| Wed 5 Aug 2009, 8:03 | | NED - Nedbank Group - Reviewed Financial Results for the Six Months Ended |
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NED
NED
NED - Nedbank Group - Reviewed Financial Results for the Six Months Ended
30 June 2009 and Trading Statement
NEDBANK GROUP LIMITED
Reg No: 1966/010630/06
ISIN: ZAE000004875
JSE share code: NED
NSX share code: NBK
Reviewed financial results for the six months ended 30 June 2009 and trading
statement
* Net asset value per share increased 7,4% to 8 762 cents
* Capital adequacy continues to strengthen (Tier 1: 10,0%)
* Diluted headline earnings per share down 34,1% to 474 cents
* Diluted earnings per share down 30,5% to 611 cents
* Interim dividend per share of 210 cents
* Executive team restructured and further transformed
`The first half of 2009 has been a challenging period for the South African
economy. It has been a harsh environment for clients and this has negatively
impacted bank earnings. In this environment the group has focused on the
strength of its balance sheet. Capital ratios continued strengthening and
liquidity was sound throughout the period. Net asset value per share increased
by 7,4%.
Nedbank Group remained solidly profitable, but reduced endowment income and
margin on current and savings accounts from lower interest rates, together with
slower asset growth and increasing impairments, have resulted in reduced
earnings levels compared with the period to June 2008. There are, however,
signs that the first half of 2009 may have seen the worst of the retail credit
cycle.
Throughout this difficult period the group has continued to advance loans to
our clients while ensuring affordability criteria are met. Nedbank Group has
shown modest market share growth in most core retail and commercial advances
categories. The group continues to seek ways of assisting distressed clients,
promoting responsible lending and encouraging savings. Of the large South
African banks, Nedbank offers among the most affordable bank fees for low- and
middle-income earners.`
Tom Boardman
Chief Executive
Banking environment
In the first quarter of 2009 the South African economy contracted at its
fastest rate since the third quarter of 1984. The deterioration in the South
African banking environment, as indicated in the group`s first-quarter trading
update in May 2009, has been more severe than was anticipated at the time of
the release of the 2008 financial results in February 2009. The risk remains
high that the recovery in economic growth may be slow and protracted, and that
retrenchments will increase and house prices will continue to decline into the
second half of the year.
While lower interest rates are positive for consumers - as reflected in the
slower rate at which retail impairments are increasing - this has a negative
impact on bank earnings in the short term due to reduced endowment income and
margin on current and savings accounts. Wholesale banking, which has been
resilient, even at the peak of the interest rate cycle, is starting to show the
signs of increased credit stress being experienced by some clients.
Helping clients manage through the cycle
The group has embarked on several initiatives to support clients through this
difficult cycle. Assistance to retail clients takes into account the
individual`s medium-term ability to repay, as well as appropriate affordability
and security criteria. Assistance is provided to wholesale clients in distress,
provided there is a reasonable probability that they can be restored to
financial and operational sustainability with appropriate guidance as well as
support from the clients` shareholders. Initiatives to assist clients include
the following:
* Appropriately restructuring distressed loans where this enables clients to
remain in their houses or retain their assets, as well as offering
alternative ways for clients to dispose of their properties so as to
realise maximum value.
* Removing the penalty fee on Mzansi Accounts for rejected payments and
excess numbers of transactions. The group`s transactional banking fees for
the lower- to middle-income sector remain among the most affordable.
* Launching Personal Money Manager, a free software package enabling Nedbank
Retail transactional banking clients to download recent monthly statements
at no charge. This assists clients to budget, track actual spend against
budgeted spend, and identify opportunities to save.
* Providing bridging finance where a client`s ability to repay is hampered by
short-term constraints but the client has the ability to repay debt in the
medium term.
* Working closely with wholesale clients in financial distress to
rehabilitate their businesses and prevent liquidation.
* Assisting distressed small businesses to find possible buyers, should this
be appropriate.
* Providing mentors to assist distressed businesses for a period of time.
* Facilitating the repayment of smaller bank facilities to consolidate debt.
Review of results
As highlighted in the 2008 annual results announcement, management has focused
on maintaining a strong and appropriately liquid statement of financial
position (balance sheet) during these difficult market conditions. It is
therefore pleasing to report that the group increased net asset value (NAV) by
7,4% to 8 762 cents per share. The group`s Tier 1 capital adequacy ratio
increased from 9,6% in December 2008 to 10,0% and the total capital adequacy
ratio increased from 12,4% to 13,2%. The group`s ratio of risk-weighted assets
to total assets is 62,8%, above the top end of the peer group, indicating the
conservative approach adopted in applying Basel II. The interbank funding market
has functioned normally and liquidity remains sound.
Headline earnings decreased by 32,4% from R2 943 million for the period to June
2008 to R1 988 million for the six months to June 2009. Diluted headline
earnings per share decreased by 34,1% from 719 cents to 474 cents. Basic
earnings decreased by 28,7% from R3 597 million to R2 564 million for the
current period. Diluted earnings per share decreased by 30,5% from 879 cents to
611 cents. These results are in line with the target ranges reflected in the
trading statement released on 20 July 2009.(1)
Overall the group`s results were negatively impacted by lower interest rates
and the effects of the economic recession. This has resulted in margin
compression from the negative endowment effect, margin compression on current
and savings accounts and a reduction in transaction volumes. In addition,
impairments have increased from December 2008, although some improvement has
been noted since March 2009.(1)
Solid client flows, a healthy retail deposit franchise, improved asset margins
on new business, strong levels of capital and good cost discipline have created
a solid base from which to grow.
The group achieved a return on average ordinary shareholders` equity (ROE),
excluding goodwill, of 12,6% and an ROE of 11,1%, resulting in an overall
economic loss (earnings after deducting the cost of capital employed) of
R99 million for the period.
Cluster performance
Nedbank Capital
Nedbank Capital grew headline earnings by 4,3% to R626 million for the six
months ended June 2009. The cluster generated an economic profit of
R433 million and achieved an excellent return on risk-adjusted capital (RORAC)
of 42,9% (June 2008:35,3%).
The economic downturn, combined with reduced internal risk appetite and an
ongoing focus on selective asset growth, has resulted in a reduction in foreign
and trading assets as well as economic-capital utilisation in the six months
under review.
Net interest income (NII) for the cluster increased by 34,3% to R595 million,
benefiting from strong advances growth in the second half of 2008 and from
improved asset spreads. The credit loss ratio increased to 0,44% (June 2008:
0,12%), primarily as a result of the negative impact of the environment on
advances to certain sectors. The diversification of the portfolio across
sectors helped to maintain the credit loss ratio at acceptable levels.
The integrated investment banking model has gained further momentum and
contributed solidly to the businesses generating non-interest revenue (NIR)
through additional revenue opportunities being identified more proactively
during the initial stages of the credit-granting process.
Commission and fees were 23,0% higher due to good dealflow in Infrastructure
and Corporate Finance businesses. Trading income grew by 18,2%, reflecting
solid performance in Treasury and Global Markets on the back of favourable
underlying trading conditions.
Within Investment Banking and the Global Markets equity businesses there were
fewer opportunities to generate revenue due to the lower levels of client
activity, weaker equity markets and the deteriorating credit environment.
Nedbank Corporate
Nedbank Corporate`s headline earnings declined by 11,3% to R685 million for the
six months ended June 2009. The cluster generated economic profit of R335
million and achieved a RORAC of 25,9% (June 2008: 25,8%).
The capital efficiency programme initiated late in 2008 resulted in a reduction
in capital requirements. Capital reduced from R6,0 billion in December 2008 to
R5,3 billion at June 2009. Had these initiatives been applied retrospectively,
capital would have been R1,5 billion lower in 2008. In 2009 the cost of higher
impairments was offset by the effect of the lower capital utilisation, which
resulted in RORAC remaining at similar levels as in 2008.
Core banking earnings, which exclude property private equity portfolio
earnings, held up satisfactorily, with earnings up 1,6% after adjusting for the
capital efficiency programme.
Corporate Banking performed well, driven by healthy advances and credit margin
growth. Property Finance earnings were down as impairments increased in line
with expectations and property private equity valuations decreased.
Risk management processes have proved effective to date, with the credit loss
ratio now at a more normalised 0,25%.
The alliance with Ecobank, announced in December 2008, is progressing well. A
high-profile event was held on 4 August to provide an update on the unique
banking proposition this offers to our clients across the largest banking
footprint in Africa, and also marked the launch of our African Centre of
Excellence for clients.
Nedbank Corporate has good financial metrics that are complemented by improving
culture and staff morale results, confirming the sound overall condition of the
business.
Nedbank Business Banking
After four years of strong earnings growth Nedbank Business Banking`s headline
earnings decreased by 31,7% to R499 million for the six months ended June 2009.
The cluster generated an economic profit of R261 million and achieved a RORAC
of 27,8% (June 2008: 34,8%).
Business Banking implemented a similar capital optimisation process to that of
Nedbank Corporate. The cluster reduced its capital from R4,2 billion to
R3,6 billion. Retrospective application would have meant 2008 capital would have
been approximately R596 million lower.
The drop in earnings resulted from a decrease in endowment income and margin on
current and savings accounts, higher impairment levels and a general slowdown
in client business activity.
The cluster maintained its focus on improving client economic profitability
through quality asset growth for its primary-banked clients, while reducing
advances to higher-risk clients or those clients with a single Nedbank lending
product.
Proactive risk management practices are fundamental to the way Business Banking
operates and this, together with the decentralised accountable business model,
has proved effective during the period and ensured impairments were well
contained, resulting in a credit loss ratio of 0,79%.
Despite the overall impact of lower client volumes, Business Banking was able
to deliver a sound performance in its core business by focusing on:
* quality new business;
* widening credit margins on new assets in line with risk-based pricing
principles;
* strong NIR growth aided by primary-banked client acquisition; and
* effective cost management.
Notwithstanding the more challenging external environment, Business Banking
remains focused on its strategic objectives and is well positioned to take
advantage of opportunities in the market, while it continues to invest in its
client-centric decentralised business model and leadership, and to develop a
high-performance culture.
Nedbank Retail
Nedbank Retail`s headline earnings declined by 93,5% to R47 million for the six
months ended June 2009. The first half of 2009 continued to be extremely
challenging in retail banking, with the cluster generating an economic loss of
R586 million and a RORAC of 1,0% (June 2008: 15,9%).
The effect of declining interest rates on endowment and margin compression on
current and savings accounts, coupled with lower volumes, resulted in NII
declining by 3,2%. NIR growth of 9,8% has been driven mainly by increased fee
income as a result of growing client numbers and modest pricing adjustments.
Impairments rose by 66,2% to R2 350 million and the credit loss ratio increased
from 2,92% in the second half of 2008 to 3,00%, driven mainly by Home Loans and
Small Business Services. W e anticipate the relief from interest rate
reductions to become more evident during the rest of 2009 and into 2010.
Impairments in unsecured revolving products are improving, and early
indications are that secured products may also be turning, with the cluster`s
credit loss ratio down marginally from 3,10% in March 2009.
To improve profitability, loan-to-value (LTV) policies in respect of home loans
were tightened from the second half of 2008 onwards, resulting in the weighted
average LTV on new business being registered dropping from 89,9% in June 2008
to 84,4% in December 2008 and 79,9% in June 2009. This trend is evident in
lower LTV ratios at grant stage and in an improved distribution of the book
when measured by balance outstanding to original valuation. Client rates have
also increased during the past six months, with an appropriate reduction in the
average concession granted on new business. Similar steps have been taken in
other secured-loan products with Nedbank Retail. However, because of the lower
volumes of new business being written, this will take some time to impact the
margin on the overall book, which has also been negatively affected by an
increase in the internal cost of funds.
A focus on cost containment resulted in cost growth of only 5,1%, contributing
to a relatively stable efficiency ratio of 62,9%, compared with 61,1% in 2008.
We have continued to build and execute on our long-term growth strategies,
evidenced by the buyout of Old Mutual`s interests in the BoE, NedLife and
Fairbairn businesses, all of which are now wholly owned by Nedbank Group. We
and Old Mutual believe that this is a more appropriate model to facilitate an
increase in bancassurance earnings.
The majority of the stress being felt by Nedbank Retail is a direct result of
the historic high interest rates and the downturn in the economy. We are
already seeing signs of improvements in trends, with early-stage arrears across
all products having improved over the past five months.
The key focus areas of Nedbank Retail, which we believe will improve the
cluster`s financial returns, are:
* NIR growth, mainly through primary-client acquisition;
* selected growth in advances at enhanced margins and lower risk profiles;
* retention and growth of the liability book;
* ongoing focus on risk, impairments and collections; and
* bancassurance and wealth revenue growth following the group`s acquisition
of the balance of the shares in BoE, NedLife and Fairbairn Private Bank
from Old Mutual.
Imperial Bank
Nedbank Group`s share of Imperial Bank`s headline earnings declined by 47,7% to
R46 million for the six months ended June 2009. Imperial Bank generated a
return on equity of 7,1% (June 2008: 15,5%).
Trading conditions remained extremely challenging during the period, with many
clients struggling to cope with the severe effects of the recession and
depressed markets.
The efficiency ratio improved to 26,3%. Loans and advances increased by 9,2%
(annualised) to R47 billion, reflecting small market share gains. The credit
loss ratio deteriorated from 1,75% to 2,50%, largely as a result of the credit
loss ratio in the Motor Finance Corporation (MFC) business increasing from
2,65% to 3,30% at June 2009.
Early in the cycle MFC implemented a number of risk management processes, which
included tightening affordability criteria. The beneficial impact of this
proactive approach, together with lower interest rates, is reflected in the
arrears levels starting to decline, decreasing repossessions and improved
recovery rates at auctions. While we expect to see some benefit from this
flowing through to improved trading results in the second six months, it is
likely that the full benefits will only be realised in 2010 and beyond.
Financial performance
NII
NII grew 2,8% to R8 185 million (June 2008: R7 960 million) as a result of a
14,8% increase in average interest-earning banking assets, offset by
compression in the group`s margin.(1)
The net interest margin for the period was 3,44%, down from 3,83% for the
period to June 2008 and the 3,66% for the year ended December 2008.(1)
Margin compression was largely due to the reduced endowment income impact on
capital and margin on non-rate-sensitive deposits resulting from the faster
than expected reduction in interest rates. In addition, margin was impacted by:
* other liability margin compression reflecting the higher cost of term
funding;
* the increased duration in the wholesale deposit book and the cost of
holding additional liquidity buffers;
* the cost of funding increased non-performing loans and properties in
possession;
* debits relating to accounting for historic structured-finance
transactions with related credits offset in taxation; and
* interest-earning assets repricing more quickly than interest-bearing
liabilities.
Impairments charge on loans and advances
The credit loss ratio reflects the very tough economic conditions and increased
to 1,57% for June 2009, compared with 0,96% for the same period in 2008 and
1,36% for the second half of 2008. It is encouraging that this ratio showed a
slight improvement from the 1,67% reflected in the group`s first-quarter
trading update.(1)
Given the recessionary environment, South African businesses are experiencing
increased levels of stress, which has resulted in higher levels of impairments
in the wholesale advances books, but still within the through-the-cycle range
for this sector.(1)
Credit loss ratio (%) H1 to Year to H2 to H1 to
June December December June
2009 2008 2008 2008
Nedbank Capital 0,44 0,06 0,00 0,12
Nedbank Corporate* 0,25 0,12 0,18 0,05
Nedbank Business Banking 0,79 0,59 0,84 0,34
Nedbank Retail 3,00 2,47 2,92 2,00
Imperial Bank 2,50 1,71 1,63 1,75
Nedbank Group 1,57 1,17 1,36 0,96
* Comparatives restated to exclude Nedbank Business Banking.
Defaulted advances increased by 94,8% (annualised) to R25 437 million, from
R17 301 million reported in December 2008, and total impairment provisions
increased by 32,9% (annualised) to R9 142 million for the same period.
Approximately R1 billion of the defaulted advances are technical in nature and
the direct result of applying a reduced instalment to historic arrears balances
as interest rates fall.
Management has maintained a strong focus on managing risk and improving asset
quality, particularly in retail home loans. Good progress has been made and
average LTV ratios for new home loans at grant stage have been reduced to
79,9%.
NIR
The group`s focus on growing NIR streams is starting to show results. NIR
increased 8,5% to R5 377 million (June 2008: R4 954 million).(1)
Commission and fee income grew by 8,7%, mainly from increases in transactional
banking fees and insurance product pricing in Retail, strong cash-handling
volumes, increased electronic banking volumes and credit-related
excess/commitment fees in Business Banking. The migration of Corporate Banking
clients onto the NetBank electronic banking system will commence later in the
year and is expected to contribute to the acquisition of transactional banking
corporate clients.
Trading income was up by 14,2% from R813 million at June 2008 to R928 million,
driven primarily by favourable trading opportunities in Treasury and the Global
Markets businesses.
NIR from the private equity portfolios declined by R80 million, compared with
June 2008, in line with markets.
NIR from private equity (Rm) June 2009 June 2008
Nedbank Capital private equity 10 93
Nedbank Corporate property private equity (37) (40)
Total NIR from private equity (27) 53
NIR includes an amount of R85 million (June 2008: R21 million) from the credit-
related fair-value adjustment of the bank`s own subordinated debt. This is
low-quality earnings and has not been attributed to capital.
Expenses(1)
Nedbank Group`s expenses increased by 7,1% to R7 121 million (June 2008: R6 651
million) and are in line with expectations. Expenses remain tightly controlled:
* Staff expenses increased by 7,1%, resulting from the 1,5% growth in staff
numbers, compared with June 2008, salary increases and an adjustment of R47
million (June 2008: R129 million) to account for the growth in the Nedgroup
Pension Fund asset. Staff numbers have decreased by 1,4% annualised since
December 2008.
* Marketing and public relations costs decreased by 3,4%.
* Information technology costs grew by 7,4%, largely attributable to ongoing
investment in systems development for client businesses and risk-related
projects.
* Fees and insurance and other costs increased by 18,4% and 18,5%
respectively as a result of increased fraud levels, NAEDOS costs (related
to debt collection) and property in possession costs.
* The group`s black economic empowerment (BEE) transaction expenses decreased
from R108 million to R66 million mainly through movements in the share
price.
In line with expectations, as NII growth slowed predominantly from lower
endowment income and margin on current and savings accounts, the group`s
efficiency ratio deteriorated marginally from 51,5% to 52,5%.
Associate income(1)
Associate income decreased from R84 million in June 2008 to R55 million largely
as a result of lower earnings in the Nedbank Retail Bancassurance and Wealth
joint ventures and the fact that these were consolidated for the last month of
the current period.
Taxation(1)
The taxation charge (excluding taxation on non-trading and capital items)
decreased by 36,7% from R1 014 million in June 2008 to R642 million primarily
as a result of lower profits in the period.
The effective tax rate decreased from 23,8% to 22,2% due mainly to:
* lower non-deductible share-based payment charges in 2009;
* dividend income that decreased at a slower rate (23,3%) than profit before
tax (29,7%); and
* accounting for historical structured-finance transactions, which reduced
the effective tax rate by 1,3%, and are offset in the net interest margin.
Non-trading and capital items(1)
Income after taxation from non-trading and capital items decreased from R654
million to R576 million at June 2009. The key components (after taxation) are
as follows:
Non-trading and capital items (Rm) June 2009 June 2008
Profit on sale of Visa shares 637
Profit on the sale of 33,5% in Bond Choice 15
Revaluation on acquisition of BoE and NedLife 547
Other 29 2
Total 576 654
Statement of financial position
Capital
Nedbank Group and its subsidiaries are well capitalised with all capital
adequacy ratios well above minimum regulatory levels, and the group`s ratios
are now at the top end of or slightly above the group`s internal target ranges,
which were increased in December 2008 in response to the deteriorating
environment.
The group has been proactive in managing the efficiency of its capital
structure, and in the first quarter of 2009 successfully placed a 13-year
(non-call 8-year) $100 million listed lower-Tier 2 subordinated unsecured
floating-rate note with an international investor. The group`s core Tier 1
capital adequacy ratio (calculated on Tier 1 capital, excluding perpetual
preference share capital and hybrid debt capital instruments) increased to 8,6%
from 8,2% in December 2008 and the Tier 1 capital adequacy ratio increased to
10,0% from 9,6%. The total capital adequacy ratio increased to 13,2% from 12,4%
in December 2008 and is now above the group`s increased total capital adequacy
target range of 11,5% to 13,0%.
In accordance with its prudent capital management strategy the group increased
its levels of surplus capital, and currently holds a surplus of R10,6 billion
relative to its calculated economic-capital requirements, calibrated to an A-
debt rating (including a 10% buffer), and a surplus of R10,7 billion relative
to its regulatory-capital adequacy requirements. Economic-capital requirements
are covered by Tier 1 capital, with a surplus of R4,7 billion.
Following the conservative approach when implementing Basel II in 2008, the
group has adopted a prudent risk-weighted asset optimisation programme. Since
December 2008 this programme has resulted in a decrease of 2,8% in
risk-weighted assets held for credit risk, and the ratio of risk-weighted
assets to total assets is 62,8%. This is still above the top end of the peer
group, highlighting further optimisation opportunities. The group`s leverage
ratio (total assets to ordinary shareholders` equity) at 14,8 times remains
conservative by both international and local standards, and has declined from
16,2 times, evidencing focus on balance sheet strength in the current economic
climate.
To strengthen capital further the group intends, subject to regulatory approval
and market conditions, issuing non-redeemable non-cumulative preference shares
amounting to approximately R500 million during August 2009.
Funding and liquidity
Nedbank Group maintains a conservative funding structure in line with the
domestic market and its liquidity remains sound. There is no Tier 2 refinancing
required in the capital markets for 2009. The group remains appropriately
liquid with a loan-to-deposit ratio of 93,8%.
Given Nedbank Group`s domestic focus, international funding represents a small
portion of the group`s funding base at around 1,5% and the increased cost of
international funding as a result of the reduction in international liquidity
has had a minimal effect on the group.
Total assets
Total assets decreased marginally by 3,5% (annualised) to R557 billion
(December 2008: R567 billion) as a result of decreasing overnight loans and
foreign correspondents, as well as the maturing of R6 billion of additional
liquid assets that were accumulated prior to the 2008 year-end and repayment of
the associated repurchase funding. Growth in average interest-earning banking
assets slowed to 14,8% (June 2008 growth: 22,9%).
Advances
Advances are 1,1% (annualised) lower than at December 2008, declining from R434
billion to R432 billion at June 2009, with the reduction being mainly
attributable to lower levels of trading assets flowing from a more cautious
approach to risk appetite. Overall, growth has slowed down as a result of
subdued demand as well as the group`s focus on more selective advances growth
and improving margins. The advances by division are as follows:
Rm June December Annualised
2009 2008 % increase/
(decrease)
Nedbank Capital 43 897 47 686 (16,1)
- Banking activity 38 679 37 302 7,5
- Trading activity 5 218 10 383 <(100)
Nedbank Corporate 135 079 136 222 (1,7)
Nedbank Business Banking 52 354 55 321 (10,8)
Nedbank Retail 154 106 150 107 5,4
Imperial Bank 46 772 44 734 9,2
Other (255) 163 <(100)
Total 431 953 434 233 (1,1)
The group reduced its exposure to foreign correspondents, overnight loans and
trading advances. Excluding these categories, core banking advances grew by
4,2% (annualised) from December 2008. Home loans grew by 6,2% (annualised) and
vehicle and asset finance loans by a more muted 1,9% (annualised), with market
share increasing in both of these categories.
Deposits(1)
Nedbank Group grew its market share of deposits, but deposits declined by 2,8%
(annualised) from R467 billion at the year-end to R460 billion at June 2009,
driven mostly by a reduction in repurchase trading activity referred to above.
Retail deposit growth was broadly flat in a highly competitive market that
started to experience declining demand for savings and investment products
given lower interest rates.
Nedbank Group is focused on maintaining and building its strong deposit
franchise. Optimising its funding mix and funding profile by growing the Retail
and Business Banking portion of the deposit base remains key, as is the
competitive pricing of term deposits.
Update on acquisitions
In May 2009 Nedbank announced the acquisition of NedLife, BoE Private Clients
and Fairbairn Private Bank from Old Mutual plc. These acquisitions were
approved by shareholders and have been consolidated by Nedbank Group with
effect from 1 June 2009.
On 29 May 2009 the group advised that it was in negotiations with Imperial
Holdings Limited to acquire the remaining 49,9% shareholding in Imperial Bank.
The negotiations are progressing well and the group hopes to announce the
detail shortly.
Outlook
The domestic economy was resilient during the early stages of the international
financial crisis, but has increasingly succumbed to the effects of the global
recession. Consequently, we believe that the recovery will be more protracted
than previously anticipated, with gross domestic product (GDP) growth currently
forecast by the group to decrease by 2,0% during 2009 with a modest expansion
of 1,7% forecast in 2010.
Volumes of new business in retail remain constrained by low levels of consumer
confidence and consumer concerns around falling asset prices and increasing
unemployment. Lower local demand, international trade activity and commodity
prices together with the strong rand have increased the pressure on businesses
and led to declining corporate demand and confidence.
In addition to the 400 basis point cut in interest rates this year to date, a
further 100 basis point cut is currently anticipated for the remainder of 2009.
The effect reduced endowment and lower margin on current and savings accounts
will have on banking interest margins will increase during the second half,
while a reversal in the impairment trend is anticipated to begin to impact bank
earnings growth positively only in the next 12 to 18 months.
Prospects and trading statement
The group remains cautious in its outlook for the remainder of 2009 and
performance is currently expected to reflect the following:
* Advances growth in the mid-single digits.
* Margin compression, on the 2008 margin, of around 30 to 35 basis points.
* A marginal improvement of the credit loss ratio from 1,57% for the period
to June 2009.
* NIR growth for the year in upper single digits.
* Expense growth for the year in early double digits, partially driven by the
full consolidation of the joint ventures purchased from Old Mutual, which
will, when combined with the endowment pressure in NII, lead to a
deterioration in the cost- to-income ratio from the 52,5% for the period.
* A focus on improving capital adequacy ratios and optimising funding and
liquidity.
The group has revised its outlook for the full 2009 year and continues to be
cautious about prospects for the rest of the year. Forecast risk remains high
in this environment.
The group remains disciplined and firmly focused on the basics of good banking,
ensuring that the fundamentals of the group remain solid. Nedbank is well
capitalised, with conservative funding, good liquidity, a focus on risk
management and strong cost management.
Diluted headline earnings per share for 2009 are currently expected to be
between 18% and 38% lower than the 1 401 cents per share reported for the
comparative period to December 2008.
After taking into account the profit on the sale of Visa shares included in the
comparative period and accounting, in the current period, for the transaction
to purchase Old Mutual`s interests in the NedLife and BoE Private Clients joint
ventures, diluted earnings per share for the period are currently expected to
be between 17% and 37% lower than the 1 558 cents per share reported for the
comparative period to December 2008.
Shareholders are advised that these forecasts have not been reviewed or
reported on by the group`s auditors.
Board changes
As previously reported, Alan Knott-Craig was appointed as an independent non-
executive director on 1 January 2009 and Rosie Harris resigned as a
non-executive director on 31 March 2009, following her resignation as Group
Risk Director of Old Mutual plc. More recently it was announced that Wendy
Lucas-Bull, Jabu Moleketi and Malcolm Wyman have been appointed as independent
non-executive directors with effect from 1 August 2009.
Executive management changes
The group today announced several executive appointments and a new Group
Executive Committee (Group Exco) structure, which will be effective from
5 August 2009.
The appointments and changes are as follows:
* As previously reported, Mike Brown, Chief Executive Officer (CEO)
designate, will succeed Tom Boardman who retires as CEO in February 2010.
* Graham Dempster, currently Managing Executive: Nedbank Corporate, has been
appointed to the newly created position of Chief Operating Officer (COO)
and as an executive director to the boards of both Nedbank Group and
Nedbank Limited. Graham`s appointment to the boards is with immediate
effect. He will have overall responsibility for Group Finance, Balance
Sheet Management, Information Technology, Human Resources, Marketing and
Corporate Affairs, and Strategic Planning and will report to the CEO.
* Raisibe Morathi has been appointed as Chief Financial Officer and as an
executive director. An external appointment, Raisibe is a chartered
accountant and has 15 years` experience in the financial services sector,
where she has held senior positions in both the banking and insurance
industries. Most recently she has been an executive director of a listed
insurance company. She will join Nedbank Group on 1 September 2009 and will
report to the COO.
* Mfundo Nkuhlu, currently Deputy Managing Executive: Nedbank Corporate, is
appointed to the position of Managing Executive: Nedbank Corporate to
succeed Graham Dempster and will report to the CEO.
* Ingrid Johnson, currently Managing Executive: Business Banking, will assume
overall responsibility for both Business Banking and Nedbank Retail as
Managing Executive: Retail and Business Banking and will report to the CEO.
* Saks Ntombela, currently Managing Executive: Retail Banking Services and a
member of the retail executive team for the past five years, has been
appointed Managing Executive: Nedbank Retail, reporting to Ingrid Johnson.
* Candidates are currently being considered to fill the role of Managing
Executive: Business Banking and will also report to Ingrid Johnson. Ingrid
will continue to oversee this portfolio until the appointment is made.
* Owing to its strategic growth potential and importance to the group, the
Bancassurance and Wealth Division (previously part of Nedbank Retail) has
been made a separate cluster and the head of the business for the past five
years, David Macready, also joins the Group Exco as Managing Executive:
Bancassurance and Wealth, reporting to the CEO.
* Trevor Adams, who for the past five years has been in charge of Group
Capital Management as well as the Basel II implementation programme, in
which he lead the advancement of risk, capital and shareholder value-based
management across the group, joins the Group Exco in the new role of Group
Executive: Balance Sheet Management and will be responsible for asset and
liability management as well as capital management, reporting to the COO.
* Candidates are currently being considered for the roles of Group Executive:
Marketing and Corporate Affairs and of Group Executive: Strategic Planning,
both to be reporting to the COO. Graham Dempster is currently overseeing
these portfolios.
Accounting policies(1)
Nedbank Group Limited is a company domiciled in South Africa. The condensed
consolidated interim financial results at and for the half-year ended 30 June
2009 comprised the company and its subsidiaries (the `group`) and the group`s
interests in associates and jointly controlled entities.
Nedbank Group`s principal accounting policies have been applied consistently
over the current and prior financial years, except for the adoption of new and
revised accounting standards.
Nedbank Group`s consolidated interim results have been prepared in accordance
with the recognition and measurement criteria of International Financial
Reporting Standards (IFRS), interpretations issued by the International
Financial Reporting Interpretations Committee (IFRIC) and the presentation and
disclosure requirements of International Accounting Standard (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
the group financial results for the six months ended 30 June 2009. These
assumptions are subject to ongoing review and possible amendments.
Events after the reporting period(1)
There are no material events after the reporting period to report on.
Reviewed results - auditors` opinion
KPMG Inc and Deloitte & Touche, Nedbank Group`s independent auditors, have
reviewed the consolidated interim financial results of Nedbank Group Limited
and have expressed an unmodified review opinion on the consolidated interim
financial results. The auditors` review was conducted in accordance with
International Standards on Review Engagements (ISRE 2410): Review of Interim
Financial Information. The condensed consolidated financial results comprise
the consolidated statement of financial position at 30 June 2009, consolidated
statement of comprehensive income, condensed consolidated statement of changes
in equity and condensed consolidated cashflow statement for the six months then
ended and selected explanatory notes. The selected explanatory notes are marked
with(1). The review report is available for inspection at Nedbank Group`s
registered office.
Forward-looking statement
This announcement contains certain forward-looking statements with respect to
the financial condition and results of operations of Nedbank Group and its
group companies that, by their nature, involve risk and uncertainty because
they relate to events and depend on circumstances that may or may not 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; as
well as competitive and regulatory factors. By consequence, all forward-looking
statements have not been reviewed or reported on by the group`s auditors.
Capitalisation award with a cash dividend alternative(1)
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
September 2009, in South Africa, and on or before 11:00 on Friday, 11 September
2009, in Namibia, 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
210 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:
2009
Last day to trade to be eligible to participate in the
capitalisation award or the cash dividend alternative Friday, 4 September
Shares commence trading ex the capitalisation award
election and the cash dividend alternative on Monday, 7 September
Listing of the maximum number of new ordinary shares
that could be taken up in terms of the capitalisation
award on Monday, 7 September
Last day to elect to receive capitalisation award
shares by 12:00 for shareholders in South Africa and 11:00
for shareholders in Namibia, failing which the cash
dividend alternative will be received Friday, 11 September
Record date to participate in the capitalisation award
or to receive the cash dividend alternative Friday, 11 September
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 September
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 September
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 Friday, 18 September
Shares may not be dematerialised or rematerialised between Monday, 7 September
2009, and Friday, 11 September 2009, both days inclusive.
The above dates and times are subject to change. Any changes will be released
on the Securities Exchange News Service (SENS) and published in the press.
The number of capitalisation shares to which shareholders are entitled will be
determined in the ratio that 210 cents per ordinary share bears to the 30-day
volume-weighted average price for the company`s share, to be determined no
later than Wednesday, 26 August 2009. Details of the ratio will be published on
SENS no later than Thursday, 27 August 2009, by 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 Tuesday, 11 August 2009.
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
4 August 2009
FINANCIAL HIGHLIGHTS
at
Reviewed Reviewed Audited
June June December
2009 2008 2008
Statistics
Number of shares listed m 490,2 466,6 468,9
Number of shares in
issue, excluding
shares held by group
entities m 428,3 406,2 409,7
Weighted average
number of shares m 413,9 403,6 405,4
Diluted weighted
average number of
shares m 419,3 409,1 411,5
Headline earnings per
share cents 480 729 1 422
Diluted headline
earnings per share cents 474 719 1 401
Ordinary dividends
declared per share cents 210 310 620
Interim cents 210 310 310
Final cents 310
Ordinary dividends
paid per share cents 310 350 660
Dividend cover times 2,29 2,35 2,29
Net asset value per
share cents 8 762 8 155 8 522
Tangible net asset
value per share cents 7 049 6 817 7 179
Closing share price cents 9 805 9 211 9 550
Price/earnings ratio historical 10 6 7
Market capitalisation Rbn 48,1 43,0 44,8
Number of employees 27 381 26 982 27 570
Key ratios (%)
Return on ordinary
shareholders` equity(ROE) 11,1 18,7 17,7
ROE, excluding goodwill 12,6 21,3 20,1
Return on total assets(ROA) 0,71 1,14 1,09
Net interest income to
average interest-earning
banking assets 3,44 3,83 3,66
Non-interest revenue
to total income 39,6 38,4 39,9
Credit loss ratio 1,57 0,96 1,17
Efficiency ratio 52,5 51,5 51,1
Effective taxation rate 22,2 23,8 21,6
Group capital adequacy
ratios: Basel II
(including
unappropriated profits)
- Core Tier I 8,6 7,6 8,2
- Tier 1 10,0 8,9 9,6
- Total 13,2 11,9 12,4
Statement of financial position
statistics(Rm)
Total equity
attributable to equity
holders of the parent 37 529 33 127 34 913
Total equity 42 498 38 098 40 073
Amounts owed to
depositors 460 358 435 209 466 890
Loans and advances 431 953 408 071 434 233
Gross 441 095 414 973 442 092
Impairment of loans
and advances (9 142) (6 902) (7 859)
Total assets 557 318 549 007 567 023
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the period ended
Reviewed Reviewed Audited
June June December
Rm 2009 2008 2008
Interest and similar income 27 680 26 633 57 986
Interest expense and similar
charges 19 495 18 673 41 816
Net interest income 8 185 7 960 16 170
Impairments charge on loans
and advances 3 435 1 894 4 822
Income from lending activities 4 750 6 066 11 348
Non-interest revenue 5 377 4 954 10 729
Operating income 10 127 11 020 22 077
Total operating expenses 7 121 6 651 13 741
Operating expenses 7 055 6 543 13 547
BEE transaction expenses 66 108 194
Indirect taxation 175 191 374
Profit from operations before
non-trading and capital items 2 831 4 178 7 962
Non-trading and capital items 645 764 756
Net profit on sale of
subsidiaries, investments, and
property and equipment 647 764 767
Net impairment of investments,
property and equipment,
and capitalised development
costs (2) (11)
Profit from operations 3 476 4 942 8 718
Share of profits of associates
and joint ventures 55 84 154
Profit before direct taxation 3 531 5 026 8 872
Total direct taxation 711 1 124 1 868
Direct taxation 642 1 014 1 757
Taxation on non-trading and
capital items 69 110 111
Profit for the period 2 820 3 902 7 004
Other comprehensive (expense)/income
net of taxation (262) 265 255
Exchange differences on
translating foreign operations (264) 285 242
Fair-value adjustments on
available-for-sale assets 2 (24) (71)
Gains on property revaluations 4 84
Total comprehensive income for
the period 2 558 4 167 7 259
Profit attributable to:
Equity holders of the parent 2 564 3 597 6 410
Non-controlling interest
ordinary shareholders 70 136 257
preference shareholders 186 169 337
Profit for the period 2 820 3 902 7 004
Total comprehensive income
attributable to:
Equity holders of the parent 2 307 3 849 6 665
Non-controlling interest
ordinary shareholders 65 149 257
preference shareholders 186 169 337
Total comprehensive income for
the period 2 558 4 167 7 259
Basic earnings per share cents 619 891 1 581
Diluted earnings per share cents 611 879 1 558
HEADLINE EARNINGS RECONCILIATION
Reviewed
June 2009
Net of
Rm Gross taxation
Profit attributable to equity holders of the parent 2 564
Less: Non-trading and capital items 645 576
Net profit on sale of subsidiaries, investments,
and property and equipment 647 578
Net impairment of investments, property and
equipment, and capitalised development costs (2) (2)
Headline earnings 1 988
Reviewed
June 2008
Net of
Rm Gross taxation
Profit attributable to equity holders of the parent 3 597
Less: Non-trading and capital items 764 654
Net profit on sale of subsidiaries, investments,
and property and equipment 764 654
Net impairment of investments, property and
equipment, and capitalised development costs
Headline earnings 2 943
Audited
December 2008
Net of
Rm Gross taxation
Profit attributable to equity holders of the parent 6 410
Less: Non-trading and capital items 756 645
Net profit on sale of subsidiaries, investments,
and property and equipment 767 656
Net impairment of investments, property and
equipment, and capitalised development costs (11) (11)
Headline earnings 5 765
CONDENSED CONSOLIDATED STATEMENT OF CASHFLOWS
for the period ended
Reviewed Reviewed Audited
June June December
Rm 2009 2008 2008
Cash generated by operations 7 327 6 570 14 557
Change in funds for operating activities (5 032) (1 951) (10 674)
Net cash generated by operating
activities before taxation 2 295 4 619 3 883
Taxation paid (1 064) (1 198) (2 233)
Cashflows from operating activities 1 231 3 421 1 650
Cashflows utilised by investing
activities (384) (592) (999)
Cashflows utilised by financing
activities (551) (498) (685)
Net increase/(decrease) in cash and cash
equivalents 296 2 331 (34)
Cash and cash equivalents at the
beginning of the period* 18 674 18 708 18 708
Cash and cash equivalents at the end of
the period* 18 970 21 039 18 674
* Including mandatory reserve deposits with central banks.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
at
Reviewed Reviewed Audited
June June December
2009 2008 2008
Rm
ASSETS
Cash and cash equivalents 8 065 11 550 8 609
Other short-term securities 20 634 29 335 18 589
Derivative financial instruments 17 840 16 759 22 321
Government and other securities 35 713 36 524 42 138
Loans and advances 431 953 408 071 434 233
Other assets 5 041 12 848 6 084
Clients` indebtedness for acceptances 1 856 3 130 3 024
Current taxation receivable 570 28 346
Investment securities 9 795 8 994 8 455
Non-current assets held for sale 32 10
Investments in associate companies and
joint ventures 914 1 012 1 167
Deferred taxation asset 217 96 200
Investment property 215 180 213
Property and equipment 4 468 3 925 4 327
Long-term employee benefit assets 1 795 1 597 1 741
Mandatory reserve deposits with central
banks 10 905 9 489 10 065
Intangible assets 7 337 5 437 5 501
Total assets 557 318 549 007 567 023
EQUITY AND LIABILITIES
Ordinary share capital 428 406 410
Ordinary share premium 12 907 11 204 11 370
Reserves 24 194 21 517 23 133
Total equity attributable to equity
holders of the parent 37 529 33 127 34 913
Non-controlling interest attributable to
- ordinary shareholders 1 656 1 550 1 881
- preference shareholders 3 313 3 421 3 279
Total equity 42 498 38 098 40 073
Derivative financial instruments 15 848 17 211 23 737
Amounts owed to depositors 460 358 435 209 466 890
Provisions and other liabilities 11 698 32 604 9 829
Liabilities under acceptances 1 856 3 130 3 024
Current taxation liabilities 224 295 235
Deferred taxation liabilities 2 193 1 820 2 100
Long-term employee benefit liabilities 1 264 1 265 1 231
Investment contract liabilities 6 992 6 425 5 843
Long-term debt instruments 14 387 12 950 14 061
Total liabilities 514 820 510 909 526 950
Total equity and liabilities 557 318 549 007 567 023
Guarantees on behalf of clients 25 954 20 475 25 226
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Non-
controlling
Total equity interest
attributable to attributable to
equity holders ordinary
Rm of the parent shareholders
Balance at 31 December 2007 30 193 1 511
Ordinary non-controlling shareholders`
share of preference dividends paid (7)
Dividends to shareholders (1 440) (73)
Issues of shares net of expenses 1 000
Shares acquired/cancelled by BEE trusts (513)
Total income and expense for the period 3 887 119
Total comprehensive income for the
period 3 849 149
Net income recognised directly in equity 38 (30)
Release of reserves previously not
available (54)
Share-based payment reserve movement 82
Disposal of subsidiaries (29)
Other movements 10 (1)
Balance at 30 June 2008 33 127 1 550
Ordinary non-controlling shareholders` share
of preference dividends paid 3
Dividends to shareholders (1 296) (8)
Issues of shares net of expenses (3) 225
Shares acquired/cancelled by BEE trusts (145)
Shares issued/delisted by BEE trusts 318
Total income and expense for the period 2 912 111
Total comprehensive income for the
period 2 816 108
Net income recognised directly in equity 96 3
Release of reserves previously not
available (7)
Share-based payment reserve movement 106
Regulatory risk reserve provision 7
Preference shares held by group entities
Other movements (10) 3
Balance at 31 December 2008 34 913 1 881
Ordinary non-controlling shareholders`
share of preference dividends paid (4)
Dividends to shareholders (1 316) (5)
Issues of shares net of expenses 1 761
Shares issued/delisted by BEE trusts 209
Shares acquired/cancelled by group
entities (415)
Total income and expense for the period 2 377 (216)
Total comprehensive income for the
period 2 307 65
Net income recognised directly in equity 70 (281)
Share-based payment reserve movement 83
Buyout of non-controlling interests (17) (281)
Preference shares held by group entities
Other movements 4
Balance at 30 June 2009 37 529 1 656
Non-
controlling
interest
attributable to
preference Total
Rm shareholders equity
Balance at 31 December 2007 3 421 35 125
Ordinary non-controlling shareholders` share
of preference dividends paid 7 -
Dividends to shareholders (176) (1 689)
Issues of shares net of expenses 1 000
Shares acquired/cancelled by BEE trusts (513)
Total income and expense for the period 169 4 175
Total comprehensive income for the period 169 4 167
Net income recognised directly in equity - 8
Release of reserves previously not available (54)
Share-based payment reserve movement 82
Disposal of subsidiaries (29)
Other movements 9
Balance at 30 June 2008 3 421 38 098
Ordinary non-controlling shareholders` share
of preference dividends paid (3) -
Dividends to shareholders (165) (1 469)
Issues of shares net of expenses 222
Shares acquired/cancelled by BEE trusts (145)
Shares issued/delisted by BEE trusts 318
Total income and expense for the period 26 3 049
Total comprehensive income for the period 168 3 092
Net income recognised directly in equity (142) (43)
Release of reserves previously not available (7)
Share-based payment reserve movement 106
Regulatory risk reserve provision 7
Preference shares held by group entities (142) (142)
Other movements (7)
Balance at 31 December 2008 3 279 40 073
Ordinary non-controlling shareholders` share
of preference dividends paid 4 -
Dividends to shareholders (190) (1 511)
Issues of shares net of expenses 1 761
Shares issued/delisted by BEE trusts 209
Shares acquired/cancelled by group entities (415)
Total income and expense for the period 220 2 381
Total comprehensive income for the period 186 2 558
Net income recognised directly in equity 34 (177)
Share-based payment reserve movement 83
Buyout of non-controlling interests (298)
Preference shares held by group entities 34 34
Other movements 4
Balance at 30 June 2009 3 313 42 498
CONDENSED SEGMENTAL REPORTING
for the period ended
Total assets
Reviewed Reviewed Audited
June June December
2009 2008 2008
Rm
Nedbank Corporate 150 172 152 910 148 506
Business Banking 76 403 75 421 79 646
Nedbank Capital 171 485 173 075 188 706
Nedbank Retail 175 895 166 839 170 963
Imperial Bank 51 182 43 560 48 768
Shared Services 6 183 6 217 6 373
Central Management 33 421 38 104 36 639
Eliminations (107 423) (107 119) (112 578)
Total 557 318 549 007 567 023
Operating income
Reviewed Reviewed Audited
June June December
2009 2008 2008
Rm
Nedbank Corporate 1 920 1 897 3 985
Business Banking 1 775 2 057 4 020
Nedbank Capital 1 495 1 349 2 684
Nedbank Retail 4 127 4 926 9 413
Imperial Bank 449 543 1 120
Shared Services 154 59 2
Central Management 247 225 929
Eliminations (40) (36) (76)
Total 10 127 11 020 22 077
Headline earnings
Reviewed Reviewed Audited
June June December
2009 2008 2008
Rm
Nedbank Corporate 685 772 1 564
Business Banking 499 731 1 360
Nedbank Capital 626 600 1 266
Nedbank Retail 47 728 1 002
Imperial Bank 46 88 166
Shared Services 82 27 (32)
Central Management 3 (3) 439
Eliminations
Total 1 988 2 943 5 765
CONDENSED GEOGRAPHICAL SEGMENTAL REPORTING
for the period ended
Operating income
Reviewed Reviewed Audited
June June December
2009 2008 2008
Rm
South Africa 9 348 10 224 20 504
Business operations 9 348 10 224 20 504
BEE transaction expenses
Non-controlling interest - preference
shareholders
Rest of Africa 407 379 764
Rest of world - business operations 372 417 809
Total 10 127 11 020 22 077
Headline earnings
Reviewed Reviewed Audited
June June December
2009 2008 2008
Rm
South Africa 1 795 2 769 5 408
Business operations 2 044 3 042 5 932
BEE transaction expenses (62) (105) (187)
Non-controlling interest - preference
shareholders (187) (168) (337)
Rest of Africa 103 70 182
Rest of world - business operations 90 104 175
Total 1 988 2 943 5 765
ACQUISITIONS1
On 5 June 2009 Nedbank Group Limited acquired the remaining 50% share in the
joint ventures of Nedgroup Life Assurance Company Limited (NedLife) and BoE
(Proprietary) Limited, and the remaining 29,8% share in subsidiary Fairbairn
Private Bank from Old Mutual plc and its subsidiaries. The transaction included
the existing client bases held by the companies and the brand names. These
transactions were financed by the issue of 12,9 million shares as agreed at the
general meeting held on 5 June 2009.
There were no contingent consideration arrangements and indemnification assets
recognised on the acquisition of these entities. No contingent liabilities have
been recognised by the group as a result of these acquisitions.
The receivables recognised by the group are included in other assets and
represent their fair value due to their short-term nature. Management is of the
opinion that the gross contractual cashflows receivable are not materially
different to the fair value of the receivables recognised.
NedLife is a life assurance company that provides non-underwritten credit life
assurance and other simple risk and investment products primarily to Nedbank
Group clients. A large proportion of NedLife`s business is derived from the
provision of life cover linked to Nedbank Group`s lending activities. NedLife
also sells credit life assurance through two of the largest mortgage originators
in South Africa.
BoE (Proprietary) Limited is one of South Africa`s largest private client
wealth management houses, offering a fully integrated range of financial
services and advice, including private and specialised banking, investment
management, stockbroking and trust and fiduciary services to various niche
markets.
Fairbairn Private Bank is an award-winning offshore private bank offering
comprehensive transactional banking, credit, treasury, fiduciary and corporate
services as well as execution and discretionary asset management. Its client
base consists of high-net-worth individuals, professional intermediaries,
non-trading companies, trusts, governments and institutional investors.
The principle reasons for the acquisitions are that it will allow the group to:
- simplify and focus its group structure and create a substantive,
wholly owned bancassurance and wealth division;
- facilitate the natural flow and segmentation of clients, products and
services provided by these businesses to and from the wider Nedbank Group;
- extend the scope and range of products that Nedbank Group will sell to its
clients in the future, particularly in the competitive bancassurance market; and
- acquire a diverse stream of non-banking income that will increase Nedbank
Group`s NIR.
The group is of the opinion that the ability of the group to generate new
business and enhanced synergies as a result of these acquisitions justified the
goodwill recognised in the statement of financial position. The goodwill
recognised as a result of the transaction is not tax-deductible.
Acquisition of remaining stakes in joint ventures
Nedbank Group acquired the balance of the joint ventures` shareholding and loan
account from Old Mutual South Africa Limited for the issue of
10 157 719 shares (total purchase consideration R926 million).
The acquired businesses contributed R72 million to the group`s NIR and
R28 million to the group`s profit for the period after the acquisition. If the
acquired businesses had been included in the statement of financial position
for the entire six months ended 30 July 2009, it would have resulted in NIR of
R373 million and profit for the period of R139 million, relating to the
acquired businesses, being recognised in the consolidated statement of
comprehensive income.
There was a deemed disposal of the existing joint ventures, which were
previously equity-accounted, that resulted in a non-headline after-tax capital
profit of R547 million being recognised in profit and loss. The acquisition
date fair value of the equity interest in the entities immediately before
acquisition was R846 million.
Allocation of purchase consideration:
Rm
Purchase consideration: shares issued 926
Less: Loan account acquired 80
Net consideration paid for shares 846
Increase for 100% shareholding 1 692
Provisional fair value of net
identifiable assets acquired 543
Provisional goodwill 1 149
Assets and liabilities acquired:
Acquiree`s
carrying Provisional
Rm amount fair value
Property and equipment 9 9
Other assets 500 500
Cash and cash equivalents 48 48
Investment securities 1 469 1 469
Intangible assets 1 653
Policyholder funds (1 101) (1 101)
Deferred taxation asset 7 7
Deferred taxation liabilities (5) (188)
Current taxation liabilities (49) (49)
Other liabilities (805) (805)
Net identifiable assets acquired 74 543
Due to the short period since the effective date of the transaction, the value
of intangible assets has been determined on a provisional basis. If changes are
made to the value of intangible assets realised, this will correspondingly
affect the value of deferred taxation liabilities and goodwill.
Acquisition of remaining stake in Fairbairn Private Bank
In the same group of transactions Nedbank Group acquired the rest of the non-
controlling shareholding in Fairbairn Private Bank from Old Mutual plc for the
issue of 2 697 640 shares (total purchase consideration was R246 million). This
resulted in an amount of R17 million being recognised directly as a reduction in
equity, being the excess of the purchase consideration over the non-controlling
shareholding that was acquired.
GOODWILL1
Reviewed Audited
Rm June 2009 December 2008
Reconciliation of carrying amount
Carrying amount at the beginning of the period 3 894 3 898
Arising on business combinations 1 149
Realised through disposals (2)
Foreign currency translation and other (20) (2)
Carrying amount at the end of the period 5 023 3 894
Analysis Reviewed
June 2009
Accumulated
impairment Carrying
Rm Cost losses amount
Fairbairn Private Bank (Jersey)
Limited/Fairbairn Trust
Company Limited (Guernsey) 427 (138) 289
Peoples Mortgage Limited 198 (198) -
Imperial Bank Limited 285 (25) 260
Nedbank Limited 3 563 (739) 2 824
Nedcor Investment Bank 375 (375) -
Old Mutual Bank 206 206
BoE (Pty) Limited 725 725
Nedgroup Life Assurance Company Limited 424 424
Nedbank Namibia Limited 134 (2) 132
Capital One 82 82
American Express 81 81
6 500 (1 477) 5 023
Analysis Audited
December 2008
Accumulated
impairment Carrying
Rm Cost losses amount
Fairbairn Private Bank (Jersey)
Limited/Fairbairn Trust
Company Limited (Guernsey) 447 (138) 309
Peoples Mortgage Limited 198 (198) -
Imperial Bank Limited 285 (25) 260
Nedbank Limited 3 563 (739) 2 824
Nedcor Investment Bank 375 (375) -
Old Mutual Bank 206 206
BoE (Pty) Limited -
Nedgroup Life Assurance Company Limited -
Nedbank Namibia Limited 134 (2) 132
Capital One 82 82
American Express 81 81
5 371 (1 477) 3 894
NEW ACCOUNTING STANDARDS ADOPTED1
IFRS 3: Business Combinations
The most significant revision to IFRS 3 requires a move from a purchase price
allocation approach to a fair-value measurement principle. The group adopted
the revision in the current year and it has been applied to the acquisitions
described in these results. The revision of this standard does not affect past
business combinations.
IAS 1: Presentation of Financial Statements
(Amendment)
The group adopted the amendments to IAS 1 relating to the presentation of owner
changes in equity and of comprehensive income. The adoption of the amendment to
the standard did not significantly impact the group`s financial results.
IAS 27: Consolidated and Separate Financial Statements
(Amendment)
As a result of the early adoption of IFRS 3, the group early-adopted the
amendments to IAS 27. The adoption of the amendment did not have an impact on
the group`s financial results.
IFRIC 13: Customer Loyalty Programmes
This interpretation clarifies the application of IAS 18 to customer loyalty
programmes. The interpretation requires an entity that grants loyalty award
credits to allocate some of the initial proceeds from the initial
revenue-generating transaction to the award credit as a liability, as the
entity has an obligation to provide the award. The award is accounted for as a
separate revenue-generating transaction.
The group adopted the interpretation for its annual period commencing 1 January
2009, which did not have a material effect on the financial position, financial
results or cashflows of the group.
Directors:
Dr RJ Khoza (Chairman), TA Boardman* (Chief Executive), CJW Ball**,
MWT Brown* (Chief Financial Officer), TCP Chikane, MA Enus-Brey,
Prof B de L Figaji, RM Head (British), Prof MM Katz, A de VC Knott-Craig,
WE Lucas-Bull, JB Magwaza, ME Mkwanazi, NP Mnxasana, PJ Moleketi,
ML Ndlovu, GT Serobe, MI Wyman (British).
* Executive ** Senior independent non-executive director
Sponsor in Namibia: Old Mutual Investment Services
(Namibia) (Pty) Limited
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.
- 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.
Registered office: Nedbank Group Limited, Nedbank Sandton,
135 Rivonia Road, Sandown, 2196;
PO Box 1144, Johannesburg, 2000.
Transfer secretaries in South Africa: Computershare Investor Services
(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: ZAE000004875
JSE share code: NED NSX share code: NBK
Sponsors in South Africa: Merrill Lynch South Africa (Pty) Limited, Nedbank
Capital.
Date: 05/08/2009 08:03:01 Produced by the JSE SENS Department.
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