| Wed 27 Feb 2008, 8:00 | | NED - Nedbank Group - Reviewed preliminary financial results for the year ended |
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NED
NED - Nedbank Group - Reviewed preliminary financial results for the year ended
31 December 2007
NEDBANK GROUP LIMITED
Reg No: 1966/010630/06
JSE share code: NED
NSX share code: NBK
ISIN: ZAE000004875
REVIEWED PRELIMINARY FINANCIAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2007
These results and additional information are available on
www.nedbankgroup.co.za.
`We are pleased with the balance we have achieved between delivering on our
short-term performance targets and investing to build a platform for long-term
growth. Although our financial performance is now benchmarking closer to that
of our peers, we are not yet satisfied and aspire to improve our performance
further. We remain firmly committed to our vision of becoming southern Africa`s
most highly rated and respected bank. As part of this vision we will continue
our transformation into a truly southern African bank, representative of and
providing banking services to all.`
Tom Boardman Chief Executive
ROE increased from 18,6% to 21,4%
ROE (excl goodwill) increased from 22,1% to 24,8%
Efficiency ratio improved from 58,2% to 54,9%
Headline earnings up 33,5% to R5 921 million
Final dividend per share up 23,2% to 350 cents
Overview
The operations of South African banks remained largely unaffected by the
volatility and risk aversion that have characterised international financial
markets. Our domestic environment was impacted by increasing interest rates,
rising household debt and ongoing pressure on margins. Notwithstanding these
constraints, Nedbank Retail grew strongly and Nedbank Corporate showed good
growth as both government and the corporate market increased investment in
infrastructure. After a disappointing first half Nedbank Capital delivered
improved earnings in the second half.
Throughout the period the group continued to invest in creating a platform for
sustainable long-term growth and performance through:
investing in people and values, and focusing on corporate culture as a
competitive advantage, which lead to improvements in staff morale and client
service levels;
building the brand and positioning Nedbank as a bank for all South Africans;
differentiating on price and ensuring the bank`s competitiveness in key
markets;
growing the infrastructure and distribution network to service clients
better;
increasing the bank`s client base through enhanced focus, accountability,
streamlined processes and improved client service;
using risk management as a business enabler and competitive advantage, by
leveraging the group`s Basel II programme as a catalyst to implement
worldclass risk management practices; and
building the group`s relevance as a sustainable bank and good corporate
citizen.
Banking environment
The South African economy remained resilient throughout 2007. Key features in
the banking environment included the following:
Sustained competitive pressure on fees and margins in both the wholesale and
retail banking markets. The report on the Competition Commission`s inquiry
into bank fees is ongoing and is expected to be released in the first quarter
of 2008.
The increase in interest rates that had a positive endowment effect on banks`
interest margins; however, this has been offset by pressure on margins from
the continued industry reliance on wholesale funding.
Rising inflation, the high individual debt burden and the increase in
interest rates resulting in a slowdown in consumer spending and increasing
consumer default rates. This trend is expected to broaden in 2008.
The growth trend in fixed-capital formation and government consumption
expenditure resulting in positive momentum in wholesale banking.
Increasing regulatory issues, in particular the implementation of the
National Credit Act (NCA) on 1 June 2007 and the introduction of Basel II with
effect from 1 January 2008, both of which are likely to benefit the banking
industry in the medium to long term.
Financial performance
Headline earnings increased by 33,5% to R5 921 million. Basic earnings grew by
32,9% to R6 025 million.+
Headline earnings per share (EPS) increased by 33,8% to 1 485 cents (2006: 1
110 cents). Diluted headline EPS increased by 32,8% from 1 076 cents to 1 429
cents. Basic EPS grew by 33,1% from 1 135 cents in 2006 to 1 511 cents in 2007.+
The group`s return on average ordinary shareholders` equity (ROE) improved from
18,6% to 21,4% for the year, exceeding the target of 20% that was set in 2004
at the start of the group`s recovery programme. ROE, excluding goodwill,
improved from 22,1% to 24,8%.+
Shareholders will again be offered a capitalisation award with a cash dividend
alternative of 350 cents per share. Total awards for the year amount to 660
cents per share, up 33,9% from the 493 cents per share declared for 2006.
Net interest income (NII)
NII grew 29,0% to R14 146 million (2006: R10 963 million) due to strong growth
in average interest-earning banking assets of 29,0%.
The group`s net interest margin for the 12-month period was 3,94%, the same
level as reported in 2006. The margin:
benefited from the endowment impact of interest rate increases on capital and
current and savings accounts of 0,4%;
decreased from liability margin compression of 0,1% as deposit interest rates
continued to price in upside risk and as the sector had to source a higher
proportion of funding from the wholesale deposit market; and
decreased from asset margin compression of 0,3% mainly from the impact of
strategic changes in the product mix of personal loans and competitive pricing
behaviour, particularly in home loans and commercial mortgages.
Impairment losses on loans and advances
The credit loss ratio increased from 0,52% in 2006 to 0,62% for the year. The
growth in advances and the increase in the credit loss ratio are reflected in a
45,9% increase in the impairments charge to R2 164 million. Impairment levels
have risen in Nedbank Retail and Imperial Bank while the credit loss ratios in
Nedbank Capital and Nedbank Corporate have remained at lower-than-expected
levels, assisted by active credit management and unusually high levels of
recoveries. The effect of the deteriorating retail environment has been
mitigated to an extent through tighter credit policies and an early focus on
collections processes and systems. The group has continued to apply stringent
credit management policies and has tightened credit granting requirements in
the retail areas most affected by the worsening credit cycle over the last two
years.
Nedbank has no direct exposure to US subprime mortgages. The group is
indirectly exposed through banking relationships with large institutions who
themselves have subprime exposure. These are relatively small and are not
expected to lead to any losses to the group.
Nedbank Retail raised an additional incurred but not reported (IBNR) provision
of R167 million in December 2007 to adjust for the effect of the current higher
interest rates not yet evident in the historic data used for provisioning
calculations.
Impaired advances increased by 37,6% from R7 743 million to R10 652 million as
the credit environment worsened. Impairment provisions increased by 17,2% from
R5 184 million to R6 078 million, this increase being limited by improvements
in underlying security values.
Non-interest revenue (NIR)
NIR for the period increased by 10,3% to R10 446 million (2006: R9 468 million).
This growth in NIR was driven primarily by the following:
Commission and fee income growth of 15,0%, including fees in Bond Choice,
which grew by 22,1% from R614 million to R750 million.
An increase of 58,3% in private equity revaluations, realisations and
dividend income from R578 million to R915 million.
This growth was partially offset by the following:
Weak trading results as reported in the first half, mainly due to poor
trading within the business alliance with Macquarie, resulting in trading
income for the year decreasing by 19,0% to R1 334 million.
The competitive pricing structure for transactional products adopted in
Nedbank Retail, where fees have been reduced by an average of 19% since
mid-2006.
A continuous move from cheques to electronic channels by business banking
clients.
Expenses
Expenses continue to be well-managed, increasing by 13,5% to R13 489 million.
The `jaws` ratio continued to improve, with total revenue growth of 20,4% being
6,9% above expense growth, resulting in the efficiency ratio improving from
58,2% for 2006 to 54,9%.
Growth in operating expenses slowed, as anticipated, from 14,8% at June 2007.
Staff expenses increased by 16,4%, reflecting the investment the group has made
in client-facing staff and an increase in variable pay as a result of the
continued improvement in operating performance. Staff numbers increased by
10,4% during the year. Marketing costs increased as planned by 13,4% as the
group continued to invest in repositioning the Nedbank brand.
Expenses include:
costs for the integration of Old Mutual Bank into Nedbank of R64 million;
Bond Choice`s expenses, which grew by 17,2% from R538 million to R630
million; and
the share-based payments charge in respect of the group`s black economic
empowerment (BEE) transaction, which increased by 6,5% from R138 million to
R147 million.
Direct taxation
The effective taxation rate decreased from 27,8% to 26,3% as the group
benefited from lower tax risk provisions.
Associate income
Associate income increased from R153 million to R239 million. This increase
arose from strong growth in the NedLife and BoE Private Clients bancassurance
joint ventures with Old Mutual SA, which collectively grew core earnings by
43,0%. In addition, this was boosted by a profit of R65 million from the sale
of JSE Limited shares in the first quarter of the year by the BoE Private
Clients joint venture.
Non-trading and capital items1
Non-trading and capital items of R104 million after tax (2006: R98 million
after tax) comprised mainly profits on the sale of:
MasterCard Worldwide shares issued to the group at the time of the listing of
MasterCard of R85 million;
a portion of the shares in Bond Choice of R12 million; and
the group`s investment in Taquanta Investment Holdings Limited of
R10 million.
Balance sheet
Capital+
The group is well-capitalised under Basel I, with a Tier 1 group capital
adequacy of 8,3% and total group capital adequacy ratio of 12,2%. Under Basel
II parameters the group remains well-capitalised with a pro forma Tier 1 group
capital adequacy of 8,0% and a pro forma total group capital adequacy ratio of
11,2%. Under Basel II the regulatory minimum for Tier 1 is 7% and for total
group capital adequacy 9,75%.
Advances
During the period under review advances grew 21,2% to R374 billion, with
average interest-earning banking assets increasing by 29,0% to R359 billion.
As a result of the strong advances growth, total assets increased 15,1% to
R489 billion. Growth in higher-risk areas, such as personal loans, slowed as
the group tightened credit criteria and focused on higher-quality, lower-
margin personal loans.
Advances growth by cluster is as follows:
Rm 2007 2006 Increase (%)
Nedbank Corporate 153 718 133 254 15,4
Nedbank Capital 51 233 40 560 26,3
Nedbank Retail 133 492 106 974 24,8
Imperial Bank 35 320 27 735 27,3
Other 193 40
Total 373 956 308 563 21,2
Deposits
Deposits increased by 18,5% from December 2006 to R385 billion at December
2007.
Nedbank`s liquidity remains sound in an overall liquidity environment that was
made more challenging by the negative international liquidity developments.
Contagion of South African markets has been limited, with little direct
exposure by local banks to US subprime markets. The impact on Nedbank and the
South African markets has, to date, been limited to a reduction in
international liquidity (which has traditionally not been a large portion of
the funding base) and an increase in the pricing of capital market debt. This
has had a small negative impact on the cost of rolling over conduit paper and
new subordinated-debt issues.
During 2007 Nedbank successfully launched its inaugural auto loans and
residential mortgage-backed securitisation programmes, raising R1,7 billion
and R1,87 billion respectively. These programmes have diversified the funding
base and lengthened the bank`s existing funding profile. In addition, Nedbank
issued a further foreign syndicated club loan of $500 million in February 2007,
raising additional foreign funding and creating further funding diversification.
Cluster performance
Nedbank Capital
Nedbank Capital increased headline earnings by 11,1% to R1 272 million and
improved its ROE to 36,8% (2006: 31,3%).
NII increased by 2,7% to R693 million. Loans and advances grew by 26,3%, but
this was offset by a higher proportion of preference share deals and the
funding effect of an increased investment portfolio. The credit loss ratio
improved from 0,28% in 2006 to 0,05% for 2007 as the cluster benefited from
impairment recoveries and reduced credit losses.
NIR grew 4,2% to R2 135 million. Within NIR:
commission and fee income increased by 33,3%, benefiting from strong deal
flow in Specialised Finance and Corporate Finance;
income from private equity investments amounted to R608 million for the year,
an increase of 108,9% (2006: R291 million); but
trading revenue decreased by 22,6% to R1 172 million, mainly as a result of
disappointing trading from the business alliance with Macquarie, as previously
reported, in the first half of 2007.
After a disappointing first half it was pleasing to see second-half earnings
grow by 33,4%, compared with the first half, and up 27,8% on the same period
last year.
The Specialised Finance business performed particularly well. It has built a
competitive presence in its sectors of focus and deal flow momentum from the
first half continued into the second half. A highlight of the year was the
performance of the resources team, including winning The Banker Deal of the
Year Award 2007 for Africa and southern Africa for the Exxaro Resources Limited
BEE deal.
On the back of strong mining-related deal flow and to mitigate risk, a
commodities desk was established during the year to focus on metals hedging for
project finance clients.
Corporate Finance won some good mandates and continued to benefit from BEE-
related transactions. Private Equity performed well, with good gains in the
current year relating to investments made in previous years. Certain positions
were realised and others hedged to provide some protection in volatile markets.
The outlook for 2008 remains positive. However, recent uncertainty may impact
on the rate of domestic project spend and could adversely impact earnings
growth.
Nedbank Corporate
Nedbank Corporate increased headline earnings by 21,8% to R3 063 million. At
21,4%, ROE was marginally down on the 2006 ROE of 21,6%.
The investment in Lion Match was disposed of effective 1 July 2007 and the
shareholding in Bond Choice was reduced from 80% to 62% in July 2007, resulting
in reduced earnings contributions in 2007 from these entities.
The core banking activities generated headline earnings growth of 27,9%, with
the major businesses all performing well, reflecting the inherent strength of
Nedbank`s wholesale banking franchise. Headline earnings grew by 30,7% in
Business Banking to R1 227 million, 40,1% in Corporate Banking to R674 million,
16,3% in Property Finance lending activities to R694 million and 63,5% in
Nedbank Africa to R90 million.
Revenue grew strongly, impairments were well-managed and expense growth was
controlled below the level of income growth.
Property investment activities generated headline earnings of R313 million,
down by 4,2% on the record level produced in 2006, but still exceeded
expectations.
NII and NIR grew 19,6% and 9,9% respectively, through strong growth in average
advances and good progress in gaining primary banking clients in both the
public and private sectors in all the businesses, supported by the significant
improvement in the electronic banking offering. Average advances increased by
25,8%, notwithstanding the initiative to reduce the level of short-term, low-
margin advances in Corporate Banking. Core transactional fee income grew by
10%, despite the continued impact of disintermediation on the cheque business
as clients switch to cheaper electronic platforms and credit cards. The
investment in electronic banking systems has provided the impetus for growth in
this area, with electronic banking volumes growing by 31,0% following
successful client conversions and acquisitions.
The credit loss ratio of 0,11% remains low and is attributable to the quality
of the portfolio and bad-debt recoveries through effective credit management.
Despite investment in electronic banking and risk management systems,
increasing frontline sales headcount and further regulatory compliance costs,
expenses were well-managed and increased by 12,6%.
Nedbank Africa is focused on building its existing operations and on
selectively extending its presence on the continent. Merchant Bank of Central
Africa (MBCA), the group`s subsidiary in Zimbabwe, continued to make a profit
in rand terms, but due to economic conditions and exchange control regulations
in that country the investment remains fully impaired.
The businesses in Nedbank Corporate are well-positioned to perform in the more
challenging environment.
Nedbank Retail
Nedbank Retail had an excellent year, growing headline earnings by 37,3% to R2
008 million and delivering an ROE of 24,3%. The efficiency ratio improved to
62,5% and overall advances growth was strong at 24,8%.
The credit environment continued to deteriorate and, as anticipated in this
environment, Nedbank Retail`s credit loss ratio worsened from 1,1% to 1,26%.
Over the past two years the division has consistently tightened credit policies
across most products and invested in increased capacity and systems in its
collections areas. These initiatives will stand Nedbank Retail in good stead in
the future.
The hard work done in the division continues to bear fruit and, with the
retail turnaround now completed, Nedbank Retail is focused on delivering on its
`fastest-growing retail bank` strategy.
Some of the highlights of the year included the following:
Market share gains in many categories, including Home Loans, Personal Loans,
Card, Mzansi and Vehicle Finance.
Disciplined execution of the client service strategy, including the
introduction of the AskOnce undertaking, resulting in improved client service
metrics as well as the top banking service award in the Ask Afrika Orange
Index Survey.
Continued efforts to build Nedbank Retail as the most affordable provider of
banking services, including transactional-fee reductions of 19% over the last
two years.
Net growth of 88 000 clients who use Nedbank as their primary bank (2006:
53 000).
Rollout of the distribution plan, including 411 ATMs (1 636 at December 2007)
and 71 staffed outlets (744 at December 2007), with all elements of the
distribution plan currently performing better than the original business case.
Creating a more balanced portfolio of businesses to reduce the historic
dependency on the Home Loans Division. In particular the Bancassurance and
Wealth, Small Business Services and Personal Loans Divisions now contribute
significantly to the cluster`s earnings.
Strong growth of bancassurance, with new-business premiums increasing by
12,6% from R5 731 million to R6 455 million and the annual premium equivalent
of credit and single life products of Nedgroup Life (the joint venture with
Old Mutual SA) growing by 21,9%.
The acquisition of Old Mutual`s 50% interest in Old Mutual Bank for a net
consideration of R140 million. This integration offers significant
opportunities to roll out the intermediary-friendly strategy in Nedbank and to
rationalise duplicated infrastructure and overlapping branches. The
integration is well underway and should be completed by June 2008.
Significant progress in rolling out the transformation and mass-market
strategy, including new products such as DreamMaker and FutureSure. 60% of the
planned growth in distribution will be into mass-market areas. Progress has
been made in internal transformation, including employment equity, with the
division exceeding all of its Financial Sector Charter (FSC) access, low-
income housing, black small- and medium-enterprise (SME) lending and Mzansi
targets.
While the retail environment will be significantly tougher in 2008, the
business is well-positioned to compete vigorously in the South African market
and remains committed to building its market share and relevance on a
sustainable and profitable basis.
Imperial Bank
Imperial Bank increased headline earnings by 24,1% to R479 million (2006: R386
million), although ROE declined from 24,7% to 23,9%. Nedbank Group`s share of
these earnings was up 17,6% to R227 million (2006: R193 million).
NII grew by 38,2%, driven by loans and advances growth of 27,3%.
Following the continued increases in interest rates, impairments have risen
steadily throughout the year. The impairments charge increased by 95,3%. The
credit loss ratio of 1,28% continues to be within acceptable parameters.
Expenses increased by 21,0% and there was a further improvement in the
efficiency ratio from 35,4% last year to 30,2% for 2007.
The effective tax rate has increased from 23,7% to 30,0% as the benefits of the
assessed loss in the previously acquired NRB entity have now been fully
utilised.
Motor Finance, Property Finance and Supplier Asset Finance all achieved
acceptable ROEs. Medical Finance achieved good-quality growth and is performing
according to expectations, but needs to achieve critical mass in order to earn
an acceptable ROE in the long term.
Nedbank recognises the significant contribution made by Bill Lynch, the former
Chairman of Imperial Bank, to the success of Imperial Bank and extends
condolences to his family on his recent passing.
Central services
The unallocated costs in central services were R649 million, a decrease of
26,3% from R881 million in 2006. This improvement arose mainly from lower costs
on subordinated debt, a higher net endowment on surplus capital, and lower
taxation risk provisions, offset by a higher funding charge on goodwill and
higher preference share dividends in the environment of higher interest rates.
Technology
R581 million was spent on technology innovation projects across all business
clusters. These included:
data and voice network infrastructure upgrades to new state-of-the-art
technology;
a new Microsoft enterprise software licence implemented for the group;
industry-leading cash box systems installed for many corporate clients;
substantial investments to comply with the NCA; and
Basel II and enterprise data warehouse systems and infrastructure projects.
Risk and capital management
Nedbank has successfully implemented its Basel II blueprint. This is in line
with the revisions to the Banks Act and the new internationally based Basel II
banking regulations introduced by the South African Reserve Bank (SARB), which
were effective from 1 January 2008. The main purpose of Basel II is to promote
significant enhancement and sophistication of risk and capital measurement and
management, thereby further elevating the safety and soundness of the banking
industry.
One of Nedbank`s notable Basel II achievements was receiving formal approval
from the SARB for the Advanced Internal Ratings Based (AIRB) approach for
credit risk, noting that Imperial Bank, Fairbairn Private Bank and the African
subsidiaries have adopted the standardised approach. Nedbank`s risk and capital
management positioning provides the bank with sophisticated management science
and capabilities to optimise the risk-return equation and grow our businesses
profitably within the clearly established risk appetite of the group.
During the period the group continued to manage its capital actively and:
redeemed the expensive NED2 R4 billion bond on its call date in July
2007;+
concluded several Tier 2 subordinated-debt issues totalling R6,77 billion,
thereby continuing to build a smooth and diversified subordinated-debt
maturity profile(a highlight was the R2 billion inaugural Tier 2 investment in
a South African bank by the International Finance Corporation and the African
Development Bank);+
completed a R1,7 billion Imperial Bank asset securitisation;+
completed a R1,87 billion Nedbank Retail home loan securitisation;+ and
issued Tier 1 perpetual preference shares of R364 million.+
Hybrid capital instruments now qualify as Tier 1 regulatory capital under Basel
II and the group is well-advanced in planning its inaugural issue.
Nedbank Group, Nedbank and Imperial Bank all received rating upgrades from
Moody`s and Fitch during 2007. This was very pleasing and recognises the
successful turnaround of the group over the past few years.
The group expects to issue further Tier 2 capital and hybrid forms of Tier 1
capital in 2008. Nedbank is committed to improving its profile as an issuer in
the debt capital markets and this should result in a more robust subordinated-
debt yield curve for the group.
The amendments to section 38 of the Companies Act will, subject to ordinary
shareholder and BEE participant approval at an extraordinary general meeting to
be held in May 2008, enable the group to amend the terms of its BEE ownership
scheme and revert to cash-only dividends in future.
Focus on staff morale and client service
It is Nedbank`s objective to create a great place to work for our staff,
characterised by a fully inclusive culture that is vision-led and values-
driven. The group believes organisational culture can be a key differentiator
and competitive advantage. With this focus on staff, Nedbank has again
experienced a significant shift in staff morale, measured through the annual
employee surveys, which improved by 5,2 percentage points in 2007 on top of the
6,7 percentage point increase in 2006.
These increases in staff morale have been the catalyst for improvements in
client service across all clusters.
Transformation
Nedbank has placed a significant focus on transformation, although much work
still lies ahead.
With the conclusion of its broad-based BEE transaction in 2005 the group met
its direct-ownership criteria for its FSC scorecard. In 2007 the group has
scored 13% for direct ownership (using FSC criteria) against a target of 10%.
The group has also progressed well in other areas measured by the FSC scorecard
and currently scores 96,2 out of a potential 98 against the FSC scorecard. This
score has been audited by SizweNtsaluba, but is still to be verified by the FSC
Council in accordance with FSC requirements.
The group also measures and tracks itself against the Department of Trade and
Industry (dti) codes, where the group has also met its direct-ownership
requirements with a score of 17,5% for direct ownership, which complies with
the 15% minimum set by the codes. The group is currently rated as a level 4 BEE
contributor (up from level 5 at the end of 2006) against the dti scorecard,
with a score of 67,4 as verified by SizweNtsaluba. The group has set an
objective of achieving at least level 2 status over time.
While we continue to align the group with the dti codes, we are committed to
delivering on our FSC obligations in the areas of access, empowerment financing
and BEE financing, which are not covered by the dti codes.
Various opportunities have been identified and significant progress has been
made through leveraging the relationships with our black business partners, the
Brimstone and the Wiphold consortia, and through our business development
partner, Aka Capital. The relationship between Nedbank and our black business
partners is constantly improving and is at a level where it is extremely
beneficial for all parties.
Transformation is, however, much more than compliance and numbers. Nedbank
believes that transformation is a key strategic differentiator and is employing
both transformation and the development of a unique corporate culture as
cornerstones of its strategy.
Collaboration with the Old Mutual Group in South Africa
Group collaboration benefits achieved by Nedbank since the start of the
recovery now exceed R650 million per annum. The bulk of the additional revenue
was derived from the retail joint ventures, while the joint initiative to
reduce the cost of data and telecommunications continues to deliver significant
savings. The various initiatives started over the past two years have largely
been integrated into business-as-usual activities and promise to deliver
ongoing benefits.
Prospects
The slowdown in consumer spending, the increase in consumer credit stress,
continuing electricity shortages and ongoing volatility in credit and equity
markets are likely to make the year ahead significantly more challenging for
the South African economy and the banking sector. The key factors influencing
performance in 2008 are likely to be the following:
Slower growth in retail advances, together with continued good growth in
wholesale advances, although the influence of electricity shortages on the
economy may slow this growth. As a result, total advances are expected to grow
in the mid-teens.
Lower margins as margin compression in certain categories of advances and
continued industry reliance on wholesale funding are expected to be only
partially offset by an endowment benefit in the margin resulting from past
interest rate increases.
Higher impairment charges due to the impact of higher interest rates on the
retail portfolios and lower wholesale recoveries.
Fewer positive once-off items and revaluations in the private equity
portfolios.
While the general banking environment will be much tougher than in previous
years, the group is confident of continuing to improve its performance off the
solid platform built over the past four years. The group`s focus is now on
working towards our vision of becoming southern Africa`s most highly rated and
respected bank.
The main focus areas of the group in 2008 are as follows:
Building on its transformation journey.
Growing the group`s
- retail distribution network;
- transactional banking market share;
- relevance in the public sector;
- business banking franchise; and
- mass-market presence.
Involvement in social and community projects.
Managing the credit cycle.
Disciplined expense management.
Ongoing capital management activities.
An active process of continuous improvement in all operations.
IT projects to improve staff and client experiences.
Economic-value-based management. From 2008 economic profit (EP) replaces
ROE as the primary internal financial performance measure in the group. EP is
a best-practice measure since it incentivises an appropriate balance between
return and growth, and better aligns with shareholder value creation.
Medium- to long-term financial targets
After successfully delivering on the short-term financial targets of a 20%
ROE and 55% efficiency ratio in 2007, the group has set the following key
medium- to long-term targets:
ROE (excluding goodwill) 10% above the group`s monthly weighted average cost
of ordinary shareholders` equity.
Growth in diluted headline EPS of at least average CPIX plus GDP growth plus
5%.
In the medium term the group targets to meet or exceed the comparable
performance of its peers.
Board changes during the year
Nick Dennis resigned as an independent non-executive director (31 December
2007) and Rosie Harris was appointed as a non-executive director (10 December
2007). Subsequent to the year-end Barry Davison announced his decision to
resign as a director effective 2 August 2008 and Cedric Savage will retire
effective 14 May 2008. Chris Ball, an independent non-executive director since
2002, was appointed as senior independent non-executive director (16 February
2007).
Accounting policies+
Nedbank Group Limited (the `company`) is a company domiciled in South Africa.
The preliminary reviewed financial results of the company at and for the year
ended 31 December 2007 comprise the company and its subsidiaries (together
referred to as the `group`) and the group`s interests in associates and jointly
controlled entities.
The group`s principal accounting policies have been applied consistently over
the current and prior financial years. During the year the group has
implemented international financial reporting standard (IFRS) 7 Financial
Instruments: Disclosure and international accounting standard (IAS) 1
Presentation of Financial Instruments: Capital Disclosures (amendment). IFRS 7
replaces the disclosure requirements in terms of IAS 32 in respect of financial
instruments and the disclosure requirements in terms of IAS 30 in respect of
banks. The implementation of IFRS 7 has not affected the group`s current or
prior annual results.
Nedbank Group`s reviewed financial results have been prepared in accordance
with the recognition and measurement criteria of IFRS, interpretations issued
by the International Financial Reporting Interpretations Committee (IFRIC), and
the presentation and disclosure requirements of IAS 34: Interim Financial
Reporting.
In the preparation of these financial results the group has applied key
assumptions concerning the future and other indeterminate sources in recording
various assets and liabilities. These assumptions were applied consistently to
both the company and group financial statements for the year ended 31 December
2006. These assumptions are subject to ongoing review and possible amendments.
Subsequent events+
As of the date of this announcement there are no post-balance-sheet events to
report.
Reviewed results - auditors` opinion
KPMG Inc and Deloitte & Touche, the group`s independent auditors, have reviewed
the preliminary financial statements that comprise the consolidated balance
sheet at 31 December 2007, consolidated income statement, condensed
consolidated statement of changes in equity and condensed consolidated cashflow
statement for the year then ended, and selected explanatory notes, and have
expressed an unmodified review conclusion on the preliminary financial
statements. The selected explanatory notes are marked with +. The review report
is available for inspection at the company`s registered office.
Forward-looking statements
This announcement contains certain forward-looking statements with respect to
the financial condition and results of operations of Nedbank Group and its
group companies, which by their nature involve risk and uncertainty because
they relate to events and depend on circumstances that may occur in the future.
Factors that could cause actual results to differ materially from those in the
forward-looking statements include, but are not limited to: global, national and
regional economic conditions; levels of securities markets; interest rates;
credit or other risks of lending and investment activities; and competitive and
regulatory factors.
Capitalisation award with a cash dividend alternative
Notice is hereby given that the directors of the company have resolved to issue
fully paid ordinary shares in the company as a capitalisation award to ordinary
shareholders. Ordinary shareholders will be entitled, in respect of all or part
of their shareholding, to elect to receive new fully paid ordinary shares,
which will be issued only to those ordinary shareholders who elect in respect
of all or part of their shareholding, on or before 12:00 on Friday, 11 April
2008, to receive the capitalisation award shares. Shareholders not electing to
receive new fully paid ordinary shares in respect of all or part of their
shareholding will be entitled to receive a cash dividend alternative of 350
cents per ordinary share (the cash dividend alternative).
In accordance with the provisions of Strate, the electronic settlement and
custody system used by JSE Limited, the relevant dates for the capitalisation
award election and the cash dividend alternative are as follows:
2008
Last day to trade to participate in the capitalisation
award or the cash dividend alternative Friday, 4 April
Shares trade ex the capitalisation award election and
the cash dividend alternative on Monday, 7 April
Listing of the maximum number of new ordinary shares
that may be taken up in terms of the capitalisation award on Monday, 7 April
Last day to elect to receive capitalisation award
shares (by 12:00), failing which the cash dividend
alternative will be received Friday, 11 April
Record date to participate in the capitalisation award
or receive the cash dividend alternative Friday, 11 April
Payment of the cash dividend alternative to
shareholders who have not elected to participate in
the capitalisation award or have participated in the
capitalisation award in respect of only part of
their shareholding on Monday, 14 April
New shares issued and posted or participant or broker
accounts credited regarding the shares to be issued
to shareholders participating in the capitalisation
award in respect of all or part of their shareholding on Monday, 14 April
The maximum number of new shares listed in terms of
the capitalisation award, adjusted to reflect the
actual number of shares issued in terms of the
capitalisation award on or about Wednesday, 16 April
Shares may not be dematerialised or rematerialised between Monday, 7 April
2008, and Friday, 11 April 2008, both days inclusive.
The above dates and times are subject to change. Any changes will be published
on the Securities Exchange News Service (SENS) and in the press.
The number of capitalisation shares to which shareholders are entitled will be
determined in the ratio that 350 cents per ordinary share bears to the 30-day
volume-weighted average price for the company`s share, to be determined no
later than Thursday, 27 March 2008. Details of the ratio will be published on
SENS no later than Friday, 28 March 2008, at 11:00 and in the financial press
the following business day. Trading in the Strate environment does not permit
fractions and fractional entitlements. Accordingly, where a shareholder`s
entitlement to new ordinary shares calculated in accordance with the above
formula gives rise to a fraction of a new ordinary share, such fraction will be
rounded up to the nearest whole number, where the fraction is greater than or
equal to 0,5, and rounded down to the nearest whole number, where the fraction
is smaller than 0,5.
A circular relating to the capitalisation award and the cash dividend
alternative will be posted to shareholders on or about Wednesday, 19 March
2008.
Note:
Dematerialised shareholders are required to notify their duly appointed
participant or broker of their election in terms of the capitalisation award in
the manner and at the time stipulated in the agreement governing the
relationship between shareholders and their participant or broker.
For and on behalf of the board
Dr RJ Khoza TA Boardman
Chairman Chief Executive
27 February 2008
Financial highlights
at 31 December Reviewed Reviewed
2007 2006
Statistics
Number of shares listed m 459,3 450,9
Number of shares in issue, excluding
shares held by group entities m 401,9 394,7
Weighted average number of shares m 398,7 399,5
Diluted weighted average number of
shares m 414,4 412,3
Headline earnings per share cents 1 485 1 110
Diluted headline earnings per share cents 1 429 1 076
Ordinary dividends declared per share cents 660 493
- Interim cents 310 209
- Final cents 350 284
Dividend paid per share cents 594 394
Dividend cover times 2,25 2,25
Net asset value per share cents 7 513 6 363
Tangible net asset value per share cents 6 207 5 106
Closing share price cents 13 600 13 350
Price/earnings ratio historical 9 12
Market capitalisation Rbn 62,5 60,2
Number of employees 26 522 24 034
Key ratios (%)
Return on ordinary shareholders`
equity (ROE) 21,4 18,6
Return on total assets (ROA) 1,30 1,14
Net interest income to average
interest-earning banking assets* 3,94 3,94
Non-interest revenue to total income 42,5 46,3
Credit loss ratio 0,62 0,52
Efficiency ratio 54,9 58,2
Effective taxation rate 26,3 27,8
Group capital adequacy ratios
- Tier 1 8,3 8,3
- Total 12,2 11,8
Balance sheet statistics (Rm)
Total equity attributable to equity
holders of the parent 30 193 25 116
Total equity 35 125 29 388
Amounts owed to depositors 384 541 324 685
Loans and advances 373 956 308 563
Gross 380 034 313 747
Impairment of loans and advances (6 078) (5 184)
Total assets 488 856 424 912
* 2006 restated
Consolidated income statement
for the year ended 31 December Reviewed Audited
Rm 2007 2006
Interest and similar income 42 001 28 521
Interest expense and similar charges 27 855 17 558
Net interest income 14 146 10 963
Impairments charge on loans and advances 2 164 1 483
Income from lending activities 11 982 9 480
Non-interest revenue 10 446 9 468
Operating income 22 428 18 948
Total expenses 13 489 11 886
Operating expenses 13 341 11 740
BEE transaction expenses 148 146
Indirect taxation 305 345
Profit from operations before non-trading and capital
items 8 634 6 717
Non-trading and capital items 111 124
Impairment of goodwill (70)
Profit on sale of subsidiaries, investments and
property and equipment 118 248
Net impairment of investments, property and equipment
and capitalised development costs (7) (54)
Profit from operations 8 745 6 841
Share of profits of associates and joint ventures 239 153
Profit before direct taxation 8 984 6 994
Total direct taxation 2 343 1 933
Direct taxation 2 336 1 907
Taxation on non-trading and capital items 7 26
Profit for the year 6 641 5 061
Attributable to:
Profit attributable to equity holders of the parent 6 025 4 533
Profit attributable to minority interest - ordinary
shareholders 344 309
Profit attributable to minority interest - preference
shareholders 272 219
Profit for the year 6 641 5 061
Basic earnings per share cents 1 511 1 135
Diluted earnings per share cents 1 454 1 099
Dividend declared per share cents 660 493
Dividend paid per share cents 594 394
Earnings reconciliation
for the year ended 31 December
Reviewed Audited
2007 2006
Rm Gross Net Gross Net
Profit attributable to equity holders
of the parent 6 025 4 533
Less: non-trading and capital items 111 104 124 98
Impairment of goodwill (70) (70)
Profit on sale of subsidiaries,
investments and property and equipment 118 111 248 208
Net impairment of investments, property
and equipment and capitalised
development costs (7) (7) (54) (40)
Headline earnings 5 921 4 435
Consolidated balance sheet
at 31 December Reviewed Audited
Rm 2007 2006
Assets
Cash and cash equivalents 10 344 12 267
Other short-term securities 25 793 25 756
Derivative financial instruments 9 047 15 273
Government and other securities 29 637 22 196
Loans and advances 373 956 308 563
Other assets 9 313 12 468
Clients` indebtedness for acceptances 2 251 2 577
Current taxation receivable 59 161
Investment securities 8 318 7 155
Non-current assets held for sale 31 490
Investments in associate companies and joint ventures 978 907
Deferred taxation asset 25 120
Investment property 171 158
Property and equipment 3 929 3 377
Long-term employee benefit assets 1 393 1 444
Computer software and capitalised development costs 1 349 1 266
Mandatory reserve deposits with central bank 8 364 7 039
Goodwill 3 898 3 695
Total assets 488 856 424 912
Equity and liabilities
Ordinary share capital 402 395
Ordinary share premium 10 721 9 727
Reserves 19 070 14 994
Total equity attributable to equity holders of the
parent 30 193 25 116
Minority shareholders` equity attributable to
- ordinary shareholders 1 511 1 202
- preference shareholders 3 421 3 070
Total equity 35 125 29 388
Derivative financial instruments 11 432 12 904
Amounts owed to depositors 384 541 324 685
Other liabilities 34 225 37 847
Liabilities under acceptances 2 251 2 577
Current taxation liabilities 337 434
Other liabilities held for sale 417
Deferred taxation liabilities 1 616 1 649
Long-term employee benefit liabilities 1 157 1 215
Investment contract liabilities 5 846 5 278
Long-term debt instruments 12 326 8 518
Total liabilities 453 731 395 524
Total equity and liabilities 488 856 424 912
Guarantees on behalf of clients 20 579 15 250
Condensed consolidated statement of changes in equity
Minority
shareholders`
Total equity equity
attributable to attributable to
equity holders preference
Rm of the parent shareholders
Balance at 31 December 2005 22 490 2 770
Dividends paid to shareholders (1 562) (219)
Issues of shares net of expenses 875
Shares acquired by group entities (1 620)
Shares issued/(repurchased) by
subsidiary 300
Total income and expense for the year 4 933 219
Profit for the year 4 533 219
Net income recognised directly in equity 400 -
Release of reserves previously not
available (105)
Foreign currency translation reserve
movement 334
Available-for-sale reserve movement (110)
Property revaluation reserve movement 77
Share-based payments reserve movement 225
Other movements (21)
Balance at 31 December 2006 25 116 3 070
Ordinary minority shareholders` share of
preference dividends paid 13
Dividends paid to shareholders (2 402) (295)
Issues of shares net of expenses 1 168 361
Shares acquired by group entities (167)
Shares issued by subsidiary
Total income and expense for the year 6 478 272
Profit for the year 6 025 272
Net income recognised directly in equity 453 -
Release of reserves previously not
available (219)
Foreign currency translation reserve movement (3)
Available-for-sale reserve movement (38)
Property revaluation reserve movement 374
Share-based payments reserve movement 329
Acquisition of subsidiaries 3
Disposal of subsidiaries
Buyout of minorities
Other movements 7
Balance at 31 December 2007 30 193 3 421
Minority
shareholders`
equity
attributable
to ordinary Total
Rm shareholders equity
Balance at 31 December 2005 1 049 26 309
Dividends paid to shareholders (23) (1 804)
Issues of shares net of expenses 875
Shares acquired by group entities (1 620)
Shares issued/(repurchased) by subsidiary (150) 150
Total income and expense for the year 326 5 478
Profit for the year 309 5 061
Net income recognised directly in equity 17 417
Release of reserves previously not available (105)
Foreign currency translation reserve movement 21 355
Available-for-sale reserve movement (110)
Property revaluation reserve movement 77
Share-based payments reserve movement 225
Other movements (4) (25)
Balance at 31 December 2006 1 202 29 388
Ordinary minority shareholders` share of
preference dividends paid (13) -
Dividends paid to shareholders (41) (2 738)
Issues of shares net of expenses 1 529
Shares acquired by group entities (167)
Shares issued by subsidiary 150 150
Total income and expense for the year 213 6 963
Profit for the year 344 6 641
Net income recognised directly in equity (131) 322
Release of reserves previously not available (219)
Foreign currency translation reserve movement (41) (44)
Available-for-sale reserve movement (38)
Property revaluation reserve movement 374
Share-based payments reserve movement 329
Acquisition of subsidiaries 3
Disposal of subsidiaries (81) (81)
Buyout of minorities (21) (21)
Other movements 12 19
Balance at 31 December 2007 1 511 35 125
Condensed consolidated cashflow statement
for the year ended 31 December Reviewed Audited
Rm 2007 2006
Cash generated by operations 12 453 9 297
Change in funds for operating activities (10 691) (3 739)
Net cash generated from operating activities before
taxation 1 762 5 558
Taxation paid (2 419) (953)
Cashflows (utilised by)/from operating activities (657) 4 605
Cashflows utilised by investing activities (2 063) (1 057)
Cashflows from/(utilised by) financing activities 2 122 (1 131)
Net (decrease)/increase in cash and cash equivalents (598) 2 417
Cash and cash equivalents at the beginning of the year* 19 306 16 889
Cash and cash equivalents at the end of the year* 18 708 19 306
* Including mandatory reserve deposits with central bank.
Condensed operational segmental reporting
for the year ended 31 December
Reviewed Audited Reviewed
2007 2006 2007
Rbn Rbn Rm
Total Total Operating
assets assets income
Nedbank Corporate* 213 175 8 858
Nedbank Capital 144 138 2 803
Nedbank Retail 154 125 10 221
Imperial Bank 38 30 1 207
Shared Services* 7 8 113
Central Management* 19 13 (527)
Eliminations (86) (64) (247)
Total 489 425 22 428
Audited Reviewed Audited
2006 2007 2006
Rm Rm Rm
Operating Headline Headline
income earnings earnings
Nedbank Corporate* 7 596 3 063 2 515
Nedbank Capital 2 605 1 272 1 145
Nedbank Retail 8 591 2 008 1 463
Imperial Bank 932 227 193
Shared Services* 286 (12) (138)
Central Management* (859) (637) (743)
Eliminations (203)
Total 18 948 5 921 4 435
* Segmental reporting comparative results have been restated for improved
profitability measurement.
Condensed geographical segmental reporting
for the year ended 31
December Reviewed Audited Reviewed Audited
2007 2006 2007 2006
Operating Operating Headline Headline
Rm income income earnings earnings
South Africa 21 024 17 616 5 623 4 176
Business operations 21 024 17 616 6 039 4 516
BEE transaction expenses (144) (121)
Profit attributable to
minority interest -
preference shareholders (272) (219)
Rest of Africa 669 657 116 76
Business operations 669 657 119 99
BEE transaction expenses (3) (23)
Rest of world - business
operations 735 675 182 183
Total 22 428 18 948 5 921 4 435
This announcement is available on the group`s website - www.nedbankgroup.co.za -
together with the following additional information:
detailed financial information in HTML and PDF formats;
financial results presentation to analysts; and
link to a webcast of the presentation to analysts.
For further information kindly contact Nedbank Group Investor Relations by
email at nedbankgroupir@nedbank.co.za.
Directors:
Dr RJ Khoza (Chairman), Prof MM Katz (Vice-chairman), ML Ndlovu
(Vice-chairman), TA Boardman* (Chief Executive), CJW Ball**, MWT Brown*
(Chief Financial Officer), TCP Chikane, BE Davison, MA Enus-Brey,
Prof B de L Figaji, R Harris (British), RM Head (British), JB Magwaza,
ME Mkwanazi, CML Savage, GT Serobe, JH Sutcliffe (British)
* Executive ** Senior independent non-executive director
Registered office: Nedbank Group Limited, Nedbank Sandton - 135 Rivonia Road,
Sandown, 2196; PO Box 1144, Johannesburg, 2000
Transfer secretaries:
Computershare Investor Services 2004 (Pty) Limited, 70 Marshall Street,
Johannesburg, 2001, South Africa - PO Box 61051, Marshalltown, 2107, South
Africa
Transfer secretaries in Namibia:
Transfer Secretaries (Pty) Limited
Shop 8, Kaiserkrone Centre, Post Street Mall, Windhoek, Namibia
PO Box 2401, Windhoek, Namibia
Company Secretary: GS Nienaber
Reg No: 1966/010630/06 ISIN code: ZAE000004875
JSE share code: NED NSX share code: NBK
Sponsors: Merrill Lynch South Africa (Pty) Limited, Nedbank Capital
Sponsor in Namibia: Old Mutual Investment Services (Namibia) (Pty) Limited
Date: 27/02/2008 08:00:01 Produced by the JSE SENS Department.
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