| Fri 16 Feb 2001, 0:00 | | Nibh - Audited Results For The Year Ended 31 Decem |
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Nedcor Investment Bank
Audited results for the year ended 31 December 2000
* Headline earnings up 23% to R615 million
* Return on average equity 23%
* Headline earnings per share up 21%
* Expense-to-income ratio down to 35%
Chairperson's review
The Nedcor Investment Bank Group ("NIB") achieved sound financial results for
the 12 months ended 31 December 2000, particularly within an operating
environment characterised by low business confidence and the highly competitive
financial services sector. The 23% increase in headline earnings and 21%
increase in headline earnings per share are particularly pleasing, as NIB's
approach of emphasising the quality of assets as a prerequisite for any
transaction has not been compromised. Earnings per share were slightly diluted
primarily by the issue of ordinary shares to shareholders electing scrip
dividends.
During the year NIB took further steps to position itself strategically for
sustained growth. The business continued to be reconfigured in line with its
internationalisation, partnership and outsourcing strategies, as discussed in
the Chief Executive's review.
Two initiatives are currently being undertaken in the context of NIB's listing
- the establishment of an investor relations programme and a strategy to
address the lack of liquidity in NIB shares.
The environment
The financial and corporate environments were difficult in 2000. Despite strong
global economic growth, international markets performed badly. The collapse of
the technology-dominated Nasdaq index in the US and the significant rise in oil
prices increased uncertainty and the risks of an economic slowdown in 2001.
Rising risk aversion spilled over into emerging markets, limiting capital flows
and placing currencies and market valuations under pressure. Most international
equity markets suffered losses in US dollar terms in the course of the year.
Consequently, the rand experienced periods of significant volatility, falling
by over 18,6% against a strong US dollar and by 12,5% against a broader,
trade-weighted index during the year. The currency's weakness and higher energy
costs negatively impacted on inflation and prevented any further decreases in
short-term interest rates after an early cut in January. In this environment
domestic equity prices performed poorly, with the JSE all-share index falling
by 2,5% in rand terms. Most sectors were weak, although diamond and
particularly platinum shares helped to bolster the index. Banking shares posted
modest gains, helped by economic recovery and a view that interest rates would
ease further. The financial services sector fell dramatically out of favour
amid investor concerns about the longer-term prospects of financial services
boutique operations. Hopes of an easier monetary policy were dashed
periodically by rand weakness, culminating in the Reserve Bank finally
increasing the repurchase rate in October.
Economic conditions were varied. The weaker rand, firm commodity prices and a
strong global economy helped export sectors. However, domestic demand was more
subdued. The uncertain environment hampered capital formation, although
several large-scale projects were announced as the year progressed. Consumer
spending began to recover, aided by lower real interest rates and improving
incomes, but consumers were more price conscious, which limited retailer
margins. The property sector remained depressed with the exception of strong
growth in a few geographic nodes. The higher oil price and the combined
effects of increased spending on gambling and cellphones had a disproportionate
effect on lower income earners, limiting non-durable goods expenditure.
Corporate consciousness
NIB believes that it has a wider responsibility to the society within which it
operates, and remains committed to attaining meaningful employment equity
objectives. The promotion of black and female economic empowerment at all
levels throughout the economy is an objective that NIB supports.
New board members
During the year the NIB board was further strengthened with the non-executive
appointments of Eric Molobi and Richard Cottrell. Mr Molobi is Executive
Chairman of the Kagiso Trust Investment Company (Pty) Limited and serves on the
boards of a number of leading South African companies. In addition to his
knowledge of the financial services industry and corporate South Africa, Mr
Molobi's background enables him to guide and facilitate NIB's thrust into
empowerment initiatives. Mr Cottrell has served as Chief Executive Officer of
the Financial Services Board and was previously Deputy Chairperson and Managing
Partner of Coopers & Lybrand. His wealth of experience and sound judgement will
be of great value to the company.
Outlook
The year ahead will produce new challenges. With central and more recently
local government elections successfully completed, the focus in the public
arena will be on service delivery and the effectiveness of spending.
Significant changes to the tax system are to be introduced and government's
privatisation programme will gather momentum as the planned initial public
offering of Telkom reaches an advanced stage. Domestic spending and credit
demand are likely to improve as business confidence returns and interest rates
remain relatively stable. Clearly, the key will be the international
environment. The expected soft landing in the US should keep exports reasonably
firm and imply good capital inflows as foreign investors take advantage of low
market valuations and positive growth prospects. By contrast, a hard landing
would suggest a weak balance of payments and domestic economy.
Rationalisation in the financial services sector will continue in the year
ahead and could accelerate due to changes in the regulatory environment. NIB is
in a favourable position to pursue opportunities that may arise during this
process.
Conclusion
It has been a privilege for me to serve as NIB's Chairperson for the first time
in 2000. A leading participant in the South African investment banking market,
NIB is also a key contributor to the performance of the Nedcor Group and
occupies an important position in the group's long-term strategy.
I should like to congratulate Izak Botha, his executive team and the entire NIB
staff for their efforts and dedication during 2000. In particular, the warmth
with which Izak and his colleagues have welcomed me is sincerely appreciated.
In addition, I feel a deep gratitude for all the support that NIB and I have
received from the Nedcor Group, particularly Chris Liebenberg, Richard
Laubscher, Tony Routledge and Stuart Morris. We are also most grateful for the
wonderful cooperation that we are receiving from the regulatory authorities
with whom we interact including, in particular, the Office of the Registrar of
Banks. I should also like to thank all members of the NIB board for their
contribution and guidance and I look forward to serving with them once again in
2001.
Chief Executive's review
In 2000 NIB continued to deliver on its strategic approach announced at the
time of its listing in 1999. Two of the pillars of this approach are the
partnership and internationalisation strategies, which were evidenced by the
merger of the operations of NIB Asset Management with the South African
operations of Franklin Templeton Inc in the third quarter.
Furthermore, NIB identified that the ongoing South African business
transformation initiatives will continue to provide the financial services
industry with significant opportunities. Accordingly, the purchase of a 20%
equity stake in Kagiso Trust Investment Company (Pty) Limited, a leading
empowerment financial services company, was concluded earlier in the year.
Our acquisition of the commercial business of Edward Nathan and Friedland Inc
("ENF") at the end of 1999 has contributed to an enhanced deal flow in the
corporate finance area. We anticipate that further benefits from this
acquisition will be derived from deal flows across a broader base of NIB's
activities during 2001.
During the financial year NIB continued to benefit from a diversified income
base, which resulted in NIB achieving headline earnings for the year of R615
million. This excludes the net capital profit of R65 million on the disposal
and restructuring of businesses, principally the sale of 50% of the funds
management business to Franklin Templeton Inc. The net capital profit was
arrived at after the offset of various costs and provisions directly
attributable thereto. These results were achieved in an environment of
stringent internal adherence to risk philosophies and limits, which will be
detailed in our Risk management review included in our annual report. The
centralisation of the credit management process that has been in place for some
time now has positioned NIB to pursue significant quality asset growth in both
the property and corporate environments.
In the Corporate Division teambuilding and the recruitment of new skills in
Corporate Finance, combined with a stable environment for Structured and
Project Finance, have led to another excellent year. This was somewhat dampened
by a small loss in Private Equity, which arose from poor returns, particularly
on the small capitalisation listed portfolio. All current market value deficits
on individual investments in Private Equity are fully provided for, with the
remaining portfolio carrying a materially reduced exposure.
Impressive contributions were also made by Treasury and Property Finance,
supported by NIB's Capital Account operations. NIB continued to manage
shareholders' funds on a ring-fenced basis, with core activities managed on a
fully costed, marginal contribution basis. The discrete management of NIB's
shareholders' funds has protected NIB from the adverse market contagion that
undermined a number of financial services companies last year. This year, for
the first time, NIB has adopted a policy of reporting income from shareholders'
funds on a segmental basis, being 'Capital Account - Endowment' and 'Capital
Account - Value Added'. For practical reasons prior-year comparatives are not
available. The 'endowment' element is the relatively risk free return on
shareholders' funds invested in cash and other liquid securities. The 'value
added' element is the return achieved by shareholders' funds in support of
NIB's operations, including offshore activities.
Notwithstanding the reclassification of operating income to equity-accounted
income as a result of the partnership initiatives implemented in the previous
and current year and the effect of the inclusion of ENF in the current year,
operating income achieved 7% growth. Operating income and expenditure figures
included in the results for 1999, when partnership initiatives had been
concluded, are now included under equity-accounted earnings in the current
financial year. The return on average equity at 23,3% compares with the
previous year's 22,7%.
The reduction of R26 million in the income statement charge for specific and
general provisions for bad and doubtful advances is a positive reflection of an
overall improvement in the quality of the NIB Property Division's assets. This
improvement results from the division's policy of being very selective in the
assets it finances, from the intensive management that is brought to bear at an
early stage on all potentially problematic exposures and from the retention of
only those advances that meet stringent lending criteria.
The ratio of operating expenditure to total operating income continued its
positive trend from the previous year's level of 39,5% to 35,4%. The
sustainable foreign currency component of the group's headline earnings
increased to 21%, compared with the prior year's level of 16%.
Human capital
NIB is committed to creating, developing and maintaining an equitable and
non-discriminatory culture in an environment that promotes and values openness,
human dignity, diversity and superior performance for all its people.
It is pleasing to note that the level of staff turnover in all areas was
relatively low in a volatile environment. The NIB skills base was further
strengthened by significant recruitment in the advisory services area.
Employment equity initiatives are well-advanced and our current race and gender
complements compare favourably with industry benchmarks.
Operational issues
Revisions to the existing Banks Act and Regulations were implemented during the
second half of the year, which will result in significant changes to the
current Banks Act reporting requirements. A major project was initiated at NIB
to cater for these revised reporting requirements (effective from 1 January
2001). Full compliance of the revised reporting requirements has been achieved
by NIB. Compliance with the new minimum provisioning requirements, effective 1
January 2001, has also been achieved. As at 31 December 2000 NIB is
effectively well capitalised and reflects a capital adequacy ratio of 12,1%
(bank only) and 13,5% (group consolidated).
A significant development during the year was the implementation of a new
domestic treasury system. With the treasury operation now functioning off an
integrated back, middle and front-office system, the benefits of streamlined
administration and dealer friendliness will enable the operation to increase
activity levels and lower risk exposures.
NIB is preparing for the application of Accounting Standard 133 with effect
from 1 January 2001 which is likely to have an impact on the manner of
reporting of financial instruments by financial institutions.
Earlier this year a decision was taken to seek an outsourcing partner for NIB's
asset management backoffice activities. In achieving this NIB was able to
secure a 20% equity stake in FinSource (Pty) Limited, which will lead to a
reduced risk profile in the administration of the funds management business. In
addition, the outsourcing of NIB's facilities management activities was also
achieved through an agreement entered into with Facilities Management Africa
Limited with effect from 1 September 2000.
Prospects
The past year has been one in which NIB significantly improved the quality of
its lending assets. With a firmly established infrastructure and skills base in
place, and assuming reasonable market conditions, NIB is strongly positioned to
sustain earnings growth. Anticipated rationalisation of the financial services
sector as a result of tougher economic and regulatory conditions should provide
acquisition opportunities, which will be selectively pursued.
Acknowledgements
The success of the year 2000 is attributable to the commitment, enthusiasm and
competence of all NIB employees. My thanks go to Michael Katz, our Chairperson,
Nedcor Group and other members of the board for their guidance and support over
the past 12 months. My gratitude is especially extended to all members of staff
for their contributions to NIB's achievements so far.
Declaration of dividend
Notice is hereby given that a final cash dividend of 12,9 cents (1999: 5,3
cents) per ordinary share was declared on Thursday, 15 February 2001 in respect
of the 12 months ended 31 December 2000, payable to shareholders registered at
the close of business on Friday, 9 March 2001. Payment will be made on or about
Thursday, 19 April 2001.
For and on behalf of the board
Prof MM Katz Dr IJ Botha
Chairperson Chief Executive
15 February 2001
Segmental analysis of headline earnings by business activity
31 December 31 December
1999 2000 %
Rm Rm Growth
Treasury 118 129 9
Property Finance 17 32 88
Advisory Services 9 33 267
Investments 51 19 (63)
Partnerships/Associates 8 17 113
Structured and Project Finance 103 134 30
Capital Account-Endowment 194 138 (29)
Capital Account-Value Added - 113 n/a
500 615 23
Financial highlights
Audited Audited
2000 1999 % change
Income statement
Operating income (Rm) 1 182 1 101 7
Operating expenditure (Rm) 419 435 4
Headline earnings (Rm) (1999 adjusted) 615 500 23
Weighted average number of shares (m) 1 591 1 567
Headline earnings per share (cents)
(1999 adjusted) 39 32 21
Diluted headline earnings
per share (cents) (1999 adjusted) 37 30 23
Selected returns
Return on average equity (%) 23,3 22,7
Return on average total assets (%) 2,6 2,4
Non-interest revenue to total income (%) 71,9 69,8
Expense-to-income ratio (%) 35,4 39,5
Capital adequacy
Shareholders' funds (Rm) 3 203 2 535 26
Total assets (Rm) 25 171 21 469 17
Capital ratio (%) (bank only) 12,1 12,7
Group income statement
Audited Audited
2000 1999
Rm Rm % change
Interest income 2 465 2 652 (7)
Interest expense 2 133 2 320 8
Net interest income 332 332 0
Non-interest revenue 850 769 11
Operating income 1 182 1 101 7
Specific and general provisions 35 61 43
Net income 1 147 1 040 10
Operating expenditure 419 435 4
Net operating income 728 605 20
Income from associated undertakings 17 8 113
Add: Net capital profit
on the disposal and restructuring
of businesses 65 40
Less: Supplement to general risk provision - 40
Net income before taxation 810 613 32
Taxation 130 113 (15)
Income attributable to shareholders 680 500 36
Headline earnings reconciliation 2000 Adjusted 1999**
Rm Rm % change
Income attributable to shareholders 680 500 36
Less: Net headline earnings adjustment 65 - -
Headline earnings (1999 adjusted) 615 500 23
** Adjusted headline earnings for 1999 have been calculated by excluding the
supplement to general risk provision to ensure comparability.
Group balance sheet
Audited Audited
2000 1999
Rm Rm
Shareholders' funds 3 203 2 535
Long-term debt 1 1
Deposit, current and other accounts 21 958 18 924
Liabilities under acceptances 9 9
Capital, reserves and liabilities 25 171 21 469
Cash and short-term funds 1 668 805
Other short-term securities 1 795 755
Government and public sector securities 2 498 3 377
Advances and other accounts 18 087 15 827
Customers' indebtedness for acceptances 9 9
Associated companies 58 19
Other investments 975 567
Property and equipment 81 110
Total assets 25 171 21 469
Consolidated statement of changes in equity
Ordinary share Non-distrib- Distrib-
capital and utable utable
premium reserves reserves Total
Rm Rm Rm Rm
Balance as at 1 January 1999 391 11 1 610 2 012
Issue of new share capital 429 429
Share issue expenses (6) (6)
Goodwill written off (400) (400)
Currency translation and
other adjustments 5 (5) -
Income attributable
to shareholders 500 500
Balance as at 31 December 1999 414 16 2 105 2 535
Issue of new share capital 36 36
Currency translation and
other adjustments (5) (34) (39)
Income attributable
to shareholders 680 680
Dividend - cash election (9) (9)
Balance as at
31 December 2000 450 11 2 742 3 203
Consolidated cash flow statement
Audited Audited
2000 1999
Rm Rm
Cash flows from operating activities 817 819
Cash receipts from clients 3 248 3 476
Cash paid to clients, employees and suppliers (2 529) (2 726)
Dividends received on investments 98 69
Changes in working funds 565 (1 126)
Taxation paid (48) (143)
Net cash utilised in investing activities (419) (37)
Net cash (utilised)/provided
by financing activities (52) 313
Net increase/(decrease) in cash
and short-term funds 863 (174)
Cash and short-term funds at beginning of year 805 979
Cash and short-term funds at end of year 1 668 805
Comparative figures are restated, where necessary, to afford a proper
comparison. Percentages are calculated using actual numbers.
Nedcor Investment Bank Holdings Limited
(Incorporated in the Republic of South Africa)
(Reg No 1963/003972/06)
Directors: Prof MM Katz *(Chairperson), Dr IJ Botha *(Chief Executive), JR
Bestbier*, GH Bulterman, RG Cottrell, ML Davis, BE Davison, PG Joubert, PH
Lane*, RCM Laubscher, CF Liebenberg, E Molobi, SG Morris, Dr LA Porter, GF
Richardson, WC Ross*, AA Routledge, R van Wyk* (*Executive Directors)
Company Secretary: JS Eisenhammer
Registered office: 1 Newtown Avenue, Killarney, Johannesburg, 2193
Transfer secretaries: Mercantile Registrars Limited, 11 Diagonal Street,
Johannesburg, 2001
Transfer Secretaries (Pty) Ltd, PO Box 2401, Windhoek, Namibia
www.nib.co.za
