| Tue 12 Feb 2002, 0:00 | | Nedcor Limited - Audited Financial Results |
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Nedcor Limited - Audited Financial Results
Financial results for the year ended 31 December 2001
*Headline eps up 25%
to 1 576 cents
*Headline earnings up 26% to R3 794 million
*Advances growth 26%
*Return on equity 25,1%
*Return on assets 2,22%
*Efficiency ratio 49,3%
Nedcor reports 26% headline earnings growth
Nedcor is pleased to report good earnings growth in all major areas of our
business, particularly when considered against the background of difficult
global markets, limited South African GDP growth, a competitive banking
sector, fluctuating interest rates and a highly volatile rand exchange rate.
The strong organic growth in our core business, augmented by the integration
and development of key acquisitions and joint ventures, has contributed
materially to quality asset growth, leading to strong bottom-line growth.
Commentary on results
Nedcor continued its sustained performance of excellent inflation-beating
returns to shareholders, with headline earnings growing by 26% to R3 794m
(2000: R3 012m). Headline earnings per share increased by 25% to 1 576 cps
(2000: 1 260 cps), resulting in a seven-year compound growth rate of 26%.
Dividends totalling 500 cps (2000: 400 cps) have been declared, with
dividend cover remaining at 3,2 times. Return on equity increased to 25,1%
(2000: 24,0%) and return on assets to 2,22% (2000: 2,16%).
Earnings, excluding all translation gains and exceptional items, grew by
18%, comprising a solid 15% growth in South African operations and 32%
growth in international operations.
Advances and net interest income
Total advances grew by 26% and contributed to an increase in market share of
0,3% to 17,9% in total assets. The advances growth occurred at an organic,
acquisitive and rand-translated level. Net interest income grew by a more
muted 11%. This resulted from the continuing pressure on margins, the
negative endowment effect of lower interest rates on capital and reserves,
lower global yields earned on externalised capital, the redeployment of cash
to acquire Imperial Bank and Gerrard Private Bank, cash dividends paid and
share buyback activity.
Non-interest revenue
Non-interest revenue, excluding exceptional items, grew strongly by 33% to
R5 709m (2000: R4 292m). The foundation for this increase was strong growth
of 20% in commission and fees to R3 211m (2000: R2 684m), boosted by good
growth in bancassurance revenues, trading income and investment banking
profits.
Translation gains
The substantial decline in the value of the rand exchange rate resulted in
translation gains totalling R1 359m (2000: R495m) accruing to reserves and
earnings in accordance with South African Generally Accepted Accounting
Practice (SA GAAP).
Translation gains of R263m (2000: R120m) resulting from conversion of non-
integrated foreign entities have been taken directly to reserves.
Translation gains of R1 096m (2000: R375m) arose from conversion of
integrated offshore banking operations and are included in earnings. The
integrated translation gains of R1 096m have been differentiated as to R655m
calculated at approximately R10 to $1, with the balance of R441m classified
as an exceptional gain to reflect the abnormal depreciation of the rand
towards year-end. All key operating statistics have been calculated
excluding the exceptional translation gain.
The total translation gains represent an accretion to Nedcor's net asset
value resulting from our deliberate strategy of investing a portion of
Nedcor's equity in foreign currencies.
Specific and general risk provisions
The credit climate continued to improve during 2001 and the declining trend
in arrears reflected the reduced interest rate environment. Nedcor is
cognisant, however, of its high advances growth and continues to adopt a
conservative provisioning policy. Therefore, despite the improved credit
climate, the income statement provision increase of 16% corresponds to
similar organic advances growth. Non-performing loans represent 3,49% (2000:
3,50%) of total advances. This excludes the non-performing loans of FBC
Fidelity, which were fully covered by acquisition provisions.
As a consequence of the substantial depreciation in the value of the rand,
and the current uncertain business environment, the general risk provision
has been prudently supplemented by R400m to cover unidentified but inherent
risks that may result from these exceptional events.
We believe that Nedcor's exposure to microlending, and to retailers active
in microlending, has been well risk-managed. Through the expertise of
Capital One and our own credit management our unsecured exposures of R355m
to the microloan industry represent only 0,23% of total advances. The credit
model we have implemented for this industry has proved its worth with low
levels of arrears and defaults.
Expenses
Expenses increased by 19%, with our efficiency ratio of 49,3% (2000: 50,3%)
breaching the 50% barrier for the first time. This expense increase was
significantly influenced by the new acquisitions, the fully expensed startup
development costs of strategic banking alliances and the costs of offshore
operations converted into depreciated rand. Excluding the acquisitions and
startups, expenditure increased by 12%.
Nedcor supports the introduction of legislation as the best way of achieving
fairness and legal certainty in the division of pension surpluses. The
principles enacted in the Pension Funds Second Amendment Act are in line
with the approach taken by Nedcor in the past, with the exception of the
retrospective aspects of the new legislation. The act is not yet complete
and is without its supporting regulations, and therefore it has not been
possible precisely to evaluate the impact on the surpluses recognised by
Nedcor in the past. Nedcor believes that, because of the conservative
portion of the surplus recognised in prior years, no adjustments will be
necessary.
Taxation
Total taxation increased by 48% to R945m (2000: R638m), including the R171m
(2000: R77m credit) taxes on exceptional capital items. Although offshore
income is increasingly being subjected to South African taxation, higher
levels of dividend and non-taxable income, together with the utilisation of
tax losses, assisted in achieving an effective tax rate of 17,2% (2000:
20,0%).
Equity-accounted income and income attributable to minority shareholders
Equity-accounted income declined by 27% to R181m (2000: R249m). However,
taking into account the fact that Dimension Data earnings are no longer
equity-accounted (2000: R91m), equity-accounted income from other associates
grew by 15%.
In view of the political uncertainty and economic circumstances prevailing
in Zimbabwe, Nedcor has ceased to equity account its 29,3% interest in
Merchant Bank of Central Africa. Nedcor will in future account for income
from this investment only to the extent of dividends received.
Income attributable to minority shareholders grew by 50% to R164m (2000:
R109m) due to strong growth in earnings from Nedcor Investment Bank and the
inclusion, for the first time, of the income attributable to minority
shareholders of Imperial Bank and Gerrard Private Bank.
Exceptional capital items
Exceptional capital items are dominated by the significant fluctuations in
value of the investment in Dimension Data plc. In 2000 a surplus of R3 663m
was recognised on conversion of the holding in unlisted Dimension Data
International Limited into 103m shares in London-listed Dimension Data plc
held on the London register. During 2001, arising from the global contagion
in technology stocks, the value of the Dimension Data investment fell from
R5,2bn to R1,5bn. Nedcor's holding has been written down by R3 298m to the
market price of R14,50 per share as at 31 December 2001, net of translation
gains directly attributable to the Dimension Data investment and the
reversal of the investment incentive bonus provision of R195m created in
2000. Other exceptional capital items include a writedown of R131m in the
value of technology investments following a review of the values of all
strategic technology and other investments.
Segmental reporting
It is pleasing to note the solid growth of 15% in South African operations
to R2 563m (2000: R2 230m).
Retail Banking Division achieved excellent growth of 61% on the back of a
strong performance by the Nedbank brand and the inclusion of FBC Fidelity
Bank for its first full year. Retail made major progress in developing core
competencies and containing expenses growth, while at the same time making
significant investments in client satisfaction processes and new joint-
venture platforms. Retail growth was further boosted by good profits from
Peoples Bank following the acquisition of FBC Fidelity Bank and the merger
with it of the former Peoples Bank Division of Nedcor Bank (still subject to
section 54 approval by the Minister of Finance). In the above merger all
integration processes were smoothly completed during the year and final
agreement was reached with the former shareholders and the SARB.
In commercial banking Nedbank Commercial Division performed satisfactorily
in difficult market conditions, and its Manager Direct product offering
became fully operational. Imperial Bank, which became a 50,1% subsidiary
with effect from 1 January 2001, achieved significant asset growth of 40%
and profit growth of 50%. Cape of Good Hope Bank again performed
consistently and grew by 21% in its specialist markets.
Corporate and investment banking continued to perform well and achieved
overall growth of 20% to R1 299m (2000: R1 082m), representing 34% of
headline earnings. Nedbank Corporate Division has achieved a five-year
compound growth rate of over 20% and enjoyed a high closure rate of
structured deals during the year. Nedcor Investment Bank again performed
well in its specialised markets, producing overall headline earnings growth
of 21%.
International operations performed satisfactorily, considering that the
costs of the Hong Kong branch restructuring and Singapore branch
establishment were fully expensed. The results of Gerrard Private Bank were
included for the first time with effect from 1 June 2001. Excluding
translation gains, Nedcor Bank's international and Africa operations grew by
7%, while Nedcor Investment Bank's profits in its international markets grew
strongly by 42%.
Strategic initiatives and asset growth
Nedcor continues to develop and build on its strategies.
Strategic alliances and channels
To achieve low-cost, quality client growth through alliances with best-of-
breed partners, understanding the need to increase the number of delivery
channels and products available to clients and to improve service quality.
Good progress is being made with the integration of all our strategic
banking alliances, comprising the partnerships with Capital One, Imperial
Bank, JD Group, Old Mutual and Pick 'n Pay.
The proposed merger of Permanent Bank and Old Mutual Bank, which is still
subject to regulatory approval, is an exciting initiative intended to create
a powerful presence in the important middle market. The Peoples Bank
empowerment transaction, whereby 30% of Peoples Bank has been sold to
empowerment groupings for R569m with effect from 1 January 2002, is set to
broaden the sphere of operating activities.
Commercialisation of Technology and Operations
Through continuous process and productivity improvement, to develop a
worldclass capability and capacity to enhance service delivery to clients
and create a recurring, external income stream.
Nedcor is in the process of finalising commercial contract terms for our
first European card-processing transaction. Further opportunities are being
pursued to leverage Nedcor's core processing competence in the international
arena.
Strategic technology investments
To access new intellectual property and gain early insights into new
developments as well as preferential access to new markets through strategic
investments.
Our investments assist in providing the necessary capacity in specialist
skills required to take advantage of opportunities evolving from the
technology and operations commercialisation strategy.
Shareholders' funds and capital adequacy
Shareholders' funds total R15,7bn (2000: R15,8bn) and, together with
subordinated debt instruments of R3,8bn (2000: R0,7bn), represent an overall
capital adequacy of 11,4% (2000: 13,2%), comfortably above the statutory
requirement of 10%. Primary capital stands at 8,6% (2000: 11,5%), well above
the guideline minimum of 7,5%. In 2000 the capital adequacy calculations
were influenced by the unrealised surplus of R3,6bn on the Dimension Data
investment. In September 2001 secondary capital of R2bn was successfully
raised in the markets at good rates, prompted by Nedcor's strong growth in
assets and market share, and consequently optimises the balance of Nedcor's
primary and secondary capital.
Accounting policies
The financial statements are prepared on the historic-cost basis, except for
certain investments that are carried at fair value, and comply in all
material respects with SA GAAP.
The accounting policies applied are consistent with those of the previous
year, except for the adoption of the revised accounting statement on
employee benefits (AC 116) effective from 1 January 2001. In terms of this
statement leave pay provision in respect of past service of employees is
required to be recognised in full. Previously Nedcor's policy was to provide
for the estimated amount of leave that was normally encashed. This change
has been applied retrospectively and the comparative amounts for 2000, as
well as retained earnings for 1999, have been restated.
Prospects
The last two years have seen some important acquisitions and initiatives
that have strengthened our position and offered potential growth
opportunities in various retail banking and technology processing markets.
Our commercial, corporate and investment banking operations are well-
positioned in their respective markets, while the scalable platforms of our
Technology and Operations Division will benefit from volume increases and
external processing revenues. We believe that our strategy offers low-risk
growth opportunities and focuses on markets and initiatives that lie within
our core competencies.
Given continued growth in our core business, improved efficiencies from
technology applications and stable credit and interest rate conditions,
current momentum should contribute to positive results for Nedcor in 2002.
Cash dividend
Notice is hereby given that a final dividend of 310 cents per ordinary share
has been declared in respect of the year ended 31 December 2001.
Trading in the STRATE environment requires settlement within five business
days. In accordance with the settlement procedures of STRATE, Nedcor has
determined the last day for trading to participate in the final dividend to
be Friday, 5 April 2002. The shares will commence trading ex-dividend on
Monday, 8 April 2002, and the record date will be Friday, 12 April 2002.
Payment will be made on Monday, 15 April 2002.
In the case of certificated shareholders the last day to register will be
Friday, 12 April 2002. Certificated shareholders may not dematerialise
their shares between Wednesday, 27 March 2002, and Monday, 15 April 2002.
Dividend cheques will be posted on Monday, 15 April 2002.
For and on behalf of the board
CF Liebenberg RCM Laubscher
Chairman Chief Executive
11 February 2002
Registered office: Nedcor Limited, Nedcor Sandton, 135 Rivonia Road,
Sandown, 2196; PO Box 1144, Johannesburg, 2000
Transfer secretaries: Mercantile Registrars Limited, 11 Diagonal Street,
Johannesburg, 2001; PO Box 1053, Johannesburg, 2000
Directors: CF Liebenberg (Chairman); PG Joubert (Deputy Chairman); RCM
Laubscher (Chief Executive); WAM Clewlow; PTW Curtis; BJS Hore; Prof MM
Katz; MJ Leeming; MJ Levett; JB Magwaza; ME Mkwanazi; E Molobi; SG Morris;
DGS Muller; ML Ndlovu; CC Parker; JVF Roberts (British); AA Routledge; JH
Sutcliffe (British); GS van Niekerk; Dr WP Venter Company Secretary: GS
Nienaber
Reg No: 1966/010630/06 Share code: NED ISIN code:000004875
NEDBANK
PERMANENT BANK
PEOPLES BANK
NEDCOR INVESTMENT BANK
CAPE OF GOOD HOPE BANK
Financial highlights
%
change 2001 2000
Selected returns
Headline earnings (Rm) 26 3 794 3 012
Headline earnings per
share (cents) 25 1 576 1 260
Return on average shareholders'
funds (%) 25,1 24,0
Return on total assets (%) 2,22 2,16
Non-interest revenue to
total income (%)* 52,0 47,6
Efficiency ratio (%)* 49,3 50,3
Net interest income to interest
-earning assets (%) 3,15 3,47
Doubtful-debt provisions to
total advances (%) 3,3 3,5
Balance sheet
Total shareholders' funds (Rm) (1) 15 729 15 838
Deposits, current and other
accounts (Rm) 26 177 160 140 831
Advances and other accounts (Rm) 26 151 329 119 774
Total assets (Rm) 25 197 691 158 259
Capital ratio (%) 11,4 13,2
Capital ratio - tier 1 (%) 8,6 11,5
Share statistics
Number of shares in issue (m) 244,3 242,1
Weighted average number of shares (m) 240,8 239,0
Earnings per share, including
exceptional items (cents) 7 2 659
Fully diluted weighted average number
of shares (m) 242,9 244,2
Diluted headline earnings per
share (cents) 27 1 562 1 233
Dividends per share (cents) 25 500 400
Dividend cover (times) 3,2 3,2
Share price (cents) (27) 12 420 17 100
Price-earnings ratio (historical) 7,9 13,6
Market capitalisation (Rbn) (27) 30,3 41,4
*Excluding exceptional items
Balance sheet
% 2001 2000
change Rm Rm
Assets
Cash and short-term funds (15) 10 978 12 860
Other short-term securities 65 11 372 6 873
Government and public sector
securities 83 12 627 6 886
Advances and other accounts 26 151 329 119 774
Customers' indebtedness
for acceptances 13 973 859
Associate and other investments (32) 5 821 8 518
Fixed property 21 1 392 1 149
Equipment 6 680 644
Intangible assets 79 1 247 696
Goodwill 1 272
Total assets 25 197 691 158 259
Shareholders' funds and liabilities
Share capital 242 240
Reserves 14 606 15 174
Ordinary shareholders' interest (4) 14 848 15 414
Minority shareholders' interest 881 424
Total shareholders' funds (1) 15 729 15 838
Subordinated debt instruments 3 829 731
Deposit, current and
other accounts 26 177 160 140 831
Liabilities under acceptances 13 973 859
Capital, reserves and
liabilities 25 197 691 158 259
Confirmed letters of credit
and other contingent liabilities 9 336 7 150
Guarantees 11 036 8 727
Contingent liabilities 20 372 15 877
Comparative figures are restated, where necessary, to afford a proper
comparison.
Income statement
% 2001 2000
change Rm Rm
Interest income 13 17 186 15 236
Interest expense 13 11 918 10 504
Net interest income 11 5 268 4 732
Non-interest revenue 33 5 709 4 292
Exceptional non-interest revenue 441
Total income 27 11 418 9 024
Specific and general provisions 16 1 058 910
Exceptional general risk provision 400
Net income 23 9 960 8 114
Expenses 19 5 409 4 538
Net operating income
before exceptional
capital items 27 4 551 3 576
Exceptional capital items (3 605) 3 277
Net capital (loss)/profit on
investment in
Dimension Data (3 298) 3 663
Amortisation of goodwill and
investment
writedown/loss (273) (280)
Writedown of fixed assets (34) (106)
Net income before taxation 946 6 853
Taxation (including exceptional taxation
of R171m (2000: (R77m))) 48 945 638
Net income after taxation 1 6 215
Attributable earnings of associates(27) 181 249
Income attributable to minority
shareholders 50 (164) (109)
Income attributable to shareholders 18 6 355
Headline earnings
% 2001 2000
change Rm Rm
Headline earnings after excluding 26 3 794 3 012
Exceptional capital items (3 605) 3 277
Taxation on exceptional capital items (171) 77
Share of exceptional capital items
attributable to minorities (11)
Cash flow statement
2001 2000
Rm Rm
Cash flows from operating activities 5 420 4 373
Cash received from clients 23 270 19 436
Cash paid to clients, employees
and suppliers (16 929) (14 646)
Dividends received 114 96
Dividends paid (1 035) (513)
Net (increase)/decrease in
operating funds (6 492) 4 101
Taxation paid (396) (264)
Net cash utilised in
investing activities (3 065) (3 055)
Net cash provided by
financing activities 2 651 156
Net increase in subordinated debt 2 248 52
Net proceeds of ordinary share
issue/buyback 403 104
Net (decrease)/increase in cash and
short-term funds (1 882) 5 311
Cash and short-term funds at
beginning of year 12 860 7 549
Cash and short-term funds
at end of year 10 978 12 860
Statement of changes in ordinary
shareholders' interest
2001 2000
Rm Rm
Share capital 242 240
Balance at beginning of year 240 237
Issued during the year 2 5
Less: Shares held by subsidiary company (2)
Share premium 1 326 934
Balance at beginning of year 934 833
Issue of shares 448 405
Share issue expenses (9) (3)
Less: Shares held by subsidiary company (47) (301)
Non-distributable reserves 703 516
Balance at beginning of year 516 443
Transfer from distributable reserves 114 254
Foreign currency translation 263 120
Release of reserves previously not available (172) (284)
Other movements (18) (17)
Distributable reserves 12 577 13 724
Balance at beginning of year 13 724 8 248
Change in accounting policy - prior-
year adjustment (127)
Attributable income 18 6 355
Transfer to non-distributable reserves (114) (254)
Dividends paid (1 035) (513)
Other movements (16) 15
Ordinary shareholders' interest 14 848 15 414
Associate and other investments
2001 2000
Rm Rm
Book value 5 821 8 518
Associate investments 1 901 1 457
Other investments 3 920 7 061
Market/Directors' valuation 5 951 9 082
Associate investments 1 912 1 974
Other investments 4 039 7 108
Valuation surplus 130 564
Segmental analysis - headline earnings
% 2001 2000
change Rm % Rm %
By operation
South Africa 15 2 563 67 2 230 74
Retail banking 61 384 10 239 8
Nedbank 24 189 5 153 5
Peoples Bank 127 195 5 86 3
Commercial banking 15 778 21 677 22
Nedbank 8 646 17 598 20
Imperial Bank* 37 1
Cape of Good
Hope Bank 21 95 3 79 2
Corporate and
investment banking 20 1 299 34 1 082 36
Nedbank 25 963 25 768 26
Nedcor Investment
Bank* 7 336 9 314 10
Strategic technology
investments 73 45 1 26 1
Group operations
and internal
funding (72) 57 1 206 7
International
(including Africa) 57 1 231 33 782 26
32 535 15 407 14
Nedcor Bank 7 217 6 203 7
Gerrard Private
Bank* 30 1
Nedcor Investment
Bank* 42 288 8 204
Translation gains** 86 696 18 375 12
26 3 794 100 3 012 100
* Net of minorities
** Less exceptional general risk provision
By geography
South Africa 15 2 563 67 2 230 74
Rest of Africa 13 252 7 224 7
Rest of the world 75 979 26 558 19
26 3 794 100 3 012 100
Capital is allocated to segments based on the related risk-weighted assets
in terms of the Banks Act classifications and weightings. The aspect of
capital allocation and transfer pricing of support costs between segments is
currently under review.
This and additional information is available on our website:www.nedcor.com
