| Thu 4 May 2006, 14:55 | | Nedbank Group - First Quarter 2006 Trading Update |
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Nedbank Group - First Quarter 2006 Trading Update
NEDBANK GROUP LIMITED
(formerly Nedcor Limited)
(Incorporated in the Republic of South Africa)
Registration number: 1966/010630/06
JSE share code: NED
ISIN: ZAE000004875
("Nedbank Group" or "the group")
NEDBANK GROUP - FIRST QUARTER 2006 TRADING UPDATE
OVERVIEW
The unaudited trading results for the three months to 31 March 2006 ("the
period") reflect the group"s continued delivery on its commitments to
shareholders and the positive momentum from the last quarter of 2005. The
results include ongoing increases in listed property private equity valuations
in Nedbank Corporate, strong deal flow and equity trading in Nedbank Capital, as
well as tight expense control across the group. All operating divisions recorded
strong revenue growth over the corresponding period in 2005, reflecting the
benefits of operational efficiencies achieved over the last two years and the
buoyant economic environment.
Headline earnings for the period increased by 82,9% to R1 026 million (2005:
R561 million). Attributable income grew by 124,4% from R566 million in the
corresponding period in 2005 to R1 270 million for the three months ended 31
March 2006.
The group"s return on average ordinary shareholders" equity ("ROE") continued to
improve, increasing from 12,1% for the three months to 31 March 2005 to 18,0%
for the period ended 31 March 2006, boosted primarily by strong revenue growth.
Tom Boardman, chief executive, said: "We are very pleased with the headline
earnings growth of 82,9%, with good growth in income across all of the operating
divisions. However, shareholders should note that this strong revenue growth and
the associated higher ROE are not necessarily sustainable for the full year as
the listed property private equity revaluations in Nedbank Corporate, the robust
equity trading results and some large transactions within Nedbank Capital are
not all currently expected to be of a recurring nature. Items that could be
considered to be of a non-recurring nature amounted to approximately R150
million (pre-taxation) for the quarter."
"The group remains committed to meeting its targets of a ROE of 20% and an
efficiency ratio of 55% for the 2007 financial year."
PERFORMANCE FOR THE PERIOD
Rm 2006 2005 % change
Net interest income ("NII") 2 420 1 875 29,1
Impairments 378 442 (14,4)
Non-interest revenue (including
foreign currency translation
gains / losses) ("NIR") 2 290 1 977 15,8
Interest margin (%) 3,82 3,24
Total expenses 2 687 2 466 9,0
Efficiency ratio (%) 57,0 64,0
Headline earnings 1 026 561 82,9
Attributable earnings 1 270 566 124,4
ROE (%) 18,0 12,1
NII grew strongly, with advances increasing by 19,6% (annualised from December
2005). The margin (based on average interest-earning banking assets) continued
improving from 3,24% (restated) for the three months ended March 2005 to 3,82%
for the period. This margin increase reflects:
- The uplift from the settlement of the expensive empowerment funding for
Peoples Bank in April 2005;
- Mix changes from growth in higher margin retail and business banking advances
being above the growth in corporate advances;
- Higher endowment levels; and
- A low 2005 base due to the 1% taxation rate decrease which impacted margins on
historic structured finance transactions.
The group anticipates some margin reduction during the remainder of the year as
a result of continued strong retail and business banking asset growth being
funded largely by wholesale deposits.
NIR increased by 15,8%. The group benefited from favourable listed property
private equity revaluations in the Property Finance division in Nedbank
Corporate of R84 million and continued strong deal flow and equity trading in
Nedbank Capital. Commission and fees continued to benefit from increased volume
growth when compared to the same period in 2005. Total group bancassurance new
business premiums increased by 40%. Excluding foreign currency translation gains
/ losses, NIR increased by 22,9%.
Impairments totalled R378 million for the period and the annualised impairments
charge as a percentage of advances improved from 0,78% for the three months to
31 March 2005 to 0,59% for the period. Impairments, within individual categories
of advances, continue to benefit from the good economic environment and improved
quality of new business, as well as improved internal processes and recoveries.
Total expenses for the period amounted to R2,7 billion, up 9,0% on the period to
March last year. Staff expenses increased as a result of the annual salary
increases and the additional staff recruited last year in customer-facing areas,
in particular in Nedbank Retail. Marketing expenses grew 38,5% off a low base as
the group invested in its new marketing campaign. Owing to continued tight
expense control most other major categories of expenses showed a decrease or
modest growth over 2005. The prior period includes merger and recovery programme
expenses of R24 million and the current period includes an IFRS2 share-based
payments expense of R26 million relating to the group"s black economic
empowerment deal.
With total gross revenue growing by 22,3%, income growth exceeded expense growth
(the `jaws ratio") by 13,3%, resulting in the efficiency ratio improving from
64,0% to 57,0%. However, this ratio is unlikely to be sustainable at this level
for the full year owing to the nature of certain of the revenue items referred
to above and a planned increase in expenditure to further enhance Nedbank
Retail"s distribution network and marketing efforts.
The group recorded a capital profit of R243 million (post taxation), mainly from
the sale of its remaining holding in Net1 UEPS Technologies Inc as well as the
group"s 41,4% holding in IQ Business Group and various property assets. The
group also sold its investment in the State Bank of Mauritius, subject to final
regulatory approval, which had already been written down to its expected
realisable value in the 2005 results. There are no further material non-core
assets to be sold.
Total assets at R361 billion are R9 billion (10,6% annualised) higher than
December 2005. Advances increased by R12 billion (19,6% annualised) and average
interest-earning banking assets increased by R16,5 billion. Residential home
loans have increased by R4 billion (22,1% annualised) and grew in line with the
market during February (the latest available market statistics). Leases and
instalment debtors increased by R2 billion (17,6% annualised) with strong growth
from Imperial Bank. Loan growth from large corporate clients improved towards
the end of the quarter while new loan growth in Business Banking continues its
increasing growth trend.
The group continues to be well-capitalised, with the Tier 1 group capital
adequacy and total group capital adequacy ratios remaining above the 9,4% and
12,9% respectively reported for December 2005. No further share buy-backs were
undertaken during the period. The group successfully issued a bond of R1,5
billion on 19 April 2006 at a rate of 70 basis points above the R153 which was
1,7 times oversubscribed. The bond, which qualifies as regulatory Tier 2
capital, was issued to pre-finance a portion of the NED1 issue, which Nedbank
intends to call on the call date of 20 September 2006, subject to prior written
approval by the Registrar of Banks, and to balance the levels of debt and equity
in regulatory capital as part of the bank"s long-term capital management
programme.
EARNINGS FORECASTS - SIX MONTHS TO 30 JUNE 2006
Assuming economic conditions remain constant, the directors expect headline
earnings for the six months to 30 June 2006 to be between 33% and 53% higher
than the R1 398 million reported for the six months to 30 June 2005. Headline
earnings per share is anticipated to be between 30% and 50% greater than the 354
cents per share reported for June 2005.
Based on the forecast range of headline earnings per share above and the net
capital profits from non-core asset sales, basic earnings per share for the six
months to June 2006 is estimated to be between 45% and 65% higher than the 356
cents per share reported for June 2005.
Shareholders are advised that these forecasts have not been reviewed or reported
on by the group"s auditors.
ACCOUNTING POLICIES
Nedbank Group"s financial results for the period have been prepared in
accordance with International Financial Reporting Standards as expected to be
effective for the year ending 31 December 2006. These standards are subject to
ongoing review and possible amendment by interpretive guidance from the
International Financial Reporting Interpretations Committee. The results may
therefore be subject to change at future reporting dates.
RESTATEMENTS
When the group reported its June 2005 interim results the group reclassified
banking and trading assets and the associated NII/NIR. Full details of this
restatement were outlined in the SENS announcement on 4 August 2005. The
comparative amounts for the period have been amended to ensure a similar
classification of NII and NIR. The effect of this amendment in the period to
March 2005 was to increase NII by R82 million and the interest margin from 3,10%
to 3,24% and to decrease NIR by R82 million.
Nedbank Group"s results for the six months ending 30 June 2006 will be released
on SENS on Wednesday, 2 August 2006.
The chief financial officer, Mike Brown, will be hosting a conference call at
6pm SA time (4pm GMT / 5pm UK summer time) today, giving an overview of this
trading update. The dial-in numbers are as follows:
Live call
South Africa 0800 200 648 Toll-free
USA 1800 860 2442 Toll-free
UK 0800 917 7042 Toll-free
Other +27 11 535 3600 Toll
Playback (available for 24 hours)
South Africa/other +27 11 305 2030 Code: 2575# Toll
USA +1 412 317 0088 Code: 2575# Toll
UK +44 808 234 6771 Code: 2575# Toll-free
Sandton
4 May 2006
For further information kindly contact
Tier 1 Investor Relations
Tel: +27 (0)21 702 3102
Sponsors
Merrill Lynch South Africa (Pty) Limited
Nedbank Capital
Date: 04/05/2006 02:55:08 PM Produced by the JSE SENS Department
