| Thu 5 Aug 2004, 8:48 | | Reviewed Financial Results six months ended 30 Ju |
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Nedcor Limited - Reviewed Financial Results six months ended 30 June 2004
Nedcor Limited
Incorporated in the Republic of South Africa
Registration number 1966/010630/06
Share code: NED ISIN code: ZAE000004875
Reviewed Financial Results
six months ended 30 June 2004
Headline earnings R500 million
Earnings volatility significantly reduced
Capital base strengthened by R5,15 billion
Recovery programme delivering tangible benefits
Merger and recovery programme expected to lift earnings from 2005
Earnings impacted by once-off recovery programme costs of R234 million and
merger costs of R94 million
Overview
The first six months of the 2004 financial year have seen Nedcor make good
progress in restoring the performance of the group and laying a foundation for
growth. An intensive recovery programme has been initiated. All work streams
have been assigned accountability within specific timeframes, and the programme
is being monitored and rigorously managed.
Specific achievements against the five-point recovery programme are as follows:
1. Review of strategy and position for earnings recovery - capital base
strengthened through rights issue and sale of non core businesses; exchange rate
and interest rate volatility reduced; risk processes strengthened;
2. Deliver merger benefits - retrenchment process under way; BoE merger nearing
completion and integration of Peoples Bank started;
3. Review executive management team - composition of new Group Executive
Committee finalised;
4. Focus on client service - client retention and expansion programme on target;
client satisfaction levels stable; focusing on improving levels of cross-
selling;
5. Adopt open and transparent policies - progress made in improving transparency
both internally and externally, with more accurate and meaningful segmental
analysis by year end.
While it will take time for the full benefits of the recovery programme to
emerge in the financial results, the progress and improvements made to date have
been encouraging. The financial performance in this six-month period has been in
line with the recovery programme targets. However, management acknowledges that
more needs to be achieved to meet return-on-equity targets.
Delivery on commitments to shareholders
Nedcor has given shareholders a firm commitment to resolve the strategic,
financial and risk management issues that affected the performance of the group.
Good progress has been made in addressing these issues over the past six months.
The consolidated financial statements are prepared in accordance with, and
comply with, South African Statements of Generally Accepted Accounting Practice
and the requirements of the South African Companies Act and Banks Act. The
accounting policies adopted are in all material respects consistent with those
applied at 31 December 2003, with the exception of the change in the basis of
accounting for pension fund assets gross-up in terms of AC116 and certain
restatements as noted in these financial results.
Stabilising the group`s capital base and proactively managing capital
Strong support from parent company Old Mutual plc and other shareholders ensured
that the Nedcor rights issue was successful, raising R5,15 billion and
strengthening the group`s capital base. As communicated to shareholders, during
the period R2,5 billion of the bank`s tier 2 capital was repaid from the
proceeds of the rights issue, thereby achieving an improved mix between the
bank`s tier 1 and tier 2 capital.
In line with the commitment to improve the yield on and reduce the currency
volatility of foreign capital, the group has repatriated, restructured and
hedged offshore capital to reduce foreign currency exposure from R7,1 billion to
a net R3,1 billion during the past six months. The capital volatility arising
from foreign exchange movements has now been substantially neutralised.
Capital adequacy ratios have been further improved by the reduction of low-
yielding advances and the disposal of non-core assets. The group`s indicative
regulatory capital at 30 June 2004 was 12,3%, with tier 1 capital at 7,9%.
Nedbank`s tier 1 capital is currently 7,2% and is on track to achieve its 7,5%
tier 1 capital target by the end of 2004.
Disposal of non-core operations and assets
The planned disposal of non-core operations and assets is progressing well. The
group has sold its offshore subsidiary Chiswell Associates for GBP20,9 million
(book value GBP9 million). The Stenham Group has been sold, subject to certain
conditions precedent, for GBP19 million (book value GBP19 million). BoE Life
International has implemented a capital reduction programme prior to sale,
amounting to GBP22 million.
Onshore non-core investments disposed to date include the vacant land at the
Century City development near Cape Town (sold for R82 million, with a book value
of R80 million), and 75 Grayston Drive in Sandton (sold for R20 million, with a
book value of R17 million). Following the partial sale and restructuring of Net1
Applied Technology Holdings (Aplitec) into Net1 UEPS Technologies (NEUP), Nedcor
has effectively reduced its shareholding in this group by 40%. This
restructuring resulted in a mark-to-market increase of R489 million in the value
of the remaining investment at 30 June 2004 and therefore has been taken
directly to reserves in terms of group accounting policies.
The group aims to reduce non-core assets, including the transactions concluded
to date, by approximately R2 billion over the next two years.
Risk and financial management
During the period Mike Brown was appointed as Chief Financial Officer and Philip
Wessels as Chief Risk Officer. The enterprise-wide risk management framework has
been enhanced and management processes have been redesigned to ensure there is a
logical and streamlined framework to control risk and ensure proper governance.
Interest rate, liquidity, foreign exchange, capital and market risks are now
being controlled within the Asset and Liability Division. Interest rate and
currency risks have been reduced during the period, with a large portion of the
expensive unhedged fixed-rate negotiable certificates of deposit (NCDs),
promissory notes (PNs) and retail fixed deposits having matured by April 2004
and excess offshore capital having been repatriated or hedged. In addition, the
group`s R6 billion fixed-rate subordinated debt issued in 2001 and 2002 has been
fully hedged against further interest rate movements.
The group has completed its Financial Advisory and Intermediary Services Act
(FAIS) licensing requirements. Progress has been made in complying with the
Financial Intelligence Centre Act (FICA), the deadline for which has been
extended to 31 October 2004. The group is on track to meet its January 2007
Basel ll commitments.
Improved management information systems
The group has committed itself to improve financial disclosure. Progress has
been made with the phased implementation of a new internal funds transfer
pricing system, which is scheduled to be completed by the end of 2004.
The implementation of activity-justified transfer pricing between divisions for
the group to allocate costs on a more accurate basis is substantially complete.
This will facilitate more accurate product, channel and client profitability
measures.
A risk-weighted capital allocation and charging methodology will be introduced
before year-end. This will be used as a foundation for more sophisticated risk-
adjusted capital allocation in line with the Basel II requirements.
These processes will result in more accurate and meaningful segmental analysis
from 2005, improving the group`s ability of evaluating and managing investments
and returns on equity and helping management and investors to measure
performance.
Merger completion
The merger of Nedbank, BoE, Nedcor Investment Bank (NIB) and Cape of Good Hope
Bank (CoGHB) is on track and nearing completion. During the period one of the
most crucial phases of the merger - the system migration of all Property Finance
and Business Banking clients - was successfully completed. The transfer of NBS
clients is scheduled to take place during the second half of 2004. The
rationalisation of the data centres in Paarl and Durban will be completed in
early 2005.
As committed, annual steady-state synergies of R700 million will be achieved.
Management estimates that R624 million of these will have been achieved by the
end of 2004. Total merger costs will be within budget.
Integration of Peoples Bank
Planning for the integration is well-advanced. Agreements have been concluded
for the purchase of minority interests, the management has been integrated into
the Retail and Wealth Management Division and risk management has been
centralised. The group still requires final regulatory approval to integrate the
Peoples Bank clients fully into Nedbank Limited.
Recovery programme - 2004
The recovery programme includes various revenue enhancement initiatives, which
are anticipated to increase revenue by R204 million in 2004, with further
improvements thereafter. These include:
* increasing the number of clients for whom we are the primary banker;
* cross-selling;
* reduction in revenue leakage; and
* bancassurance.
Details of the recovery programme benefits and costs are shown in the table
below:
Recovery benefits (Rm - pre tax) June Dec Total
Revenue growth 43 161 204
Cost reduction 137 409 546
Total benefits 180 570 750
Once-off recovery cost (234) (225) (459)
Net (cost)/benefit (54) 345 291
As staff account for the largest component of costs, it is regrettable that the
major contribution to savings is of necessity a reduction in staff numbers. The
reductions come mainly from staff in the central services areas and not those in
client-facing roles. Permanent staff numbers were reduced by a net 1 033, and
temporary staff numbers by 121, in the first half. Total retrenchments for the
year are estimated at 2 300. This, together with limited rehiring, natural
attrition and the effect of business disposals, will result in a headcount
reduction of approximately 2 500.
These initiatives are discussed in more detail in the divisional overview.
Financial performance
Income of R380 million attributable to ordinary shareholders shows a significant
turnaround from the loss of R1,6 billion for the year to 31 December 2003.
Attributable income for the period showed a 5,9% decrease from the R404 million
restated attributable earnings reported for June 2003.
Headline earnings of R500 million showed a similar turnaround, compared with the
R55 million reported in December 2003. However, headline earnings showed a
decrease of 29,9% from the R713 million reported in June 2003.
As indicated in the above recovery programme table, earnings from 2005 onwards
will be enhanced as most of the merger expenses and the current recovery
programme costs will have been incurred, and the ongoing synergies will start to
be realised. In addition, the drag on net interest income from expensive funding
has decreased.
The published June 2003 figures have been adjusted to reflect the effects of the
accounting policy adjustments disclosed at the end of December 2003. The impact
of these changes is reflected in the restated income statement.
Net interest income
Net interest income (NII) for the group increased by 10,4% from R3 246 million
for the period to June 2003 to R3 585 million. The group`s net interest margin
improved from 2,96% for the six months to June 2003 to 3,05% for the period to
June 2004. This is in line with the trading update issued in May.
There is potential for margin improvement as a result of
* most of the expensive fixed rate funding having matured;
* the rights offer funds resulting in a positive endowment effect;
* offshore capital being repatriated; and
* the hedging of the fixed-rate subordinated debt and its maturity profile.
Non- interest revenue
Non-interest revenue (NIR), excluding foreign currency translation losses,
declined by 12,2% from R4 119 million for June 2003 to R3 617 million. This is
primarily attributable to a reduction in profits from exchange and securities
trading, which includes a significant change in the AC133 fair-value adjustment
from R344 million in the first half of 2003 to R114 million.
Management had anticipated that the buoyant trading conditions experienced in
the first half of 2003 would not be repeated in the first half of 2004, and this
is reflected in the performance.
As indicated in the recovery programme and divisional commentary, Nedcor is
currently focusing on increasing NIR.
Foreign exchange translation losses
The group incurred a foreign currency translation loss of R213 million (2003:
R735 million) owing to the strength of the rand at 30 June 2004. The group has
historically held excess levels of capital in its offshore operations and has
repatriated, restructured and/or hedged foreign capital in the first six months
of the year, as outlined above, and thereby reduced exposure to foreign currency
by 57%.
The group will be reviewing its treatment of accounting for foreign exchange
translation gains and losses in line with the adoption of International
Financial Reporting Standards (IFRS) from 2005 onwards. It is anticipated that
this will lead to a larger portion of these translation profits and losses being
treated as movements in the foreign currency translation reserve rather than as
income statement profits and losses.
Credit impairments
The bad-debt experience within Nedcor has improved, with non-performing assets
reducing from R8 444 million in December 2003 to R7 351 million and recoveries
of bad debts increasing from R47 million in June 2003 to R119 million. The group
has seen no major credit impairments during the period, except in Peoples Bank,
where a once-off adjustment of some R90 million resulted from the correction and
refinement of AC133 default ratios and the recognition of certain concentration
risks in the mortgage book.
All minimum regulatory provisions have been met by the group.
In the absence of any significant deterioration in economic conditions, the
credit outlook for the balance of the year remains positive.
Expenses
Operating expenses increased by 9,6% from R4 722 million in 2003 to R5 175
million. Expenses are in line with management`s expectations. Staff expenses
have increased, partially due to provisions for potential staff incentive
remuneration amounting to R150 million, which were not similarly provided for in
the first six months of 2003, and a further R38 million relating to an under
accrual of bonuses in 2003. Expenses have also been negatively impacted by
expenditure of R62 million relating to additional costs for Basel II compliance
and for money laundering projects to comply with FICA, and additional 2003 audit
and consultancy fees of R31 million. Commercial Bank of Namibia and Tando were
consolidated for the first time during the second half of 2003, resulting in
additional expenses of R108 million in the results to June 2004, when compared
with the prior period. Following an adjustment for the abovementioned items,
operating expenses remained virtually flat, compared with the same period last
year, and are down on the six months to December 2003.
The group will continue its aggressive cost-cutting exercise, which is fully
detailed in the recovery programme.
Alliance partner fees moved from a recovery of losses of R41 million to a
payment of a profit share of R83 million.
Recovery expenditure of R234 million includes retrenchment costs of R232 million
and other restructuring costs of R2 million. The group estimates that further
restructuring costs for the balance of 2004 will amount to R225 million.
Merger costs incurred during the period amounted to R94 million, with further
costs of R221 million expected for the balance of the year, and a final
contingency amount of R68 million reserved for 2005. These costs are in line
with expectations and the group is forecast to complete the merger within the
R868 million previously communicated to the market.
The cost-to-income ratio has moved from 72,6% in June 2003 to 80,2% in December
2003 and is now 79,9%. Significant improvements to this ratio are anticipated as
a result of the recovery programme from 2005 onwards. Excluding the once-off
recovery and merger cost and foreign currency translation losses, the efficiency
ratio is 73,0%.
Taxation
The low overall tax rate of 10% is mainly due to the impact of a R171 million
(2003: R178 million) credit on the tax line arising from AC102 treatment of
structured finance transactions. This credit is offset by lower reported margin
income on these transactions.
The taxation charge is also lower than initially anticipated as a result of a
saving in secondary tax on companies (STC) due to the large take-up of the scrip
dividend alternative to the 2003 final dividend.
Assuming a similar trend for translation gains and losses, the tax rate for the
full year is expected to be in the region of 10%, with the sustainable tax rate
trending higher to 25% to 30% in the next few years, once the historical
structured finance transactions have run down.
Exceptional items
The exceptional items comprise goodwill amortisation and impairment of R235
million, the impairment of software and development costs of R41 million and
other impairments of R14 million. These costs were offset by the net profits
arising from the sale of non-core assets of R153 million. Goodwill will continue
to be amortised during the 2004 financial year. During 2005 anticipated changes
in accounting practice, to align the group with IFRS, will result in goodwill
being subject to an impairment assessment at the end of each reporting period.
Balance sheet
Capital
The rights issue raised additional capital of R5,15 billion. This, together with
trading profits, the realisation of non-core investments, the focus on managing
advances growth and the reduction of foreign currency exposures, have all
contributed to increasing the group`s indicative primary capital adequacy ratio
from 5,0% at 31 December 2003 to 7,9% at 30 June 2004.
Deposits
All expensive unhedged fixed-rate funding, in the form of NCDs, PNs and fixed
deposits of approximately R24 billion in December 2003, has matured. Structural
shifts in the group`s funding from NCDs to current account and call and term
deposits have further reduced the cost of funds.
Advances
Advances have shown a decline of 1,8% from R210,1 billion in December 2003 to
R206,3 billion at 30 June 2004. The group has actively reduced certain
categories of low-margin corporate loans and followed a generally cautious
approach to asset growth prior to completion of the rights issue.
Retail average advances grew by 12,5%, while corporate advances reduced by 5,9%,
mainly as a result of the balance sheet efficiency programme initiated to
optimise the use of capital.
Divisional overview
As referred to above, management information systems are being enhanced with the
introduction of funds transfer pricing from the end of 2004, which will allow
for more accurate segmental reporting in future reporting periods.
Nedbank Corporate
Nedbank Corporate experienced a decline in net operating income. This arose
mainly from:
* a significant decline in the endowment earned on the capital employed in the
business;
* the proactive reduction in low-margin corporate advances in line with the
balance sheet efficiency programme;
* a lower AC 133 fair-value adjustment of R42 million (2003: R134 million).
There has been an improvement in credit impairments, driven by healthy
recoveries and effective credit management. Operating expenses were well-
contained, but the division`s results were impacted by recovery programme
expenses of R69 million.
A major project has been initiated to consolidate and improve the bank`s
electronic banking systems with a view to growing market share and enhancing
NIR. The cluster successfully completed the transfer of BoE Business Banking
clients on to Nedbank systems as well as the remaining R8 billion migration of
Nedbank and NIB property finance clients on to the Property Finance SAP system.
This process largely completed the merger-related client migration in Nedbank
Corporate. A focus on asset quality, both in terms of credit quality and return
on equity, gave rise to a proactive reduction in the loan book of approximately
R6,4 billion.
Nedbank Corporate`s executive committee was restructured, which resulted in the
appointment of a skilled team with experience in client value management and
risk management methodologies aligned with the Basel II framework. The
restructure also resulted in the consolidation of Asset Based Finance into
Business Banking, and the establishment of a focused transactional banking sales
division to enhance cross-selling and increase our market share of clients of
whom we are the primary banker. The review of the international operations has
resulted in the scaling back of most of the Asian activities, which will reduce
the risk profile and improve the return on capital.
Nedbank Capital
Nedbank Capital`s results for the first six months were behind management`s
expectations. Trading profits were lower than in the first half of 2003, as the
buoyant trading conditions in the first half of 2003 were not repeated in 2004.
While revenue was below expectations, expenditure was well-controlled.
While the division`s most significant merger-related integration issues were
completed during 2003, considerable management effort has been expended in
restructuring the division in line with the new Nedbank operating structure. A
new executive committee was established, the component businesses were moved
into the Nedcor head office and the division was restructured to eliminate
duplication and optimise resources.
An integrated debt and equity capital markets business has been created to align
the trading and structuring functions. Good progress has been made in delivering
a single house approach to add value to the client base. The minority interests
in NIB Namibia have been bought out and the business has been consolidated. A
more rigorous structural process has been put in place for developing,
monitoring and converting the transaction pipeline.
Imperial Bank
Imperial Bank performed well at the net operating income level, but expense
growth was high. This is largely the result of the upfront costs associated with
increased staff and related operational infrastructure that should yield
benefits in the future.
Retail and Wealth Management
The performance of Retail and Wealth Management, including Peoples Bank, was
negatively impacted by the cost of expensive fixed-rate deposits and the
additional impairments required in Peoples Bank (as outlined in the section on
credit Impairments above), as well as recovery programme expenses of R52
million.
A detailed review has been undertaken of Nedbank`s alliances:
* the Go Banking alliance with Pick `n Pay is fulfilling the objectives of
growing the client base, as well as providing a low-cost platform for enhancing
the transactional banking services;
* the Old Mutual Bank Division of Nedbank continues to provide excellent service
and the division is working well with Old Mutual to increase the relevance of
this business to the client base and intermediary network - Old Mutual Bank is
forecast to produce a loss for the full year due to marketing and client
acquisition activities; and
* the alliance relationships with Capital One are still under review.
The restructuring of the local and international businesses of the Wealth
Management Division is largely complete. As referred to earlier, Chiswell
Associates and the Stenham Group have been sold, and good progress has been made
on the disposal of BoE Life International and BoE Funds Services.
The current integration of BoE Private Clients with Nedbank Private Bank will
improve client service and increase cross-selling opportunities.
The process of integrating Peoples Bank into Nedbank Limited started in April
2004 and can be progressed to full integration only once regulatory approval has
been received. This integration will reduce costs, streamline business
activities and focus the group`s retail growth initiatives.
While the Retail and Wealth Management Division has a solid platform from which
to grow, performance is not yet at an acceptable level and considerable effort
is required to improve the cost-to-income ratio, return on equity and client
satisfaction.
Shared services, capital management and central funding
The various services divisions have all reduced costs, with the exception of
Group Risk, which incurred additional expenses from the money laundering
projects and Basel II implementation costs.
Achievements over the period include:
* Swisscard is now fully operational in Switzerland.
* A back-up call centre has been commissioned in Durban.
* A tracking and storage infrastructure has been set up to accommodate the FICA
documentation and legislative requirements.
* Credit cards are now processed on the new CAMSll production platform.
* Nedbank is one of the first South African banks to be compliant with the new
PASA requirements for disaster recovery planning.
* Group Operations Division is on track to achieve a fifth successive year of
zero-cost growth.
* Progress was made with procedures to ensure Basel ll compliance.
* Progress was made on an optimal economic capital model, in conjunction with
Old Mutual.
* A high level of activity in client verification processes was achieved for
FICA compliance.
* The low number of armed robberies and burglaries was maintained.
* The focus on reducing the high level of card fraud was sustained.
* A standardised remuneration policy has been implemented throughout the group.
*The voluntary retrenchment initiative minimised the impact of forced
retrenchments on staff morale.
*taff roadshows were, and are planned to be, undertaken nationally to discuss
strategy, staff issues and introduce the group`s values process.
Building for the future
Nedcor has identified the following key steps to build for the future:
*to continue to focus on the basics of banking by disposing of non-core assets,
simplifying the brand strategy, optimising the asset and liability management
and mix, and improving the management information systems;
*to focus on growing the retail business and transactional banking in
particular, while building on the group`s strengths in the corporate and
commercial sector;
*to focus on Southern Africa and retain only core offshore operations;
*to attract, retain and develop staff, while building a client-centred culture,
with an improvement in staff morale remaining a key focus;
*to restructure products and processes to improve client service;
*to monitor client satisfaction on a constant basis, with client retention
strategies firmly embedded in the recovery programme;
*to expand bancassurance;
*to drive transformation and sustainability and to comply with the spirit of the
Financial Sector Charter (FSC) (Nedcor will be increasing its focus on its FSC
strategy, including a broad-based black economic empowerment (BEE) ownership
strategy, in the second half of 2004);
*to redesign the management structure within the branches to enhance client
service further;
*in line with the move to a client-driven business model, to focus on the core
business of banking and move to a single-brand strategy, subject to regulatory
and shareholder approval.
Prospects
Following the successful completion of the rights issue, the group should start
to show growth in advances during the second half of 2004. Margins should
improve as a result of:
*deposit and advance mixes within the bank being better placed to enhance
earnings;
*the maturing of expensive unhedged fixed-rate funding;
*the repatriation or hedging of large amounts of offshore capital; and
*the endowment effect of the rights offer.
The directors and management are aware that a considerable amount of effort lies
ahead in the recovery programme and that the fruit of these endeavours will not
be fully reflected in the financial results this year. The business has turned
the corner on the road to recovery and is well-placed to deliver improved
earnings growth next year, as set out in the recovery programme.
The group continues to pursue its target of achieving a return on average
ordinary shareholders` equity of 20%, on a run-rate basis, by the end of 2006.
In order to do this, the group is committed to:
*covering its cost of capital, excluding foreign exchange losses and merger and
recovery costs this year;
*maintaining tier 1 capital adequacy above 7,5%;
*attaining a market related asset growth;
*lowering the cost of funding as expensive funding rolls off;
*growing non-interest-revenue through various initiatives outlined above;
*growing expenses at a level below revenue growth.
As indicated above, the benefits from the merger and the recovery programme will
emerge only in 2005.
Against this background, the group has forecast headline earnings, inclusive of
both merger and restructuring costs (but excluding translation gains or losses),
for the year to 31 December 2004 to be between 0% and 15% greater than in 2003.
However, due to the dilutionary impact from increased shares issued following
the rights offer, headline earnings per share, inclusive of both merger and
restructuring costs (but excluding translation gains or losses), are expected to
be between 6% and 19% lower than the restated 2003 figure of 502 cents per
share. The group is forecasting positive attributable earnings for 2004,
compared with a loss in 2003. Shareholders are advised that these forecasts have
not been reviewed and reported on by the group`s auditors.
The directors and management express their thanks to clients and other
stakeholders for their continued support, and also thank all staff members for
the incredible job they have done during this tough period.
Reviewed results - auditors` opinion
These results have been reviewed by the group`s auditors, KPMG Inc and Deloitte
& Touche, and the review opinion is available for inspection at the company`s
registered office.
Dividend
Notice is hereby given that an interim dividend of 44 cents per ordinary share
has been declared in respect of the six months ended 30 June 2004.
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, 3
September 2004. The shares will commence trading ex-dividend on Monday, 6
September 2004, and the record date will be Friday, 10 September 2004. Payment
will be made on Monday, 13 September 2004.
Share certificates may not be dematerialised or rematerialised between Monday, 6
September 2004, and Friday, 10 September 2004, both days inclusive.
The results have been prepared in accordance with South African Statements of
Generally Accepted Accounting Practice.
For and on behalf of the board
WAM Clewlow TA Boardman
Chairman Chief Executive
4 August 2004
Registered office
Nedcor Limited, Nedcor Sandton,
135 Rivonia Road, Sandown, 2196
PO Box 1144, Johannesburg, 2000
Transfer secretaries
Computershare Investor Services 2004 (Pty) Limited
70 Marshall Street, Johannesburg, 2001
PO Box 61051, Marshalltown, 2107
Directors
WAM Clewlow (Chairman), Prof MM Katz (Vice-chairman), ML Ndlovu (Vice-chairman),
TH Nyasulu (Vice-chairman),
TA Boardman (Chief Executive), CJW Ball, MWT Brown (Chief Financial Officer), RG
Cottrell, BE Davison,
N Dennis (British), Prof B Figaji, MJ Levett, JB Magwaza, ME Mkwanazi, PF
Nhleko, JVF Roberts (British), CML Savage, JH Sutcliffe (British)
Sponsors
Merrill Lynch South Africa (Pty) Limited
Nedbank Capital
Company Secretary: GS Nienaber
Incorporated in the Republic of South Africa
Registration number 1966/010630/06
Share code: NED ISIN code: ZAE000004875
This announcement and additional information is available on the group`s website
- www.nedcor.com - together with the following additional information:
*detailed interim financial statements and other financial information in HTML,
PDF and Excel formats;
* financial results presentation to analysts;
* link to a webcast of the presentation to analysts.
For further information kindly contact Nedcor Investor Relations by e-mail at
nedcorir@nedcor.com
Financial highlights Reviewed Restated Audited
30 June 30 June 31
December
Rm 2004 2003 2003
Headline earnings
reconciliation
Income/(loss) 380 404 (1 600)
attributable to
shareholders
Less: Non-headline (120) (309) (1 655)
earning items
Exceptional capital (137) (309) (1 693)
items
Taxation on exceptional 17 38
items
Headline earnings 500 713 55
Key ratios
Return on ordinary % 7,3 9,2 0,4
shareholders` equity
Return, excluding % 10,4 19,0 10,3
foreign currency
translation losses, on
ordinary shareholders`
equity
Return on total assets % 0,33 0,45 0,02
Return, excluding % 0,47 0,91 0,46
foreign currency
translation losses, on
total assets
Net interest income to % 3,05 2,96 2,95
interest-earning assets
Non-interest revenue to % 48,7 51,0 49,0
total income
Impairments to total % 3,3 3,4 3,4
advances
Efficiency ratio % 79,9 72,6 80,2
Efficiency ratio % 77,6 65,4 72,5
(excluding foreign
currency translation
losses)
Share statistics
Number of shares in m 392,9 274,7 274,8
issue
Weighted average number m 327,8 292,3 293,0
of shares
Fully diluted weighted m 330,1 292,5 293,4
average number of shares
Headline earnings per cents 153 244 19
share
Fully diluted headline cents 151 244 19
earnings per share
Attributable earnings cents 116 138 (546)
per share
Fully diluted cents 115 138 (545)
attributable earnings
per share
Dividends declared per cents 44 205 240
share
Dividend paid per share cents 35 310 515
Dividend cover times 3,5 1,2 0,1
Net asset value per
share
(Investments at market cents 4 444 5 154 4 240
value)
Tangible net asset value cents 3 132 3 206 2 247
per share (Investments
at market value)
Income statement Reviewed Restated 6 months Audited
to
for the period 30 June 30 June 31 31
ended December December
Rm 2004 2003 2003 2003
Interest income 11 707 14 474 13 667 28 141
Interest expense 8 122 11 228 10 105 21 333
Net interest income 3 585 3 246 3 562 6 808
Non-interest 3 617 4 119 3 834 7 953
revenue
Foreign currency (213) (735) (681) (1 416)
translation losses
Gross operating 6 989 6 630 6 715 13 345
income
Impairment of 719 891 1 172 2 063
advances
Income after 6 270 5 739 5 543 11 282
impairment of
advances
Operating expenses 5 175 4 722 5 618 10 340
Fees due to/(from) 83 (41) 10 (31)
alliance partners
Recovery programme 234
expenses
Merger expenses 94 134 260 394
Profit/(loss) from 684 924 (345) 579
operations before
exceptional items
Exceptional items (137) (309) (1 384) (1 693)
Amortisation and (235) (209) (1 594) (1 803)
impairment of
goodwill
Profit/(loss) on 153 (100) 449 349
sale of
subsidiaries,
investments and
property and
equipment
Net impairment of (55) (239) (239)
investments,
property and
equipment and
capitalised
development costs
Profit/(loss) from 547 615 (1 729) (1 114)
operations
Attributable 79 70 62 132
earnings of
associates and
joint ventures
Profit/(loss) 626 685 (1 667) (982)
before taxation
Taxation 80 205 185 390
Taxation on (17) (38) (38)
exceptional items
Profit/(loss) after 563 480 (1 814) (1 334)
taxation
Minority interest
income attributable
to
- ordinary (73) (76) (57) (133)
shareholders
- preference (110) (133) (133)
shareholders
Income/(loss) 380 404 (2 004) (1 600)
attributable to
shareholders
Cash flow statement Reviewed Restated Audited
for the period ended 30 June 30 June 31
December
Rm 2004 2003 2003
Cash and short-term funds 12 227 16 607 16 607
at beginning of period
Cash flow from operating 2 663 2 344 5 281
activities
Increase in working funds (6 345) (9 655) (13 762)
Taxation paid (285) (307) (616)
Cash flows from investment 1 228 1 287 2 654
activities
Cash flows from financing 2 321 (871) 2 063
activities
Cash and short-term funds 11 809 9 405 12 227
at end of period
AC133: Balance sheet classification
as at 30 June 2004 Reviewed
Rm Assets Liabilities
Fair value 56 939 27 137
Held for trading 54 369 27 137
Available for sale 2 570
Amortised cost 243 414 252 284
Originated loans and receivables 232 458
Held to maturity 1 350
Non-trading liabilities 250 725
Other assets and liabilities 9 606 1 559
Total shareholders` equity and 20 932
minority shareholders` equity
300 353 300 353
Group balance sheet Reviewed Restated Audited
as at 30 June 30 June 31
December
Rm 2004 2003 2003
Assets
Cash and short-term funds 11 809 9 405 12 227
Other short-term securities 9 549 19 385 10 610
Government and other 22 322 15 282 21 333
securities
Derivative instruments 21 509 37 132 28 496
Advances 206 294 204 580 210 096
Sundry debtors 9 161 7 875 7 463
Deferred taxation asset 1 253 1 156 3 074
Current taxation prepaid 174 396 256
Investments in associate 1 433 1 547 1 627
companies and joint ventures
Other investments 4 364 5 064 3 788
Insurance assets 3 803 5 276 5 152
Property and equipment 2 517 2 851 2 684
Computer software and 1 558 1 471 1 710
capitalised development
costs
Goodwill 3 598 3 881 3 762
Customers` indebtedness for 1 009 822 835
acceptances
Total assets 300 353 316 123 313 113
Shareholders` equity and
liabilities
Ordinary share capital 393 271 275
Ordinary share premium 9 832 4 625 4 801
Reserves 7 238 9 261 6 571
Ordinary shareholders` 17 463 14 157 11 647
equity
Minority shareholders`
equity
Attributable to preference 2 770 1 982 2 802
shareholders
Attributable to ordinary 699 561 652
shareholders
Total shareholders` equity 20 932 16 700 15 101
and minority shareholders`
equity
Derivative instruments 19 856 38 094 28 206
Deposits, current accounts 236 618 240 978 238 813
and other liabilities
Sundry creditors 9 585 6 295 12 045
Deferred taxation 864 336 2 731
liabilities
Current taxation liabilities 189 175 144
Insurance funds 3 803 5 276 5 152
Long-term debt instruments 7 497 7 447 10 086
Liabilities under 1 009 822 835
acceptances
Total shareholders` equity 300 353 316 123 313 113
and liabilities
Guarantees on behalf of 10 429 10 703 12 403
customers excluded from
assets
Segmental analysis 2004 2003 2004
as at 30 June Reviewed Restated Reviewed
Average Average Operating
Rm assets Rbn assets Rbn income
Nedbank Corporate 124 112 3 224
Nedbank Capital 58 61 1 087
Imperial Bank 14 10 393
Retail and Wealth 77 75 3 616
Management
Shared Services 30 28 50
Capital Management 25 29 (1 005)
and Central Funding
Preference share
dividend
Foreign currency (58) (56) (376)
translation losses
270 259 6 989
By geography
South Africa 6 217
Business operations 6 217
Recovery program
expenses
Minority interest
income attributable
to preference
shareholders
Rest of Africa 225
Rest of World 547
Business operations 547
Recovery program
expenses
6 989
Segmental analysis 2003 2004 2003
as at 30 June Restated Reviewed Restated
Operating Headline Headline
Rm income earnings earnings
Nedbank Corporate 3 303 1 149 1 365
Nedbank Capital 1 370 448 697
Imperial Bank 307 52 67
Retail and Wealth 3 720 270 437
Management
