| Tue 29 Jul 2003, 10:18 | | Nedcor Limited - Interim Financial Results for the |
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Nedcor Limited
(Incorporated in the Republic of South Africa)
Registration number: 1966/010630/06
Share Code: NED
ISIN Code: ZAE000004875
- Core earnings down 2% to R1 530 million
- Return on equity 18,5%
- Return on assets 1,20%
- Efficiency ratio 59,0%
Interim Financial Results
for the six months ended 30 June 2003
Changes in composition of group and in basis of accounting
BoE Limited (BoE) was acquired with effect from 1 July 2002 and the outstanding
Nedcor Investment Bank Holdings Limited (NIB) minorities from 1 October 2002. In
addition, in accordance with South African Generally Accepted Accounting
Practice, Nedcor is required to adopt the complex accounting standard AC133
`Financial instruments: Recognition and Measurement" with effect from 1 January
2003. This is a significant change in the basis of accounting for the banking
industry. AC133 is a prospective statement, which means that historical figures
are not adjusted to the new basis of accounting. Instead, adjustments to
determine the new equity and asset and liability base are dealt with as opening
transitional adjustments in retained earnings.
These structural and accounting policy changes mean that the statutory results
for the six months ended 30 June 2002 and 2003 are not comparable, as the 2002
figures do not include BoE and those for 2003 are prepared on the AC133 basis of
accounting.
Information is presented in accordance with SA GAAP and reflects the impact of
AC133 on the current period"s results. In order to assist in an assessment of
Nedcor"s performance over the past six months, the commentary below seeks to
provide insight into the relative operational performance of the two periods.
Further operational information is provided on our website at www.nedcor.com.
Earnings for the period
Core earnings attributable to Nedcor shareholders for the six months ended 30
June 2003 were R1 530 million on an AC133 basis of accounting. These core
earnings benefited from the application of AC133 to the extent of R326 million,
meaning that core earnings attributable to Nedcor ordinary shareholders on a pre
AC133 basis were R1 204 million. In 2002 core earnings attributable to Nedcor
ordinary shareholders were R1 560 million based on the previous accounting
policies. After deducting net translation losses and once-off merger and
reorganisation costs totalling R869 million (2002: R36 million), headline
earnings in 2003 were R661 million on an AC133 basis (2002: R1 524 million on
the previous accounting basis).
The above earnings represent core earnings per share of 565 cents (2002: 645
cents) and headline earnings of 244 cents (2002: 630 cents). Explanations for
these changes in earnings are provided in the commentary below. The interim
results are lower than were hoped for, as was alluded to in the recent trading
update, but the group remains solidly profitable, with a substantial, well-
provisioned balance sheet with assets of R316 billion.
Merger and reorganization
The results for the six months to 30 June 2003 should be viewed in the context
of the Nedcor Group being in the process of implementing one of the biggest and
most complex banking mergers in South African history. The merger involves the
integration of the operations of BoE, NIB and Cape of Good Hope Bank Limited
(CoGHB) into Nedbank Limited, with some divisions of BoE going into Peoples Bank
Limited. The legal consolidation of banking licences took place on 1 January
2003 and at the same time the business operations were reshaped into new
business clusters.
Our focus over this reporting period has been on the group"s merger and
integration, and on speeding up the process to realise the synergies at the
earliest date. We have started to see the early benefits from the merger, but
they will be fully evidenced only in the years ahead. In the past six months we
have focused on client retention, client service, cost containment and settling
staff into their new roles in the merged group.
Economic conditions
The first half of 2003 continued to present a challenging operating climate,
with slowing GDP growth, reducing inflation, high domestic interest rates and an
uncertain international environment. The rand continued to strengthen, but was
somewhat volatile during the period. Equity markets were weak, both globally and
domestically, although some improvement has been evident since the end of the
Iraqi war - which provides some hope to pressurised investment banking and
wealth management activities. In this general economic environment underlying
demand for credit nevertheless remained relatively healthy, encouraged by the
June interest rate cut of 1,5% and the prospect of further rate cuts.
Nedcor"s performance
As highlighted in the trading update of 15 May 2003, these current economic
conditions, together with the fact that we were implementing a complex merger
process, affected Nedcor"s revenue during the period. A primary contributor to
the results is a decline in total revenue due to pressure on interest margins as
well as lower investment banking and wealth management revenues. In addition,
the stronger average value of the rand, compared with the same period last year,
diminished the rand value of international earnings.
The bad-debt charge improved, while expenses were well-contained. The gearing
impact (with expenses growing and revenue declining) created a reduction in
profit before taxation, which, after an increase in taxation, resulted in profit
after taxation being lower on a comparable basis. A drop in associate income and
an increase in minority shareholders" interests, due to the dividends payable on
the new preference shares resulted in comparable core earnings attributable to
ordinary shareholders being 29% lower.
- Divisional overview
We are pleased that several major divisions have performed well over the period.
Corporate, Business Banking, Property and Asset Finance, Imperial Bank, Nedbank
Retail and Treasury Trading all had sound performances. Investment banking and
advisory earnings were disappointing, although they were coming off a high base
(BoE and NIB having conducted several large deals during the same period last
year). Since 30 June 2003 several large deals have been concluded, which
resulted in an improvement in this area. Unfortunately, wealth management
earnings were down due to the tough investment markets and the relative strength
of the rand during the period. Peoples Bank results are lower than last year due
to challenging market circumstances and an increase in its effective tax rate.
- Advances and net interest income
Advances grew by 5% over the comparable portfolio of advances at 30 June 2002,
while net interest income grew at a lower rate. Overall the group"s market share
has increased marginally during the past year, and the fact that our market
shares have held in most business areas is an important indicator of client
support.
A key issue that has impacted earnings is the group"s funding cost, which was
negatively affected when the group took over BoE in the midst of its liquidity
crisis. The group has normalised the BoE funding cost and repaid all of its
liquidity support funding, but in the process has lengthened the term profile of
the funding book and consequently experienced a slightly higher cost of funding
for the group as a whole. With continued sound deposit flows currently being
experienced, we are confident that Nedcor"s overall funding cost will reduce
over time and therefore also restore earnings growth.
- Non-interest revenue
Comparable commission and fee income declined by 3% (after adjusting for the
loss of transactional income in BoE following the sale of the NBS mortgage book
on 31 March 2002), due to some large fees earned in 2002 not being repeated in
2003. Exchange and securities dealing income increased by 2% on a comparable
basis, while investment banking income was lower due to some large NIB and BoE
deals in 2002 not being repeated in 2003. Wealth management income was
negatively affected by the general decline in equity markets and investment
flows, as well as the relative strength of the rand, which impacted the
division"s international earnings. The growth in bancassurance revenues, from a
low base, continues to be a focus area.
- Specific and portfolio impairments against loans and advances
Credit quality, including unsecured microloans, has been satisfactory despite
the environment of high interest rates, and the comparable income statement
charge for advances impairments has declined. Prior to the adoption of the AC133
credit impairment methodology the "legal certainty" provisioning methodology was
applied in certain segments of Nedbank"s business, entailing a deferred
recognition of provisions but a corresponding increase in pressure to collect
non-performing advances.
The adoption of the AC133 cash flow valuation methodology has resulted in the
creation of R585 million in additional specific impairments due to an
acceleration of the recognition of impairments, compared with the `legal
certainty" methodology. This timing acceleration represents approximately six
months" impairments. In addition, specific impairments now include a discount
factor to reduce advances to the present value of expected future cash flows.
Impairment of advances calculated under the AC133 methodology now represent
approximately 3,3% of total advances (excluding gross-up of derivatives),
compared with 2,9% calculated under the previous provisioning methodology, and
the book is considered to be conservatively adjusted for impairments.
The high level of non-performing loans, which include the legacy of some
acquired businesses, continues to receive attention. Net non-performing loans,
after impairments, represent 1,7% (31 December 2002: 1,8%) of total advances and
the net impairment coverage is conservative at 152% (31 December 2002: 157%).
Nedcor has continued to adopt a cautious approach to microlending and does not
have a large exposure to this market. The risk is shared with our alliance
partners. Unsecured microloan exposures of R768 represent only 0,3% of total
advances, while total impairments stand at 42% (31 December 2002: 34%).
- Expenses
After adjusting for the expense base of the NBS mortgage business sold by BoE on
31 March 2002 expenses increased by 7% on a comparable basis and by 10%
including the once-off merger and reorganisation costs of R134 million. Staff
expenses, which comprise approximately 50% of total expenses, have shown only
marginal growth due to the decline in total headcount numbers to 24 580 (2002:
25 700). Non-staff expenses have grown overall at a rate above inflation, but
include items such as additional depreciation of R48 on new projects
commissioned. Expenses include synergy benefits of R62 million, which are
expected to grow in future periods.
Overall expense growth has been contained at 7% and the current cost-to-income
ratio on an AC133 basis is 59,0% due to lower gross operating income. The ratio
on a comparable basis is 63,5% (2002: 53,4%, but
58,5% if BoE figures are added). Stringent cost control measures are in place to
reduce this ratio to former levels.
- Exceptional capital items
The market value of Nedcor"s investment of 103 million shares in Dimension Data
plc has been marked-to-market at its 30 June 2003 price of R2,70 per share (31
December 2002: R4,02 per share), resulting in an exceptional charge of R84
million. The charge of R209 million for the amortisation of goodwill relates
primarily to the goodwill arising on the acquisition of BoE.
- Taxation
The comparable effective tax rate has increased to 25% (2002: 20%), as the
significant benefit of assessed losses last year has declined and the tax net
has widened to include more foreign taxable income.
- Equity-accounted income and income attributable to minority shareholders
Comparable attributable earnings of associates have declined by 25% due mainly
to the negative impact of the strengthening rand on the translated earnings of
foreign associates.
The preference dividends of R133 million payable in respect of the six months to
30 June 2003 on the non-cumulative, non-redeemable preference share capital of
R2 billion raised in December 2002 are included in income attributable to
minority shareholders.
- Foreign exchange translation losses
The strengthening of the rand has negatively affected Nedcor"s results in three
ways. Firstly, core earnings were reduced by R109 million due to the lower rand
value of translated international earnings. Secondly, it impacted headline
earnings through translation losses of R735 million (2002: R436 million)
following the conversion of the balance sheets of integrated foreign operations
into rands. Thirdly, it resulted in translation losses of R84 million (2002: R20
million) following the conversion of non-integrated foreign entities, which have
been taken directly to reserves.
Shareholders" funds and capital adequacy
Total shareholders" funds have declined to R19 429 billion (31 December 2002:
R20 122 million) on a pre-AC133 basis due to the further charges for writedowns
of investments and translation losses as well as the payment of R839 million for
the 2002 final dividend. After adjusting for the effects of AC133 total
shareholders" funds are
R18 099 billion at 30 June 2003.
Nedcor Group capital adequacy at 30 June 2003, calculated on a pre- and post-
AC133 basis, is 10,5% and 10,1% respectively, and at a Nedbank Limited
consolidated level 12,2% and 11,8% respectively.
Implementation of AC133
AC133 impacts on the recognition and measurement of financial instruments,
including credit impairments against advances. To address the prospective nature
of the statement the transitional adjustments to the carrying values of
financial instruments at 1 January 2003 are recognised in opening retained
income or equity.
AC133 is based on International Accounting Standard 39 (IAS 39), which is still
under construction. Furthermore, interpretation and presentation issues with
regard to the implementation of AC133 in South Africa continue to be debated by
the accounting profession and business locally. The treatment adopted by Nedcor
in these results accords with the current interpretation of recommended
practice.
Impact on reserves at 1 January 2003
Current Non-
income Distributable distributable
statement reserves reserves Total
Credit impairment
adjustments
- release of general 1 717 1 717
provision
- additional (585) (963) (1 548)
specific impairments
- creation of (1 132) (1 132)
portfolio impairment
- transfer to (585) 585
general risk reserve
(1 548) 585 (963)
Taxation 464 (175) 289
(1 084) 410 (674)
Attributable to 42 42
minority
shareholders
(1 042) 410 (632)
Fair-value
adjustments
- revaluation of (449) (449)
held-for-trading
portfolios
- revaluation of 28 28
available-for-sale
portfolios
- non-qualifying (451) (451)
foreign exchange
hedges
(900) 28 (872)
Taxation 139 (8) 131
(761) 20 (741)
Total impact at 1 (1 803) 430 (1 373)
January 2003
The total impact of fair-value adjustments at 1 January 2003, while not expected
to change materially, will only be finalised at 31 December 2003.
Impact on reserves for the period ended 30 June 2003
Current Non-
income Distributable distributable
statement reserves reserves Total
Impact on core
earnings
Credit impairment
adjustments
- release of 128 128
specific impairments
- additional (47) (47)
portfolio
impairments
81 81
Taxation (24) (24)
57 57
Attributable to (1) (1)
minority
shareholders
56 56
Fair-value
adjustments
Revaluation of held- 363 363
for-trading
portfolios
Taxation (101) (101)
262 (2) 262
Attributable to 8 8
minority
shareholders
270 (2) 270
Total impact on core 326 326
earnings
Impact on headline
earnings
- revaluation of (2) (2)
available-for-sale
portfolios
- impairment of (84) (84)
Dimension Data plc
- non-qualifying (232) (232)
foreign exchange
hedges
Total impact on (316) (316)
headline earnings
Total impact for the 10 (2) 8
six months
Credit impairment adjustments
- Specific advances impairments
AC133 introduces a fundamental shift in the manner in which specific impairments
are determined in that it requires the present value of future cash flows to be
calculated for all advances that are considered to be impaired. The difference
between the present value of those future cash flows and the net carrying value
is recognised as an impairment. As the anticipated cash flows in respect of
impaired advances were not previously discounted, this results in an increase in
the specific impairment for doubtful advances.
- General provisions/portfolio impairments
Prior to the implementation of AC133 a general provision for bad debts of 0,8%
of total advances, equal to or in excess of the regulatory minimum provision,
was carried to cover expected defaults inherent in the performing advances book.
Under AC133 the credit risk premium included in interest rates charged is
expected to offset future losses inherent in the portfolio of performing
advances. Therefore a revised general provision (now called a portfolio
impairment) is required only to the extent that the originally anticipated risk
profile has deteriorated.
In determining the portfolio impairment against performing advances that are not
considered to be individually impaired, expected default rates are applied to
all future cash flows. Discounting these expected cash flows to present value
results in a significant decrease in the required new portfolio impairment, as
compared with the previous general provision. The previous general provision of
R1,7 billion has therefore been released to create the new portfolio impairment
of R1,1 billion.
The determination of the required portfolio impairment is dependent on accurate
credit-risk-pricing models. Nedcor"s current risk-pricing models are under
constant refinement as the banking industry moves towards the implementation of
the Basle II requirements in 2005. Nedcor has determined that it is appropriate,
in current circumstances, to carry a portfolio impairment approximating 0,5% of
performing advances.
The regulations to the Banks Act still require that minimum general- and
specific-provision levels are held. This requirement is met by supplementing the
new portfolio impairment with a general risk legal reserve created by
reallocating distributable reserves to non-distributable reserves.
Fair-value adjustments
AC133 requires all financial instruments to be reclassified. Nedcor has
accordingly reclassified the bulk of its financial assets and liabilities as
"originated loans" and "non-trading liabilities", which continue to be carried
at original or amortised cost. The remainder are dealt with as follows:
- Held-for-trading portfolios
AC133 requires certain financial instruments to be measured at their fair value.
This includes all derivatives and instruments held for trading purposes. In
addition, in terms of the statement Nedcor has elected to designate certain
financial instruments at fair value in order to reflect the match between such
items and their hedge. The fair-value adjustments at 1 January 2003 required in
respect of the above financial instruments are recognised as an adjustment to
opening retained income and thereafter in the income statement.
- Embedded derivatives
An embedded derivative arises when derivatives are a component of a financial
instrument in such a way that the cash flows in respect of the instrument vary
in a similar way to a standalone derivative. In certain circumstances embedded
derivatives are accounted for separately at their fair value.
- Internal transactions
Prior to AC133 common local and international banking practice was to recognise
internal hedging derivatives. Risks were pooled, and managed centrally at a
bankwide level. AC133 prescribes the accounting treatment for hedges and
accordingly banks have been required to reconsider the accounting treatment of
internal hedges. Nedcor has identified and eliminated all internal transactions,
thereby reflecting external derivatives only.
- Available-for-sale portfolios
Financial assets are classified as available-for-sale where the intention,
origination and designation of the instrument do not fall within the ambit of
the other asset classifications. Available-for-sale instruments are typically
assets that are held for a longer period and in respect of which short-term
fluctuations in value do not affect Nedcor"s hold or sell decision. Nedcor has
elected to recognise fair-value gains and losses on these instruments directly
in equity. However, when available-for-sale equity instruments are determined to
be impaired to the extent that the fair value declines below its original cost,
as is the case with Nedcor"s investment in Dimension Data plc, the resultant
losses are recognised in the income statement.
- Non-qualifying foreign exchange hedges
Items that were hedged with forward exchange contracts have in certain cases in
the past been recognised at the forward rate to reflect their hedged nature. In
terms of AC133 all derivatives, including forward exchange contracts, are
recognised at their fair value. Some structured transactions originating from
NIB did not qualify as hedges under AC133 and the necessary adjustments at 1
January 2003 are recognised in opening retained income and thereafter in the
income statement.
Merger and integration update
A presentation was given to analysts and the media and was issued on SENS on 23
July 2003. This is available on Nedcor"s website at www.nedcor.com.
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 merger progress and confident of
achieving the original financial targets that were set, i.e. R660 million in
annual operational synergies in addition to the capital and funding efficiencies
already achieved (in total R905 million before taxation). Planned synergy
benefits of R190 million (on an annualised basis) have been implemented relative
to a forecast of R90 million for the half-year to June 2003. This translates
into actual merger savings for the half-year (a R62 million cost reduction and a
R7 million increase in income).
Once-off merger costs are projected to exceed the initial target of R710 million
by R158 million, mainly as a result of additional information technology spend
and the complexity of migration initiatives. The achievement of synergy benefits
can be accelerated by investing more by way of once-off merger costs, and 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
As the merger is complex and detailed, the process is highly structured.
Importantly, however, a key objective is to ensure continuity of service to
clients. During the merger and restructuring (M&R) process Nedcor will continue
to service its clients 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 been
prioritised for conversion depending on the functions they perform, the
complexity of the conversions, the potential to extract early synergies and
dependencies on other divisions.
Milestones
The M&R activities that have been completed to a large extent are:
- the Legal Day One process on 1 January 2003 - where the banking licences of
Nedbank, BoE, CoGHB, NIB and Peoples Bank were consolidated into two licences
and the banks were formally merged - went according to plan;
- the first three business unit integrations, i.e. the treasuries of Nedbank,
CoGHB, NIB and BoE, the transfer of retail clients within CoGHB and the
integration of the Capital Markets Division were finalised;
- the group risk management processes have been consolidated; and
- the merger support infrastructure was put in place to ensure fair and proper
human resource processes, adequate communication to staff and clients, the
availability of financial information and smooth client migration processes.
Other integration successes over the past year included:
- rationalisation of the asset management business, with Quaystone set up as an
empowerment asset manager;
- restructuring of the wealth management and private banking businesses and the
creation of a joint venture with Old Mutual to focus on private clients;
- the conclusion of agreements to realise over R1 billion from non-core assets,
mainly the sale of Canal Walk (still conditional); and
- the integration of all ATM and point-of-sale operations into a single
operation.
Financial effect
The table below illustrates the estimated value to be added through the merger
process relative to the baseline set in 2002 (please note that these are not
income statement effects but estimates of value added in 2002 rand terms):
Merger value added
(R"m annualised run rate pre tax)
2002 2003
Plan Actual Plan Forecast
Operational synergies 90 293
Funding efficiency (1) 30 30 125 125
Capital efficiency (2) 30 30 120 120
Once-off costs (3) (100) (91) (225) (436)
Total value added (40) (31) 110 102
Merger value added
(R"m annualised run rate pre tax)
2004 2005
Fore- Fore- Steady
Plan cast Plan cast state
(4)
Operational synergies 400 563 660 638 660
Funding efficiency (1) 125 125 125 125 125
Capital efficiency (2) 120 120 120 120 120
Once-off costs (3) (175) (341) (210)
Total value added 470 467 695 883 905
Note 1 Funding efficiency arises from the fact that, at the time of the merger,
BoE was paying, on aggregate, approximately 25 basis points for liabilities
above 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.
Note 4 "Steady state" implies recurring annual synergies.
Financial services charter
Nedcor is working with the Banking Council and the rest of the industry to
develop an empowerment charter for the banking sector. We support these
initiatives and believe that, if implemented correctly, they will be of great
benefit to our country.
Prior to this process Nedcor had undertaken a major empowerment transaction with
the establishment of Peoples Bank and has subsequently undertaken a number of
other empowerment initiatives. Some of the key initiatives are:
- Quaystone Asset Management
- Tirelo Corporate Finance
- Laetoli Business Solutions
Strategy
Nedcor"s strategy is to focus on banking and related financial services in
southern Africa, where we see strong growth opportunities, and the merger with
BoE was in line with this strategy. We have a strong market presence in
corporate and business banking. Historically, we have had a weaker presence in
the retail market. Our joint ventures with best-of-breed retailers such as Pick
`n Pay and the JD Group, as well as our focus on increasing bancassurance
revenues, are designed to expand our presence in this market.
Our strategy in Africa is to focus on banking and trade finance in the Southern
African Development Community region in particular, while our international
platform helps to service our clients" needs abroad.
We believe technology is a strong factor in banking and we shall continue to
strive to be a low-cost producer. Our international outsourcing initiative is
built on our technology platform and serves to lower technology costs while
utilising excess capacity.
Prospects
Nedcor started its three-year integration process in the second half of 2002,
and the past six months have been challenging for the group. A merger of this
size is complex and demanding and requires constant tracking and monitoring to
ensure its success. The group is currently on track with these plans and in some
areas ahead of schedule.
We are heartened by this progress and shall continue, where possible, to
accelerate the integration in order to realise the targeted merger synergies at
the earliest possible date.
We have confidence in our ability to gain the targeted operational synergies of
R660 million each year. These operational synergies, together with the capital
and funding efficiencies already achieved, will total R905 million (in 2002 rand
terms), before taxation, in benefits for the group each year from 2006 onwards.
Our current priorities are to realise these synergies, bed down the merger,
lower our funding cost, continue to deliver good service to our clients and
provide a sound environment for our staff. Together with our strong, well-
provisioned balance sheet and the expectation that synergy benefits should
escalate from 2004 onwards, we look forward to seeing a return to satisfactory
earnings growth as the three-year integration progresses.
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 2003.
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, 29
August 2003. The shares will commence trading ex dividend on Monday, 1 September
2003, and the record date will be Friday, 5 September 2003. Payment will be made
on Monday, 8 September 2003.
Share certificates may not be dematerialised or rematerialised between Monday, 1
September 2003, and Friday, 5 September 2003, both days inclusive.
For and on behalf of the board
CF Liebenberg RCM Laubscher
Chairman Chief Executive
28 July 2003
Registered office Transfer secretaries
Nedcor Sandton Computershare Limited
135 Rivonia Road 70 Marshall Street
Sandown, 2196 Johannesburg, 2001
PO Box 1144 PO Box 1053,
Johannesburg, 2000 Johannesburg , 2000
Directors
CF Liebenberg (Chairman), PG Joubert (Deputy Chairman), Prof MM Katz (Vice-
chairman), RCM Laubscher
(Chief Executive), CJW Ball, TA Boardman, Dr IJ Botha, WAM Clewlow, RG Cottrell,
BE Davison, N Dennis (British), Prof B Figaji, BJS Hore, MJ Levett, JB Magwaza,
ME Mkwanazi, SG Morris, DGS Muller, ML Ndlovu, PF Nhleko, TH Nyasulu, JVF
Roberts (British), AA Routledge, CML Savage, JH Sutcliffe (British)
Company Secretary: GS Nienaber
Reg No: 1966/010630/06 Share code: NED ISIN code: ZAE000004875
Financial overview
Unaudited Unaudited Audited
30 Jun 30 Jun 31 Dec
2003* 2002 2002
Selected returns
Headline earnings (Rm) 661 1 524 2 585
Headline earnings per share (cents) 244 630 1 022
Core earnings (Rm)# 1 530 1 560 3 366
Core earnings per share (cents)# 565 645 1 330
Return on average shareholders" 18,5 21,4 21,9
funds (%)#
Return on average assets (%)# 1,20 1,73 1,57
Non-interest revenue to total 54,9 48,5 52,4
income (%)#
Efficiency ratio (%)# 59,0 53,4 55,4
Net interest income to interest- 2,59 3,05 2,88
earning assets (%)
Doubtful-debt provisions to total 3,3** 3,0 3,1
advances (%)
Balance sheet
Total shareholders" equity (Rm) 18 099 16 593 20 122
Deposits, current accounts and 280 904 178 224 235 449
other creditors (Rm)
Advances and other debtors (Rm) 246 162 153 413 201 539
Total assets (Rm) 315 703 200 701 273 784
Assets under management (off 94 218 37 119 124 342
balance sheet) (Rm)
Capital adequacy (%) 10,1 11,2 11,0
Capital ratio - tier 1 (%) 6,3 9,0 7,0
Share statistics
Number of shares in issue (m) 274,7 246,9 270,6
Weighted average number of shares 270,8 241,9 253,0
(m)
Earnings per share (cents) 130 305 389
Fully diluted weighted average 271,0 242,9 254,5
number of shares (m)
Fully diluted headline earnings per 244 627 1 016
share (cents)
Dividends per share declared 205 205 515
(cents)
Dividend cover (times)# 2,8 3,1 2,6
Share price (cents) 8 950 11 700 11 110
Price-earnings ratio (historical) 14,1 7,4 10,9
Market capitalisation (Rbn) 24,6 28,9 30,1
# Based on core-earnings calculation, which excludes all translation losses and
exceptional items.
* 30 June 2003 results have been prepared on an AC133 basis of accounting.
** Based on impairment provision (AC133) and advances excluding gross-up of
derivatives.
Balance sheet
Unaudited Unaudited Audited
30 Jun 30 Jun 31 Dec
2003* 2002 2002
Rm Rm Rm
Assets
Cash and short-term funds 9 401 15 221 16 607
Other short-term securities 19 542 9 210 14 987
Government and public sector 16 669 11 448 14 647
securities
Advances and other debtors 246 162 153 413 201 539
Deferred-taxation asset 702 282 690
Current taxation prepaid 399 200 421
Insurance assets 7 004 7 891
Investments
Investments in associate 1 424 1 746 1 504
companies
Other investments 5 088 3 310 5 429
Property and equipment 3 375 2 012 2 854
Intangible assets:
Computer software and capitalised 986 1 331 1 638
development costs
Goodwill 4 129 1 458 4 457
Customers" indebtedness for 822 1 070 1 120
acceptances
Total assets 315 703 200 701 273 784
SHAREHOLDERS" EQUITY AND
LIABILITIES
Ordinary share capital 271 243 271
Ordinary share premium 4 625 1 904 4 536
Non-distributable reserves 484 634 216
Distributable reserves 9 447 12 292 12 023
Ordinary shareholders" equity 14 827 15 073 17 046
Minority shareholders" interest
Attributable to ordinary 1 157 1 520 1 089
shareholders
Attributable to preference 2 115 1 987
shareholders
Total shareholders" equity and 18 099 16 593 20 122
minority interest
Deposit, current accounts and other 280 904 178 224 235 449
creditors
Deferred-taxation liabilities 1 249 1 577 1 451
Current taxation liabilities 178 137 183
Insurance funds 7 004 7 891
Long-term debt instruments 7 447 3 100 7 568
Liabilities under acceptances 822 1 070 1 120
Total shareholders" equity and 315 703 200 701 273 784
liabilities
Guarantees on behalf of customers 10 703 10 161 11 966
excluded from assets
AC133: balance sheet classification
Unaudited 30 June 2003
Rm Rm
Marked-to-market 88 551 52 136
Held for trading (IS) 85 898 52 136
Available for sale (equity) 2 653
Amortised cost 227 152 245 468
Originated loan 215 259
Held to maturity 1 280
Non-trading liabilities 244 041
Other 10 613 1 427
Shareholders" funds 18 099
315 703 315 703
AC133: impact on total assets
Unaudited
30 June 2003
Rm
Total assets at 30 June 2003 pre-AC133 270 523
AC133 adjustments: 45 180
Deduct: Impairments to advances (882)
Add: Bonds and securities gross-up 5 563
Add: Advances gross-up 2 871
Add: Derivative gross-up 37 036
Add: Fair-value adjustments 592
Total assets post-AC133 315 703
Income statement
Unaudited Unaudited Audited
30 Jun 30 Jun 31 Dec
2003* 2002 2002
Rm Rm Rm
Interest income 14 669 9 575 23 822
Interest expense 11 180 6 718 17 522
Net interest income 3 489 2 857 6 300
Non-interest revenue 4 239 2 690 6 929
Foreign exchange translation (735) (436) (1 011)
losses
Total income 6 993 5 111 12 218
Impairment of advances 891
Specific and general 560 1 778
provisions raised
Exceptional general provision (400) (400)
reversed
Income after specific and 6 102 4 951 10 840
general provisions
Operating expenses 4 562 2 962 7 334
Merger and reorganisation 134 193
expenses
Profit from operations before
exceptional
capital items 1 406 1 989 3 313
Exceptional capital items (309) (926) (1 793)
Net capital loss on
investment in
Dimension Data (84) (830) (1 080)
Amortisation and impairment (209) (96) (501)
of goodwill
Loss on sale of investments (16) (58)
and operations
Merger and reorganisation (35)
costs
Impairment of investments
and of
property and equipment (119)
Profit from operations 1 097 1 063 1 520
Attributable earnings of 70 92 162
associates
Profit before taxation 1 167 1 155 1 682
Taxation 592 404 580
Taxation: Merger and (23)
reorganisation costs
Taxation: Exceptional capital (140) (192)
items
Profit after taxation 575 891 1 317
Minority interest
attributable to ordinary
shareholders (90) (153) (333)
Minority interest
attributable to preference
shareholders (133)
Income attributable to 352 738 984
shareholders
Unaudited Unaudited Audited
30 Jun 30 Jun 31 Dec
2003* 2002 2002
Rm Rm Rm
Core earnings pre-AC133 1 204 1 560 3 366
AC133 impact on earnings 326
Core earnings 1 530 1 560 3 366
Deduct: 869 36 781
Translation losses 735 436 1 011
Merger and reorganisation 134 193
costs
General provision reversal (400) (400)
Tax on merger and (23)
reorganisation costs
Headline earnings 661 1 524 2 585
Deduct: 309 786 1 601
Exceptional capital items 309 786 1 793
Tax on exceptional capital (192)
items
Income attributable to 352 738 984
shareholders
Segmental analysis
Unaudited Unaudited Audited
30 Jun 30 Jun 31 Dec
2003* 2002 2002
Rm % Rm % Rm %
Nedbank 1 801 117 1 051 67 2 057 61
Corporate
Banking 950 61 684 44 1 297 39
business
- Corporate 346 22 388 25 745 22
Banking
- Business 384 25 195 12 182 6
Banking
- Property 158 10 75 5 298 9
Finance
- Imperial 62 4 26 2 72 2
Bank
Investment (71) (5) 177 12 407 12
banking and
advisory
Treasury 826 54 118 8 214 6
International 96 6 72 5 139 4
- Africa 61 4 60 4 125 4
- Asia and 35 2 12 1 14 -
Europe
Peoples Bank 80 5 118 7 272 8
Retail & 259 17 228 15 597 18
Wealth
management
- Retail 197 13 183 12 423 13
Banking
- Wealth 41 3 21 1 118 3
management
- Gerrard 21 1 24 2 56 2
Private Bank
T&O (7) (2) (32) (1)
investments
BoE funding (266) (17) (254) (8)
Shared
services,
funding
and group (337) (22) 165 11 726 22
operations
Core earnings 1 530 100 1 560 100 3 366 100
Adjusted for
translation
losses
and (869) (36) (781)
exceptional
items
Headline 661 1 524 2 585
earnings
By geography
South Africa 1 252 82 1 286 82 2 830 8
