| Thu 11 Nov 2004, 11:35 | | Nedcor Limited - Trading Update |
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Nedcor Limited - Trading Update
NEDCOR LIMITED
(Incorporated in the Republic of South Africa)
Registration number: 1966/010630/06
JSE share code: NED
ISIN code: ZAE000004875
(`Nedcor` or `the group`)
TRADING UPDATE
OVERVIEW
The directors are pleased to report that trading for the nine months to 30
September 2004 (`the period`) remains in line with forecasts.
Most of the key risks faced by the group at the beginning of the year have been
addressed. The operating divisions are now able to focus more of their attention
externally, refining processes and service delivery to customers, and in this
way defending the group`s market share.
PERFORMANCE FOR THE PERIOD
The primary focus in recent months has been on
- the strategic recovery programme and completing the merger,
- improving staff morale,
- initiating a black economic empowerment transaction, and
- reorganising the business to be more client focused, particularly in Nedbank
Retail.
Performance for the period has been in line with management`s expectations.
- Net interest income (`NII`) continues to benefit from the improved funding
profile and hedging strategies. NII has improved with the uplift created from
the rights offer cash received in May, reduced funding drag as a result of the
banking book being relatively interest rate neutral following the hedging
strategy, the sale of non-core investments reported on in August and the
repatriation of certain foreign capital. The result has been an increase in
margin (based on average interest earning assets) to 3,13% for the period from
3,05% for the six months to June 2004. The group has also grown advances from
R206,3 billion at 30 June 2004 to R208,6 billion at 30 September 2004. NII for
the period amounts to R5,6 billion.
- Non-interest revenue (`NIR`), while still anticipated to be lower in 2004 than
the level achieved last year, has shown an improvement since June, and deal flow
has improved during the quarter to 30 September 2004. Exchange and securities
dealing revenue, however, remains muted. NIR for the period amounts to R5,5
billion.
- Operating expenses for the period totalled R 7,8 billion (before merger and
recovery programme costs and fees due to alliance partners). Staff numbers have
reduced by a further 1 395 since June 2004 to 21 777. The cost to income ratio
(excluding merger and recovery programme costs and foreign exchange translation
losses) for the period of 71,1% has improved from the 73,0% reported for the six
months to June 2004.
- Credit quality has generally been satisfactory and the charge against income
for impairments remains stable, with total impairments amounting to R1,14
billion for the period.
- Taxation remains low, mainly because of the accounting treatment of structured
finance transactions which requires the tax benefit to be reflected in the tax
line with a corresponding reduction in margin.
- Shareholders were advised at the half year that the foreign exchange
translation risk had been substantially reduced by the repatriation or hedging
of part of the foreign capital. At 30 September 2004 the year to date foreign
currency translation losses on the remaining foreign capital, reflected in the
income statement, amounted to R72 million based on an exchange rate of
R6,465/US$, compared to the position at 30 June 2004 when these losses amounted
to R213 million (based on R6,185/US$).
STRATEGIC RECOVERY PROGRAMME UPDATE
The strategic recovery programme is progressing as planned. The BoE merger is
nearing completion with the migration of the NBS branch clients onto the Nedbank
and Peoples Bank systems - having been completed in October. In August the group
estimated costs for 2004 for the recovery programme of R459 million and for the
merger of R315 million. While this remains the estimate, a portion of these
costs may only be incurred in 2005.
FINANCIAL TARGETS
The group continues to pursue its target of achieving a return on ordinary
shareholders` funds of at least 20% for 2007. Expense control remains a key
focus and management aims to keep the growth in operating expenditure (excluding
merger and restructuring costs) below revenue growth in order to achieve this
target. Management is also targeting a cost-to-income ratio of 55% in 2007.
The board remain confident that the group`s tier 1 capital will exceed the
target of 7.5% at year-end.
EARNINGS FORECASTS CONFIRMED
At the time of the announcement of the interim results to 30 June 2004, the
group forecast that headline earnings (excluding translation gains or losses)
for the year to 31 December 2004 would be between 0% and 15% greater than the R1
471 million reported in 2003. It also stated that due to the dilutionary impact
from the increased number of shares in issue following the rights offer,
headline earnings per share (excluding translation gains or losses) were
expected to be between 6% and 19% lower than the 502 cents per share reported in
2003. This remains the directors` forecast.
Assuming a stable Rand exchange rate for the remainder of the year, and based on
the forecast range of headline earnings per share above, attributable earnings
per share are estimated to be between 315 and 377 cents per share, compared to
the loss of 546 cents per share in 2003.
Shareholders are reminded that these forecasts have not been reviewed or
reported on by the group`s auditors.
For further information kindly contact:
Tier 1 Investor Relations
+27 (0)21 702 3102
Sandton
11 November 2004
Sponsors to Nedcor:
Merrill Lynch South Africa (Pty) Limited
Nedbank Capital
