| Tue 30 Jul 2002, 0:00 | | Nedcor Limited - Interim Results |
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Nedcor Limited - Interim Results
INTERIM results for the six months ended 30 June 2002
* Headline earnings up 3% to R1 524 million
* Core earnings up 18% to R1 560 million
* Advances growth 14%
* Return on equity 20,9%
* Return on assets 1,70%
* Efficiency ratio 53,4%
Nedcor reports 3% growth in headline earnings, 18% growth in core earnings
Following the most turbulent and unsettled period in recent South African
banking industry history, during which some banks experienced significant
stress, others cancelled their banking licences and the sector was put under
scrutiny in the Myburgh Commission to determine its role in the volatile
rand exchange rate movements, the recent return to stability is indeed
welcome. Nedcor is delighted to have made a significant contribution towards
this return to stability in the banking sector by successfully concluding
our merger with BoE Limited with effect from 2 July 2002.
In these difficult market circumstances we are pleased with the results for
the six months ended 30 June 2002. Nedcor performed well at core level,
while the development of key acquisitions and alliances continued, although
some are still to contribute to profits. Core earnings, excluding all
translation gains/losses and exceptional general risk provision movements,
grew by 18% to R1 560m (2001 - R1 317m), comprising a solid 21% growth in
South African operations and 8% growth in international operations.
Commentary on results
Nedcor`s headline earnings were again significantly influenced by the
volatility in the rand exchange rate, with the large translation gains of
last year becoming translation losses this year.
Notwithstanding this, headline earnings grew by 3% to R1 524m (2001 - R1
485m), including translation losses of R436m (2001 - translation profits of
R168m), but offset by the release of the R400m exceptional general risk
provision prudently raised at 31 December 2001. An interim dividend of 205
cps (2001 - 190 cps) has been declared at a dividend cover of 3,1 times
(2001 - 3,2 times). Return on equity decreased to 20,9% (2001 - 21,5%) and
return on assets declined to 1,70% (2001 - 1,91%).
Advances and net interest income
Total advances grew by 14% despite a reduction of R7bn in rand-translated
offshore advances. Net interest income grew by a more muted 10%. This
resulted from continuing pressure on margins by virtue of the liquidity
squeeze that occurred during the period of market turbulence, and from lower
endowment income due to a further investment in Imperial Bank and other
alliances, cash dividends paid and share buyback activity. The absolute
interest margin declined by 0,31% to 3,05%, but recent signs indicate that
the margin declines of the last few years may be levelling out.
Non-interest revenue
Non-interest revenue, excluding translation gains and exceptional items,
grew strongly by 26% to R2 690m (2001 - R2 141m). The foundation for this
increase was pleasing volume-driven growth of 16% in commission and fees to
R1 761m (2001 - R1 520m), supplemented by good growth in bancassurance
revenues and trading income derived from exchange and securities dealing.
Translation gains
In 2001 the substantial decline in the value of the rand exchange rate
resulted in translation gains totalling R1 096m from integrated operations
accruing to earnings for the full year, of which R168m accrued in the first
six months. Of the full year`s total gain, R655m was treated as a `normal`
accrual to earnings, representing that portion of translation gains
attributable to the rand`s depreciation to a `normalised` rate of R10 to the
US$ in terms of a rand depreciation trendline. The remaining translation
gain of R441m was treated as exceptional depicting the `abnormal` spike,
during December 2001, of the rand`s depreciation between R10 and the rate of
R12,05 to the US$ ruling at 31 December 2001.
In 2002, with the strengthening of the rand exchange rate to R10,23 to the
US$ at 30 June 2002 and its return towards the trendline, the resultant
reciprocal translation loss of R436m for the six months ended 30 June 2002
has also been treated as exceptional.
In addition, translation losses of R20m (2001 - gains of R29m) resulting
from conversion of non-integrated foreign entities have been taken directly
to reserves.
Specific and general risk provisions
The credit climate held steady during 2002, despite increased interest
rates, and the arrears trend has again shown an improvement. Nedcor is
cognisant, however, of the need to continue to adopt a conservative
provisioning policy and the income statement provision increase of 13%
corresponds to advances growth of 14%. Non-performing loans represent 4,4%
(2001 - 4,7%) of total advances, and net provision coverage, after allowing
for expected recoveries, remains conservative at 138% (2001 - 140%).
At 31 December 2001, as a consequence of the substantial depreciation in the
value of the rand and the then prevailing uncertain business environment,
the general risk provision was prudently supplemented by R400m to cover
unidentified but inherent risks that may have resulted from these
exceptional events. This provision has been reversed in full at 30 June
2002, given that the rand has strengthened, business confidence indices have
improved, South African economic conditions have stablilised, with benefit
to the banking sector, and the absolute translated rand value of offshore
exposures has reduced by R7bn.
Nedcor`s exposure in microlending, and to retailers active in microlending,
continues to be closely monitored, as this sector has clearly experienced
stressful times. Our unsecured exposures of R631m to the microloan industry
represent only 0,4% of total advances and stringent credit control and
dynamic provisioning policies are in place.
Expenses
Expenses, including the fully expensed startup and development costs of
banking alliances, increased by 16%, with our efficiency ratio receding to
53,4% (2001 - 51,9%). Nedcor`s target of a sustained efficiency ratio below
50% remains intact.
Taxation
Taxation, excluding taxation on exceptional items, remained constant at
R404m (2001 - R402m), the effective rate of taxation being assisted
primarily by the release of the exceptional general risk provision and by
the utilisation of tax losses.
Equity-accounted income and income attributable to minority shareholders
Equity-accounted income of R92m (2001 - R100m) declined mainly due to the
sale of former associate NedTel Cellular in the second half of 2001. The
discontinuation, with effect from 1 July 2001, of equity-accounting Nedcor`s
Zimbabwean associate, Merchant Bank of Central Africa, also contributed to
the decline in equity-accounted income. Income from Zimbabwe is now
accounted for only on a cash-received basis. Income attributable to minority
shareholders, at R153m (2001 - R82m), almost doubled following the
consolidation of Gerrard Private Bank for a full six-month period (2001 -
one month only) and the first-time inclusion of the 30% Peoples Bank
minority interest with effect from 1 January 2002.
Exceptional capital items
The market value of Nedcor`s investment of 103 million shares in Dimension
Data plc, listed on the London Stock Exchange, has declined further and has
been marked to market at its 30 June 2002 price of R6,45 per share, down
from R14,50 at 31 December 2001. The net write-down of R690m after taxation
includes related translation losses and the release of a deferred tax credit
of R140m provided last year against corresponding translation gains.
Segmental reporting
It is pleasing to note the solid profit growth of 21% in South African
operations to R1 283m (2001 - R1 060m), while international operations,
including Africa, but excluding translation gains/losses and movements in
the exceptional general risk provision, grew by a more modest 8%.
Retail banking achieved excellent growth of 95% to R209m (2001 - R107m),
with strong performances from Nedbank and Peoples Bank. Commercial banking
grew well by 20% to R416m (2001 - R348m), with good contributions from
Nedbank, Imperial Bank and Cape of Good Hope Bank, while corporate and
investment banking grew steadily by 13% to R655m (2001 - R578m).
International operations were influenced by exchange rate movements, but
nevertheless saw good performances from Gerrard Private Bank and Nedcor
Investment Bank.
Shareholders` funds and capital adequacy
Shareholders` funds grew to R16 611m (2001 - R13 601m), notwithstanding the
further writedown of the investment in Dimension Data plc and translation
losses. Together with subordinated debt instruments of R3 100m (2001 - R1
534m), total capital stands at R19 711m (2001 - R15 135m). The overall
capital adequacy ratio is 11,2% (2001 - 11,1%), comfortably above the
statutory requirement of 10%. Primary capital stands at 9,0% (2001 - 9,5%).
Accounting policies
The interim financial statements are prepared in accordance with `AC 127 -
Interim Financial Reporting` and comply with SA GAAP in all material
respects. The financial statements are prepared on the historic-cost basis,
except for certain investments that are carried at fair value. The
accounting policies applied are consistent with those of the audited
financial statements for the previous year.
Strategic initiatives
In addition to the merger with BoE, Nedcor continues to develop and invest
in its key growth strategies.
Nedcor`s stated strategic objective in recent years has been to achieve low-
cost, quality client growth organically and through alliances with best-of-
breed partners so as to increase the number of delivery channels and
products available to clients, improve service quality and increase volume
throughput into scalable technology platforms.
Good progress continues to be made with the integration of our banking
alliances. These comprise the partnerships with Capital One, Gerrard Private
Bank, Imperial Bank, JD Group, Old Mutual (in respect of which the proposed
merger of Permanent Bank and Old Mutual Bank is still subject to regulatory
approval), Pick `n Pay and the empowerment groupings in Peoples Bank. Over
the past five years our strategy has enabled us to increase our domestic
market share in total banking assets from 15,7% to 18,3% prior to the merger
with BoE, and to 23,3% including BoE.
We are excited to have the leading market position that we now enjoy, while
retaining the potential future benefits from our alliances. This bodes well
for Nedcor`s future market presence.
Another strategic objective is to leverage Nedcor`s core processing
competence in the international arena and so create a recurring low-risk
external income stream. Good progress has been made and the Swisscard
outsourcing contract successfully reached another critical milestone during
the period.
The merger with BoE was the most significant event for Nedcor in the recent
past. All requirements and conditions precedent relating to the merger were
successfully met, and BoE Limited became a wholly owned subsidiary of Nedcor
with effect from 2 July 2002. This followed unanimous BoE management and
board support, and 98% shareholder support, for Nedcor`s R7,5bn offer, which
was partly funded from the raising in July of South Africa`s largest private
sector bond issue of R4bn. The merger with BoE fits ideally into Nedcor`s
growth strategy and most of BoE`s business units align well with those of
Nedcor. In addition, Nedcor`s scalable technology platforms will benefit
from the volume increases introduced by BoE, and there is potential for
significant cost synergies from the merging of duplicated services.
The merger with BoE is also the catalyst for achieving a Nedcor groupwide
restructure and realignment. Management is highly cognisant of the
integration risks flowing from the merger and has reorganised
responsibilities and resources to ensure that some are dedicated solely to
the merger process, while most continue to devote their full attention to
ongoing operations. Integration milestones are being set and will be
announced to the market in the near future.
Proposed offer to the minority shareholders in Nedcor Investment Bank
Holdings Limited (NIBH)
As previously announced, Nedcor intends to make a formal proposal to the
NIBH Board of Directors to secure its support for an offer to acquire the
minority shares in NIBH. The offer, which will be in the form of an exchange
ratio of Nedcor shares for shares in NIBH, will - if supported by the NIBH
Board - be announced during the week commencing Monday, 5 August 2002.
Prospects
The solid performance of Nedcor`s core businesses positions us well for the
future, given an improving South African environment and the long- awaited
arrest in the decline in interest margins of the last few years. The BoE
merger is being optimally structured to enhance these prospects.
Following many years of significant technology investment, the merger with
BoE provides the enlarged Nedcor Group with even better opportunities for
leveraging advantages of scale to increase efficiencies and reduce costs.
Furthermore, offshore processing is poised to build its contribution of
recurring income to meaningful levels over the medium to long term.
Nedcor`s strategy and alliances have assisted us in gaining market share in
recent years. This will now be augmented by the addition of BoE products.
The key to this, however, is outstanding client service, and the recently
announced operational structure should allow Nedcor to become a group truly
focused on and built around the client.
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 and alliances, stable credit and
interest rate conditions and a successful integration with BoE, Nedcor
anticipates positive results for the remainder of 2002 and beyond.
Dividend
Notice is hereby given that an interim dividend of 205 cents per ordinary
share has been declared in respect of the six months ended 30 June 2002.
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 interim dividend
to be Friday, 6 September 2002. The shares will commence trading ex dividend
on Monday, 9 September 2002, and the record date will be Friday, 13
September 2002. Payment will be made on Monday, 16 September 2002.
Certificated shareholders may not dematerialise their shares between Monday,
9 September 2002, and Friday, 13 September 2002.
For and on behalf of the board
CF Liebenberg RCM Laubscher
Chairman Chief Executive
29 July 2002
Registered office
Nedcor Limited, Nedcor Sandton, 135 Rivonia Road, Sandown, 2196; PO Box
1144, Johannesburg, 2000
Transfer secretaries
Computershare Investor Services 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 Levett; JB
Magwaza; ME Mkwanazi; E Molobi; SG Morris; DGS Muller; ML Ndlovu; TH
Nyasulu; 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: ZAE000004875
This and additional information is available on our website: www.nedcor.com
Nedbank Logo Cape of Good Hope Bank logo Nedcor Investment Bank logo
Peoples Bank Logo Permanent Bank logo
Financial highlights
% June June Dec
change 2002* 2001* 2001+
Selected returns
Headline earnings (Rm) 3 1 524 1 485 3 794
Headline earnings per share 2 630 619 1 576
(cents)
Core earnings (Rm)? 18 1 560 1 317 3 098
Core earnings per share 17 645 549 1 287
(cents)?
Return on average shareholders`
funds (%) 20,9 21,5 25,1
Return on total assets (%) 1,70 1,91 2,22
Non-interest revenue to
total income (%)** 48,5 47,0 52,0
Efficiency ratio (%)** 53,4 51,9 49,3
Net interest income to interest-
earning assets (%) 3,05 3,36 3,15
Doubtful-debt provisions to
total advances (%) 3,0 3,4 3,3
Balance sheet
Total shareholders` funds (Rm) 22 16 611 13 601 15 729
Deposits, current and other
accounts (Rm) 15 179 946 157 141 177 160
Advances and other accounts 14 153 895 135 390 151 329
(Rm)
Total assets (Rm) 16 200 727 173 012 197 691
Capital ratio (%) 11,2 11,1 11,4
Capital ratio - tier 1 (%) 9,0 9,5 8,6
Share statistics
Number of shares in issue (m) 246,9 241,3 244,3
Weighted average number of
shares (m) 241,9 240,0 240,8
Earnings per share, including
exceptional items (cents) 305 (846) 8
Fully diluted weighted average
number of shares (m) 242,9 244,1 242,9
Diluted headline earnings
per share (cents) 3 627 608 1 562
Dividends per share (cents) 8 205 190 500
Dividend cover (times) 3,1 3,2 3,2
Share price (cents) (26) 11 700 15 800 12 420
Price-earnings ratio 7,4 11,5 7,9
(historical)
Market capitalisation (Rbn) (25) 28,9 38,5 30,3
* Unaudited results for the six months ended 30 June 2002
+ Audited results for the year ended 31 December 2001
** Excludes exceptional translation (losses)/gains
? Core earnings exclude translation (losses)/gains and all exceptional items
Balance sheet
% June June Dec
2002* 2001* 2001+
change Rm Rm Rm
Assets
Cash and short-term funds 4 15 221 14 699 10 978
Other short-term securities 31 9 210 7 034 11 372
Government and public sector
securities 63 11 448 7 022 12 627
Advances and other accounts 14 153 895 135 079 151 329
Customers` indebtedness
for acceptances 45 1 070 736 973
Associate and other (3) 5 056 5 215 5 821
investments
Fixed property (1) 1 326 1 343 1 392
Equipment 18 712 605 680
Intangible assets 58 1 331 840 1 247
Goodwill 232 1 458 439 1 272
Total assets 16 200 727 173 012 197 691
Shareholders` funds and
liabilities
Share capital 243 241 242
Reserves 14 848 12 711 14 606
Ordinary shareholders` 17 15 091 12 952 14 848
interest
Minority shareholders` 134 1 520 649 881
interest
Total shareholders` funds 22 16 611 13 601 15 729
Subordinated debt instruments 102 3 100 1 534 3 829
Deposit, current and other 15 179 946 157 141 177 160
accounts
Liabilities under acceptances 45 1 070 736 973
Capital, reserves and 16 200 727 173 012 197 691
liabilities
Confirmed letters of credit
and other contingent 7 951 6 964 9 336
liabilities
Guarantees 10 161 8 683 11 036
Contingent liabilities 16 18 112 15 647 20 372
Income statement
% June June Dec
change 2002* 2001* 2001+
Rm Rm Rm
Interest income 11 9 575 8 610 17 186
Interest expense 12 6 718 6 006 11 918
Net interest income 10 2 857 2 604 5 268
Non-interest revenue 26 2 690 2 141 5 054
Translation (losses)/gains (436) 168 1 096
`Normalised` 168 655
Exceptional (436) 441
Total income 4 5 111 4 913 11 418
Specific and general provisions 13 560 494 1 058
Exceptional general risk (400) 400
provision
Net income 12 4 951 4 419 9 960
Expenses 16 2 962 2 550 5 409
Net operating income before
exceptional capital items 6 1 989 1 869 4 551
Exceptional capital items (926) (3 515) (3 605)
Net capital loss on investment
in Dimension Data (830) (3 467) (3 298)
Amortisation of goodwill and
investment writedown/loss (96) (48) (273)
Writedown of fixed assets (34)
Net income before taxation 1 063 (1 646) 946
Taxation - 404 402 774
Taxation on exceptional capital (140) 171
items
Net income after taxation 799 (2 048) 1
Attributable earnings of (8) 92 100 181
associates
Income attributable to minority
shareholders 87 (153) (82) (164)
Income attributable to 738 (2 030) 18
shareholders
Headline earnings
Income attributable to 738 (2 030) 18
shareholders
Add back:
Exceptional capital items 926 3 515 3 605
Taxation: exceptional capital (140) 171
items
Headline earnings 3 1 524 1 485 3 794
Core earnings
Headline earnings 1 524 1 485 3 794
Exclude:
Translation losses/(gains) 436 (168) (1 096)
Exceptional general risk (400) 400
provision
Core earnings 18 1 560 1 317 3 098
Cash flow statement
June 2002* June 2001* Dec 2001+
Rm Rm Rm
Cash flows from operating 1 548 2 052 5 420
activities
Cash received from clients 11 528 10 918 23 270
Cash paid to clients,
employees
and suppliers (9 297) (8 353) (16 929)
Dividends received 65 65 114
Dividends paid (748) (578) (1 035)
Net decrease/(increase) in
operating funds 3 389 725 (6 492)
Taxation paid (311) (150) (396)
Net cash utilised in investing (237) (886) (3 065)
activities
Net cash provided by financing (146) 98 2 651
activities
Net increase in subordinated (729) (47) 2 248
debt
Net proceeds of ordinary
shares
issued/buyback 583 145 403
Net increase/(decrease) in cash
and
short-term funds 4 243 1 839 (1 882)
Cash and short-term funds at
beginning of year 10 978 12 860 12 860
Cash and short-term funds at 15 221 14 699 10 978
end of year
Associate and other
investments
June 2002* June 2001* Dec 2001+
Rm Rm Rm
Book value 5 056 5 215 5 821
Associate investments 1 746 1 612 1 901
Other investments 3 310 3 603 3 920
Market/Directors` 5 233 5 455 5 951
valuation
Associate investments 1 796 1 811 1 912
Other investments 3 437 3 644 4 039
Valuation surplus 177 240 130
Statement of change in ordinary
shareholders` interest
June 2002* June 2001* Dec 2001+
Rm Rm Rm
Share capital 243 241 242
Balance at beginning of 242 240 240
year
Issued during the year 2 1 2
Less: shares held by (1)
subsidiary company
Share premium 1 904 1 075 1 326
Balance at beginning of 1 326 934 934
year
Issue of shares 726 188 448
Share issue expenses (9)
Less: shares held by (148) (47) (47)
subsidiary company
Non-distributable reserves 634 512 703
Balance at beginning of 703 516 516
year
Transfer from 262 112 114
distributable reserves
Foreign currency (20) 29 263
translation reserves
Release of reserves
previously
not available (306) (112) (172)
Other movements (5) (33) (18)
Distributable reserves 12 310 11 124 12 577
Balance at beginning of 12 577 13 866 13 724
year
Attributable income 738 (2 030) 18
Transfer to non- (262) (112) (114)
distributable reserves
Dividends paid (748) (578) (1 035)
Other movements 5 (22) (16)
Ordinary shareholders` 15 091 12 952 14 848
interest
Segmental analysis - headline earnings
% June 2002* June 2001* Dec 2001+
change Rm % Rm % Rm %
By operation
South Africa 21 1 283 83 1 060 81 2 563 83
Retail banking 95 209 14 107 8 384 13
Nedbank 91 6 15 1 189 6
Peoples Bank 118 8 92 7 195 7
Commercial banking 20 416 27 348 27 778 25
Nedbank 340 22 285 22 646 21
Imperial Bank 26 2 20 2 37 1
Cape of Good Hope Bank 50 3 43 3 95 3
Corporate and investment
banking 13 655 42 578 44 1 299 42
Nedbank 470 30 429 33 963 31
Nedcor Investment Bank 185 12 149 11 336 11
Technology and operations
investments 40 (42) (3) (30) (2) 45 1
Internal funding and
group operations (21) 45 3 57 4 57 2
International
(including Africa) 8 277 17 257 19 535 17
Nedcor Bank 65 4 85 6 217 7
Gerrard Private Bank 24 1 5 30 1
Nedcor Investment Bank 188 12 167 13 288 9
Core earnings 18 1 560 100 1 317 100 3 098 100
Translation (losses)/gains
and exceptional provision (36) 168 696
Headline earnings 3 1 524 1 485 3 794
By geography
South Africa 21 1 283 83 1 060 81 2 563 83
Rest of Africa (22) 91 5 116 8 252 8
Rest of the world 32 186 12 141 11 283 9
Core earnings 18 1 560 100 1 317 100 3 098 100
Translation (losses)/gains
and exceptional provision (36) 168 696
Headline earnings 3 1 524 1 485 3 794
Net of minorities
The segmental analysis is primarily based on management operating reports
and ignores boundaries of the legal entities.
Comparative figures are restated, where necessary, to afford a proper
comparison. Capital is allocated to segments based on the related risk-
weighted assets in terms of the Banks Act classifications and weightings.
The aspects of capital allocation and transfer pricing of support costs
between segments are under regular review.
Alliances
Capital One Logo Gerrard Private Bank Logo Imperial Bank Logo JD Group
logo Old Mutual logo Pick`n Pay Go Banking Logo
Graphicor 27255
Date: 30/07/2002 10:03:45 AM Produced by the JSE SENS Department
