPECIAL RESOUTION NO.2

– That the Articles of Association of the compnaybe amended by the addition of the followingnew Article 110 immediately after Article 109:


The reason for special resolution No. 2 is toprovide for the appointment of thecompany secretary.


– That, subject to the passing and registration ofspecial resolution No. 2, the Articles ofAssociation of the company be amended by theaddition of the following new Article 111immediately after Article 110:





– That, subject tot he passing and registration ofspecial resolution No. 3, the Articles ofAssociation of the company be amended by theaddition of the following new Article 112immediately after Article 111:


The directors and shareholders of the companyshall have regard to the provisions with regardto the payment by the company to shareholders


NOTICE IS HEREBY given that the annual general meeting of members of InvestecHoldings Limited will be held in the boardroom on the 2nd Floor, 100 Grayston Drive, Sandown,Sandton on 23 September 1999 at 09h15 for the purpose of transacting the following business:

Notice to Members

128


129

as provided for in Section 90 of the CompaniesAct, 1973, as amended.”



– That all the unissued shares of the company beand are hereby placed under the control of thedirectors of the company until the next annualgeneral meeting and that subject to theprovisions of the Companies Act, 1973 and theBanks Act, 1990, the directors be authorised toallot or issue such shares at their discretion.


- That, subject to the passing of the aboveordinary resolution, the Listings Requirementsof the Johannesburg Stock Exchange and theBanks Act, 1990, the directors be and they arehereby authorised to issue ordinary shares of10 cents for cash as and when suitablesituations arise, subject to the followinglimitations:- this authority shall not extend beyond 15



- that issues in aggregate in any onefinancial year will not exceed 10% of thenumber of ordinary shares in issue andfurther, that any such issues will not inaggregate in any 36 months period exceed15% of the company’s issued share capital,including instruments which arecompulsorily convertible;



A member of the company entitled to attendand vote at this meeting is entitled to appointa proxy to attend, speak and, on a poll, vote inhis stead. A proxy need not be a member of thecompany. Proxy forms should be forwarded toreach the transfer secretaries, MercantileRegistrars Limited, 11 Diagonal Street,Johannesburg 2001, at least 24 hours beforethe commencement of the meeting.


S Noik

Secretary

6 August 1999



Form of proxy for annual general meeting on 23 September 1999 at 09h00.Investec Group LtdReg. No. 04/02833/06

I/We

of

being a member(s) of Investec Group Limited and

entitled, on a poll, to votes

hereby appoint

of

or failing him

of








5 To elect directors in a single resolution


7. Special Resolutions:

No. 1

No. 2

No. 3

No. 4


No. 1

No. 2

8. Approval and adoption of the Investec Group LimitedSecurity Purchase and Option Scheme Trust

Signature Date

Form of Proxy



Notes







Form of proxy for annual general meeting on 23 September 1999 at 09h15.Investec Holdings LtdReg. No. 85/05574/06

I/We

of

being a holder(s) of ordinary shares of 10 cents each;

do hereby appoint

of

or failing him

of







4. To elect directors in a single resolution



7. Special Resolutions

No. 1

No. 2

No. 3

No. 4


No. 1

No. 2

Signature Date

Form of Proxy



Notes






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