| Thu 4 Aug 2005, 9:24 | | Results for the six months ended 30 June 2005 |
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Nedbank Group - Reviewed Financial Results For The six months ended 30 June 2005
NEDBANK GROUP LIMITED
Registration number 1966/010630/06
Share code NED
ISIN code ZAE000004875
INTERIM RESULTS 2005
Reviewed financial results for the six months ended 30 June 2005
COMMENTARY
Highlights
* Benefits of recovery programme gain momentum
* Headline earnings increase 74,3% to R1 398 million
* Headline earnings per share up 44,5% to 354 cents
* Return on ordinary shareholders` equity increases from 11,7% to 14,6%
* Efficiency ratio (excluding foreign currency translation gains/losses)
improves from 77,9% to 68,6%
* Broad-based black economic empowerment scheme approved
* Interim dividend per share up 139% from 44 cents to 105 cents
Nedbank Group`s recovery programme is gaining momentum and the benefits are
increasingly being reflected in our financial performance.
Income is growing at a faster rate than expenses, with the efficiency ratio
improving steadily and return on equity increasing. We continue to deliver on
the commitments we have made to our shareholders and have reaffirmed our stated
financial targets for 2007.
Tom Boardman
Chief Executive
Overview
Headline earnings per share increased by 44,5% to 354 cents (2004: 245 cents) in
line with the revised forecast provided to the market on 21 July 2005.
Fully diluted headline earnings per share increased from 243 cents to 354 cents.
Basic earnings (previously known as attributable earnings) also grew strongly,
rising from 247 cents per share to 356 cents per share for the period. The
directors have resolved, in line with the circular to shareholders on the black
economic empowerment (BEE) scheme, to offer a capitalisation award with a cash
dividend alternative amounting to 105 cents per share, up from the dividend of
44 cents per share announced in August 2004.
The group`s return on ordinary shareholders` equity (ROE) continued to improve,
increasing from 11,7% for the period to June 2004 to 14,6% for the six months to
June 2005.
The improved performance for the six months was driven mainly by:
* the continued realisation of benefits from the recovery programme, which
are reflected in the growth in operating income and the containment of
expenses, resulting in the efficiency ratio (excluding foreign exchange
translation gains/losses) improving from 77,9% for the period to June 2004
to 68,6% for the six months to June 2005;
* significantly improved performance from Nedbank Retail, with headline
earnings growing 105,1% to R439 million and return on average equity
improving from 9,2% to 18,3%;
* a strong performance from Nedbank Capital, with headline earnings
growing 25,9% to R447 million;
* a 5,9% growth in advances, compared with December 2004;
* a continuation of the good credit environment, resulting in an improvement
in the overall quality of advances; and
* the weakening of the rand, resulting in a foreign currency translation gain
of R165 million, compared with a loss of R98 million for the period to June
2004.
Nedbank Group is reporting in accordance with International Financial Reporting
Standards (IFRS) with effect from 1 January 2005. The group`s 2004 results have
been restated to reflect the requirements of reporting under IFRS.
Progress against three-year plan
In the 2004 year-end results announced in February 2005, Nedbank Group outlined
five major action plans that form the foundation of the group`s three-year plan.
To provide shareholders with an update on the group`s progress delivery against
each of these actions is detailed below:
* Ensure that income growth is at least 9% higher than expense growth (on a
three year compound annual growth rate (CAGR) basis with 2004 as the base)
Good progress has been made towards achieving this target, with total
income (excluding foreign currency translation gains) growing by 9,2%,while
total expenses declined by 3,9% for the period. The group anticipates that
although income is expected to continue to grow ahead of expenses, the
difference will not be as large in future reporting periods as in the
current period.
* Maintain market share from the second half of 2005
There has been a slowdown in the rate at which the group has been losing
market share, particularly in the key area of home loans in Nedbank Retail.
Market shares are still expected to stabilise in the second half of the
year.
* Grow non-interest revenue through a focus on transactional revenue
To grow transactional revenue the group has created focused teams
and started to implement a range of initiatives to improve cross- selling,
upselling, client service, pricing and bancassurance. The group recognises,
however, that this is only a longer-term goal and the full benefits are
expected to be realised from 2006.
* Build Nedbank Retail
Nedbank Retail has historically generated ROEs significantly below those
of its retail banking peers. A key focus of the group is to deliver the
financial turnaround of Nedbank Retail, while improving client service.
Following the restructuring of Nedbank Retail in 2004, good progress has
been made in growing revenue and containing expenses, resulting in headline
earnings increasing by 105% and return on average equity increasing from
9,2% to 18,3%. The integration of Nedbank and Peoples Bank is progressing
according to plan and remains on track for completion by the end of 2005.
The restructuring and a focus on staff training will deliver improved
client service.
* Transform the business beyond the Financial Sector Charter (FSC)
targets
Nedbank Group`s groundbreaking BEE transaction announced in April will see
a broad range of black stakeholders acquire direct ownership worth 11,5% of
the value of Nedbank Group`s South African businesses. The transaction,
worth more than R3 billion, was approved by an overwhelming majority of
shareholders on 22 July 2005. The scheme shares are due to be issued to the
respective BEE trusts on 8 August 2005. The group will then focus on
implementing the schemes for employees, retail and corporate clients and
community groups, as well as developing its working relationship with the
strategic black business partners, based on their performance agreements.
Appropriate emphasis still remains on other areas of transformation such as
employment equity, skills development, procurement, access to financial
services, empowerment financing and social responsibility.
Strategy
Nedbank Group remains committed to its strategy of:
- focusing on the basics of banking to meet the financial services
needs of clients;
- being a full-spectrum bank, providing a comprehensive range of banking
and related services to investment banking, corporate and retail clients
across all client segments; and
- adopting a Southern African focus, while also meeting the international
banking needs of our Southern African clients and servicing multinational
clients doing business in South Africa.
The key strategic focus areas remain:
- continuing to drive growth in transactional banking;
- building a high-performance culture through the empowerment of employees
and ensuring accountability throughout the organisation;
- optimising the business mix by growing Nedbank Retail and improving the
product and client mix;
- moving beyond transformation as a business imperative and demonstrating
the group`s commitment to South Africa; and
- instilling a client-driven business model by creating a client-focused
structure and simplifying processes to speed up delivery to clients.
By listening, understanding client needs and delivering to our stakeholders, the
group strives to become Southern Africa`s most highly rated and respected bank
by employees, clients, shareholders, regulators and communities.
Business environment
The environment for the banking sector remained positive throughout the period.
Stable, low interest rates and low inflation continued to drive consumer
spending and retail advances growth. The positive economic conditions also
stimulated equity markets and ensured a continuation of the positive credit
environment. While the demand for credit in business banking and commercial
property finance remains steady, and the initial signs of an increase in
infrastructure spend are being noted, the demand for large corporate debt has
been muted. The investment banking markets continued to experience strong deal
flows, driven primarily by BEE transactions.
Financial performance
Nedbank Group continued to show a turnaround in performance, with headline
earnings growing by 74,3% from R802 million to R1 398 million.
Basic earnings grew by 73,3% from R810 million to R1 404 million.
Net interest income
Net interest income (NII) increased by 21,2% from R3 319 million to R4 024
million. The group`s net interest margin for the period was 3,45%, up from 2,99%
for the period to June 2004 and 3,18% for the 12 months to December 2004.
To reflect more accurately the banking margin on banking assets by excluding
trading activities and to facilitate easier peer group comparison, the group has
reclassified certain trading revenues from NII to non-interest revenue (NIR). As
a result, the previously reported NII of R3 595 million for the period to June
2004 has decreased by R276 million to R3 319 million.
The previously reported comparative for NIR has consequently increased by R276
million from R3 495 million to R3 771 million.
The margin increase can be attributed to:
* the uplift created from a full six months of the rights offer proceeds
received in May 2004;
* reduced funding drag as a result of the low levels of interest rate risk in
the banking book following the hedging strategy implemented last year;
* income on the proceeds from the sale of non-core investments;
* the repatriation of certain foreign capital during 2004; and
* the settlement of the expensive empowerment funding for Peoples Bank in
April 2005.
However, margin was negatively impacted by the 1% reduction in the taxation rate
for companies, which resulted in a R54 million reduction in margin arising from
the treatment of structured finance deals. This reduction is offset by a
corresponding reduction in the taxation line and will reverse over time.
Margins have also been compressed by the impact of the lower interest rate
environment and resulting drop in the endowment income earned on capital and the
net of non-interest-paying liabilities and non-interest-earning assets.
% of daily average interest-earning assets - unaudited % Rm
December 2004 reported 3,13 7 582
Trading revenue and assets excluded from margin 0,05 (437)
Adjusted 2004 margin 3,18 7 145
H1 2005 asset growth 719
Net endowment effect 0,18 166
- Rights issue 0,13 122
- Other 0,05 44
Current and savings accounts margin compression (0,10) (93)
Market margin compression (0,16) (151)
Expensive funding drag 0,11 100
Foreign capital repatriated 0,06 56
Subordinated debt hedge 0,05 46
Expensive empowerment funding for Peoples Bank 0,07 70
Tax structured deals impact 0,06 64
Other (7)
June 2005 annualised 3,45 8 115
Non-interest revenue
NIR, excluding foreign currency translation gains/losses, decreased by
1,5% from R3771 million for the period to June 2004 to R3 716 million for
the six months to June 2005.
NIR growth was negatively impacted by the sale of subsidiaries during 2004.
In the six months to June 2004 the group generated R228 million of NIR from
these subsidiaries. Commission and fee income in the remaining businesses
continued to grow steadily, increasing by 11,1%. Trading revenue increased from
R554 million for first half of 2004 to R657 million for the first half 2005.
Exchange and non-interest dealings income is R216m down on the June 2004
comparative, of which R153m relates to fair value adjustments.
Other factors that contributed to the movement in NIR are set out below:
Major changes to NIR (Rm) - unaudited June 2005 June 2004
Rm Rm
BondChoice 138 63
Realisation of endowment policies 3 32
Subsidiaries sold during 2004 228
First-time and pro rata consolidations 68 6
Taking the above factors into account, on a directly comparable basis, NIR
increased by 1,0%.
Foreign currency translation gains
In line with the strategy of focusing on the basics of banking and reducing
earnings volatility the group reduced its exposure to foreign currency movements
during 2004, retaining sufficient capital to support the offshore businesses.
Owing to the 18% decline in the value of the rand, which weakened from
R5,63:US$1,00 on 31 December 2004 to R6,67:US$1,00 on 30 June 2005, the group
benefited from translation gains of R165 million on the remaining capital held
in its foreign subsidiaries and treated as rand functional currency for
accounting purposes under IFRS.
The adoption of IFRS has led to an increased portion of the foreign currency
translation gains/losses being treated as movements in the balance sheet foreign
currency translation reserve rather than being taken through the income
statement. During the period, the group recorded balance sheet translation gains
of R48 million.
After further planned restructuring of offshore subsidiaries in the next six
months and the associated repatriation of capital, the relative proportion of
translation movements flowing through the balance sheet, as opposed to the
income statement, is anticipated to increase further. This will further reduce
the volatility of earnings resulting from exchange rate movements.
Impairment losses on loans and advances
The introduction of IFRS means that all banks now provide for credit impairments
on an `incurred loss` basis,as opposed to an `expected loss` basis.
In addition, the discount rate used to calculate the recoverable amount now
excludes any allowance for a credit spread. This will create more volatility in
the reporting of impairment losses on loans and advances in the income statement
charge.
As reported in May 2005, the impact of IFRS requirements on the impairments
charge for the period to June 2004 was a reduction from the previously reported
R719 million to R409 million. A major portion of the change to the June 2004
impairment charge for reporting in terms of IFRS was due to the improving credit
environment at that time, combined with the move from reporting on an `expected`
to an `incurred` loss basis. This improved environment was sustained throughout
2004 and in the first half of 2005, with the resulting impairment charge for the
six months to June 2005 of R620 million.
Non-performing loans and properties in possession improved, as reflected in the
table below.
Non-performing advances (Rm) - unaudited
June 2005 Dec 2004 % change
Rm Rm
Non-performing loans 5 820 6 729 (13,5)
Properties in possession 528 761 (30,6)
Total non-performing advances 6 348 7 490 (15,2)
These non-performing advances represent 2,7% of gross advances (December 2004:
3,3%). The group`s gross coverage ratio improved from 89% at 31 December 2004 to
97% at 30 June 2005 and the net coverage ratio improved from 149% at 31 December
2004 to 157% at 30 June 2005.
Expenses
Expenses were well-controlled and declined by 3,9% from R5 524 million to R5 311
million, with the efficiency ratio (excluding foreign currency translation gains
/ losses) improving from 77,9% to 68,6%.
This decline in expenses is mainly attributable to the following:
Factors resulting in an increase/(decrease) in expenses - unaudited Rm
First time consolidation of subsidiaries 35
Subsidiaries disposed in 2004 (168)
Reduction in fees due to the buy-out of alliance partners (53)
Reduction in one-off recovery and merger costs (275)
Increase in fees (largely in BondChoice) 56
Other movements, mainly due to inflation 192
Total decrease in expenses (213)
Excluding the one-off merger and recovery expenses from 2004, base expense
growth was held at 1,2%.
Approximately R48 million of recovery programme expenses have been deferred from
the first half of 2005 to the second half of the year. Combined recovery
programme and merger expenses are expected to be about R150 million for the year
ending December 2005.
Taxation
The tax rate for companies was reduced from 30% to 29% during the reporting
period. While tax on earnings decreased as a result, the downward revaluation of
the deferred taxation and structured finance assets has resulted in the
reduction of headline earnings by approximately R80 million. R54 million of this
decrease was reflected as a reduction in NII, as outlined above.
The balance of R26 million increased the taxation charge. This, together with a
smaller relative impact on taxation from structured deals and an increase in
secondary tax on companies (STC), has resulted in the effective taxation rate
increasing from 14% to 22%.
Balance sheet
Capital
The group`s capital position continues to strengthen, with the Tier 1 group
capital adequacy ratio increasing from 8,1% in December 2004 to 8,5% in June
2005. The total group capital adequacy ratio has remained stable at 12,2%
(December 2004: 12,1%).
Advances
Although asset growth rates are behind those of the rest of the market,advances
increased by 5,9% to R228 billion on an annualised basis,compared with December
2004. Residential home loan advances grew by 22,3%, with home loans in Nedbank
Retail growing at 19%, narrowing the gap between Nedbank`s growth and that of
its competitors in this sector.
The breakdown of the advances growth is as follows:
Loans and advances - unaudited June 2005 Dec 2004 Annualised
Rm Rm increase(%)
Nedbank Retail 73 252 69 736 10,2
Nedbank Corporate 98 085 93 123 10,7
Nedbank Capital 34 395 32 606 11,1
Other 22 010 25 810 (29,7)
Total 227 742 221 275 5,9
Deposits
Deposits have remained stable and the group has maintained a strong liquidity
position.
Divisional performance
Management information systems and reporting continue to be enhanced, with
matched-maturity funds transfer pricing now operational and activity-justified
funds transfer pricing refined to allocate additional costs from the centre to
the respective operating divisions. The segmental reports have been adjusted to
reflect these changes as well as other changes as a result of the group
reorganisation completed in late 2004. Good progress has also been made in
implementing economic capital measurement, which is currently being run in
parallel with the existing reporting systems, with a view to full implementation
for 2006.
Nedbank Capital
Nedbank Capital increased headline earnings by 25,9% from R355 million to R447
Million, and ROE improved from 23,5% to 28,2%. This was driven by 18,6% growth
in trading revenue in Treasury due to favourable market conditions as well as
good deal flow and a strong performance from Debt Capital Markets, Equity
Capital Markets, Nedcor Securities, Investment Banking and Specialised Finance.
Expenses have reduced despite higher joint-venture fees paid to Macquarie as a
result of higher earnings. The expense reduction was aided by the sale of Edward
Nathan & Friedland and lower rental costs following the relocation of the London
offices to premises shared with Old Mutual plc.
The benefits of an integrated investment bank with a strong focus on specific
sectors are becoming evident and the transaction pipeline remains strong.
Nedbank Corporate
Nedbank Corporate increased headline earnings by 14,2% from R812 million to R927
million, while ROE increased from 17,7% to 19,1%. NII was negatively impacted by
lower endowment levels, while margins (excluding endowment) were unchanged.
Corporate loan growth is muted as clients remain cash flush, and the market is
highly competitive. Growth in Business Banking assets in KwaZulu-Natal and the
Western Cape is below average and some market share has been lost in these
regions following the merger integration process. Property Finance continues to
perform strongly and Nedbank Africa performed in line with expectations.
NIR was boosted by the consolidation of Fasic (not included in the comparative
period for 2004), a strong performance from BondChoice and growth in
transactional banking. Fee generation on foreign exchange commission was lower
than expected and there is increasing pressure on specialised fees.
The impairment environment continues to be favourable, reflecting the current
positive economic cycle.
Operating expenses remain well-controlled. However, the expected appointment of
further sales staff to improve client service is expected to result in a slight
increase in staff expenses in the second half of 2005.
New managing directors were appointed in Corporate Banking, Business Banking and
Nedbank Africa at the start of the year. In addition, five divisional directors
were appointed to head geographically based business units established in
Business Banking to enhance client service, accountability and performance
through decentralised and empowered management. Our commitment to going `beyond
transformation` is reflected through five of the eight appointments being either
black or female executives.
Pressure on margins in the current low-interest-rate environment, competitive
pricing, disintermediation and corporate clients being cash flush will continue
to impact earnings growth, particularly within Corporate Banking.
Nedbank Corporate continues to build strong relationships with its core clients
and to work closely with both Nedbank Retail (card acquiring and schemes) and
Nedbank Capital to leverage client relationships and broaden the range of
products and services to add greater value for clients.
Nedbank Retail
Nedbank Retail increased headline earnings by 105,1% from R214 million to R439
million, and ROE increased from 9,2% to 18,3%. Despite the negative endowment
impact from the interest rate cut in April, NII was driven by strong advances
growth primarily due to the 19% year-on-year growth in home loans.
NIR benefited from increased volumes, insurance commissions and increased
stockbroking activity in BoE Private Clients.
The growth in credit impairments is distorted by the prior year IAS39
restatements that caused a R206 million reduction in the restated first half of
2004.After adjusting for this restatement, impairments reduced by 2,5% year on
year.
Expense growth, on a comparable basis, has remained flat, due to operational
efficiencies and delays in marketing spend. Marketing spend is planned to
increase in the second half of 2005.
The rate of market share losses continues to slow, particularly in the key home
loans sector. This has been driven by improved channel management and process
and structural changes made in Nedbank Retail.
The Nedbank / Peoples Bank integration is progressing well. The Peoples Bank and
Nedbank branches are operating on a common IT platform and Peoples Bank is
scheduled to convert fully to the Nedbank systems in August 2005. It is
anticipated that 146 branches will be rebranded to Nedbank, 56 closed and 24 new
branches opened. 11 branches have been closed to date, with the remaining 45
earmarked for closure by the end of 2005. The rationalisation and rebranding
costs will amount to approximately R52 million,of which R10 million has already
been incurred. Following this integration Nedbank Retail will have 443 Nedbank
branches, 46 Old Mutual Bank branches, 1 119 Nedbank ATMs and 55 Old Mutual Bank
ATMs.
Nedbank Retail is currently replacing and upgrading all ATMs and self-service
terminals at a capital cost of approximately R160 million. This is planned for
completion by the second half of 2006.
Good progress has been made in the first half of 2005 towards setting the
foundation for the turnaround of Nedbank Retail. The key future focus areas in
Nedbank Retail are client service, advances growth, reduction in impairments,
bancassurance and staff morale.
Imperial Bank
Imperial Bank increased headline earnings by 19,1% from R47 million to R56
million. NII grew by 17,0%, despite the negative endowment impact of the
interest rate cut. This was driven by strong growth of Motor Vehicle Finance,
while advances growth in Property Finance slowed due to a more conservative
approach to this sector of the business. Impairments declined by 12,5% due to a
more favourable credit environment and to a reduction in provisioning
requirements in both Property Finance and Aviation.
Nedbank Group and Imperial Holdings each contributed R70 million of additional
capital to Imperial Bank in March 2005. This has resulted in an initial dilution
of ROE (measured on Nedbank Group`s investment) from 14,2% to 10,3%, but will
support future growth.
During the six months to June 2005, a new Chief Executive, Chief Financial
Officer and Chief Risk Officer were appointed. This new management team has
settled down well and staff morale is good. The outlook for the remainder of the
year remains robust, with continued strong advances growth in the motor sector
and a good credit environment expected to continue.
Central Services
Costs in central services divisions in 2004 have been restated to reflect the
Reorganisation,which saw a number of previously centralised functions moving to
the operating divisions, including the move of all branch operations to Nedbank
Retail. Overall the headline loss from shared services has reduced from R128
million (R432 million pre-IFRS and prior to the above-mentioned restatements) to
R94 million.
The headline loss of R377 million (June 2004: R498 million or R987 million pre-
IFRS and prior to the above-mentioned restatements) from Capital Management and
Central Funding comprises primarily the preference share dividend, the funding
of the group`s goodwill, the cost of the expensive empowerment funding for
Peoples Bank, the excess cost of the subordinated debt and the deferred tax rate
adjustment, offset by the foreign currency translation gain.
Sustainability
Nedbank Group continues to focus on sustainable development for the long- term
benefit of the company and the communities it serves. The group has again been
included in the JSE Socially Responsible Investment (SRI) Index for 2005 and was
rated among the top three companies in its category.
Prospects
Nedbank Group reaffirms its targets of achieving a return on average ordinary
shareholders` equity of 20% and an efficiency ratio of 55% for 2007.
Assuming a stable interest rate environment, the performance in the second half
of the year is likely to be impacted by the following:
* margin will benefit from the settlement of the expensive empowerment
funding for Peoples Bank in the first half, but could be negatively
influenced by the continued industry pressure on margins; and
* expense growth will continue to be contained as the group focuses on
extracting operational efficiencies, but will increase as a result of the
branch rationalisation and rebranding costs of Peoples Bank
(approximately R42 million), increased second-half marketing expenditure
(approximately R100 million), the share-based payment cost of the BEE
transaction (approximately R156 million) and one-off merger and recovery
costs (approximately R150 million for 2005).
The group continues to invest in technologies and infrastructure-related
projects. Strategic initiatives are in progress to upgrade several legacy
systems while at the same time preparing for the Basel ll systems requirements.
Projects to upgrade transactional banking systems and consolidate multiple
Corporate Banking channels are in progress. New financial processing systems and
client information projects have been approved to support the client-centric
strategy of the bank. All data and voice networks in the group have been
outsourced, in conjunction with Old Mutual (SA), to a Telkom/CSC consortium,
which will replace all existing network infrastructure with up-to-date
technology. This outsourcing contract will save Nedbank approximately R700
million over the next five years, with savings of R60 million in 2005. The group
is in the process of centralising information technology in the Group Technology
and Support Services Cluster.
As previously reported, the detailed three-year plan envisages:
* The group maintaining its advances market share from the second
half of 2005., expecting this to be achieved particularly in the key
category of residential home loans, although categories such as credit
cards may take longer;
* continued growth in revenue ahead of growth in expenses;
* a focus on growing transactional revenue;
* Nedbank Retail being a major growth area for the group; and
* Continued transformation of the group.
Full-year earnings forecast
As a result of the improved performance to date and expected earnings for the
balance of the year - and assuming that exchange rates remain constant - the
group forecasts headline earnings of between 58% and 78% higher than the R1 742
million restated results under IFRS for 2004.
Headline earnings per share are estimated to be between 44% and 62% greater than
the IFRS-restated 483 cents per share reported for December 2004. Basic earnings
per share for the full year will be between 65% and 85% higher than the IFRS-
restated 423 cents per share reported for December 2004.
These forecasts have not been audited or reviewed by the company`s auditors.
Post balance sheet event - BEE transaction
On 19 April 2005 the group announced its intention to implement a BEE ownership
Transaction, which would increase black shareholding by 11,5% of the value of
Nedbank`s South African businesses.
The proposals involve the issue of new ordinary shares in Nedbank Group to
various share trusts for the benefit of black employees within the group, black
clients and black business partners in South Africa. The proposals were approved
by shareholders at a general meeting held on 22 July 2005.
Implementation of the proposals will take place during August 2005, resulting in
the listing of 41 268 130 new ordinary shares. Of these, 39 843 139 ordinary
shares are to be accounted for as treasury shares.
The total economic cost of this transaction is expected to be R968 million.
Share-based payment costs in accordance with IFRS 2, which are required to be
recognised on issue of the company`s shares, are estimated at R933 million, of
which R156 million is expected to be incurred in the second half of 2005.
Changes to board of directors
During the period under review, the following changes were made to the board of
Nedbank Group:
* Bob Head was appointed as a non-executive director (1 January 2005);
* Hixonia Nyasulu resigned as an independent non-executive director and
Vice-chairman (26 January 2005);
* Phuthuma Nhleko resigned as a non-executive director (21 April 2005); and
* Lot Ndlovu changed status from an executive director to non-executive
director (1 May 2005).
Accounting policies
The Nedbank Group financial results have been prepared in accordance with
International Financial Reporting Standards (IFRS), as expected to be effective
for the year ending 31 December 2005. These standards are subject to ongoing
review and possible amendment in terms of interpretive guidance from the
International Financial Reporting Interpretations Committee (IFRIC).
The results may therefore be subject to change at future reporting dates.
Restatement of comparatives:
1.The group`s results for the June and December 2004 reporting dates have been
restated to reflect the requirements of reporting under IFRS. These restated
results for 2004 were disclosed in an announcement on 3 May 2005.
The material adjustments for reporting under IFRS are noted in the
reconciliation of results, as reported below.
2. Income reclassification - during the period under review the group changed
its disclosure in respect of income and the 2004 results have been restated
accordingly. The components of net interest income (NII) and non-interest
revenue (NIR) were analysed and the nature and classification of interest income
and non-interest revenue was refined. In essence, all income earned in respect
of banking activities (ie transactions entered into for the purpose of earning a
margin between interest earned and interest paid) is classified as either
interest income or interest expense and included in NII. By the same token all
transactions entered into for the purpose of trading activities are classified
as part of NIR. The effect of this change in disclosure is to decrease NII by
R276m for the period ended 30 June 2004 and R437m for the year ended 31 December
2004, with a simultaneous increase in NIR in the relevant periods.
3. Balance sheet reclassifications - certain provisions for leave pay and
onerous leases totalling R425m have been reclassified, for the reporting period
ended 30 June 2004, from the `Amounts owed to depositors` category to `Other
liabilities` category.
4. Segmental reporting comparative results for 2004 have been restated to take
into account the changes in improved profitability measurement and group
restructures implemented late in 2004. The restatements include the new internal
funds transfer pricing system, improved activity-justified transfer pricing
process, and a risk-weighted capital allocation and charging methodology, while
liquid assets and cash reserving costs are no longer held at the centre, but are
charged to the operating segments.
Operating lease costs - the historical accounting and interpretation in South
Africa of AC105/IAS17 has not been in line with international interpretation and
application. Interpretive guidance by the Accounting Practices Committee of the
South African Institute of Chartered Accountants - Circular 7/2005 issued on 2
August 2005- required minimum lease payments, which are subject to a fixed rate
escalation, to be spread over the life of the lease and the escalation not to be
accounted for in the year of occurrence. The group has assessed the materiality
of any adjustment in terms of this requirement, and does not expect this
adjustment materially to affect the current reported results. The impact on
opening shareholder`s equity is presently being assessed and, should this be
material, the Group will inform the market of any prior adjustment required.
Reviewed results - auditors` opinion
The group`s auditors, KPMG Inc and Deloitte & Touche, have reviewed these
results and the review opinion is available for inspection at the company`s
registered office.
Capitalisation award with a cash dividend alternative
Notice is hereby given that the directors of the company have resolved to issue
fully paid ordinary shares in the company as a capitalisation award to ordinary
shareholders. Ordinary shareholders will be entitled, in respect of all or part
of their shareholding,to elect to receive new fully paid ordinary shares, which
shares will be issued only to those ordinary shareholders who elect in respect
of all or part of their shareholding, on or before 12:00, Friday, 9 September
2005, to receive the capitalisation award shares. Shareholders not electing to
receive new fully paid ordinary shares in respect of all or part of their
shareholding will be entitled to receive a cash dividend alternative of 105
cents per ordinary share (the cash dividend alternative).
In accordance with the provisions of STRATE, the electronic statement and
custody system used by JSE Limited, the relevant dates for the capitalisation
award election and the cash dividend alternative are as follows:
2005
Last day to trade to participate in the
capitalisation award or the
cash dividend alternative Friday, 2 September
Shares trade ex the capitalisation award election
and the cash dividend alternative on Monday, 5 September
Listing of the maximum number of new ordinary shares
that could
be taken up in terms of the capitalisation award on Monday, 5 September
Last day to elect to receive capitalisation award
shares, failing which
the cash dividend alternative, to be received
by 12:00 Friday, 9 September
Record date to participate in the capitalisation
award or receive the cash dividend
alternative Friday, 9 September
Payment of the cash dividend alternative to
shareholders who have elected not to
participate in the capitalisation award or have
participated in the capitalisation award in
respect of only part of their shareholding Monday, 12 September
New shares issued and posted or
central securities depository participant (CSDP)
or broker accounts credited regarding the
shares to be issued to shareholders participating
in the capitalisation award in respect of all or part
of their shareholding on Monday, 12 September
The maximum number of new shares listed in terms of
the capitalisation award adjusted to reflect
the actual number of shares issued in terms of the
capitalisation award on or about Thursday, 15 September
Shares may not be dematerialised or rematerialised between Monday, 5 September,
and Friday, 9 September 2005, both days inclusive. The above dates and times are
subject to change. Any changes will be published on SENS and in the press.
The number of capitalisation shares to which shareholders are entitled will be
determined in the ratio that 105 cents per ordinary share bears to the 30-day
volume-weighted average price for the company`s share, to be determined by no
later than Friday, 26 August 2005. Details of the ratio will be published on
SENS no later than Friday, 26 August 2005, and in the financial press the
following business day. Trading in the STRATE environment does not permit
fractions and fractional entitlements.
Accordingly, where a shareholder`s entitlement to new ordinary shares calculated
in accordance with the above formula gives rise to a fraction of a new ordinary
share, such fraction will be rounded up to the nearest whole number where the
fraction is greater than or equal to 0,5 and rounded down to the nearest whole
number where the fraction is less than 0,5.
A circular relating to the capitalisation award and the cash dividend
alternative will be posted to shareholders on or about Monday, 22 August 2005.
Note:
Dematerialised shareholders are required to notify their duly appointed CSDP or
broker of his/her election in terms of the capitalisation award in the manner
and at the time stipulated in the agreement governing the relationship between
the shareholder and his/her CSDP or broker.
For and on behalf of the board
WAM Clewlow TA Boardman
Chairman Chief Executive
4 August 2005
Registered office
Nedbank Group Limited
Nedbank Sandton
135 Rivonia Road
Sandown, 2196
PO Box 1144
Johannesburg, 2000
Transfer secretaries
Computershare Investor Services 2004 (Pty) Ltd,
70 Marshall Street
Johannesburg, 2001
PO Box 61051
Marshalltown, 2107
Directors
WAM Clewlow (Chairman), Prof MM Katz (Vice-chairman),
ML Ndlovu (Vice-chairman), TA Boardman (Chief Executive), CJW Ball,
MWT Brown (Chief Financial Officer), RG Cottrell, BE Davison,
N Dennis (British), Prof B Figaji, RM Head (British), JB Magwaza, ME Mkwanazi,
JVF Roberts (British), CML Savage, JH Sutcliffe (British)
Company Secretary: GS Nienaber
Reg No: 1966/010630/06
Share code: NED
ISIN code: ZAE000004875
This announcement is available on the group`s website - www.nedbankgroup.co.za
- together with the following additional information:
* detailed financial information in HTML, PDF and Excel formats;
* financial results presentation to analysts; and
* link to a webcast of the presentation to analysts.
For further information kindly contact Nedbank Group Investor Relations by e-
mail at nedbankgroupir@nedbank.co.za.
Financial highlights
for the period ended Reviewed Restated Restated
June June December
2005 2004 2004
Share statistics
Number of shares listed m 395,3 392,9 394,2
Weighted average number of shares m 394,4 327,8 360,9
Fully diluted weighted average
number of shares m 394,5 330,1 361,8
Headline earnings per share cents 354 245 483
Fully diluted headline earnings
per share cents 354 243 481
Basic earnings per share
(previously attributable
earnings per share) cents 356 247 423
Fully diluted basic earnings
per share cents 356 245 422
Dividend declared per share cents 105 44 120
Dividend paid per share cents 76 35 79
Dividend cover times 3,4 5,6 4,0
Net asset value per share
(Investments at market value) cents 5 067 4 499 4 692
Tangible net asset
value per share
(Investments at market value) cents 3 803 3 162 3 400
Closing share price cents 7 439 6 170 7 780
Price earnings ratio historical 21 25 16
Market capitalisation Rbn 29,4 24,2 30,7
Key ratios
Return on ordinary
shareholders` equity % 14,6 11,7 11,0
Return, excluding foreign
currency translation
gains/losses, on ordinary
shareholders` equity % 12,9 13,1 12,7
Return on total assets % 0,85 0,53 0,54
Return, excluding
foreign currency
translation gains/losses,
on total assets % 0,75 0,58 0,62
Net interest income to
interest-earning assets % 3,45 2,99 3,18
Non-interest revenue to
total income % 49,1 52,5 53,1
Impairments to total loans
and advances % 2,6 3,2 2,9
Efficiency ratio % 67,2 79,0 74,8
Efficiency ratio (excluding
foreign currency
translation gains/losses) % 68,6 77,9 73,5
Effective taxation rate % 22 14 24
Group capital adequacy ratio:
Tier 1 % 8,5 7,9 8,1
Total % 12,2 12,3 12,1
Number of employees 21 266 23 172 21 103
Balance sheet
Total equity attributable
to equity holders Rm 20 028 17 677
18 497
Total shareholders` equity Rm 23 658 21 112 21 948
Amounts owed to depositors Rm 262 946 236 193 254 299
Loans and advances to customers Rm 227 742 206 553 221 275
Gross Rm 233 913 213 363 227 959
Impairment of loans and advances Rm (6 171) (6 810) (6 684)
Total assets Rm 336 158 300 801 327 900
Assets under management Rm 73 686 87 574 68 982
Total assets administered by the group Rm 409 844 388 375 396 882
Earnings reconciliation
Income attributable to equity holders Rm 1 404 810 1 527
Less: Non-headline-earnings items Rm 6 8 (215)
Non-trading and capital items Rm 6 (9) (254)
Taxation on non-trading
and capital items Rm 17 39
Headline earnings Rm 1 398 802 1 742
Headline earnings (excluding
foreign currency
translation gains/losses) Rm 1 233 900 2 022
Income statement
for the period ended Reviewed Restated Restated
June June December
Rm 2005 2004 2004
Interest and similar income 10 818 11 350 22 789
Interest expense and similar charges 6 794 8 031 15 644
Net interest income 4 024 3 319 7 145
Impairment charge on loans and advances 620 409 1 217
Income from lending activities 3 404 2 910 5 928
Non-interest revenue 3 716 3 771 8 373
Foreign currency translation
gains/(losses) 165 (98) (280)
Operating income 7 285 6 583 14 021
Total expenses 5 311 5 524 11 404
Operating expenses 5 064 4 943 10 239
Transaction taxes 164 170 470
Fees due to alliance partners 30 83 70
Merger expenses 53 94 246
Recovery programme expenses 234 379
Profit from operations before
non-trading and
capital items 1 974 1 059 2 617
Non-trading and capital items 6 (9) (254)
Impairment of goodwill (91) (87)
Profit/(Loss) on sale of
subsidiaries, investments
and property and equipment 6 137 (74)
Net impairment of investments,
property and equipment and capitalised
development costs (55) (93)
Profit from operations 1 980 1 050 2 363
Share of profits of associates
and joint ventures 77 80 147
Profit before taxation 2 057 1 130 2 510
Taxation 454 159 668
Taxation on non-trading and capital items (17) (39)
Profit for the period 1 603 988 1 881
Minority interest income attributable to
- ordinary shareholders (83) (68) (125)
- preference shareholders (116) (110) (229)
Income attributable to equity holders 1 404 810 1 527
Reconciliation of restated income attributable to equity holders as reported
under IFRS
Reviewed for the period
30 June 31 December
Rm Note 2004 2004
As previously reported 380 974
Adjustments for:
Credit impairment 1 215 140
Revenue recognition and
deferred acquisition costs 2 (14) (31)
Goodwill 3 127 281
Foreign exchange 4 116 91
Share-based payments 5 (4) (15)
Post-employment benefits 6 131
Property, plant and equipment 7 (10) (44)
As reported under IFRS 810 1 527
Balance sheet
as at Reviewed Restated Restated
June June December
Rm 2005 2004 2004
Assets
Cash and balances with
central banks 14 032 11 809 10 050
Other short-term securities 20 776 9 549 16 310
Government and other securities 24 320 22 322 26 224
Derivative financial instruments 22 146 21 509 27 560
Loans and advances to customers 227 742 206 553 221 275
Other assets 7 447 8 391 6 816
Current taxation receivable 200 174 196
Investments in associate
companies and joint ventures 1 287 1 464 1 089
Investment securities
