BALANCE SHEET

at 30 September 2010

NOTES TO THE UN-AUDITED CONDENSED FINANCIAL STATEMENTS

The accompanying notes form part of the un-audited condensed financial statements.

1.     ACCOUNTING POLICIES

Basis of presentation

The interim financial statements have been prepared in accordance with the recognition and measurement requirements of Financial Reporting Standards and the disclosure of transparency rules. The accounting policies applied in the preparation of the results for the six months ended 30 September 2010 are consistent with those adopted in the Company's audited Financial Statements for the year ended 31 March 2010, in accordance with FSA Disclosure Rules and Transparency Rules 4.2.6.

The information in this report for the six months to 30 September 2010, which was approved by the board of directors on 30 November 2010, does not constitute statutory accounts as defined in Section 435 of the UK Companies Act 2006 ("2006 Act"). Statutory accounts for the year ended 31 March 2010, which contained an unqualified audit report under Chapter 3, Part 16 of the 2006 Act and which did not contain statements under Section 498 of the 2006 Act, have been delivered to the Registrar of Companies in accordance with Section 1068 of the 2006 Act.

Segmental reporting

The company's business activities are to engage in financial arrangements and transactions and to assist in financing the operations of the Investec Group. The Company's activities are conducted within the UK.

Cash flow statement

The company is exempt from the requirements to prepare a cash flow statement under Financial Reporting Standard 1, because a consolidated cash flow statement is included in the publicly available consolidated financial statements of its ultimate holding company, Investec plc.

Taxation

Corporation tax payable is provided on taxable profits at the current rate.

Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date.  This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the underlying timing differences can be deducted.  Timing differences are differences between the company's taxable profits and its results as stated in the financial statements, which are capable of reversal in one or more subsequent periods.

Deferred tax is measured at a non-discounted basis at the tax rates that are expected to apply in the periods in which the timing differences are expected to reverse based on tax rates and laws that have been enacted or substantively enacted at the balance sheet date.

Related party transactions

The directors have taken advantage of the exemptions available in Financial Reporting Standard 8 from disclosing transactions with related parties which are members of Investec plc Group.

Debt instruments and associated finance costs

Guaranteed subordinated step-up notes and debt securities in issue are initially recognised at fair value and are carried in the balance sheet at amortised cost applying the effective interest rate method.

Some debt instruments are structured notes which contain both a derivative and non-derivative component. These instruments are reported on the balance at a valuation which includes the fair value of the embedded derivative.

Loans and receivables

Loans and receivables are carried in the balance sheet at amortised cost applying the effective interest rate method.

Disclosure of financial instruments

The directors have taken advantage of the disclosure exemptions available to subsidiary undertakings in Financial Reporting Standard 29. 

2.         SEGMENTAL INFORMATION

All of the company's business relates to engaging in financial arrangements and transactions and assisting in financing the operations of the Investec plc group and is carried out in the United Kingdom.

3.         emoluments of directors

The directors were employed and remunerated as directors or executives of Investec plc and its subsidiaries ("the group") in respect of their services to the group as a whole, and it is therefore considered that there is no appropriate basis on which they can apportion part of their remuneration for their services to the company.

4.         interest payable

5.         Fee income from parent undertaking

In prior periods administration and direct expenses related to the Zebra notes products were paid by the company and then recharged to the parent undertaking inclusive of a 5% margin. This recharge was shown as fee income. As no new notes were issued under the Programme in the current period no expenses have been incurred by the company.

6.         PRINCIPAL TRANSACTIONS   

There is no principal transaction income in the current period.

The income of £630,000 in the half year 30 September 2009 resulted from the cancellation and write down of £50,032,000 Guaranteed Undated Subordinated Callable Step-up Notes and the release of Investec Bank plc from the principal amount of £49,383,524 Undated Subordinated Callable Step-up Notes and net interest adjustments.

7.         administratION expenses 

There are no administration expenses in the current period as no new notes were issued under the Programme.

Administration expenses incurred in the half year 30 September 2009 relate to the £3,000,000,000 Zebra Capital Plans Retail Structured Products Programme launched by the company on 9 May 2008.

The company has no employees in the current or prior period.

8.         TAXation

The effective rate for the period is different from the standard rate of UK corporation tax due to the following items:

9.   Debtors: EXCLUDING SUBORDINATED LOANS

Amounts owed by the parent undertaking primarily represents the proceeds of the issue of debt securities which have been lent to the parent at the same interest and repayment terms as the debt securities, and the proceeds of the issue of the Zebra Plan Notes and the positive fair value of the equity derivatives purchased from the parent undertaking to match the risks of the embedded equity derivatives within the Zebra Plan products.

10.  DEBTORS: AMOUNTS DUE AFTER ONE YEAR - SUBORDINATED LOAN

The net proceeds of two issues of Step-up Notes by the company have been lent to the immediate parent undertaking, Investec Bank plc on a subordinated basis.

1.  The term of the first loan is 1 March 2016 but it may be redeemed at any time after 1 March 2011.  The interest rate on the loan is fixed at 8.1618% until 1 March 2011 and interest is paid annually.  After 1 March 2011 the interest rate will be reset in line with the interest rate on the Guaranteed Subordinated Step-up Notes.

2.  The second loan is undated but it may be redeemed at any time after 23 January 2017.  The interest rate on the loan is fixed at 6.4578% until 23 January 2017 and the interest is paid semi-annually.  After 23 January 2017 the interest rate will be reset in line with the interest rate on the Guaranteed Undated Subordinated Callable Step-up Notes.

On the 15 September 2009 the Company entered into a release agreement with IBP to release the principal amount of £49,383,524 of the debt owed by IBP to the Company pursuant to the intra-group funding agreement dated 23 January 2007 in consideration for an amount of £26,960,189 to be paid by IBP to the Company.

On the 8 December 2009 the Company entered into a release agreement with IBP to release the principal amount of £54,483,439 of the debt owed by IBP to the Company pursuant to the intra-group funding agreement dated 23 January 2007 in consideration for an amount of £38,449,744 to be paid by IBP to the Company.

The terms of the step-up notes, which are guaranteed by Investec Bank plc, are detailed in note 12.

11.  CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR

The company issued on 6 June 2006 a 5 year bond with a coupon of 3 month US dollar libor plus 40 basis point and a face value of USD 25,000,000 repayable 6 June 2011. 

The company issued on 14 September 2009 a 1 year bank guaranteed credit linked note with a fixed coupon of 4.12 per cent. and a face value of GBP 10,000,000 repayable 20 September 2010.

12.  CREDITORS: AMOUNTS FALLING DUE after more than ONE YEAR

On 1 March 2004 the company issued £200,000,000 of 7.75 per cent. Guaranteed Subordinated Step-up Notes due 2016 at a discount.  Interest is paid annually.  The notes are guaranteed by Investec Bank plc and are listed on the Luxembourg Stock Exchange.  The step-up notes may be redeemed by the issuer, at par, at any time after 1 March 2011, subject to the prior consent of the Financial Services Authority.  On 1 March 2011 the interest rate will be reset to become the aggregate of 3.5 per cent. and the gross redemption yield of the relevant benchmark gilt.

On 23 January 2007 the company issued £350,000,000 6.25 per cent. Guaranteed Undated Subordinated Callable Step-up Notes callable 2017 at a discount.  Interest is paid semi-annually.  The notes are guaranteed by Investec Bank plc and are listed on the Luxembourg Stock Exchange.  The step-up notes may be redeemed by the issuer, at par, at any time after 23 January 2017, subject to the prior consent of the Financial Services Authority.  On 23 January 2017 the interest rate will be reset to become three month LIBOR plus 2.11% payable quarterly in arrears. On 25 September 2009, £50,032,000 of the notes representing approximately 14.3 per cent of the total issued principal amount, were cancelled. A further £55,177,000 of the notes representing approximately 15.8 per cent of the original total issued principal amount was cancelled on 8 December 2009.  As at the period-end 30 September 2010 the principal amount in issue was £244,971,000.

The amounts due under the Zebra Plan Notes are linked to the performance of preference shares issued by Zebra Capital II Limited and consequently the amounts due under the notes disclosed above includes movements in the fair value of these embedded equity derivatives. As at 30 September 2010 the positive fair value of these derivatives was £10,378,479 (March 2010: £4,970,980), a positive movement in the period of £5,407,499 (March 2010: £9,549,871). The company has matched this risk by entering into matching contracts with its parent. Included in amounts owed by parent undertaking after one year in note 9 above is a negative fair value of embedded derivatives of £10,378,479 (March 2010: £4,970,980).

13.  CALLED UP SHARE CAPITAL

14.  REserves

15.  RECONCILIATION OF Movement in SHAREHOLDERS' funds

16.        RISK MANAGEMENT

As a wholly-owned subsidiary of Investec plc, the company falls under the Investec plc Group's Risk Management Framework which is set out in the combined Investec plc and Investec Limited 2010 financial statements, Risk Management and Corporate Governance report. The company's function is to raise finance for the Investec Group and its policy is to on-lend the proceeds of any financial indebtedness to its immediate parent, Investec Bank plc, on back to back terms that minimise any liquidity, currency or interest rate risk.

Credit risk

As all net funds raised by the company are on-lent to Investec Bank plc, the company is therefore dependent on repayment of principal and interest from Investec Bank plc for the purposes of meeting its financial obligations. Its financial obligations in respect of the Guaranteed Undated Subordinated Callable Step-up Notes, Guaranteed Subordinated Step-up Notes, Euro denominated floating rate note issues and Zebra Capital Plans Retail Structured Products Notes are guaranteed by Investec Bank plc.

Liquidity risk

Loans to Investec Bank plc are matched in terms of maturity and interest payment dates to those of the related borrowing so as to eliminate any liquidity risk.

Foreign currency risk

Loans to Investec Bank plc are denominated in the same currency as the related borrowing so as to ensure that the company is not exposed to foreign currency risk.

Market risk

Any market risk with respect to the performance of the Zebra Capital Plans Retail Structured Products Preference Share Linked Notes is matched with Investec Bank plc.  Equity derivative financial instruments written have been matched with equity derivatives purchased from Investec Bank plc providing the same terms and conditions and as such mitigating any risk.

Capital Management

The company manages and monitors its capital on an ongoing basis and with consideration for the ongoing commitments of the entity.The company is not regulated and therefore it is not subject to any capital adequacy requirements.

17.  ULTIMATE parent undertaking

The company's immediate parent undertaking is Investec Bank plc.

The company's ultimate parent undertaking and controlling party is Investec plc, a company incorporated in the United Kingdom and registered in England and Wales. The consolidated financial statements of Investec plc and Investec Bank plc are available to the public at 2 Gresham Street, London, EC2V 7QP. Investec Bank plc is the smallest group and Investec plc is the largest group in which the results of the company are consolidated.