| Mon 2 Aug 2010, 8:00 | | NED - Nedbank Group - Reviewed financial results for the six months ended 30 |
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NED
NED
NED - Nedbank Group - Reviewed financial results for the six months ended 30
June 2010
NEDBANK GROUP LIMITED
NEDBANK GROUP
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 2010
Headline earnings up 8,3% to R2 153 million
Diluted headline earnings per share increased 0,2% to 475 cents
Net asset value per share increased 6,6% to 9 397 cents
Strong capital adequacy maintained (core Tier 1: 9,9%)
ROE 10,7% and ROE (excluding goodwill) 12,2%
Interim dividend per share of 212 cents
`While we are confident that the worst of the economic downturn is behind us,
the recovery is taking longer than initially expected. The economic outlook
improved during the earlier part of the year, but has now softened somewhat.
Against this background we are pleased to have shown growth in headline
earnings and have performed in line with most of our short-term financial
objectives for the first half. However, we remain cautious on prospects for the
second half.
Nedbank Group is well placed to take advantage of the upswing when it emerges
more fully. Our vision is to build Africa`s most admired bank. Our strategy
remains unchanged, but we will manage our portfolio of businesses more
aggressively to focus on areas we believe will yield the highest growth in
economic profit over the longer term.`
Mike Brown
Chief Executive Officer
Banking environment
The economy continued to recover in the first half of 2010. However, the
upswing comes off a low base and remains fragile. Household spending has been
slow to recover, with high personal debt levels, tight credit conditions and
further employment losses hampering consumption. High wage settlements and
lower interest service costs have led to an improvement in disposable income,
but the benefits of these have been thinly spread, with many households still
under credit- related pressure. Capital formation benefited from the strong
effort to complete infrastructural projects ahead of the 2010 FIFA World
CupTrade Mark,
but the underlying trend in the private sector demand for credit remains weak,
given low capacity utilisation levels and continuing uncertainty over future
prospects.
Review of results
Headline earnings increased by 8,3% from R1 988 million for the period to June
2009 to R2 153 million for the six months to June 2010. Diluted headline
earnings per share increased by 0,2% from 474 cents to 475 cents, which is
lower than the increase in headline earnings as a result of the added dilution
from the issue of shares for the Nedbank Wealth joint ventures acquired from
Old Mutual in June 2009 and a higher than usual acceptance level of the scrip
dividend alternative. Diluted earnings per share decreased by 22,4% from 611
cents in June 2009 to 474 cents. As previously reported, 2009 diluted earnings
per share were boosted by a once-off International Financial Reporting
Standards (IFRS) revaluation gain of R547 million (after taxation) from the
consolidation of the Nedbank Wealth joint ventures acquired.1
These results reflect an improving operating environment. They also highlight
the continued endowment-related pressure on margins following an unexpected
50 basis point decrease in the prime lending rate in March 2010 and slower than
forecast wholesale credit growth. These factors were partially offset by asset
repricing over the past 18 months and continued low impairments in Nedbank
Corporate and Nedbank Business Banking.
Given the group`s strategy to grow non-interest revenue (NIR), it is pleasing
to report core commission and fee income growth on a comparable basis of 15,7%.
Total comparable NIR grew by 7,8%, with NIR being negatively impacted by a
R195 million change in the credit-related fair-value adjustments of the bank`s
own subordinated debt as our credit spreads improved.
Nedbank Retail celebrated a milestone during the period with the total retail
client base exceeding five million clients.
Lower interest rates have benefited impairments and the downward trend in early
arrears remained intact. However, improvements in retail defaulted advances
have taken longer to come through, compared with past cycles, as a result of
the comparatively higher levels of debt to disposable income. This delay has
been increased by challenges experienced in the debt counselling process.
Recent discussions between the SA Reserve Bank, commercial banks and the
National Credit Regulator on improving the debt counselling process are
expected to have a positive impact, with new debt counselling inflows slowing
and overall levels of advances in the debt counselling process stabilising. The
level of defaulted advances in Nedbank Retail has improved to 11,9% from 12,2%
in December 2009.
The group achieved a return on average ordinary shareholders` equity (ROE),
excluding goodwill, of 12,2% and an ROE of 10,7% (restated), resulting in an
overall economic loss (earnings after deducting the cost of capital employed)
of R352 million for the period (June 2009: loss of R24 million).1
The group`s net asset value per share continued to increase, growing by 6,6%
(annualised) from 9 100 cents in December 2009 to 9 397 cents in June 2010.1
Cluster performance
Headline Return on risk-
earnings adjusted
capital
(RORAC) %
Rm - six months ended % June June June June
change 2010 2009* 2010 2009*
Nedbank Capital (14,4) 578 675 23,7 30,2
Nedbank Corporate (14,1) 623 725 17,6 22,6
Nedbank Business Banking (17,9) 437 532 28,9 23,7
Nedbank Retail (66,7) (115) (69) (2,2) (1,2)
Nedbank Wealth 14,8 233 203 32,9 35,7
Imperial Bank >100,0 185 46 11,9 7,1
Operating units (8,1) 1 941 2 112 12,9 14,6
Centre 212 (124)
Total 8,3 2 153 1 988 10,7 11,6
* Restated
Nedbank Capital recorded a good RORAC and an economic profit of R232 million.
The cluster`s headline earnings decreased mainly as a result of higher
impairments and a drop in trading income from difficult trading conditions in
the second quarter.
Nedbank Corporate recorded a solid RORAC and an economic profit of R123 million.
The cluster`s headline earnings decreased primarily due to reduced endowment
from lower interest rates and a negative swing in fair-value adjustments of
R96 million year-on-year attributed mainly to downward movement in the short end
of the yield curve in the fixed-rate advances book and associated interest rate
swaps.
Nedbank Business Banking continued to generate a high RORAC and strong economic
profit of R223 million. This was achieved despite the lower endowment earnings
both from the environment of lower interest rates and the balance sheet
efficiency exercise undertaken during 2009 and 2010 that reduced risk-weighted
assets. As a result, capital utilisation was down by R1,5 billion in 2010 and
headline earnings, on an aligned capital base, decreased by 9,5%.
Nedbank Retail recorded an economic loss of R859 million and a headline loss of
R115 million. While this is marginally worse than in H1 2009, it represents an
improved performance on H2 2009. The losses were mainly driven by lower
endowment income and continued high levels of impairments. These were offset to
an extent by continued asset repricing, an ongoing drive, in line with the
group strategy to grow NIR, which grew by 14,7%, and disciplined cost growth,
which amounted to 9,8%.
Nedbank Retail has undertaken a strategic review of the business and is being
repositioned to be profitable on a sustainable basis through a greater emphasis
on delivering distinctive client-centred banking experiences to all in South
Africa, underpinned by worldclass risk management practices. This will include
increasing the number and depth of client banking relationships; a distinctive
low-cost offering for the unbanked and entry-level banking market; refining the
Small Business Services offering to deliver more effectively to the distinct
needs of this market; creating one private bank and high-net-worth offering
through Nedbank Wealth; leveraging the strengths of the monolines as an enabler
to generate deep banking relationships; and setting risk appetite metrics,
including credit granting criteria to accord with the desired earnings and
return profile. These strategic thrusts are aimed at improving the foundation
for medium-and longer-term profitability and growth.
Nedbank Wealth continued to show a strong RORAC and recorded economic profit of
R133 million. On a pro forma basis, adjusting for the acquisitions of the joint
ventures and additional group cost allocations, headline earnings grew 2,4%.
The joint ventures of Fairbairn Private Bank, BoE (Pty) Limited and Nedgroup
Life Assurance Company were purchased in 2009. While low United Kingdom
interest rates and difficult local economic conditions have had an impact on
the financial performance of Fairbairn Private Bank and BoE (Pty) Limited, the
overall annual return on investment at 15,4% was higher than what was
originally envisaged.
Imperial Bank delivered improved headline earnings, reflecting its strong
position in the used-vehicle market. The low ROE of 11,9% underlines the
importance of the drive to integrate the business into the broader Nedbank
Retail and Nedbank Business Banking offerings to enhance cross-sell and improve
returns.
The planning for the integration of Imperial Bank into Nedbank is going well,
with clear accountability established for Motor Finance Corporation (MFC) by
Nedbank Retail, for Supplier Asset Finance and Professional by Nedbank Business
Banking and for Property by Nedbank Corporate Property Finance.
The group currently awaits approval of the section 54 application to transfer
the assets and operations of Imperial Bank to Nedbank. The application was
submitted to the Registrar of Banks and the Minister of Finance. The decision
not to retrench any affected people during 2010 has ensured business
continuity, which is beneficial for successful integration. The period not to
retrench affected people will be extended to June 2011.
Further segmental commentary and detail can be found on the group website at
www.nedbankgroup.co.za and in the results booklet.
Financial performance
Net interest income (NII)
NII decreased by 1,3% to R8 082 million (June 2009: R8 185 million), largely as
a result of endowment-related margin compression. The net interest margin for
the period was 3,34%, down from 3,44% for the period to June 2009 and 3,39% for
the year ended December 2009. Average interest-earning banking assets increased
by 2,8% (annualised) (June 2009 growth: 17,4%).1
Changes in margin were mainly caused by:
reduced endowment income on capital and current and savings accounts from the
294 basis point reduction in average interest rates;
liability margin compression reflecting a higher cost of funding, including
the cost of increased duration;
the cost of holding additional liquidity buffers;
a relative benefit in interest-earning assets repricing more quickly than
interest- bearing liabilities as rates did not fall as aggressively nor as
quickly as last year; and
the benefit of improved asset pricing on new business.
Impairments charge on loans and advances
Improving conditions have resulted in the credit loss ratio on the banking book
decreasing to 1,46% for the period, compared with 1,60% (restated) for the same
period in 2009. Given the uncertain global economic conditions, we remain
cautious on the wholesale sector as this sector tends to lag retail. Wholesale
credit loss ratios, with the exception of Nedbank Capital and Commercial
Property Finance within Nedbank Corporate, improved. Nedbank Corporate`s credit
loss ratios remain below expectations for this stage of the cycle.
In the retail sector impairments for unsecured lending decreased as a result of
improving arrears, the better quality of advances and recoveries. Stabilising
defaulted advances and higher levels of restructured loans of R2,4 billion
(December 2009: R1,2 billion) in secured lending have started to reduce
impairments in these categories.
During the period the group aligned impairment methodologies for common clients
of Imperial Bank and Nedbank. The group raised an additional R42 million in
impairments through this process.
Credit loss ratio (%) H1 to H1 to H2 to Year to
June June December December
2010 2009* 2009* 2009*
Nedbank Capital 0,80 0,60 0,12 0,36
Nedbank Corporate 0,23 0,25 0,23 0,24
Nedbank Business 0,32 0,79 0,25 0,52
Banking
Nedbank Retail 3,00 3,29 3,51 3,40
Nedbank Wealth 0,24 0,62 0,33 0,47
Imperial Bank 2,48 2,54 1,52 2,01
1,46 1,60 1,44 1,52
* Restated
Defaulted advances increased by 9,9% (annualised) to R28 367 million, from
R27 045 million reported in December 2009. Total impairment provisions increased
by 24,5% (annualised) to R10 989 million for the same period, although the rate
of increase has slowed dramatically compared with last year (June 2009: R9 142
million).
NIR
NIR increased 14,5% to R6 158 million (June 2009: R5 377 million). On a
comparable basis, adjusting for the acquisition in 2009 of the Nedbank Wealth
joint ventures, NIR growth was 7,8%. The ratio of NIR to expenses was 78,2%
(June 2009: 75,5%).1
Commission and fee income grew strongly by 21,9% (on a comparable basis by
15,7%) from growth in transactional volumes and annual inflation-linked fee
increases. This strong growth is pleasing in the light of the group`s strategy
to grow NIR. In Nedbank Retail the 8,2% year-on-year increase in primary
clients as well as an improved mix contributed to NIR growth. This was further
supported by strong growth in electronic banking, cash handling and cash
management volumes in Nedbank Business Banking and Nedbank Corporate.
Trading income decreased by 3,9% from R928 million in 2009 to R892 million. The
high base was due to outperformance in the Treasury and Global Markets
businesses that benefited from trading conditions in the cycle of decreasing
interest rates in the first half of 2009. Difficult conditions were experienced
in the same period this year, although this was partially offset by equity
trading that performed reasonably well.
NIR from the private equity portfolios increased by R98 million, driven
primarily by the equity portfolio in Nedbank Capital.
NIR from private equity (Rm) June 2010 June 2009
Nedbank Capital private equity 86 10
Nedbank Corporate property private equity (15) (37)
Total NIR from private equity 71 (27)
NIR includes a loss of R110 million (June 2009: profit of R85 million) relating
to the credit-related fair-value adjustment of the bank`s own subordinated debt
as Nedbank`s credit spreads improved.
Expenses
The group maintained a strong cost discipline ensuring that increases in
expenses were below management`s expectations. Expenses grew by 10,5% to R7 872
million (June 2009: R7 121 million), largely as a result of the acquisition of
the Nedbank Wealth joint ventures and consolidation of Merchant Bank of Central
Africa (MBCA), and on a comparable basis expenses increased by 7,5%.1
Staff expenses increased by 12,3% (9,4% on a comparable basis), resulting
from annual salary increases and an adjustment of R70 million (June 2009:
R47 million) for the growth in the Nedgroup Pension Fund surplus assets. Staff
numbers have decreased by 0,8% annualised since December 2009.
Marketing and public relations costs increased by 23,0% largely due to the
marketing spend ahead of the Nedbank Cup and the 2010 FIFA World CupTrade Mark,
and increased spend within Nedbank Wealth joint-venture businesses on new-
product marketing, cross-selling initiatives and ongoing advertising.
The group`s black economic empowerment (BEE) transaction expenses decreased
from R66 million to R60 million mainly due to the maturing of the Retail
Scheme.
The group`s efficiency ratio deteriorated from 52,5% to 55,3% as expected and
in line with negative growth in NII from the lower endowment income and margin
on current and savings accounts.
Taxation
The taxation charge (excluding taxation on non-trading and capital items)
decreased by 10,1% from R642 million in June 2009 to R577 million with a
decrease in the effective tax rate from 22,2% to 19,9%.1 This was due mainly
to:
a lower provision for secondary tax on companies (STC), owing to an increase
to 81,5% of shareholders who elected to take scrip for the 2009 final dividend
distribution (2008 final dividend distribution: 32,0%), which does not attract
STC; and
reversals of tax risk provisions.
Non-trading and capital items1
Income after taxation from non-trading and capital items decreased from a
R576 million profit to a R3 million loss at June 2010 following the once-off
R547 million revaluation of BoE (Pty) Limited and Nedgroup Life in the first
Six months of 2009 on the acquisition of the remaining shares in the joint
ventures.
Statement of financial position
Capital
Ongoing strong balance sheet management has maintained the group`s capital
ratios well above the group`s internal targets and at levels similar to those
of December 2009. As reported at the end of the first quarter, the acquisition
of the minority shareholding in Imperial Bank was settled in cash, resulting in
an approximate 0,5% decrease in the group`s capital adequacy ratios. This was
partly offset by a 0,28% increase in capital from higher levels of takeup under
the scrip dividend alternative in the second quarter.
H1 10 Q1 10 FY 09 Internal target Regulatory
ratio ratio ratio range minimum
Core Tier 1
ratio 9,9% 9,8% 9,9% 7,5% to 9,0% 5,25%
Tier 1 ratio 11,5% 11,4% 11,5% 8,5% to 10,0% 7,00%
Total capital
ratio 14,8% 14,7% 14,9% 11,5% to 13,0% 9,75%
(Ratios calculated including unappropriated profits.)
Capital allocation
All risk and capital methodologies and models are reviewed regularly to ensure
they remain in line with best practice and industry and regulatory
developments.
As previously advised, a number of enhancements relating to capital allocation
to business clusters would be implemented in 2010. The main effects of these
adjustments have been the allocation of a large proportion of the surplus
capital held at group to the clusters as well as refining the capital allocated
in respect of credit risk to emphasise tail risk. This has been done and the
comparative results for the operational clusters have been restated.
The key enhancements implemented were:
an increase of the group`s internal target solvency standard from 99,9%
(or A-) to 99,93% (or A) (implemented in 2009);
an update of the credit portfolio modelling correlations and revision of the
credit economic capital allocation methodology, taking into account recent
global developments and experience, and current best practice;
a change in internal measurement of operational risk for economic capital
purposes using the advanced measurement approach; and
an increase of the aggregate amount allocated to business clusters using
bottomup calculated economic capital via the allocation of a capital buffer
(limited to an effective 10% core Tier 1 regulatory ratio level for the group)
and thus aligning the clusters more closely with group regulatory capital
levels.
The above had no impact on the group`s overall capital level, but significantly
increased the quantum of capital allocated to each business cluster and
impacted the RORAC recorded by the clusters on a steady-state basis.
Funding and liquidity
Nedbank Group`s liquidity position remains sound. The group remains focused on
diversifying its funding base, lengthening its funding profile and maintaining
appropriate liquidity buffers.
Nedbank Group successfully increased its long-term funding ratio from 18,1% in
December 2009 to 23,9% in June 2010, mainly from increased capital market
issuances under the domestic medium-term note programme (R6,23 billion) and
increased duration in the money market book.
The group`s liquidity position is further supported by a strong loan-to-deposit
ratio of 96,0% and a low reliance on interbank funding and foreign markets.
Nedbank Group is able to leverage off its favourable retail, commercial and
wholesale deposit mix, which compares well with domestic industry averages.
Basel III developments
We welcome the updated Basel III proposals as announced on 26 July 2010. While
we believe that the capital proposals remain reasonably achievable, it is
pleasing that the revised liquidity proposals are more supportive of the SA
banking industry in areas such as:
widening of the definition of liquidity assets to include an element of
certain assets held by banks, such as government and public sector assets,
which are risk-weighted 20% under Basel 2, and certain high-quality
non-financial corporate bonds; and
extension and possible refinement of the net stable funding ratios during the
observation period until 2018.
Advances
Advances grew by 4,9% (annualised) to R461 billion at June 2010 (December 2009:
R450 billion). The advances by division are as follows:
Rm June December 2009 Annualised
2010 % increase/
(decrease)
Nedbank Capital 57 640 55 315 8,5
- Banking activity 41 666 41 550 0,6
- Trading activity 15 794 13 765 29,7
Nedbank Corporate 142 010 137 173 7,1
Nedbank Business Banking 52 039 50 115 7,7
Nedbank Retail 139 868 138 411 2,1
Imperial Bank 52 742 50 451 9,2
Nedbank Wealth 17 378 19 089 (18,1)
Other (374) (253) (96,4)
Total 461 303 450 301 4,9
In Nedbank Capital core banking advances, excluding foreign correspondents,
overnight loans and trading advances, grew by a modest 0,6% (annualised) from
December 2009. Nedbank Corporate and Nedbank Business Banking grew by 7,1% and
7,7% respectively. In Nedbank Retail personal loans performed in line with the
group`s strategic focus on this product, increasing by 37,1% (annualised).
Cards and vehicle asset finance grew moderately by 7,6% and 6,2% (annualised)
respectively and home loans decreased by 0,8% (annualised). The decrease in
Nedbank Wealth resulted predominantly from a decision to invest an amount of
GBP125 million in United Kingdom (UK) Treasury bills rather than placements with
other banks, as well as from the strengthening of the rand.
Deposits
Deposits increased by 4,8% (annualised) from R469 billion at December 2009 to
R480 billion at June 2010, remaining in line with advances growth.1
Nedbank Group continued to focus on improving its funding mix and building on
its strong retail and business banking deposit franchise. However, retail
deposit growth remains challenging given the environment of low interest rates
and a highly competitive market, while in the professional fund management
market the cost of funding has increased as a result of the increased demand
for higher-yielding negotiable certificates of deposit (NCDs).
Competition Commission
The outcome from the Competition Commission process, announced in May 2010, has
been positive with no evidence found of collusion in the setting of fees and
charges on transactional products.
Nedbank Group welcomes the pragmatic proposals emanating from the National
Treasury process and they will further benefit clients. These proposals have
resulted in Nedbank Group undertaking several strategic initiatives as part of
the bank`s commitment to continue offering value-added banking.
Ecobank alliance and Africa
The alliance with the Pan-African banking group Ecobank gained further momentum
during the period following alignment of specific operating models to support
various tailored product offerings through joint systems enablement. Our
respective multinational corporate client bases in particular are starting to
enjoy the benefits of this network, which offers the potential for revenue
uplift. For the benefit of Ecobank retail clients Nedbank ATMs were enabled for
regional cardholders.
Africa remains a key potential growth area in the longer term. The group,
together with Ecobank, will continue to look at opportunities in Africa as they
arise.
Outlook and prospects
Conditions during the remainder of the year will be heavily influenced by
developments in the global economy. South Africa has benefited from rising
commodity prices and improved capital inflows, but international prospects
remain uncertain. Domestic spending is expected to rise, although some loss of
momentum is probable after the initial boost provided as companies restocked in
early 2010 and as 2010 FIFA World CupTrade Mark-related spend fades. Interest
rates are forecast to remain low well into 2011, given low inflation and below-
trend economic growth.
Retail banking should fare better as household credit demand improves, house
prices edge higher, and impairments moderate, although the defaulted portfolio
is taking longer to cure than in previous cycles. Wholesale banking areas are
expected to remain under pressure with slow credit growth as fixed-investment
activity remains subdued, but transactional volumes are expected to improve
gradually.
The negative endowment effect of capital and margin compression on current and
savings accounts is anticipated to reduce during the second half if rates
remain at current levels. At the same time asset quality improvement and
impairment reductions are expected to continue, albeit at a gradual pace given
the high levels of consumer indebtedness.
The group remains cautious in its outlook for the remainder of 2010 and
performance is now expected to reflect:
advances growth in the mid single digits;
margin compression, on the 2009 margin, of around 15 to 20 basis points;
ongoing, gradual improvement of the credit loss ratio;
NIR growth for the year in early to mid double digits, subject to unforeseen
moves in fair-value adjustments;
expense growth for the year in early double digits; and
maintaining strong capital ratios and funding structure.
Given this outlook for the second half, we currently anticipate that it will be
challenging to meet the group`s medium-term target for diluted headline
earnings per share growth of the average consumer price index plus gross
domestic product (GDP) growth plus 5%. As a result improvements in ROE for the
balance of the year are expected to be muted.
Given the strength of the group`s balance sheet, the development of the
strategy to grow NIR and the benefits of the acquisitions made in 2009, the
group is well positioned to take advantage of the economic upswing when it
emerges more fully.
Shareholders are advised that these forecasts have not been reviewed or
reported on by the group`s auditors.
Board changes
Bob Head and Jabu Moleketi resigned from the board with effect from 19 February
2010 and 1 March 2010 respectively. As previously reported, Tom Boardman was
appointed a non-executive director of Nedbank Group and Nedbank with effect
from 1 March 2010 following his retirement from the group.
Accounting policies1
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
2010 comprise 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 prepared in terms of
IFRS and have been applied consistently over the current and prior financial
years.
Nedbank Group`s condensed consolidated interim results have been prepared in
accordance with the recognition and measurement criteria of IFRS,
interpretations issued by the International Financial Reporting Interpretations
Committee (IFRIC) and the presentation and disclosure requirements of
International Accounting Standard (IAS) 34: Interim Financial Reporting, the
Companies Act of South Africa, as well as the AC 500 standards as issued by the
Accounting Practices Board or its successor.
In the preparation of these condensed consolidated interim 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 2010. These assumptions are subject to ongoing review
and possible amendments.
Restatements1
The ratios for ROE and return on assets(ROA) have been restated with the
denominator changing from simple average to daily average for equity and total
asset values respectively. The calculation of the credit loss ratio has been
changed from simple average advances to daily banking advances (thereby
excluding trading advances from the calculation). Comparatives for ROE and ROA
changes do not affect the segmental ratios, but do affect the group ratios,
while credit loss ratio changes affect both.
The comparative results for the operations segment reporting at 30 June 2009
and 31 December 2009 have been restated in line with the group`s implementation
of a revised economic capital allocation methodology. The restatement has no
effect on the group results and ratios, and only changes segment cluster
results and ratios.
Events after the reporting period 1
There are no material events after the reporting period to report on.
Reviewed results - auditors` report
KPMG Inc and Deloitte & Touche, Nedbank Group`s independent auditors, have
reviewed the condensed consolidated interim financial results of Nedbank Group
Limited and have expressed an unmodified review opinion on the condensed
consolidated interim financial results. The auditors` review was conducted in
accordance with International Standards on Review Engagements (ISRE 2410):
Review of Interim Financial Information Performed by the Independent Auditor of
the Entity. The condensed consolidated financial results comprise the
consolidated statement of financial position at 30 June 2010, consolidated
statement of comprehensive income, condensed consolidated statement of changes
in equity, condensed consolidated cashflow statement for the six months then
ended and selected explanatory notes. The selected explanatory notes are marked
with 1. The report is available for inspection at Nedbank Group`s
registered office.
Forward-looking statements
This announcement contains certain forward-looking statements with respect to
the financial condition and results of operations of Nedbank Group and its
group companies 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.
Interim dividend declaration
Notice is hereby given that an interim dividend of 212 cents per ordinary share
has been declared, payable to shareholders for the six months ended 30 June
2010. In accordance with the provisions of Strate, the electronic settlement
and custody system used by JSE Limited, the relevant dates for the dividend are
as follows:
Event Date
Last day to trade cum dividend Friday, 3 September 2010
Shares commence trading ex dividend Monday, 6 September 2010
Record date (date shareholders recorded in books)
Friday, 10 September 2010
Payment date Monday, 13 September 2010
Share certificates may not be dematerialised or rematerialised between Monday,
6 September 2010, and Friday, 10 September 2010, both days inclusive.
On Monday, 13 September 2010, the dividend will be electronically transferred
to the bank accounts of all certificated shareholders where this facility is
available. Where electronic funds transfer is either not available or not
elected by the shareholder, cheques dated Monday, 13 September 2010, will be
posted on that date.
Holders of dematerialised shares will have their accounts credited at their
participant or broker on Monday, 13 September 2010.
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.
For and on behalf of the board
Dr Reuel J Khoza Michael WT Brown
Chairman Chief Executive Officer
2 August 2010
Financial highlights
at
Reviewed
30 Jun
2010
Statistics
Number of shares listed m 512,6
Number of shares in issue, excluding shares held by
group entities m 445,8
Weighted average number of shares m 440,7
Diluted weighted average number of shares m 453,7
Headline earnings per share cents 489
Diluted headline earnings per share cents 475
Ordinary dividends declared per share cents 212
- Interim cents 212
- Final cents
Ordinary dividends paid per share cents 230
Dividend cover times 2,31
Net asset value per share cents 9 397
Tangible net asset value per share cents 7 732
Closing share price cents 12 000
Price/earnings ratio historical 12
Market capitalisation Rbn 61,5
Number of employees 26 924
Key ratios (%)
ROE* 10,7
ROE, excluding goodwill* 12,2
ROA* 0,75
Net interest income to average interest-earning
banking assets 3,34
Non-interest revenue to total income 43,2
Credit loss ratio - banking advances* 1,46
Non-interest revenue to total operating expenses 78,2
Efficiency ratio 55,3
Effective taxation rate 19,9
Group capital adequacy ratios: Basel II (including
unappropriated profits)
- Core Tier I 9,9
- Tier 1 11,5
- Total 14,8
Statement of financial position statistics (Rm)
Total equity attributable to equity holders of the
parent 41 893
Total equity 45 572
Amounts owed to depositors 480 418
Loans and advances 461 303
- Gross 472 292
- Impairment of loans and advances (10 989)
Total assets 590 847
Reviewed Audited
30 Jun 31 Dec
2009 2009
Statistics
Number of shares listed 490,2 498,7
Number of shares in issue, excluding shares held by
group entities 428,3 435,7
Weighted average number of shares 413,9 423,4
Diluted weighted average number of shares 419,3 435,1
Headline earnings per share 480 1 010
Diluted headline earnings per share 474 983
Ordinary dividends declared per share 210 440
- Interim 210 210
- Final 230
Ordinary dividends paid per share 310 520
Dividend cover 2,29 2,30
Net asset value per share 8 762 9 100
Tangible net asset value per share 7 049 7 398
Closing share price 9 805 12 405
Price/earnings ratio 10 12
Market capitalisation 48,1 61,9
Number of employees 27 381 27 037
Key ratios (%)
ROE* 11,6 11,8
ROE, excluding goodwill* 13,1 13,4
ROA* 0,71 0,76
Net interest income to average interest-earning
banking assets 3,44 3,39
Non-interest revenue to total income 39,6 42,2
Credit loss ratio - banking advances* 1,60 1,52
Non-interest revenue to total operating expenses 75,5 78,8
Efficiency ratio 52,5 53,5
Effective taxation rate 22,2 20,2
Group capital adequacy ratios: Basel II (including
unappropriated profits)
- Core Tier 1 8,6 9,9
- Tier 1 10,0 11,5
- Total 13,2 14,9
Statement of financial position statistics (Rm)
Total equity attributable to equity holders of the
parent 37 529 39 649
Total equity 42 498 44 984
Amounts owed to depositors 460 358 469 355
Loans and advances 431 953 450 301
- Gross 441 095 460 099
- Impairment of loans and advances (9 142) (9 798)
Total assets 557 318 570 703
* Certain of the group`s reporting ratio calculations have been adjusted. The
ratios for ROE and ROA have been restated with the denominator changing from
simple average to daily average for equity and total asset values
respectively. The calculation of the credit loss ratio has been changed from
simple average advances to daily banking advances (thereby excluding trading
advances from the calculation). Comparatives have been restated accordingly.
Consolidated statement of comprehensive income
for the period ended
Reviewed Reviewed Audited
30 Jun 30 Jun 31 Dec
2010 2009 2009
Rm
Interest and similar income 22 173 27 680 50 537
Interest expense and similar charges 14 091 19 495 34 231
Net interest income 8 082 8 185 16 306
Impairments charge on loans and advances 3 244 3 435 6 634
Income from lending activities 4 838 4 750 9 672
Non-interest revenue 6 158 5 377 11 906
Operating income 10 996 10 127 21 578
Total operating expenses 7 872 7 121 15 100
- Operating expenses 7 812 7 055 14 974
- BEE transaction expenses 60 66 126
Indirect taxation 230 175 438
Profit from operations before non-trading
and capital items 2 894 2 831 6 040
Non-trading and capital items (6) 645 624
- Net (loss)/profit on sale of
subsidiaries, investments, and property
and equipment (6) 647 635
- Net impairment of investments, property
and equipment, and capitalised
development costs (2) (11)
Profit from operations 2 888 3 476 6 664
Share of profits of associates and joint
ventures 55 55
Profit before direct taxation 2 888 3 531 6 719
Total direct taxation 574 711 1 307
- Direct taxation 577 642 1 232
- Taxation on non-trading and capital items (3) 69 75
Profit for the period 2 314 2 820 5 412
Other comprehensive expense net of taxation (111) (262) (228)
- Exchange differences on translating
foreign operations (99) (264) (335)
- Fair-value adjustments on
available-for-sale assets (14) 2 21
- Gains on property revaluations 2 86
Total comprehensive income for the period 2 203 2 558 5 184
Profit attributable to:
Equity holders of the parent 2 150 2 564 4 826
Non-controlling interest - ordinary
shareholders 33 70 242
- preference shareholders 131 186 344
Profit for the period 2 314 2 820 5 412
Total comprehensive income attributable to:
Equity holders of the parent 2 036 2 307 4 603
Non-controlling interest - ordinary
shareholders 36 65 237
- preference shareholders 131 186 344
Total comprehensive income for the period 2 203 2 558 5 184
Basic earnings per share cents 488 619 1 140
Diluted earnings per share cents 474 611 1 109
Headline earnings reconciliation
for the period ended
Reviewed Reviewed
30 Jun 2010 30 Jun 2009
Net of Net of
Gross taxation Gross taxation
Rm
Profit attributable to equity
holders of the parent 2 150 2 564
Less: Non-trading and capital
items (6) (3) 645 576
- Net (loss)/profit on sale of
subsidiaries, investments
and property and equipment (6) (3) 647 578
- Net impairment of investments,
property and equipment, and
capitalised development costs (2) (2)
Headline earnings 2 153 1 988
Audited
31 Dec 2009
Net of
Gross taxation
Rm
Profit attributable to equity holders of the parent 4 826
Less: Non-trading and capital items 624 549
- Net (loss)/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
Consolidated statement of financial position
at Reviewed Reviewed Audited
30 Jun 30 Jun 31 Dec
2010 2009 2009
Rm
ASSETS
Cash and cash equivalents 8 063 8 065 7 867
Other short-term securities 21 080 20 634 18 550
Derivative financial instruments 12 776 17 840 12 710
Government and other securities 40 294 35 713 35 983
Loans and advances 461 303 431 953 450 301
Other assets 6 536 5 041 5 455
Clients` indebtedness for acceptances 1 818 1 856 2 031
Current taxation receivable 359 570 602
Investment securities 11 249 9 795 11 025
Non-current assets held for sale 12
Investments in associate companies and
joint ventures 902 914 924
Deferred taxation asset 416 217 282
Investment property 211 215 211
Property and equipment 5 203 4 468 4 967
Long-term employee benefit assets 1 937 1 795 1 860
Mandatory reserve deposits with central
banks 11 278 10 905 10 508
Intangible assets 7 422 7 337 7 415
Total assets 590 847 557 318 570 703
EQUITY AND LIABILITIES
Ordinary share capital 446 428 436
Ordinary share premium 15 050 12 907 13 728
Reserves 26 397 24 194 25 485
Total equity attributable to equity
holders of the parent 41 893 37 529 39 649
Non-controlling interest attributable to
- ordinary shareholders 117 1 656 1 849
- preference shareholders 3 562 3 313 3 486
Total equity 45 572 42 498 44 984
Derivative financial instruments 10 903 15 848 11 551
Amounts owed to depositors 480 418 460 358 469 355
Provisions and other liabilities 13 901 11 698 11 252
Liabilities under acceptances 1 818 1 856 2 031
Current taxation liabilities 212 224 315
Deferred taxation liabilities 1 936 2 193 1 945
Long-term employee benefit liabilities 1 338 1 264 1 304
Investment contract liabilities 6 920 5 975 6 749
Insurance contract liabilities 1 235 1 017 1 133
Long-term debt instruments 26 594 14 387 20 084
Total liabilities 545 275 514 820 525 719
Total equity and liabilities 590 847 557 318 570 703
Guarantees on behalf of clients 28 432 25 954 28 161
Condensed consolidated statement of changes in equity
Non-
controlling
Total equity interest
attributable to attributable to
equity holders ordinary
of the parent shareholders
Rm
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 and BEE trusts (415)
Total comprehensive income for the period 2 307 65
Net income/(expense) 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
Ordinary non-controlling shareholders`
share of preference dividends paid (5)
Dividends to shareholders (937)
Issues of shares net of expenses 903
Shares issued/delisted by BEE trusts 87
Shares acquired/cancelled by group
entities and BEE trusts (161)
Total comprehensive income for the period 2 296 172
Net (expense)/income recognised
directly in equity (68) 26
- Share-based payment reserve movement (55)
- Regulatory risk reserve provision (4)
- Acquisition of subsidiaries 26
- Preference shares held by group entities
- Other movements (9)
Balance at 31 December 2009 39 649 1 849
Dividends to shareholders (1 054) (8)
Issues of shares net of expenses 1 808
Shares acquired/cancelled by group
entities and BEE trusts (476)
Total comprehensive income for the period 2 036 36
Net expense recognised directly in equity (70) (1 760)
- Additional capitalisation of subsidiaries 4
- Share-based payment reserve movement 22
- Buyout of non-controlling interests (91) (1 764)
- Regulatory risk reserve provision (2)
- Other movements 1
Balance at 30 June 2010 41 893 117
Non-
controlling
interest
attributable to
preference Total
shareholders equity
Rm
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 and
BEE trusts (415)
Total comprehensive income for the period 186 2 558
Net income/(expense) 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
Ordinary non-controlling shareholders` share of
preference dividends paid 5 -
Dividends to shareholders (163) (1 100)
Issues of shares net of expenses 361 1 264
Shares issued/delisted by BEE trusts 87
Shares acquired/cancelled by group entities and
BEE trusts (161)
Total comprehensive income for the period 158 2 626
Net (expense)/income recognised directly in equity (188) (230)
- Share-based payment reserve movement (55)
- Regulatory risk reserve provision (4)
- Acquisition of subsidiaries 26
- Preference shares held by group entities (188) (188)
- Other movements (9)
Balance at 31 December 2009 3 486 44 984
Dividends to shareholders (144) (1 206)
Issues of shares net of expenses 92 1 900
Shares acquired/cancelled by group entities and
BEE trusts (476)
Total comprehensive income for the period 131 2 203
Net expense recognised directly in equity (3) (1 833)
- Additional capitalisation of subsidiaries 4
- Share-based payment reserve movement 22
- Buyout of non-controlling interests (3) (1 858)
- Regulatory risk reserve provision (2)
- Other movements 1
Balance at 30 June 2010 3 562 45 572
Condensed consolidated statement of cashflows
for the period ended
Reviewed Reviewed Audited
30 Jun 30 Jun 31 Dec
2010 2009 2009
Rm
Cash generated by operations 7 218 7 327 14 915
Change in funds for operating activities (9 708) (5 032) (14 603)
Net cash (utilised by)/from operating
activities before taxation (2 490) 2 295 312
Taxation paid (735) (1 064) (2 318)
Cashflows (utilised by)/from operating
activities (3 225) 1 231 (2 006)
Cashflows utilised by investing
activities (2 453) (384) (3 171)
Cashflows from/(utilised by) financing
activities 6 644 (551) 4 878
Net increase/(decrease) in cash and cash
equivalents 966 296 (299)
Cash and cash equivalents at the
beginning of the period* 18 375 18 674 18 674
Cash and cash equivalents at the end of
the period* 19 341 18 970 18 375
* Including mandatory reserve deposits with central banks.
Condensed segmental reporting
for the period ended
Total assets
Reviewed Reviewed Audited
30 Jun 30 Jun 31 Dec
2010 2009 2009
Rm
Nedbank Capital 204 944 173 053 198 260
Nedbank Corporate 154 010 151 323 148 606
Business Banking 77 137 77 308 80 245
Nedbank Retail 145 119 142 151 143 948
Nedbank Wealth 34 265 33 744 33 909
Imperial Bank 57 777 51 182 55 660
Shared Services 6 353 6 183 7 431
Central Management 37 563 33 422 31 868
Eliminations (126 320) (111 048) (129 224)
Total 590 847 557 318 570 703
Operating income
Reviewed Reviewed Audited
30 Jun 30 Jun 31 Dec
2010 2009 2009
Rm
Nedbank Capital 1 438 1 567 3 346
Nedbank Corporate 2 003 1 978 4 263
Business Banking 1 751 1 823 3 722
Nedbank Retail 3 857 3 554 6 973
Nedbank Wealth 1 074 700 1 854
Imperial Bank 618 449 1 275
Shared Services 149 155 195
Central Management 145 (59) 27
Eliminations (39) (40) (77)
Total 10 996 10 127 21 578
Headline earnings
Reviewed Reviewed Audited
30 Jun 30 Jun 31 Dec
2010 2009 2009
Rm
Nedbank Capital 578 675 1 447
Nedbank Corporate 623 725 1 626
Business Banking 437 532 1 113
Nedbank Retail (115) (69) (490)
Nedbank Wealth 233 203 498
Imperial Bank 185 46 201
Shared Services 214 92 152
Central Management (2) (216) (270)
Eliminations .
Total 2 153 1 988 4 277
The comparative results for the segmental reporting for the periods ended
30 June 2009 and 31 December 2009 have been restated in line with the group`s
implementation of a revised economic capital allocation methodology. The
restatement has no effect on the group results and ratios, and only changes
segment results and ratios.
Condensed geographical segmental reporting
for the period ended
Operating income
Reviewed Reviewed Audited
30 Jun 30 Jun 31 Dec
2010 2009 2009
Rm
South Africa 10 117 9 348 19 867
- Business operations 10 117 9 348 19 867
- BEE transaction expenses
- Profit attributable to non-controlling
interest - preference shareholders
Rest of Africa 481 407 860
Rest of world - business operations 398 372 851
Total 10 996 10 127 21 578
Headline earnings
Reviewed Reviewed Audited
30 Jun 30 Jun 31 Dec
2010 2009 2009
Rm
South Africa 1 917 1 795 3 800
- Business operations 2 103 2 044 4 260
- BEE transaction expenses (55) (62) (116)
- Profit attributable to non-controlling
interest - preference shareholders (131) (187) (344)
Rest of Africa 98 103 213
Rest of world - business operations 138 90 264
Total 2 153 1 988 4 277
Acquisition of remaining stake in Imperial Bank
On 5 February 2010 (the effective date of the transaction) the group obtained
approval from the SA Reserve Bank for the acquisition of the remaining 49,9%
shareholding in Imperial Bank from non-controlling shareholders.
The merging entities are Nedbank and Imperial Bank. Imperial Bank`s businesses
will be combined, in principle, as follows:
- Motor Finance Corporation with Nedbank Retail.
- Supplier Asset Finance and Professional Finance with Nedbank Business
Banking.
- Property Finance with Nedbank Corporate.
The purchase price was 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 R6 million that was recognised in the
statement of comprehensive income. These transaction costs exclude costs
associated with the integration of the above business units into the group and
tax on the transfer of securities.
The total purchase consideration is being settled in four instalments. The
total amount, which will include interest at the three-month JIBAR, amounts to
R1 888 million. Only the final instalment of R480 million (including interest)
is outstanding and will be settled on 13 August 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) 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.
Directors:
Dr RJ Khoza (Chairman), MWT Brown* (Chief Executive Officer), CJW Ball**,
TA Boardman, TCP Chikane, GW Dempster* (Chief Operating Officer), MA Enus-Brey,
Prof B de L Figaji, DI Hope (New Zealand), A de VC Knott-Craig, WE Lucas-Bull,
NP Mnxasana, RK Morathi* (Chief Financial Officer), JVF Roberts (British),
GT Serobe, MI Wyman (British).
* Executive ** Senior independent non-executive director
JSE share code: NED NSX share code: NBK
ISIN: ZAE000004875
Company Secretary: GS Nienaber
Reg No: 1966/010630/06
Sponsors in South Africa: Merrill Lynch South Africa (Pty) Limited
and 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.
Date: 02/08/2010 08:00:06 Produced by the JSE SENS Department.
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