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NED
NED
NED - Nedbank Group Limited - Audited summarised financial results for the
year ended 31 December 2009
NEDBANK GROUP LIMITED
(Incorporated in the Republic of South Africa)
Registration number: 1966/010630/06
JSE share code: NED
NSX share code: NBK
ISIN: ZAE000004875
("Nedbank Group" or "the group")
Audited summarised financial results for the year ended 31 December 2009
Highlights
Capital position strengthened - (total ratio up from 12,4% to 14,9%)
Diluted headline earnings per share down 29,8% to 983 cents
Improving credit loss ratio (H1: 1,57% to H2: 1,41%)
Net asset value per share increased 6,8% to 9 100 cents
Final dividend per share of 230 cents
Significant progress on transformation - level-two BBBEE
`South Africa`s banking system has remained resilient. This is reflected in
our
country`s improvement from 15th to 6th place in the latest World Economic
Forum
Global Competitiveness Report ranking on the soundness of banks.
In 2009 capital ratios strengthened further and the liquidity position
remained
sound. This strength of our balance sheet positions us to capitalise on growth
opportunities and to benefit from the expected turnaround in economic
conditions.
During the economic downturn we have supported clients by advancing loans
within prudent risk appetite parameters and this is reflected in the 8,4%
growth of our loan book in the second half of the year. Pleasingly this
resulted in modest market share gains. Nedbank Group has adopted a responsible
approach to managing its staff complement by relying on natural attrition to
achieve efficiencies and has not undertaken any retrenchment programmes. This
has ensured stability and continuity in servicing our clients, and contributed
to improved staff morale.
Nedbank Group continues to focus on balancing short-term profitability with
our
overriding goal of long-term sustainability. Our focus extends beyond purely
economic and financial considerations, which is reflected in Nedbank Group
being at the forefront of environmental sustainability and the first SA
corporate to commit itself to becoming carbon-neutral.
Notwithstanding the increase in impairments, we believe that the operating
condition of the group has strengthened during the year. The business clusters
have performed well under difficult conditions.
Over the past six years the group has transformed into a sustainable business
focusing appropriately on all stakeholders. This has allowed us to withstand
the challenging economic environment and build our balance sheet strength to
take advantage of opportunities when prospects improve. In recent months we`ve
also seen a smooth transition to the new leadership team under Mike Brown. All
the executives have significant experience in their areas of specialisation
and
the team is well-equipped to lead Nedbank Group strongly into the future.`
Tom Boardman Mike Brown
Chief Executive Chief Executive Designate
Banking environment
The local banking industry experienced an exceptionally tough and volatile
year
as a result of the impact of the global recession combined with cyclical
credit
stress in the domestic economy.
Demand for credit slowed dramatically and retail impairments increased
significantly as consumers came under severe pressure from falling income, job
losses, declining asset prices and record high debt burdens. By the end of
2009
growth in asset-based finance had slowed to 1,0% year-on-year. Interest rates
were reduced by 450 basis points to cushion the effects of a rapidly slowing
economy and increasing unemployment.
Corporate demand for credit lost momentum due to weak global and local demand,
which eroded corporate profits through weaker pricing power, lower commodity
prices and a strong rand. Support came from construction projects and
increased
government spending, boosted primarily by the public sector`s infrastructure
drive and preparations for the 2010 FIFA World Cup.
Despite the negative economic trends dominating much of 2009, underlying
trading conditions showed early signs of improvement around the third quarter.
This was led by a rebound in growth in emerging markets, especially China and
India, and was followed by initial indications of recovery in most
industrialised countries, chiefly brought about by unprecedented government
intervention and massive fiscal and monetary stimulation. Improved commodity
prices and global demand brought an element of relief to domestic export
manufacturers, lifting South Africa out of `official` recession in the third
quarter. There are early signs that the sharp drop in interest rates is
starting to revive household credit demand as house prices showed modest signs
of a slow recovery towards the end of the year.
Key to the outlook for 2010 will be employment growth. After job losses of
nearly one million during the downturn, employment showed early signs of
stabilising in the fourth quarter of 2009. Job creation in the formal sector
is
likely to be slow, with an overall 2% employment gain for the year being
expected. This will support household income and lead to some improvement in
consumer finances and therefore spending. The rebound is likely to be slower
than in previous cycles given weak consumer and business confidence and
tighter
lending criteria.
Review of results
Headline earnings decreased by 25,8% from R5 765 million to R4 277 million.
Basic earnings reduced by 24,7% to R4 826 million (2008: R6 410 million). 1
Diluted headline earnings per share (EPS) decreased by 29,8% from 1 401 cents
to 983 cents. Diluted EPS declined by 28,8% from 1 558 to 1 109 cents. These
results are in line with the guidance given in the third-quarter trading
update. 1
The group`s return on average ordinary shareholders` equity (ROE), excluding
goodwill, decreased from 20,1% to 13,0%. ROE decreased from 17,7% to 11,5% for
the year. These declines were driven primarily by increasing retail impairment
levels and the negative impact from lower endowment earnings that reduced the
return on assets, together with strengthened capital levels as shareholders`
equity growth far exceeded growth in total assets.
Nedbank Retail`s credit quality deteriorated in 2009, with impairments
worsening significantly, although the rate of new defaults slowed in the
second
half of the year. Business banking and wholesale banking impairments ended the
year at better levels than originally anticipated.
The group`s funding and liquidity levels have remained sound as a result of
ongoing focus on increasing and strengthening liquidity buffers, lengthening
the funding profile, maintaining a low reliance on interbank, foreign and
capital markets, as well as robust balance sheet management. A strong,
broad-based deposit franchise also provides the group with diverse funding
sources.
Nedbank Capital
Nedbank Capital performed well in volatile markets and achieved growth in
headline earnings of 6,6% to R1 349 million. Return on risk-adjusted capital
(RORAC) increased to 45,3% and economic profit (EP) increased by 18,6% to
R955 million.
The interest margin benefited from enhanced credit spreads as a result of a
focus on EP and deal optimisation that also contributed to non-interest
revenue
(NIR) growth of 25,4%. This growth in NIR was supported by market volatility,
narrowing of credit spreads and increased client flow that lifted trading
revenue. Sound investments in the private equity portfolio, together with
investment banking fee income, accounted for the remainder of the growth.
Adverse markets were mitigated by active risk management, which resulted in a
credit loss ratio of 26 basis points.
Treasury experienced exceptionally strong growth and capitalised well on the
reduction in interest rates. Despite delays and cancellations of client
projects, numerous new opportunities were originated, enabling Investment
Banking to achieve good growth. Global Markets continued to develop the client
franchise and generate income within acceptable risk parameters.
Ongoing investment in people, risk processes and systems has allowed
management
to focus on steadily growing diversified earnings streams within a prudent
risk
appetite.
The cluster increased its visibility, winning a number of key industry awards,
including Deal of the Year (African Banker) for the Bakwena deal and
ICT/Telecoms Deal of the Year (Africa Investor) for the Neotel deal.
Nedbank Corporate
Nedbank Corporate`s headline earnings decreased by 1,9% to R1 534 million and
a
RORAC of 29,1% was achieved. EP grew by 11,6% to R836 million, driven by
optimising and reducing capital. Core banking headline earnings, excluding
property investing activities, increased by 7,8% and, after aligning for the
allocated economic capital change to reflect like-on-like core earnings,
increased by 16,2%.
The cluster implemented its selective growth strategies, focusing on
high-economic- profit business, and prudently managing related risks.
Impairments were well- managed with Corporate Banking and Nedbank Africa
holding up well, while Property Finance saw an increase to more normalised
levels from the low charge in 2008. Total expense growth was successfully
managed within income growth levels.
Net interest income (NII) and NIR on the core banking business grew 9,2% and
18,5% respectively. This growth was driven by improved credit margins,
maintaining the quality of the book, modest volume increases in transactional
banking products and gains in primary banking clients in both the public and
private sectors. Property Finance had a 22,6% contraction in NIR, impacted by
declining property valuations in the unlisted property investment portfolio.
Average advances increased by 15,2%, with growth from all key businesses.
The credit loss ratio of 0,24% remained at the low end of the expected
through-the-cycle range.
Corporate Banking had an excellent year with headline earnings up 25,3%,
resulting from strong average asset growth, increased credit margins and good
NIR growth across all sectors, supported by a number of primary-client gains.
Property Finance earnings declined 31,5% from the normalisation of its
impairment charge, lower utilisation of capital and reduced property
investment
profits, which although lower than in 2008 exceeded expectations in the
subdued
market conditions.
Nedbank Africa increased headline earnings by 24,5%, with solid performances
from all the underlying businesses.
The group continues to make good progress with its alliance with the
Pan-African banking group Ecobank. During the year the group launched various
banking initiatives aimed at providing clients with a seamless one-bank
experience. This included the implementation of systems to enable the opening
of accounts across the 33-country footprint as well as the ability to access
both Ecobank and Nedbank accounts through a single view. Local-knowledge
centres were established in major country hubs in East, West, Central and
South
Africa to provide local information on selected sectors and countries to
support clients in growing and expanding their businesses across the African
continent.
The year ahead is expected to hold better prospects. However, the property
market will remain subdued and the public sector infrastructure investment
programme is likely to proceed at a slower pace post the 2010 FIFA World Cup.
Overall, Nedbank Corporate remains well-placed to grow and optimise business
opportunities by leveraging its strong and valued client base and providing
innovative solutions through skilled teams.
Nedbank Business Banking
Nedbank Business Banking remained highly profitable through a very challenging
economic climate, generating a RORAC of 31,4% (2008: 31,5%) and EP of
R610 million (2008: R762 million). The cluster produced headline earnings of
R1 055 million, down 22,4% as a result of lower endowment income, a slowdown
in client business activity and a reduction in advances to clients with single
lending products as the cluster focused on supporting its core transactional
clients.
Business Banking successfully implemented a capital optimisation programme,
which resulted in a capital reduction from R4,3 billion to R3,4 billion. The
cluster maintained its focus on quality asset growth from its primary-client
base, while proactively risk managing or reducing exposure to high-risk
industries and clients, in particular those with only a single Nedbank lending
product, resulting in a modest reduction in client assets of 2,9%.
Proactive risk management practices and the decentralised, accountable
business
model are fundamental to the way Business Banking operates and ensured that
impairments were well-managed. The credit loss ratio of 0,52% (2008: 0,59%)
remained within its through-the-cycle range and benefited from portfolio
impairment releases of R162 million arising from converting benchmark data to
actual loss data.
Despite the overall impact of lower client activity, Business Banking was able
to strengthen its business franchise further by:
improving credit margins on new assets in line with risk-based pricing
principles;
reducing fee leakage through automation of discretionary fee collection;
prioritising primary-banked client acquisition to drive NIR and deposit
growth;
refining the decentralised business model to differentiate service levels
based on client needs/volumes; and
managing costs effectively while investing in key innovation for the benefit
of our people and our clients.
Nedbank Retail
Nedbank Retail had a difficult year and reported a headline loss of
R156 million (2008: R1 002 million profit) and an economic loss of
R1 448 million for the period (2008: R291 million economic loss). These
numbers include Nedbank Bancassurance and Wealth. The tough economic
conditions experienced throughout 2009 and high levels of consumer
indebtedness tested the
effectiveness of lending decisions and risk-based pricing and collection
strategies implemented prior to the cycle turning and the results reflect the
consequences of these practices, especially in the Home Loans business.
NII was 6,4% lower, primarily as a result of reduced endowment income on
capital and non-rate-sensitive deposits, as well as the higher cost of
funding.
Impairments increased by 35,7% to R4 925 million, with the credit loss ratio
increasing to 3,08% (2008: 2,47%), driven mainly by Home Loans where the
defaulted advances increased by 58,5% on 2008. The slower property market and
debt counselling processes make it more difficult to cure clients in default.
It is therefore taking longer than initially anticipated to rehabilitate
clients, notwithstanding the cashflow relief from interest rate reductions.
In response to the challenges experienced in Home Loans a number of steps were
taken to improve collection efficiencies, differentiate sales in execution
based on value and ease of saleability, and improve the economic profitability
of new business written. Greater emphasis was placed on pricing for risk,
tightening the loan-to-value (LTV) ratios (which resulted in the weighted
average LTV on new business dropping from an average of 82,93% to 79,52%
during
the year), supporting our existing clients, increasing client rates to reflect
higher funding costs and reducing fees paid to originators. Asset margins on
new business have widened and the underlying risk quality has improved;
however, this will take some time to be evidenced in the margin and advances
risk profile, given the low volumes of new business currently being written.
Expense growth has been well-controlled at 9,9% through curtailment of
headcount growth in backoffice and support areas. The higher efficiency ratio
of 64,9% (2008: 61,1%) arose mainly as a result of lower endowment earnings.
The accountabilities of the Retail executive team were reviewed to improve the
effectiveness and focus on people, clients and strategic risk management. Five
new members were appointed and the transformation profile of the team was
maintained.
More recently the emphasis has been on understanding the current business
challenges, ensuring risk exposures are adequately provided for and
transitioning Retail into a more client-centred and integrated business
focused
primarily on growing our primary-client relationships in a holistic way. Key
levers include NIR growth, branding, distribution, capital optimisation,
managing for value, effective risk management and the Imperial Bank
integration, underpinned by the culture of disciplined execution and
differentiated client service.
The inherent strengths, opportunities and differentiators of Retail are being
evaluated in relation to client segments and their EP potential in
order to reshape Retail`s strategy towards delivering sustainable economic
profit through the cycle.
Nedbank Bancassurance and Wealth
Nedbank Group acquired the remaining shares previously held in joint ventures
with Old Mutual in BoE Private Clients, Nedgroup Life Assurance Company and
Fairbairn Private Bank with effect from 1 June 2009 for an amount of
R1,2 billion settled by way of an issue of Nedbank Group shares. Given its
strategic importance in the drive to increase NIR, Nedbank Bancassurance and
Wealth has been constituted as a new cluster and will be reported on
separately from 2010.
The Asset Management Division increased assets by 12,3% to R93,6 billion.
While international assets under management declined, the domestic asset
management business had strong net inflows of R7,2 billion on the back of good
fund performance. Nedgroup Investments was recently awarded third place in the
Domestic Management Company of the Year Awards, and received two Raging Bull
awards for individual funds.
The Bancassurance Division had a very successful year, despite higher lapses
and claims. The short-term insurance gross written premiums totalled
R669 million, up 14,5% on 2008. The life assurance business achieved excellent
results, with annual premium equivalent growth of 30,0% and value of
new-business growth of 54,0%.
The Wealth Management Division was impacted by increased impairments,
particularly in BoE Private Clients where the credit loss ratio deteriorated
to
0,81% from 0,34% in 2008. In addition, the UK environment of record low
interest rates resulted in a reduction of NII in Fairbairn Private Bank from
GBP14 million in 2008 to GBP7,7 million in 2009. Advice-based sales through
Nedbank
Financial Planning increased 35,7% year-on-year, mainly into the low-risk and
money market funds. BoE Private Clients was rated No1 in Service and Advice in
an independent survey by SMRC Marketing Solutions (Pty) L td and Fairbairn
Private Bank was voted Best International Wealth Manager 2009.
Bancassurance and Wealth is a key focus area in the strategy of driving growth
in NIR for the group. Growth opportunities remain positive as a result of the
potential to increase penetration of life and short-term products, the
refocusing of the Asset Management Division and alignment to a single
high-net-worth strategy and business in Wealth Management.
Imperial Bank
Imperial Bank`s headline earnings increased by 19,3% to R430,8 million (2008:
R361,2 million) as a result of better trading conditions mainly in the second
half of 2009. Nedbank Group`s share of these earnings increased from
R166 million to R201 million. Return on equity of 13,2% and the efficiency
ratio
of 28,0% were similar to that in the previous year. Loans and advances grew
12,8% to R50,4 billion (2008: R44,7 billion) as Imperial Bank continued to
attract good-quality new business. The credit loss ratio of 1,97% (2008:
1,71%)
is expected to decrease as recoveries and accounts in arrears continue to
improve.
Motor Finance Corporation (MFC) performed well, driven by a continued demand
in
the used-car market. Appropriate levels of pricing were achieved while
maintaining strong risk controls and a lean operating environment. Impairments
improved during the second half of the year and this is reflected in a lower
credit loss ratio of 2,58% (H1 2009: 3,29% and 2008: 2,47%).
Trading conditions are expected to improve into 2010. However, the economic
recovery is fragile and there is continued uncertainty, which could negatively
impact on the business and particularly the corporate and commercial
businesses.
On 16 September 2009 the group announced that it had entered into a binding
agreement to acquire the remaining 49,9% share in Imperial Bank from Imperial
Holdings for a purchase consideration of approximately R1 775 million. This is
to be settled in cash. During February 2010 final regulatory approvals were
received and Nedbank Limited acquired 100% of the ordinary and preference
shares in Imperial Bank.
In parallel with this process the section 54 application is being prepared and
will be submitted to the Regulator and Minister of Finance to request approval
to merge Nedbank Limited and Imperial Bank. This process is anticipated to
take
at least six months. In the interim Imperial Bank will retain its banking
licence and continue operating as a separate bank. There will be no
retrenchments from the integration during 2010.
This acquisition allows for greater flexibility to leverage opportunities
between Nedbank Limited and Imperial Bank. It will establish Nedbank Limited
as
the second largest vehicle financier, with an estimated 30% share of the
retail
vehicle market, and third largest bank by assets in South Africa, allowing for
synergies with increased economies of scale. The MFC brand will be retained in
the dealer channel.
Since the initial announcements the group has invested significantly in the
planning of the integration to ensure a smooth transition in line with our
values and guided by legislation and fair employment practices.
Statement of comprehensive income
NII
NII grew 0,8% to R16 306 million. 1
Following a 450 basis point interest rate cut during 2009 and the resulting
effect of lower endowment income, the group`s net interest margin decreased in
line with expectations to 3,39% from 3,66% in 2008. 1 The primary drivers of
margin compression were:
liability margin compression reflecting the higher cost of term funding;
lower endowment on capital and non-repricing of transactional deposit
accounts that are not rate-sensitive; and
quicker downward repricing of interest-earning assets compared with interest-
earning liabilities.
These were partially offset by the repricing of asset margins in line with the
group`s risk-based pricing policies.
Impairments charge on loans and advances
The credit loss ratio of 1,47% for 2009 (2008: 1,17%) showed signs of
improvement after having peaked at 1,67% at 31 March 2009. 1
The credit cycle has to date largely impacted consumers and the smaller
businesses, as reflected in the continued deterioration of retail credit loss
ratios. High levels of unemployment, lower collateral values due to weak
housing and vehicle markets, and delays in recoveries resulting from debt
counselling have all played a part in the increase in defaulted advances in
retail secured loans.
Wholesale banking credit loss ratios have improved since June 2009 and
remained
better than anticipated for this part of the economic cycle. On the whole
credit quality in the Capital, Corporate and Business Banking books has
remained within acceptable levels, although in this volatile economic
environment the risk of corporate default remains high.
Credit loss ratio (%) 2009 2008
Nedbank Capital 0,26 0,06
Nedbank Corporate 0,24 0,12
Nedbank Business Banking 0,52 0,59
Nedbank Retail 3,08 2,47
Imperial Bank 1,97 1,71
Nedbank Group 1,47 1,17
Defaulted advances increased by 56,3% from R17 301 million to R27 045 million
and represent 5,9% of total advances. Total impairment provisions increased by
24,7% from R7 859 million to R9 798 million. Although early arrears have
improved for the last seven consecutive months of the year, defaulted advances
have continued increasing, albeit at a slower rate.
NIR
NIR, including the consolidation of the Bancassurance and Wealth joint
ventures, grew by 11,0% to R11 906 million (2008: R10 729 million). 1
Like-for-like NIR increased by 6,1%, driven by good growth in commission and
fee income and trading income offset to an extent by fair-value gains, which
dropped from R368 million in 2008 to R44 million. The drop in fair-value gains
is mainly the result of the group reporting, in 2008, fair-value gains of
R207 million from the mark-to-market of its own debt, which we mentioned were
unlikely to be repeated and were highlighted as poor-quality income that was
not attributed to capital. In 2009 fair-value gains on the group`s debt
amounted to R6 million.
Commission and fee income was 12,4% higher, largely from volume growth in
retail transactional banking and increases in fees charged across the bank.
Trading income increased by 18,6% from R1 553 million in 2008 to R1 841
million
in 2009, reflecting robust trading activity in treasury, investment banking
and
the global market businesses.
Private equity income remained broadly flat for the year. However, underlying
contributions were mixed with the recovery in the Nedbank Capital private
equity portfolio being offset by the Nedbank Corporate property private equity
portfolio having a lower unrealised gain.
NIR from private equity (Rm) 2009 2008
Nedbank Capital private equity 269 127
Nedbank Corporate property private equity 35 176
Total NIR from private equity 304 303
Bancassurance and Wealth NIR increased by 61,7% to R1 518 million for the
year,
driven primarily from the consolidation of the joint ventures for seven months
and with good performances from the asset management, financial planning and
life insurance businesses. On a like-for-like basis NIR for Bancassurance and
Wealth increased by 4,7%, with good growth in the SA businesses, but pressure
on
NIR in the international businesses due to the challenging economic
environment.
Expenses 1
Nedbank Group continued to maintain tight control on discretionary spending
while investing in strategic areas of the business. Expenses increased by 9,9%
to R15 100 million (2008: R13 741 million). This increase was impacted by the
consolidation of the Bancassurance and Wealth joint-venture acquisitions with
effect from June 2009.
On a like-for-like basis, excluding the joint-venture acquisitions, expenses
increased by 7,7%.
Staff expenses grew by 10,9%, driven by an average salary increase of 10,2% in
April 2009 (with lower-paid staff receiving slightly more) and as a result of
the inclusion of the abovementioned joint-venture acquisitions from 1 June
2009. Staff headcount and temporary staff decreased by 1,9% and 12,3%,
respectively.
Marketing costs were restricted to an increase of 1,4%.
Information technology costs increased by 8,3% and related mainly to project-
based software development and processing costs.
Occupation and accommodation costs increased by 12,5% as a result of branch
and office rent increases, renovations, lease cancellation costs and office
relocations.
Other expenses, which include the black economic empowerment (BEE) share-
based payments charge, decreased from R194 million to R126 million.
Associate and joint venture income1
Associate income decreased to R55 million in 2009 (2008: R154 million) as a
result of the BoE Private Clients and Nedgroup Life Assurance Company
(NedLife)
joint- venture acquisitions that were previously accounted for as joint
ventures under the equity method.
Taxation1
The taxation charge (excluding taxation on non-trading and capital items)
decreased by 29,9% from R1 757 million in 2008 to R1 232 million. The
effective
tax rate decreased from 21,6% in 2008 to 20,2% as a result of:
a reduced secondary tax on companies (STC) charge due to lower dividend
declarations in 2009 compared with 2008 and, additionally, the interim
dividend
in 2008 being a full cash dividend with no scrip offer; and
the release of tax risk provisions no longer required at December 2009.
Non-trading and capital items1
Income after taxation from non-trading and capital items decreased to
R549 million for the year (2008: R645 million). The main contribution in 2009
came from the accounting revaluation of the Bancassurance and Wealth joint
ventures immediately prior to their acquisition, while in the previous year
the main contributor was R622 million after-tax profit from the sale of Visa
shares.
Statement of financial position
Total assets
Total assets increased by 0,6% to R571 billion (2008: R567 billion). During
the
year:
cash and securities declined by 8,2% mainly from the maturing of R10 billion
of additional liquid assets. This was offset by the purchase of replacement
government bonds of R4 billion to hedge long-term debt instruments; and
the group showed lower trading and derivative balances mainly arising from
foreign exchange movements.
This was balanced by:
growth in intangible assets related to the Bancassurance and Wealth joint-
venture acquisitions;
growth in investments from the first-time consolidation of NedLife; and
an increase in advances.
Advances
Advances increased by 3,7% to R450 billion, reflecting:
ongoing growth in Nedbank Capital and Imperial Bank;
slower growth in Nedbank Corporate and Nedbank Retail; and
reduced advances in Nedbank Business Banking due to a slowdown in client
demand for credit and a reduction of single-product loans in line with the
drive to reduce higher risk exposures and focus on primary clients.
Growth in advances took place across a number of categories, including
personal
loans, mortgage loans, preference shares, deposits placed under reverse
repurchase agreements and other loans, offset by a decrease in low-margin
overnight loans. Overall market share increased by 1,4%.
The group has focused on managing for value and selective asset growth while
improving margins, resulting in bank advances growth and lower levels of
advances in the trading portfolio. Details of advances growth by division are
as follows:
Change (%)
Advances (Rm)
2009 2008
Nedbank Capital 55 315 47 686 16,0
Nedbank Corporate 137 173 136 222 0,7
Nedbank Business Banking 50 115 55 321 (9,4)
Nedbank Retail 157 500 150 107 4,9
Imperial Bank 50 451 44 734 12,8
Other (253) 163 (>100,0)
Total 450 301 434 233 3,7
Deposits1
The group retained a strong ratio of advances to deposits of 96%. It grew
deposits in line with its requirement to fund the growth in balance sheet
assets, with deposits increasing by 0,5% to R469,4 billion (2008:
R466,9 billion). In the retail deposit market current and savings account
balances remain at low levels as consumers reduce debt levels. In the
wholesale
deposit market current and savings accounts as well as fixed deposits have
increased, partially offset by a reduction in other term deposits.
Optimising and diversifying the funding mix and lengthening the profile
continued to be a key management focus. Despite intense competition in the
local deposit market, the group has maintained its strong deposit franchise
and
continues to hold the second largest share of household deposits at 24,2%.
During the year a number of innovative retail deposit products were
successfully introduced, including Nedbank`s Equity-linked Deposit, EasyAccess
Deposit and Platinum Park-It.
Capital
Nedbank Group remains focused on optimising and strengthening its capital
ratios. During 2009 these ratios have increased significantly and continue to
be
maintained above the group`s target ratios. The group holds a surplus of
R13,5 billion above its minimum total regulatory capital adequacy
requirements.
Capital adequacy 2009 ratio 2008 ratio Target range Regulatory
minimum
Core Tier 1 ratio 9,9% 8,2% 7,5% to 9,0% 5,25%
Tier 1 ratio 11,5% 9,6% 8,5% to 10,0% 7,00%
Total capital ratio 14,9% 12,4% 11,5% to 9,75%
13,0%
*Capital adequacy ratios include unappropriated profit at the year-end.
Regulatory capital adequacy ratios increased mainly due to the retention of
earnings and a key focus on the optimisation of capital and risk-weighted
assets, enabled by enhancing data quality and more selective asset growth
using
our economic-profit-based `managing for value` philosophy. This resulted in
risk-weighted assets decreasing by 8,1%, which is well below overall balance
sheet growth of 0,6%. The group was also able to maintain its dividend cover
at
2,309 times while increasing capital.
To increase conservatism the group increased its target debt rating (solvency
standard) from A- to A for internal economic capital requirements in line with
the higher target ratios for regulatory capital announced early in 2009. A
more
conservative definition of available financial resources to cover the economic
capital requirements was also introduced.
The group currently holds a surplus of R11,8 billion against its economic
capital requirements. This is calibrated to the new A debt rating including a
10% buffer, which is assessed against comprehensive stress and scenario
testing.
The group`s leverage ratio (total assets to ordinary shareholders equity) at
14,4 times (2008: 16,2 times) is conservative by international standards and
in
line with the local peer group.
In response to the global financial crisis the Basel Committee on Banking
Supervision has released far-reaching new requirements and proposals related
to
capital, liquidity, risk management and accounting provisioning aimed at
creating a more resilient global banking sector. Currently these have a
targeted implementation date of the end of 2012. The impact on capital is, at
this early stage, anticipated to be moderate for the major SA banks, but
remains subject to a comprehensive quantitative impact study in the first half
of 2010 and finalisation of the proposals by the end of 2010. The impact of
the
liquidity proposals would be significant on SA banks if implemented as is, but
we anticipate modifications and changes appropriate for South Africa. No
liquidity issues were experienced in South Africa during the global financial
crisis.
Funding and liquidity
The group`s liquidity position remains sound, with a loan-to-deposit ratio of
95,9%. Management continues to focus on diversifying the funding base,
lengthening the funding profile and further strengthening and increasing the
liquidity buffers.
In addition to the strong deposit franchise across Nedbank Retail, Nedbank
Business Banking and Nedbank Corporate providing a diverse funding mix, the
group successfully increased the size of its liquidity buffer in 2009 and
lengthened the overall funding profile in order to achieve improved
asset-to-liability matching. Increased focus on capital market issuance under
the domestic medium-term note programme, the introduction of innovative
fixed-deposit products for retail clients and a broader offering of money
market products were the primary drivers behind the lengthening of the funding
profile.
During the year the following programmes were undertaken to diversify the
funding base and lengthen the bank`s existing funding profile:
the issuing of R5,6 billion of senior unsecured debt, which was five times
oversubscribed; 1
the raising of R153 million in perpetual preference shares; 1
obtaining a $100 million credit line from a foreign development bank; and 1
focusing on the retail deposit base through innovative products. 1
Nedbank Group maintains a low reliance on interbank, capital market and
foreign
funding. The group`s small proportion of foreign funding at just over 1,0% is
driven by the group`s regional focus where 91,4% of the group`s asset base is
in South Africa. Low historic reliance in the abovementioned markets creates
diversification opportunities subject to pricing.
Nedbank Group continues to adopt a strategy of applying best international
practice, with the Basel principles on sound liquidity management having been
further embedded during this financial period.
Transformation
Transformation remains a key strategic differentiator and the group continues
to seek opportunities to realise its ambition of becoming a truly southern
African group. There have been clear measurable shifts in attitude, culture
and
diversity, and this progress has raised morale in the organisation. The group
was ranked as the most empowered financial institution in South Africa and the
third most empowered company out of the JSE top 200 companies. Our progress is
reflected in the group having been verified as a level-two BEE contributor
(2008: level three) in terms of the Department of Trade and Industry (dti)
Codes scorecard.
Outlook, targets and prospects
The group currently anticipates gross domestic product (GDP) growth of around
2,2% in 2010, indicating slightly better prospects for the banking sector. The
global environment and the 2010 FIFA World Cup are primary factors influencing
domestic recovery, although the global recovery remains fragile and reliant on
continued government support.
Locally retail trading conditions are expected to improve as disposable income
stabilises, retrenchments ease, general labour conditions start improving,
debt
burdens moderate and house prices start to recover. Interest rates are likely
to remain steady at current levels and lead to lower impairment levels. The
2010 FIFA World Cup is expected to lift confidence and encourage an increase
in
household credit demand and transactional banking volumes.
Fixed-investment activity is expected to remain modest as a result of excess
capacity in the private sector and some loss of momentum in the government`s
infrastructure spending programme as several large projects around the hosting
of the FIFA World Cup are completed. These developments are likely to contain
corporate demand for credit, while strong competition will place pressure on
margins.
Interest rate cuts from the previous year will continue to have a negative
endowment effect on banking interest margins, but should be partially offset
by
a gradual decrease in impairments as recoveries and arrears levels improve.
The
reversal of provisions in the balance sheet is expected to take longer as
defaulted advances continue to increase, albeit at a slower rate. The group
remains cautious about impairments as, although corporate impairments have
been
benign, there can be large once-off charges that are difficult to predict, and
it is uncertain hothe current economic challenges could further impact
consumers.
Nedbank Group`s performance in 2010 is likely to reflect:
advances growth in the midsingle digits;
pressure on interest margins remaining as a result of a continued negative
endowment effect and anticipated to be compressed by a further 10 to 20 basis
points;
continued improvement of the group credit loss ratio, but remaining above our
target range;
mid double-digit NIR growth, the increase being impacted by the consolidation
of the Bancassurance and Wealth joint-venture acquisitions for the full period
in 2010, compared with the seven months in 2009;
lower double-digit expense growth, the increase being impacted by the
consolidation of the Bancassurance and Wealth joint-venture acquisitions;
a further strengthening of capital adequacy ratios and focus on funding and
liquidity; and
a focus on extracting value from acquisitions made in 2009.
The economic environment remains fragile, presenting forecast risk. The
short-term outlook for 2010 assumes that interest rates will remain unchanged
for the year.
Medium-to-long-term targets 2010 outlook
ROE (excluding goodwill) 5% above monthly weighted average
cost of ordinary Improving, below
shareholders` equity target.
Worsening,
Efficiency ratio < 50,0% remaining above
target.
NIR-to-expenses > 85% Improving, below
target.
Growth in diluted At least consumer price
headline EPS index + GDP growth + 5% Improving, forecast
to exceed target.
Impairment charge
(credit loss ratio) Between 0,6% and 1,0% of Improving, above
average advances target.
Basel II core Tier 1 7,5% to 9,0% Improving, above top
capital adequacy ratio end of target.
Basel II Tier 1 capital Improving, above top
adequacy ratio 8,5% to 10,0% end of range.
Basel II total capital 11,5% to 13,0% Improving, above top
adequacy ratio end of range.
Capitalised to 99,93%
confidence interval on
Economic capital economic capital basis (target
debt rating A including A including 10%
10% buffer) buffer.
Dividend cover policy 2,25 to 2,75 times 2,25 to 2,75 times.
Shareholders are advised that these forecasts, objectives and targets have not
been reviewed or reported on by the group`s auditors.
Group Executive Committee
During 2009 the group announced a nemanagement structure. The neexecutive
appointments were mostly internal and, with the exception of two of the
appointments, all were previously in a senior management role in the same
business area, ensuring a smooth transition.
Tom Boardman, Chief Executive (CE), retires with effect from 28 February
2010, and will be succeeded by Mike Brown who has been appointed CE with
effect
from 1 March 2010. Mike was Chief Financial Officer (CFO) until 31 August 2009
when he was appointed CE Designate.
Graham Dempster, Chief Operating Officer (COO) and Executive Director, has
overall responsibility for Group Finance, Balance Sheet Management,
Information
Technology, Human Resources, Marketing and Corporate Affairs, and Strategic
Planning.
Raisibe Morathi, CFO and Executive Director.
Brian Kennedy, Managing Executive: Nedbank Capital.
Mfundo Nkuhlu, Managing Executive: Nedbank Corporate.
Ingrid Johnson, Managing Executive: Retail and Business Banking, and with
overall responsibility for Business Banking and Nedbank Retail.
Sandile Shabalala, Managing Executive: Business Banking.
Saks Ntombela, Managing Executive: Nedbank Retail.
David Macready, Managing Executive: Bancassurance and Wealth.
Trevor Adams, Group Executive: Balance Sheet Management.
Ciko Thomas, Group Executive: Marketing and Corporate Affairs.
John Bestbier, Group Executive: Strategic Planning.
Nedbank Group would like to thank Tom Boardman for his significant
contribution
during his tenure as CE. Tom implemented and successfully led the group
through its turnaround. During this period, with Tom`s focus on staff, the
group saa dramatic improvement in staff morale and an alignment of values.
His comprehensive focus on sustainability issues sathe group becoming one of
the most transformed companies in South Africa, the cementing of its position
as the `green bank`, improvements in client service and support for government
and communities. This has provided a solid platform for long-term, sustainable
growth and has enabled the group to remain profitable in spite of the
challenging operating environment.
Board changes
As previously reported, the following changes were made during the course of
the year:
Independent non-executive directors Appointed
Alan Knott-Craig 1 January 2009
Wendy Lucas-Bull 1 August 2009
Jabu Moleketi 1 August 2009
Malcolm Wyman 1 August 2009
Non-executive directors
Julian Roberts 1 December 2009
Don Hope 1 December 2009
Executive directors
Graham Dempster 5 August 2009
Raisibe Morathi 1 September 2009
Following the retirement of Tom Boardman as CE on 28 February 2010, he has
accepted the invitation from the board to serve as a non-executive director of
Nedbank Group and Nedbank Limited with effect from 1 March 2010.
Rosie Harris, Lot Ndlovu and Bob Head resigned from the board on 31 March
2009,
16 October 2009 and 19 February 2010 respectively.
Michael Katz, JB Magwaza and Mafika Mkwanazi retired as independent non-
executive directors with effect from 19 November 2009, each having served on
the board for more than nine years.
Accounting policies1
Nedbank Group Limited is a company domiciled in South Africa. The summarised
consolidated financial results of the group at and for the year ended
31 December 2009 comprised the company and its subsidiaries 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 previous financial years, except for the adoption for
this
year of IFRS 3: Business Combinations, IFRS 2: Vesting Conditions and
Cancellations (amendment), IAS 1: Presentation of Financial Statements
(amendment), IAS 27: Consolidated and Separate Financial Statements
(amendment), IFRS 7: Enhancing Disclosures about Fair Value and Liquidity Risk
(amendment), IAS 32: Financial Instruments: Presentation, and IAS1:
Presentation of Financial Instruments - Puttable Financial Instruments Arising
on Liquidation and Obligations (Amendment), IAS 39: Financial Instruments:
Recognition and Measurement: Eligible Hedged Items and Clarification regarding
ending Assessment of Embedded Derivatives (amendment), IFRIC 13: Customer
Loyalty Programmes and IFRIC 17: Distributions of Non-cash Assets to Owners.
Nedbank Group`s consolidated financial 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 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
2009. These assumptions are subject to ongoing revieand possible amendments.
Subsequent events1
As of the date of this announcement there are no adjusting post consolidated
statement of financial position events to report. On 5 February 2010 approval
for the acquisition of the remaining 49,9% share in Imperial Bank was obtained
from the SA Reserve Bank. Further details are included in the acquisition note
attached.
Audited results - auditors` opinion
KPMG Inc and Deloitte & Touche, Nedbank Group`s independent auditors, have
audited the consolidated annual financial statements of Nedbank Group Limited
from which the summarised consolidated financial results have been derived,
and
have expressed an unmodified audit opinion on the consolidated annual
financial statements. The summarised consolidated financial results comprise
the
consolidated statement of financial position at 31 December 2009, consolidated
statement of comprehensive income, condensed consolidated statement of changes
in equity and condensed consolidated cashflowstatement for the year then
ended, and selected explanatory notes. The selected explanatory notes are
marked with 1. The audit 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, which 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 audited.
Annual general meeting
The Nedbank Group annual general meeting will be held on Tuesday, 4 May 2010,
in the Auditorium, Retail Place West, Nedbank Sandton, 135 Rivonia Road,
Sandown, at 09:00.
Capitalisation award with a cash dividend alternative1
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 nefully 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, 9 April
2010, in South Africa, and on or before 11:00 on Friday 9 April 2010, 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
230 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:
2010
Last day to trade to participate in the capitalisation
award or the cash dividend alternative Wednesday, 31 March
Shares trade ex the capitalisation award election and
the cash dividend alternative on Thursday, 1 April
Listing of the maximum number of neordinary shares
that may be taken up in terms of the
capitalisation award on Thursday, 1 April
Last day to elect to receive capitalisation award
shares (by 12:00), failing which the cash dividend
alternative will be received Friday, 9 April
Record date to participate in the capitalisation award
or receive the cash dividend alternative Friday, 9 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, 12 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, 12 April
The maximum number of neshares 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, 16 April
Shares may not be dematerialised or rematerialised between Thursday,
1 April2010, and Friday, 9 April 2010, 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 230 cents per ordinary share bears to the 30-day
volume-weighted average price for the company`s share, to be determined no
later than Tuesday, 23 March 2010. Details of the ratio will be published on
SENS no later than Wednesday, 24 March 2010, 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 neordinary shares calculated in accordance with
the above formula gives rise to a fraction of a neordinary 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 15 March 2010.
Note:
1 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.
2 The right to elect capitalisation award shares in jurisdictions other than
the Republic of South Africa may be restricted by laand failure to comply
with any of these restrictions may constitute a violation of the securities
laws of any such jurisdictions.
For and on behalf of the board
Dr RJ Khoza TA Boardman MWT Brown
Chairman Chief Executive Chief Executive Designate
25 February 2010
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) Ltd, 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
Directors:
Dr RJ Khoza (Chairman), TA Boardman* (Chief Executive), CJBall**,
MWT Brown* (Chief Executive Designate), TCP Chikane, GDempster*, MA Enus-Brey,
Prof B de L Figaji, DI Hope (New Zealand), A de VC Knott-Craig, WE Lucas-Bull,
NP Mnxasana, PJ Moleketi, RK Morathi* (Chief Financial Officer), JVF Roberts
(British), GT Serobe, MI yman (British).
* Executive ** Senior independent non-executive director
Company Secretary: GS Nienaber
Reg No: 1966/010630/06
JSE share code: NED
NSX share code: NBK
ISIN: ZAE000004875
Sponsors in South Africa: Merrill Lynch South Africa (Pty) Limited
Nedbank Capital
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.
These results and additional information are available on
www.nedbankgroup.co.za.
Financial highlights
at 31 December
2009 2008
Statistics
Number of shares listed m 498,7 468,9
Number of shares in issue, excluding
shares held by group entities m 435,7 409,7
Weighted average number of shares m 423,4 405,4
Diluted weighted average number of shares m 435,1 411,5
Headline earnings per share cents 1 010 1 422
Diluted headline earnings per share cents 983 1 401
Ordinary dividends declared per share cents 440 620
- Interim cents 210 310
- Final cents 230 310
Ordinary dividends paid per share cents 520 660
Dividend cover times 2,30 2,29
Net asset value per share cents 9 100 8 522
Tangible net asset value per share cents 7 398 7 179
Closing share price cents 12 405 9 550
Price/earnings ratio historical 12 7
Market capitalisation Rbn 61,9 44,8
Number of employees 27 037 27 570
Key ratios (%)
Return on ordinary shareholders` equity(ROE) 11,5 17,7
ROE, excluding goodwill 13,0 20,1
Return on total assets (ROA) 0,75 1,09
Net interest income to average
interest-earning banking assets 3,39 3,66
Non-interest revenue to total income 42,2 39,9
Credit loss ratio 1,47 1,17
Non-interest revenue to total operating
expenses 78,8 78,1
Efficiency ratio 53,5 51,1
Effective taxation rate 20,2 21,6
Group capital adequacy ratios: Basel II
(including unappropriated profits)
- Core Tier I 9,9 8,2
- Tier 1 11,5 9,6
- Total 14,9 12,4
Statement of financial position
statistics (Rm)
Total equity attributable to equity
holders of the parent 39 649 34 913
Total equity 44 984 40 073
Amounts owed to depositors 469 355 466 890
Loans and advances 450 301 434 233
- Gross 460 099 442 092
- Impairment of loans and advances (9 798) (7 859)
Total assets 570 703 567 023
Consolidated statement of comprehensive income
for the year ended 31 December
Rm 2009 2008
Interest and similar income 50 537 57 986
Interest expense and similar charges 34 231 41 816
Net interest income 16 306 16 170
Impairments charge on loans and advances 6 634 4 822
Income from lending activities 9 672 11 348
Non-interest revenue 11 906 10 729
Operating income 21 578 22 077
Total operating expenses 15 100 13 741
-Operating expenses 14 974 13 547
-BEE transaction expenses 126 194
Indirect taxation 438 374
Profit from operations before non-trading and
capital items 6 040 7 962
Non-trading and capital items 624 756
-Net profit on sale of subsidiaries,
investments, and property and equipment 635 767
-Net impairment of investments, property and
equipment, and
capitalised development costs (11) (11)
Profit from operations 6 664 8 718
Share of profits of associates and joint
ventures 55 154
Profit before direct taxation 6 719 8 872
Total direct taxation 1 307 1 868
-Direct taxation 1 232 1 757
-Taxation on non-trading and capital items 75 111
Profit for the year 5 412 7 004
Other comprehensive (expense)/income net of
taxation (228) 255
-Exchange differences on translating foreign
operations (335) 242
-Fair-value adjustments on available-for-sale
assets 21 (71)
-Gains on property revaluations 86 84
Total comprehensive income for the year 5 184 7 259
Profit attributable to:
Equity holders of the parent 4 826 6 410
Non-controlling interest - ordinary shareholders 242 257
- preference shareholders 344 337
Profit for the year 5 412 7 004
Total comprehensive income attributable to:
Equity holders of the parent 4 603 6 665
Non-controlling interest - ordinary shareholders 237 257
- preference shareholders 344 337
Total comprehensive income for the year 5 184 7 259
Basic earnings per share cents 1 140 1 581
Diluted earnings per share cents 1 109 1 558
Headline earnings reconciliation
for the year ended 31 December
2009
Net of
Rm Gross taxation
Profit attributable to equity holders of the parent 4 826
Less: Non-trading and capital items 624 549
-Net profit on sale of subsidiaries, investments,
and property and equipment 635 560
-Net impairment of investments, property and
equipment, and capitalised development costs (11) (11)
Headline earnings 4 277
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 year ended 31 December
Rm 2009 2008
Cash generated by operations 14 915 14 557
Change in funds for operating activities (14 603) (10 674)
Net cash from operating activities
before taxation 312 3 883
Taxation paid (2 318) (2 233)
Cashflows (utilised by)/from operating activities (2 006) 1 650
Cashflows utilised by investing activities (3 171) (999)
Cashflows from/(utilised by) financing activities 4 878 (685)
Net decrease in cash and cash equivalents (299) (34)
Cash and cash equivalents at the beginning of the
year* 18 674 18 708
Cash and cash equivalents at the end of the year* 18 375 18 674
* Including mandatory reserve deposits with central banks.
Consolidated statement of financial position
at 31 December
Rm 2009 2008
ASSETS
Cash and cash equivalents 7 867 8 609
Other short-term securities 18 550 18 589
Derivative financial instruments 12 710 22 321
Government and other securities 35 983 42 138
Loans and advances 450 301 434 233
Other assets 5 455 6 084
Clients` indebtedness for acceptances 2 031 3 024
Current taxation receivable 602 346
Investment securities 11 025 8 455
Non-current assets held for sale 12 10
Investments in associate companies and joint ventures 924 1 167
Deferred taxation asset 282 200
Investment property 211 213
Property and equipment 4 967 4 327
Long-term employee benefit assets 1 860 1 741
Mandatory reserve deposits with central banks 10 508 10 065
Intangible assets 7 415 5 501
Total assets 570 703 567 023
EQUITY AND LIABILITIES
Ordinary share capital 436 410
Ordinary share premium 13 728 11 370
Reserves 25 485 23 133
Total equity attributable to equity holders of the
parent 39 649 34 913
Non-controlling interest attributable to
- ordinary shareholders 1 849 1 881
- preference shareholders 3 486 3 279
Total equity 44 984 40 073
Derivative financial instruments 11 551 23 737
Amounts owed to depositors 469 355 466 890
Provisions and other liabilities 11 252 9 829
Liabilities under acceptances 2 031 3 024
Current taxation liabilities 315 235
Deferred taxation liabilities 1 945 2 100
Long-term employee benefit liabilities 1 304 1 231
Investment contract liabilities 6 749 5 843
Insurance contract liabilities 1 133
Long-term debt instruments 20 084 14 061
Total liabilities 525 719 526 950
Total equity and liabilities 570 703 567 023
Guarantees on behalf of clients 28 161 25 226
Condensed segmental reporting
for the year ended 31 December
Total assets
Rm 2009 2008
Nedbank Corporate 148 606 148 506
Business Banking 79 386 79 646
Nedbank Capital 196 560 188 706
Nedbank Retail 177 857 170 963
Imperial Bank 55 660 48 768
Shared Services 7 431 6 373
Central Management 34 487 36 639
Eliminations (129 284) (112 578)
Total 570 703 567 023
Operating income
Rm 2009 2008
Nedbank Corporate 4 129 3 985
Business Banking 3 637 4 020
Nedbank Capital 3 205 2 684
Nedbank Retail 8 585 9 413
Imperial Bank 1 275 1 120
Shared Services 195 2
Central Management 629 929
Eliminations (77) (76)
Total 21 578 22 077
Headline earnings
Rm 2009 2008
Nedbank Corporate 1 534 1 564
Business Banking 1 055 1 360
Nedbank Capital 1 349 1 266
Nedbank Retail (156) 1 002
Imperial Bank 201 166
Shared Services 133 (32)
Central Management 161 439
Eliminations
Total 4 277 5 765
Condensed consolidated statement of changes in equity
Total equity Non-controlling
attributable interest
to equity attributable
holders of to ordinary
the parent shareholders
Rm
Balance at 31 December 2007 30 193 1 511
Ordinary non-controlling shareholders`
share of
preference dividends paid (4)
Dividends to shareholders (2 736) (81)
Issues of shares net of expenses 997 225
Shares issued/delisted by BEE trusts 318
Shares acquired/cancelled by BEE trusts (658)
Total income and expense for the year 6 799 230
Total comprehensive income for the year 6 665 257
Net income/(expense) recognised directly
in equity 134 (27)
Release of reserves previously not
available (61)
Share-based payment reserve movement 188
Regulatory risk reserve provision 7
Disposal of subsidiaries (29)
Preference shares held by group entities
Other movements 2
Balance at 31 December 2008 34 913 1 881
Ordinary non-controlling shareholders`
share (9)
of preference dividends paid
Dividends to shareholders (2 253) (5)
Issues of shares net of expenses 2 664
Shares issued/delisted by BEE trusts 296
Shares acquired/cancelled by group entities (576)
and BEE trusts
Total income and expense for the year 4 605 (18)
Total comprehensive income for the year 4 603 237
Net income/(expense) recognised directly
in equity 2 (255)
Share-based payment reserve movement 28
Buyout of non-controlling interests (17) (281)
Regulatory risk reserve provision (4)
Acquisition of subsidiaries 26
Preference shares acquired by group
entities
Other movements (5)
Balance at 31 December 2009 39 649 1 849
Non-controlling
interest
attributable
to preference Total
shareholders equity
Rm
Balance at 31 December 2007 3 421 35 125
Ordinary non-controlling shareholders` share of
preference dividends paid 4 -
Dividends to shareholders (341) (3 158)
Issues of shares net of expenses 1 222
Shares issued/delisted by BEE trusts 318
Shares acquired/cancelled by BEE trusts (658)
Total income/(expense) and expense for the year 195 7 224
Total comprehensive income for the year 337 7 259
Net income recognised directly in equity (142) (35)
Release of reserves previously not available (61)
Share-based payment reserve movement 188
Regulatory risk reserve provision 7
Disposal of subsidiaries (29)
Preference shares held by group entities (142) (142)
Other movements 2
Balance at 31 December 2008 3 279 40 073
Ordinary non-controlling shareholders` share 9 -
of preference dividends paid
Dividends to shareholders (353) (2 611)
Issues of shares net of expenses 361 3 025
Shares issued/delisted by BEE trusts 296
Shares acquired/cancelled by group entities (576)
and BEE trusts
Total income and expense for the year 190 4 777
Total comprehensive income for the year 344 5 184
Net income/(expense) recognised directly in equity (154) (407)
Share-based payment reserve movement 28
Buyout of non-controlling interests (298)
Regulatory risk reserve provision (4)
Acquisition of subsidiaries 26
Preference shares acquired by group entities (154) (154)
Other movements (5)
Balance at 31 December 2009 3 486 44 984
Condensed geographical segmental reporting
for the year ended 31 December
Operating income
Rm 2009 2008
South Africa 19 867 20 504
-Business operations 19 867 20 504
-BEE transaction expenses
-Non-controlling interest - preference shareholders
Rest of Africa 860 764
Rest of world - business operations 851 809
Total 21 578 22 077
Headline earnings
Rm 2009 2008
South Africa 3 800 5 408
-Business operations 4 260 5 932
-BEE transaction expenses (116) (187)
-Non-controlling interest - preference shareholders (344) (337)
Rest of Africa 213 182
Rest of world - business operations 264 175
Total 4 277 5 765
Acquisitions
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
(Pty) 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 brandnames.
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 (Pty) 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 future, particularly in the competitive bancassurance market; and
- acquire a diverse stream of non-banking income that will increase Nedbank
Group`s NIR.
Management 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.
Expenses relating to these acquisitions of R2 million were recognised in the
statement of comprehensive income. An additional R3 million relating to share
issue expenses was debited to equity.
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 R619 million to the group`s NIR and
R259 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 year, it would have resulted in NIR of R920 million and profit
for the period of R370 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 566
Provisional goodwill 1 126
Assets and liabilities acquired:
Acquiree`s
carrying Provisional
amount fair value
Rm
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 (782) (782)
Net identifiable assets
acquired 97 566
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.
Acquisition of remaining stake in Imperial Bank Limited
During 2009 the group announced its intention to acquire the remaining 49,9%
shareholding in Imperial Bank Limited from non-controlling shareholders. The
group held 50,1% of the shares in Imperial Bank Limited before the transaction
commenced. On 5 February 2010 (the effective date of the transaction) approval
for this transaction was obtained from the SA Reserve Bank.
The merging entities are Nedbank Limited and Imperial Bank Limited. Imperial
Bank`s businesses will be combined, in principle, with the following clusters:
- The Motor Finance Corporation will be included in Nedbank Retail.
- Supplier Asset Finance will be included in Nedbank Business Banking.
- Property Finance will be included in Nedbank Corporate.
- Professional Finance will be included in both Nedbank Wealth Management and
Nedbank Retail.
The purchase price is R1 853 million (R1 775 million plus a Johannesburg
Interbank Agreed Rate (JIBAR) factor applied up to 5 February 2010), which
excludes total transaction costs of R5 million that will be recognised in the
statement of comprehensive income. These transaction costs exclude costs
associated with the integration of the above business units into the group.
The total purchase consideration will be settled in four instalments. The
total
amount, which will include interest at the three-month JIBAR, amounts to
R1 889 million and will be settled by 13 August 2010.
Goodwill
Rm 2009 2008
Reconciliation of carrying amount
Carrying amount at the beginning of the year 3 894 3 898
Arising on business combinations 1 126
Realised through disposals (2)
Foreign currency translation and other (39) (2)
Carrying amount at the end of the year 4 981 3 894
Analysis 2009
Accumulated
impairment Carrying
Rm Cost losses amount
Fairbairn Private Bank (Jersey)
Limited/ Fairbairn Trust Company
Limited (Guernsey) 408 (138) 270
Peoples Mortgage Limited 198 (198) -
Imperial Bank Limited 285 (25) 260
Nedbank Limited 3 938 (1 114) 2 824
Old Mutual Bank 206 206
BoE (Pty) Limited 725 725
Nedgroup Life Assurance
Company Limited 401 401
Nedbank Namibia Limited 134 (2) 132
Capital One 82 82
American Express 81 81
6 458 (1 477) 4 981
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 3 938 (1 114) 2 824
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 and revised accounting standards and interpretations adopted
IFRS 3: Business Combinations and IAS 27:
Consolidated and Separate Financial Statements
(amendment)
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. The adoption of the IAS 27 amendment did not have an
impact on the group`s financial results.
IFRS 7: Financial Instruments: Disclosures
(amendment)
The amendment to IFRS 7: Enhancing Disclosures about Fair Value and Liquidity
Risk requires entities to provide additional disclosure regarding the fair
value and liquidity risk of financial instruments. This disclosure will be
provided in the group annual financial statements.
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.
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.
Date: 25/02/2010 08:00:07 Produced by the JSE SENS Department.
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