| Tue 3 May 2005, 15:27 | | Nedbank - Transition to IFRS |
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Nedbank - Transition to IFRS
Nedbank Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1951/000009/06)
JSE share code: NBKP
ISIN code: ZAE000043667
(`Nedbank`)
Transition to International Financial Reporting Standards
Restatement of financial information for the year ended 31 December 2004 and the
six months ended 30 June 2004 under International Financial Reporting Standards
(`IFRS`)
Introduction
For the year ended 31 December 2004 the Nedbank group (`the group`) prepared its
financial statements under South African Statements of Generally Accepted
Accounting Practice (`SA GAAP`) as effective at that date. In accordance with
the JSE Securities Exchange South Africa (`JSE`) Listing Requirements the group
will be required to prepare its consolidated financial statements in accordance
with IFRS (and revised SA GAAP effective for financial periods commencing on or
after 1 January 2005) for the year ending 31 December 2005. IFRS refers to the
application of International Accounting Standards (`IAS`) and IFRSs.
This requirement applies to financial reporting for all companies with listed
securities for financial reporting periods beginning on or after 1 January 2005
and, consequently, Nedbank`s first published IFRS results will be its interim
results for the six months ending 30 June 2005. The group`s first published
financial statements under IFRS will be for the year ending 31 December 2005. As
the group publishes comparative information for one year in its financial
statements, the date for transition to IFRS is 1 January 2004, which represents
the start of the earliest period of comparative information presented.
In order to explain how Nedbank`s reported performance and financial position
are impacted by IFRS, the group has restated information previously published
under SA GAAP to the equivalent basis under IFRS. This restatement follows the
guidelines set out in IFRS 1, First-time Adoption of International Financial
Reporting Standards (`IFRS 1`).
The adoption of IFRS has resulted in certain income statement adjustments that
may not be repeated in future reporting periods.
It is important to note that this financial information has been prepared in
accordance with IFRS statements that are expected to be effective at 31 December
2005. These are subject to ongoing review and possible amendment by interpretive
guidance from the International Accounting Standards Board (`IASB`) and may
therefore be subject to change. It should further be noted that the ultimate
presentation, and income statement and balance sheet captions, could also
change.
Nedcor Limited (`Nedcor`), Nedbank`s holding company is also required to report
under IFRS and a similar Nedcor announcement was also released today. Old Mutual
plc, Nedbank`s ultimate holding company, is required to prepare its financial
statements in accordance with IFRS as endorsed by the European Union (`EU`). The
EU has not endorsed the full version of IAS 39, Financial Instruments:
Recognition and Measurement (`IAS 39`) and has instead endorsed a `carved out`
version. The `carve out` requires financial liabilities previously designated as
fair value through profit or loss to be valued on an amortised cost basis. The
`carve out` does not apply to the South African reported information and Nedbank
has retained the fair value designation for local reporting, but reports to Old
Mutual plc in line with the `carve out`.
Basis of preparation
The group has prepared the consolidated preliminary balance sheet at 31 December
2004 and the consolidated preliminary income statement for the year then ended,
in accordance with IFRS (`the preliminary financial information`) to establish
the financial position and results of operations of the group necessary to
provide the comparative information expected to be included in the group`s first
set of IFRS financial statements for the year ending 31 December 2005.
The board acknowledges its responsibility for the preparation of the preliminary
financial information which has been prepared in accordance with IFRS and
policies expected to be adopted when the board prepares the group`s first set of
IFRS financial statements for the year ending 31 December 2005. The board has
approved the preliminary financial information.
The preliminary financial information does not reflect any changes in respect of
any possible amendments to IAS 39 restricting the use of the fair value option.
Proposals to restrict the fair value option are being considered by the IASB and
Nedbank will continue to monitor industry developments in this area.
There have been no material adjustments to the cash flow statement in respect of
cash utilised by operating activities before taxation, cash flows from
investment activities and cash flows from financing activities as a result of
the adoption of IFRS.
Transitional Arrangements
The date of transition to IFRS for the group is 1 January 2004 and therefore as
required by IFRS 1, the group`s opening balance sheet at 1 January 2004 has been
restated to reflect all existing IFRS statements expected to be applicable at 31
December 2005. However, IFRS 1 allows a number of exemptions to this
retrospective application principle upon adoption of IFRS. The group has
utilised the following transitional arrangements on a consistent basis with its
holding company Nedcor and its ultimate holding company, Old Mutual plc:
* Cumulative translation differences: the group has elected that the cumulative
translation differences for foreign operations are deemed to be zero at the date
of transition.
* Business combinations: the group has elected not to retrospectively apply the
requirements of IFRS 3, Business Combinations (`IFRS 3`) for business
combinations that occurred prior to 31 March 2004 and consequently no adjustment
has been made for historical business combinations.
* Property, plant and equipment: the group has elected to measure individual
items of property, plant and equipment at fair value at the date of transition
to IFRS, hence fair value is deemed to be cost at that date.
* Employee benefits: the group has elected to recognise all cumulative actuarial
gains and losses on defined benefit post-retirement schemes in equity at the
date of transition.
The group has not elected to apply the exemption within IFRS 1 that allows
comparative information presented in the first year of adoption of IFRS not to
comply with IAS 32, Financial Instruments: Disclosure and Presentation (`IAS
32`) and IAS 39.
Where estimates have previously been made under SA GAAP, consistent estimates
(after adjustments to reflect any difference in accounting policies) have been
made for the same date on transition to IFRS.
Material adjustments
The basis of the material adjustments, net of the associated tax impact, as
shown in the tables for; Reconciliation of assets, liabilities and equity,
Reconciliation of income statement and Reconciliation of changes in
shareholders` equity are noted below:
Note 1: Credit impairment
Previously the group calculated its impairment losses on loans and advances on
an `expected loss` basis. Credit impairments were calculated using historical
data and trends. The discount rate used to calculate the recoverable amount
included an allowance for a credit spread.
Under IFRS the group has moved to an `incurred loss` basis. Impairment losses
are incurred only if there is objective evidence of impairment as a result of
one or more past events that have occurred since initial recognition. IFRS also
allows for the creation of a credit impairment for incurred but not reported
(`IBNR`) losses in order to provide for latent losses in a portfolio of loans
that have not yet been individually evidenced. The discount rate used to
calculate the recoverable amount now excludes any allowance for a credit spread.
Note 2: Revenue recognition and deferred acquisition costs
Previously fees charged and certain related acquisition costs for originating
loans were recognised as incurred in the income statement.
In accordance with IFRS, fees charged for loans are recognised as revenue as the
services are provided. Initial fees, which relate to the future provision of
services, are deferred and amortised over the anticipated period in which the
services will be provided.
Similarly costs that are directly attributable to securing a loan are deferred
as an asset and amortised as the related revenue is recognised.
Note 3: Goodwill
Previously, the group recognised acquired goodwill at cost and amortised it on a
straight-line basis over its expected useful life. Goodwill was subject to
review for indications of impairment and any impairment losses were recognised
in the income statement.
IFRS requires that goodwill is not amortised but is subject to impairment
reviews, both annually and when there are indications that the carrying value
may not be recoverable. Negative goodwill is no longer recognised on the balance
sheet but recognised in the income statement as it arises.
The 2004 goodwill amortisation previously recognised in the income statement has
been reversed, resulting in a corresponding increase in equity. All goodwill has
been tested for impairment at 1 January 2004, 30 June 2004, and 31 December 2004
in accordance with IFRS with no further impairment being recognised on
transition. Negative goodwill that was previously held on the balance sheet at
the transition date was released to reserves.
Note 4: Foreign exchange
Previously the group classified the assets and liabilities of all foreign
subsidiaries and branches as either foreign entities or integrated operations.
The foreign currency adjustments arising from the translation of foreign
entities were recognised directly in equity, in the Foreign Currency Translation
Reserve (`FCTR`), while those of the integrated operations were recognised in
the income statement.
IFRS requires the group to determine the `functional currency` for all entities
and the distinction between foreign entities and integrated operations has been
removed. An entity, which has a non-rand functional currency, is translated at
the closing exchange rate and the differences arising are reported directly to
equity, whilst all other entities classified as having a rand functional
currency report foreign currency translation differences in the income
statement.
The group has elected to apply the exemption afforded to it by IFRS 1 and reset
the balance of the FCTR to zero at the date of transition to IFRS.
Note 5: Share-based payments
The group grants share options to employees under employee share incentive
schemes. Previously the costs incurred in administering the schemes, and the
expense incurred, representing the difference between the exercise price and the
market price of such options, were accounted for in the income statement of
Nedbank.
In accordance with the requirements of IFRS, the group has recognised an expense
in the income statement, with a corresponding liability, representing the fair
value of outstanding employee share options with regard to its cash settled
scheme. The options are measured at fair value at each reporting date. The fair
value is recognised over the vesting period and is re-measured until the
underlying liability is settled. Any changes to fair value are recognised in the
income statement.
Note 6: Post-employment benefits
Previously the group elected to use the corridor method for the recognition of
actuarial gains and losses. Only cumulative actuarial gains or losses in excess
of 10% of the surplus or deficit in the fund were amortised in the income
statement. Cumulative gains or losses inside this corridor were carried on the
balance sheet and recognised over the expected remaining working lives of the
employees.
Under IFRS 1 the group has taken advantage of the option to eliminate its
pension fund corridor against opening retained income at the date of transition.
The asset has been eliminated, and the adjustment taken to retained earnings as
at 1 January 2004.
Future actuarial gains or losses will continue to be recognised using the
corridor method.
Note 7: Property, plant and equipment
Previously property, plant and equipment were measured at cost less accumulated
depreciation and impairment losses.
Under IFRS, equipment, (principally computer equipment, motor vehicles, fixtures
and furniture), is still stated at cost less accumulated depreciation and
impairment losses.
Owner-occupied property has been recognised at revalued amounts, being the fair
value at the date of revaluation less subsequent accumulated depreciation and
accumulated impairment losses. Increases in valuation of the properties are
taken to a revaluation reserve. This revaluation reserve is amortised over the
remaining useful life of the property. Land is not depreciated.
Investment properties are stated at revalued amounts, being fair value at the
date of revaluation less accumulated impairment losses. Increases or decreases
in valuation are recognised in the income statement and investment properties
are not depreciated.
Review opinion
This restatement of financial information for the year ended 31 December 2004
and the six months ended 30 June 2004 has been reviewed by the group`s auditors,
KPMG Inc and Deloitte & Touche, and their review opinion is available for
inspection at the group`s registered office. Their report includes an emphasis
of matter that the scope of their review did not include the presentation and
disclosure aspects of IFRS and was limited to the recognition and measurement
criteria of IFRS only. They further note that amendments to the interpretive
guidance issued by the IASB, between the date of this announcement and the
finalisation of the financial statements for the year ending 31 December 2005,
may result in changes to the restatements published.
Sandton
3 May 2005
Income statement
Prepared in accordance with IFRS Reviewed Reviewed
2004 2004
For the For the
year ended six months
ended
Rm 31 December 2004 30 June 2004
Interest and similar income 22 886 12 726
Interest expense and similar charges 16 176 9 536
Net interest income 6 710 3 190
Non-interest revenue 7 418 3 281
Foreign currency translation losses (434) (96)
Total income after foreign currency 13 694 6 375
translation losses
Impairment losses on loans and advances 1 358 405
Income after impairment losses on loans and 12 336 5 970
advances
Total expenses 10 898 5 215
Operating expenses 10 203 4 804
Fees due to alliance partners 70 83
Recovery programme expenses 379 234
Merger expenses 246 94
Profit from operations before non-trading 1 438 755
and capital items
Non-trading and capital items (86) (38)
Impairment of goodwill (4) 2
Profit on sale of subsidiaries, investments 31 15
and property and equipment
Net impairment of investments, property and (113) (55)
equipment and capitalised development costs
Profit from operations 1 352 717
Attributable earnings of associates and 121 58
joint ventures
Profit before taxation 1 473 775
Taxation 374 125
Taxation on non-trading and capital items (39) (17)
Profit after taxation 1 138 667
Minority interest income attributable to (117) (63)
ordinary shareholders
Profit attributable to ordinary 1 021 604
shareholders for the period
Headline earnings reconciliation
Profit attributable to ordinary 1 021 604
shareholders for the period
Less: non-trading and capital items (47) (21)
Amortisation and impairment of goodwill (4) 2
Profit on sale of subsidiaries, investments 31 15
and property and equipment
Net impairment of investments, property and (113) (55)
equipment and capitalised development costs
Taxation on above items 39 17
Headline earnings 1 068 625
Headline earnings excluding foreign 1 502 721
currency translation losses
Reconciliation of income statement
Profit attributable to ordinary
shareholders
Reviewed Reviewed
For the For the
six
year ended months
ended
31 December 30 June
Rm Note 2004 2004
As previously reported 628 280
Adjustments for:
Credit impairment 1 140 215
Revenue recognition and deferred 2 (31) (14)
acquisition costs
Goodwill 3 101 40
Foreign exchange 4 138 81
Share-based payments 5 (42) 11
Post-employment benefits 6 130
Property, plant and equipment 7 (43) (9)
As reported under IFRS 1 021 604
Balance sheet
Prepared in accordance with IFRS
as at Reviewed Reviewed Reviewed
31 December 30 June 1 January
Rm 2004 2004 2004
Assets
Cash and balances with central banks 9 582 11 314 11 716
Other short-term securities 13 426 7 457 8 802
Government and other securities 26 035 22 210 21 451
Derivative financial instruments 24 170 18 719 25 788
Loans and advances to customers 230 876 216 245 220 557
Other assets 5 227 7 496 3 655
Current taxation receivable 177 163 250
Investments in associate companies and 507 1 286 1 471
joint ventures
Investment securities 2 618 3 765 3 244
Post-employment assets 992 506 529
Deferred taxation asset 1 154 1 245 3 143
Investment property 119 130 172
Property, plant and equipment 2 767 2 635 2 759
Non-current assets held for sale 48 12 12
Computer software and capitalised 1 375 1 510 1 654
development costs
Goodwill 549 460 416
Customers` indebtedness for 1 509 1 009 835
acceptances
Total assets 321 131 296 162 306 454
Shareholders` equity and liabilities
Share capital 27 27 27
Share premium 13 945 12 647 10 054
Reserves 2 698 2 995 2 242
Ordinary shareholders` equity 16 670 15 669 12 323
Preference share capital and premium 2 770 2 770 2 802
Minority shareholders` equity
Attributable to preference 245 122 122
shareholders
Attributable to ordinary shareholders 559 720 657
Total shareholders` equity and 20 244 19 281 15 904
minority shareholders` equity
Derivative financial instruments 26 253 18 172 25 897
Amounts owed to depositors 258 798 242 642 239 041
Other liabilities 4 606 5 734 11 115
Deferred revenue 257 225 193
Current taxation liabilities 119 115 49
Deferred taxation liabilities 936 792 2 654
Post-employment liabilities 972 635 658
Share-based payment liability 129 60 22
Long-term debt instruments 7 308 7 497 10 086
Liabilities under acceptances 1 509 1 009 835
Total liabilities 300 887 276 881 290 550
Total shareholders` equity and 321 131 296 162 306 454
liabilities
Guarantees on behalf of customers 10 770 10 320 12 319
excluded from assets
Cash flow statement
Prepared in accordance with IFRS Reviewed Reviewed
For the For the
year ended six months ended
31 December 30 June
Rm 2004 2004
Cash and short-term funds at beginning 11 716 11 716
of period
Cash utilised by operating activities (3 395) 243
before taxation
Taxation paid (603) (188)
Cash flows from investment activities 1 148 (285)
Cash flows from financing activities 716 (172)
Cash and short-term funds at end of 9 582 11 314
period
Reconciliation of assets, liabilities and equity
Reviewed
Assets
31 December 30 June 1 January
2004 2004 2004
Note Rm Rm Rm
As previously reported 320 644 295 787 306 351
Adjustments for:
Credit impairment 1 106 186 (33)
Revenue recognition and 2 81 70 59
deferred acquisition costs
Goodwill 3 101 40
Share-based payments 5 22 18 7
Post-employment benefits 6 (46) (178) (178)
Property, plant and 7 223 239 248
equipment
As reported under IFRS 321 131 296 162 306 454
Reconciliation of assets, liabilities and equity
Reviewed
Liabilities
31 December 30 June 1 January
2004 2004 2004
Note Rm Rm Rm
As previously reported 300 517 276 602 290 303
Adjustments for:
Credit impairment 1
Revenue recognition and 2 257 225 193
deferred acquisition costs
Goodwill 3
Share-based payments 5 73 16 16
Post-employment benefits 6 40 38 38
Property, plant and 7
equipment
As reported under IFRS 300 887 276 881 290 550
Reconciliation of assets, liabilities and equity
Reviewed
Equity
31 December 30 June 1 January
2004 2004 2004
Note Rm Rm Rm
As previously reported 20 127 19 185 16 048
Adjustments for:
Credit impairment 1 106 186 (33)
Revenue recognition and 2 (176) (156) (135)
deferred acquisition costs
Goodwill 3 101 40
Share-based payments 5 (51) 2 (9)
Post-employment benefits 6 (86) (215) (215)
Property, plant and 7 223 239 248
equipment
As reported under IFRS 20 244 19 281 15 904
Reconciliation of changes in shareholders` equity
Reviewed
Current
Distribut-
able
Distribut reserve
able
reserves movements
Share Share brought after
capital premium forward dividends
Note Rm Rm Rm Rm
As at 1 January 2004
As previously reported 27 10 054 2 219 -
Income statement movements:
Credit impairment 1 (28)
Revenue recognition and
deferred
acquisition costs 2 (115)
Foreign exchange 4 41
Share-based payments 5 (9)
Post-employment benefits 6 (214)
Property, plant and equipment 7 (44)
As reported under IFRS 27 10 054 1 850 -
As at 30 June 2004
As previously reported 27 12 647 2 219 33
Income statement movements:
Credit impairment 1 (28) 215
Revenue recognition and
deferred
acquisition costs 2 (115) (14)
Goodwill 3 40
Foreign exchange 4 41 81
Share-based payments 5 (9) 11
Post-employment benefits 6 (214)
Property, plant and equipment 7 (44) (9)
Transfer of reserves 14
As reported under IFRS 27 12 647 1 850 371
As at 31 December 2004
As previously reported 27 13 945 2 219 (280)
Income statement movements:
Credit impairment 1 (28) 140
Revenue recognition and
deferred
acquisition costs 2 (115) (31)
Goodwill 3 101
Foreign exchange 4 41 138
Share-based payments 5 (9) (42)
Post-employment benefits 6 (214) 130
Property, plant and equipment 7 (44) (43)
Transfer of reserves 51
As reported under IFRS 27 13 945 1 850 164
Reconciliation of changes in shareholders` equity
Reviewed
Foreign Available
Property currency for
revaluation translation sale
reserve reserve reserve
Note Rm Rm Rm
As at 1 January 2004
As previously reported - 41 -
Income statement movements:
Credit impairment 1
Revenue recognition and
deferred
acquisition costs 2
Foreign exchange 4 (41)
Share-based payments 5
Post-employment benefits 6
Property, plant and equipment 7 295
As reported under IFRS 295 - -
As at 30 June 2004
As previously reported - 20 416
Income statement movements:
Credit impairment 1
Revenue recognition and
deferred
acquisition costs 2
Goodwill 3
Foreign exchange 4 (122)
Share-based payments 5
Post-employment benefits 6
Property, plant and equipment 7 296
Transfer of reserves (14)
As reported under IFRS 282 (102) 416
As at 31 December 2004
As previously reported - (7) 446
Income statement movements:
Credit impairment 1
Revenue recognition and
deferred
acquisition costs 2
Goodwill 3
Foreign exchange 4 (179)
Share-based payments 5
Post-employment benefits 6
Property, plant and equipment 7 313
Transfer of reserves (51)
As reported under IFRS 262 (186) 446
Reconciliation of changes in shareholders` equity
Reviewed
Total Preference
ordinary share
share- capital
Other holders` and
reserves equity premium
Note Rm Rm Rm
As at 1 January 2004
As previously reported 97 12 438 2 802
Income statement movements:
Credit impairment 1 (28)
Revenue recognition and
deferred
acquisition costs 2 (115)
Foreign exchange 4 -
Share-based payments 5 (9)
Post-employment benefits 6 (214)
Property, plant and equipment 7 251
As reported under IFRS 97 12 323 2 802
As at 30 June 2004
As previously reported 178 15 540 2 770
Income statement movements:
Credit impairment 1 187
Revenue recognition and
deferred
acquisition costs 2 (129)
Goodwill 3 40
Foreign exchange 4 -
Share-based payments 5 2
Post-employment benefits 6 (214)
Property, plant and equipment 7 243
Transfer of reserves -
As reported under IFRS 178 15 669 2 770
As at 31 December 2004
As previously reported 162 16 512 2 770
Income statement movements:
Credit impairment 1 112
Revenue recognition and
deferred
acquisition costs 2 (146)
Goodwill 3 101
Foreign exchange 4 -
Share-based payments 5 (51)
Post-employment benefits 6 (84)
Property, plant and equipment 7 226
Transfer of reserves -
As reported under IFRS 162 16 670 2 770
Reconciliation of changes in shareholders` equity
Reviewed
Preference Minority
share- share-
holders` holders`
equity equity Total
Note Rm Rm Rm
As at 1 January 2004
As previously reported 122 686 16 048
Income statement movements:
Credit impairment 1 (5) (33)
Revenue recognition and
deferred
acquisition costs 2 (20) (135)
Foreign exchange 4 -
Share-based payments 5 (9)
Post-employment benefits 6 (1) (215)
Property, plant and equipment 7 (3) 248
As reported under IFRS 122 657 15 904
As at 30 June 2004
As previously reported 122 753 19 185
Income statement movements:
Credit impairment 1 (1) 186
Revenue recognition and
deferred
acquisition costs 2 (27) (156)
Goodwill 3 40
Foreign exchange 4 -
Share-based payments 5 2
Post-employment benefits 6 (1) (215)
Property, plant and equipment 7 (4) 239
Transfer of reserves -
As reported under IFRS 122 720 19 281
As at 31 December 2004
As previously reported 245 600 20 127
Income statement movements:
Credit impairment 1 (6) 106
Revenue recognition and
deferred
acquisition costs 2 (30) (176)
Goodwill 3 101
Foreign exchange 4 -
Share-based payments 5 (51)
Post-employment benefits 6 (2) (86)
Property, plant and equipment 7 (3) 223
Transfer of reserves -
As reported under IFRS 245 559 20 244
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Sponsors:
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Date: 03/05/2005 03:25:49 PM
Produced by the JSE SENS Department
