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NEDCOR LIMITED -
Nedcor Limited
(Incorporated in the Republic of South Africa)
Registration number: 1966/010630/06
Share Code:NED
ISIN Code: ZAE000004875
MERGER UPDATE TO 30 JUNE 2003
INTRODUCTION
Nedcor"s strategic intent in its merger with BoE was to lay the foundation for
future earnings growth by consolidating market shares and leveraging off its
technology platform. Nedcor also used the opportunity to consolidate its
organisational and regulatory structure and rationalise its brands.
Management is pleased with the overall progress that the Group is making and
confident of achieving the financial targets that were set for the merger:
R660million of operational synergies over and above the capital and funding
efficiencies already achieved. Synergy benefits (on an annualised basis) of
R190 million have been implemented relative to a forecast of R90 million for the
half year to June 2003. This translates to a R69 million (R62 million cost
reduction and R7 million increase in income) merger benefits for the half year.
The once off merger costs are projected to exceed the initial target of R710m by
R158m. These costs are now projected to be higher than original projections
mainly due to the complexity of migration initiatives to minimise customer
impact. The achievement of synergy benefits can be accelerated by investing
more by way of once-off merger costs, so this will be done in the second half of
this year
Progress to date indicates that the group is likely to meet the synergy targets
and in a number of areas it is achieving these synergies earlier than initially
expected. The detailed plans for the key initiatives are being rigorously
monitored and tracked, and are generally on target or ahead of initial targets.
MERGER PROCESS AND KEY FEATURES
The process follows a structured approach as the group is implementing a complex
merger while at the same time ensuring continuity of service to customers.
During the merger and restructuring (M&R) process Nedcor will continue to
service its customers to the highest standards possible and to keep staff
disruption to a minimum.
Key features of the merger planning process are the detailed tracking and
measurement of all processes including 111 merger initiatives, the adherence to
sound governance standards and the auditing of all activities to ensure proper
reporting.
The merger also follows a logical sequence with divisions having being selected
for conversion priority depending on the functions they perform, the complexity
of the conversions and dependencies on other divisions.
MILESTONES
The merger and restructuring (M&R) activities that have to a large extent been
completed are:
* the "legal day one" process - where the banking licences of Nedbank, BoE, Cape
of Good Hope Bank (CoGHB), Nedcor Investment Bank (NIB) and Peoples Bank were
consolidated into two licences and the banks formally merged - went according to
plan;
* the first three business unit integrations: the treasuries of Nedbank, CoGHB,
NIB and BoE; the transfer of retail clients within CoGHB; and, the integration
of the capital markets division;
* the group risk management processes have been consolidated; and
* the merger support infrastructure was put in place to ensure fair and proper
processes were implemented from a human resources perspective, that adequate
communication was provided to staff and customers, financial information was
available and the customer migration processes were in place.
FINANCIAL EFFECT
The table below illustrates value estimated to be added through the merger
process relative to the baseline set in 2002 (note these are not income
statement effects but estimates of value added in 2002 Rand terms):
MERGER VALUE ADDED (R"M ANNUALISED RUN
RATE)
2002 2003 2004 2005
Stea
*Pl Actu Pla F/ca Pla F/c Pla F/c dy
an al n st n ast n ast Stat
e
- - 90 293 400 563 660 638 660
Operational
synergies
30 30 125 125 125 125 125 125 125
Funding
efficiency
Note 1
30 30 120 120 120 120 120 120 120
Capital
efficiency
Note 2
(10 (91) (22 (436 (17 (34 (21 - -
Once-off 0) 5) ) 5) 1) 0)
costs
Note 3
(40 (31) 110 102 470 467 695 883 905
Total )
value added
*The original forecasts are depicted in the columns marked `Plan"
Note 1 Funding efficiency arises from the fact that at the time of the
merger, BoE was paying approximately an aggregate of 25 basis points for
liabilities over Nedbank"s funding rate. This funding premium has been
eliminated subsequent to the merger.
Note 2 R4 billion of the acquisition price was financed with debt at an after
tax cost of 9.5%, relative to BoE"s earnings yield at the time of the
acquisition of 12,5%. The acquired earnings therefore exceeded the cost of the
capital deployed
Note 3 Once-off costs are being incurred quicker than anticipated because the
merger is being implemented ahead of schedule. There are no once off merger
costs anticipated for 2005.
The proforma impact on Nedcor"s income statement for the six months to June 2003
is as follows:
PRO FORMA MERGER BASELINE IMPACT FOR SIX MONTHS TO JUNE 2003
R m
Nedcor Operating expenses for Nedcor (6months to 2 962
cost 30 June 2002)
baseli 1 320
ne Operating expenses for BoE (6months to 30
(2002) June 2002) (80)
Less: adjustment for expense reduction
due to disposal of NBS mortgage book
Pro forma pre-tax expenses 2002 4 202
Pro Inflation on expenses (9%) 378
forma
cost Merger savings (6 months to 30 June 2003) (62)
adjust
ments
(2003)
Core expenses - June 2003 4 518
Merger and re-organisation costs (6 months 133
to June 2003)
Cost included in headline earnings - June 4 651
2003
Sandton
23 July 2003
Date: 23/07/2003 09:30:11 AM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department
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