| Mon 7 Aug 2006, 8:55 | | Nedbank - Reviewed financial results for the six m |
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NED
NED
Nedbank - Reviewed financial results for the six months ended 30 June 2006
Nedbank Group Limited
(Reg No: 1966/010630/06)
Share code: NED
ISIN code: ZAE000004875
Reviewed financial results
for the six months ended 30 June 2006 (the period)
- Strong performance from all business clusters
- Headline earnings up 50,5% to R2 104 million
- Headline EPS up 47,5% to 522 cents
- Fully diluted HEPS up 43,8% to 509 cents
- ROE increased from 14,8% to 18,3%
- Efficiency ratio improved from 65,1% to 57,3%
- Strong group capital adequacy of 13,3%
- Interim dividend per share up 99% to 209 cents
These results and additional information are available on
www.nedbankgroup.co.za
`The increasingly outward focus of the Nedbank Group continues to impact
positively on our financial performance. Revenue growth is ahead of our
original expectations and expense growth remains well-managed. This
positive momentum has led to improving staff morale and supports a strategy
of investing R1 billion in upgrading and expanding our distribution
footprint over the next three years. By constantly improving client service
and investing for the future we are confident of delivering on the
commitments we have made to our shareholders, clients and staff."
Tom Boardman
Chief Executive
Overview
Nedbank Group continues to deliver improved financial results, with
performance for the period reflecting the benefits of an increasing focus
on client service and organic growth, coupled with the operating
efficiencies achieved over the last two years. Despite recent market
volatility, increasing pressure on fees and signs of increased levels of
credit stress in parts of the retail environment, the overall economic
environment for banks remains positive.
Headline earnings per share increased by 47,5% to 522 cents (2005: 354
cents). Fully diluted headline earnings per share increased by 43,8% from
354 cents to 509 cents, the June 2006 dilution being impacted by accounting
for the black economic empowerment (BEE) scheme under International
Financial Reporting Standards (IFRS). Basic earnings per share grew by
62,1% from 356 cents in 2005 to 577 cents in June 2006.
These results are at the upper end of the earnings forecast ranges provided
in the group"s trading statement on 6 May 2006.
The group"s return on average ordinary shareholders" equity (ROE) improved
from 14,8% to 18,3% for the period.
Financial performance
The ongoing turnaround in Nedbank Group"s financial performance is
reflected in the 50,5% increase in headline earnings to R2 104 million.
Basic earnings grew by 65,7% to R2 326 million.
Net interest income (NII)
NII grew 25,2% to R5 039 million. Despite margin compression experienced by
the industry, the group"s margin for the period improved to 3,88% from
3,45% in June 2005.
This margin increase reflects:
* mix changes from the growth in higher-margin retail and business
banking advances, as well as a change in the advances mix within
Nedbank Retail resulting from higher growth in personal loans;
* the benefit of the settlement of the expensive funding for the
minority shareholders of Peoples Bank in April 2005;
* a low base due to the 1% taxation rate decrease, which negatively
impacted margins on structured finance transactions in 2005;
* higher endowment levels; and
* the interest on the proceeds from the sales of the remaining holdings
in Net1 UEPS Technologies Inc (NUEPS) and State Bank of Mauritius
(SBM).
The group anticipates some margin reduction for the remainder of the year
as a result of asset growth being funded largely by wholesale deposits.
This will be partially offset by the increased endowment effect from
interest rate increases.
Impairment losses on loans and advances
The impairments charge rose by 30,0% to R806 million, mostly due to the mix
change in advances referred to above, together with specific impairments of
R178 million raised in Nedbank Capital. The impairments charge as a
percentage of average advances increased from 0,54% to 0,61% for the
period, with Nedbank Retail"s charge remaining flat at 1,1%, Nedbank
Capital"s charge deteriorating from 0,5% to 0,9% and Nedbank Corporate"s
charge improving from 0,2% to 0,1%.
Non-interest revenue (NIR)
NIR for the period increased by 18,3% to R4 591 million. This growth was
driven largely by:
* property private equity revaluations in Nedbank Corporate, which were
approximately R80 million higher than in the period to June 2005;
* strong deal flow and trading results in Nedbank Capital - the buoyant
and volatile market conditions contributed to a 37,3% increase in
overall trading income;
* commission and fees, which grew by 17,6%, reflecting the increased
volume growth over the comparative period. Fees received from outside
the group by Bond Choice grew by 44,2% from R138 million to R199
million; and
* the group"s bancassurance operations, which grew strongly, with new
business premiums increasing by 21% from R2 294 million to R2 767
million.
In July 2006 Nedbank Retail reduced bank fees for individual current
account clients by an average of 13%. Furthermore, fees were largely kept
constant in 2005. Service fees for Nedbank Retail"s Small Business Services
clients remained unchanged for the fourth successive year. Nedbank Mzansi
account fees were also substantially reduced to make these products more
accessible to new entrants to the banking environment. The reduction of
bank fees in 2006 is expected to impact negatively on NIR in Nedbank Retail
by approximately R100 million per annum.
Expenses
Expenses were again well-managed, increasing by 7,2% to R5 516 million.
Staff expenses increased by 8,5%, largely as a result of the annual salary
increase and the cost of additional staff recruited in client-facing
divisions, mainly in Nedbank Retail. Marketing costs increased 32,8% off
the low base in 2005 as the group invested in sales and the repositioning
of the bank"s brand.
Bond Choice"s total expenses grew by 40,8% from R157 million to R221
million.
BEE transaction expenses were R66 million (June 2005: Rnil).
The `jaws" ratio continued to widen, with gross revenue growth of 21,8%
exceeding expense growth by 14,6%, resulting in the efficiency ratio
improving from 65,1% to 57,3%.
Direct taxation
The effective taxation rate increased from 22,1% to a more normalised
26,5%, as the prior-period rate included the benefits of non-taxable
foreign exchange translation gains and credits arising from structured
finance transactions, both of which had a more marginal impact in the
current period.
Non-trading and capital items
The group recorded a capital profit of R222 million (post-taxation), mainly
from the sale of the remaining holding in NUEPS. The investment in SBM and
the group"s 41,4% shareholding in IQ Business Group were also disposed of
during the period in line with their 2005 year-end carrying values. The
sale of SBM Nedbank International Limited is awaiting regulatory approval
and the investment has been disclosed under assets held for sale at 30 June
2006.
Since inception, the group"s non-core asset disposal programme has
generated capital profits of R1 357 million.
Balance sheet
Capital
The group remains well-capitalised, with the Tier 1 group capital adequacy
ratio increasing from 8,5% in June 2005 to 9,1% in June 2006 through the
capital profits from the disposal of non-core assets, higher than expected
acceptance of the scrip alternative in respect of dividends and increased
earnings. The total group capital adequacy ratio has increased from 12,2%
in June 2005 to 13,3% in June 2006.
Advances
Advances increased by R25 billion and average interest-earning banking
assets grew by R31 billion. Details of advances growth by category are as
follows:
Rm June December Annualised
2006 2005 Increase
(%)
Home loans 84 002 75 333 23,2
Commercial mortgages 39 385 37 993 7,4
Properties in possession 173 309 (88,8)
Credit cards 4 414 4 074 16,8
Overdrafts 12 939 11 604 23,2
Leases and instalment debtors 38 452 34 935 20,3
Other loans 99 359 89 374 22,5
Impairment of advances (5 326) (5 214) 4,3
Total 273 398 248 408 20,3
Deposits
Deposits increased by 14,9% (annualised) from December 2005, although
growth in wholesale deposits has outpaced retail deposits. The group
maintained a strong liquidity position throughout the period.
Cluster performance
Nedbank Capital
Nedbank Capital increased headline earnings by 34,9% to R576 million and
improved ROE to 30,6% (2005: 26,9%).
NIR was up 44,8% to R1 231 million. The trading businesses benefited from
the increased volatility in equity, bond and foreign exchange markets and
performed well. Total trading income was up 38,7%, with debt securities
trading up 69,3% and equity and equity derivatives trading up 52,3%. This
strong trading performance was partly offset by impairments charges, which
increased from R72 million to R178 million.
All business units benefited from a greater outward focus, the strong deal
pipeline built up towards the end of 2005 and the newly implemented
coverage model that facilitates the servicing of clients by a single team
consisting of investment banking officers, corporate bankers and product
experts servicing clients.
During the period the majority of the treasury trading systems were
consolidated on the Front Arena System. The migration was completed in a
short time frame, with minimal disruption to the business.
The impairment charge is expected to reduce in the second half of the year.
Trading conditions are forecast to remain relatively robust, although the
first-half performance is unlikely to be repeated.
Nedbank Corporate
Nedbank Corporate increased headline earnings by 37,2% to R1 214 million.
ROE increased to 22,0% (2005: 18,2%) mostly as a result of revenue growth,
including higher property investment profits, and a reduction in the
impairments charge. The profit from the property investment portfolio is,
however, expected to be lower over the full year, compared with 2005.
NII and NIR showed double-digit growth, reflecting the momentum being
established in the underlying business units. Average advances increased by
11,8% and core transactional fee income grew by 17,4%.
The impairments charge was lower due to reduced specific impairments
charges and benefits arising from bad debt recoveries through effective
credit management. Expenses were well-controlled.
The new channel convergence platform for the electronic banking needs of
Corporate and Business Banking clients was implemented. This product
consolidated the different business electronic banking platforms into a
state-of-the-art delivery platform and is currently installed at just over
1 000 clients.
Nedbank Retail
Nedbank Retail increased headline earnings by 69,7% to R711 million and ROE
increased from 17,5% to 24,2%. The cluster has again delivered on its
financial targets and remains a key contributor to the Nedbank Group
turnaround.
The performance has been driven by a focus on profitable asset and client
growth, coupled with the benefits of operational efficiencies and a cost-
conscious culture.
All the business units performed strongly, despite margin compression in
home loans and increased impairments, particularly in the vehicle and asset
finance area.
The cluster"s focus on client service as a key differentiator continues and
recent client service surveys show a significant improvement over last
year.
The Eyethu Retail Client Scheme has moved successfully into the operational
phase, with over 36 000 active investors. The focus will now be on cross-
selling Nedbank products and services to these clients.
A highlight of the first half was the implementation of more competitive
pricing across key asset, liability and transactional products. Nedbank
Retail"s pricing had become uncompetitive in a number of areas in recent
years and the bank is now well-positioned to compete as the consumer focus
on bank charges increases.
Nedbank Retail has developed a strategy to aggressively expand the bank"s
retail footprint. This is expected to address the underinvestment in
distribution over the last 10 years, as well as the lack of representation
in certain areas, and to position the bank for growth. From 2006 to 2008
Nedbank Retail will upgrade and expand its distribution footprint,
including opening an additional 400 outlets (110 branches) and upgrading
and increasing its ATM network by 50%.
Imperial Bank
Imperial Bank Limited increased headline earnings by 56,1% to R178 million,
and improved ROE from 20,2% to 24,6%. The results reflect the benefits of
the favourable economic environment. Nedbank Group"s share of these
earnings was R89 million (2005: R57 million), up 56,1%. NII grew by 37,2%
and expenses by 13,5%, resulting in the efficiency ratio improving from
42,9% to 34,7%. Loans and advances grew 36,0%. Advances growth was driven
by a strong performance from the Motor Vehicle Finance Division.
Impairments increased by 61,9%, largely as a result of the higher level of
recoveries in Property Finance in the previous period and impairments in
the Motor Vehicle Finance Division returning to more normalised levels,
following the benign conditions of 2005.
Imperial Bank restructured its capital base to improve returns to
shareholders and to allow for future growth. The bank issued a subordinated
(Tier 2) bond (IBL 2) of R500 million, priced at 117 basis points above the
benchmark R153 rate, and preference share capital amounting to R300
million, yielding 70% of the prime interest rate. Imperial Bank also bought
back R300 million of ordinary shares during the period, with Nedbank Group
receiving proceeds of R150 million.
Central Services
The headline loss from Central Services was R486 million but, excluding
foreign exchange translation gains, this reduced by 11,9% from R555 million
to R489 million, reflecting a continued improvement in central cost
allocations.
The Group Technology Cluster completed the merger and recovery activities
by formally closing the Paarl Data Centre, which accommodated the majority
of BoE, NBS and Boland Bank systems.
The initial upgrade of the Financial Processing Architecture and the Basel
II Programme are on track for delivery and implementation during 2007.
Synergies and savings from outsourced data and communication networks,
implemented in conjunction with Old Mutual (SA) and Mutual & Federal, are
on target at approximately R140 million per annum. The group is working
with the Old Mutual Group to optimise synergies across a wide range of
other areas.
Capital management
The group has made substantial progress with the implementation of Basel II
and is using this programme as the catalyst to elevate its risk and capital
management to worldclass standards.
During the first half of 2006 the group:
* concluded a subordinated debt issue (NED 5) of R1,5 billion, which
was priced at 70 basis points above the benchmark R153 rate;
* executed share buybacks amounting to 5,5 million shares at a cost of
R616 million; and
* reduced the dividend cover ratio on headline earnings per share to
2,5 times.
The group currently has a target minimum total capital adequacy ratio of
12% and a target minimum Tier 1 ratio of 8%, both under Basel I.
The following issues, which are expected to be finalised in the second half
of 2006, will influence the amount and nature of any future capital
management actions:
* proposed amendments to section 38 of the Companies Act;
* finalisation of the draft Basel II regulations by the South African
Reserve Bank (SARB); and
* organic growth projections.
The group currently plans to redeem the expensive R2 billion NED 1
subordinated bond on the call date of 20 September 2006 (subject to
regulatory approval) and issue a second bond for 2006 (NED 6) of
approximately R1,5 billion on or about the same date. The group expects to
issue further bonds in 2007, during which time the R4 billion NED 2 bond is
expected to be redeemed on its call date in July 2007 (subject to
regulatory approval). Nedbank is committed to improving its profile as an
issuer in the debt capital markets and this should result in a more robust
subordinated-debt yield curve for the group.
Staff morale
Staff morale continues to improve and the 2006 Barrett values survey, which
is one of the three internal surveys conducted each year, showed a
significant improvement in the alignment of the group"s values with those
of employees. The other two surveys will be carried out later this year.
Transformation
There has been considerable focus on all aspects of transformation. Good
progress has been made in meeting employment equity targets, with
improvements at all levels of management. Our black business partners,
introduced as shareholders in 2005 as part of the group"s BEE transaction,
have been active in supporting internal transformation and in generating
new business. Momentum continues to build in our lending for affordable
housing, black small and medium enterprises and BEE transactions. The
expanding retail footprint provides underbanked communities with greater
access to financial services.
Management information systems (MIS) and reporting
The group continues to improve MIS. Segmental analysis was refined with the
allocation of secondary tax on companies (STC) to clusters. The group has
also implemented a comprehensive economic capital model to measure
shareholder value creation more accurately on a risk-adjusted basis.
Following the acquisition of Skandia by Old Mutual plc and the resultant
listing of Old Mutual plc shares on the Stockholm Stock Exchange, Old
Mutual plc will adopt full quarterly reporting from September 2006, and as
a result Nedbank Group will also move to full quarterly reporting.
Brand repositioning
Building on the well-differentiated heritage of the brand, the group aims
to maintain Nedbank as an aspirational brand, while making it accessible
and desirable to all. The new brand slogan, `Make Things Happen", was
successfully launched in January. The increase in Nedbank Retail product
marketing, together with the expanded footprint resulting from the
rebranding of Peoples Bank, has also had a significant impact.
Sustainability
Nedbank Group"s progress in the area of long-term sustainable development
has been widely recognised. The group was again included in the JSE
Socially Responsible Investment (SRI) Index and was rated first in its
category for 2005/6. Nedbank Group was a finalist in the emerging markets
category in the Financial Times Sustainable Banking Awards 2006, while the
bank was highly commended in the Mail & Guardian `Greening the Future
Awards". In July Nedbank readopted the Equator Principles, being the only
bank in Africa to have embraced these guidelines on social and
environmental risk in project finance.
Prospects
Currently the group is not expecting to sustain an ROE of 18,3% for the
full year. Performance in the second half of 2006 is likely to be
influenced by:
* growth in retail advances remaining robust, but slowing from current
high levels;
* ongoing growth in Business Banking and Corporate advances;
* increasing market reliance on wholesale funding;
* an endowment benefit in the margin from the recent interest rate
increases;
* a lower impairments charge relative to the first half-year,
particularly in Nedbank Capital;
* signs of increased levels of credit stress in parts of the retail
environment;
* the Nedbank Retail price reductions;
* fewer positive property private equity revaluations and the expected
slowdown in trading income;
* additional operating efficiencies;
* investment in distribution and branding; and
* ongoing capital management activities.
Earnings forecasts to December 2006
The directors expect headline earnings for the 12 months to 31 December
2006 to be between 22% and 42% higher than the R3 167 million reported for
the year to 31 December 2005. Headline earnings per share is anticipated to
be between 20% and 40% greater than the 797 cents per share reported for
December 2005.
Based on the forecast range of headline earnings per share above, basic
earnings per share for the year to 31 December 2006 is estimated to be
between 5% and 22% higher than the 966 cents per share reported for
December 2005. This range is at a lower level than headline earnings per
share because of the higher capital profits from disposals of non-core
assets in the prior year.
Shareholders are advised that these forecasts have not been reviewed or
reported on by the group"s auditors.
2007 financial targets
The group has targeted an ROE of 20% and an efficiency ratio of 55% in
2007.
Strong revenue growth, disciplined expense and credit management, together
with active management of excess capital will be required to achieve these
targets. These interim results demonstrate good progress towards reaching
the targets from both a revenue and cost perspective, while the share
buyback programme and reduced dividend cover show progress in managing
capital to a more optimal level. While the group is unwavering in its
commitment to meet the 20% ROE target, the planned investment in
distribution will make the 55% efficiency ratio target more challenging.
Board changes during the period
Warren Clewlow retired as a non-executive director and Chairman after
reaching the mandatory retirement age (4 May 2006). The Chairman designate,
Dr Reuel Khoza, succeeded Warren Clewlow as Chairman (4 May 2006). Julian
Roberts resigned as a non-executive director (5 May 2006), following his
appointment as Chief Executive Officer and a director of Old Mutual plc"s
subsidiary, Skandia.
Accounting policies
The group"s principal accounting policies have been applied consistently
and these Nedbank Group financial results have been prepared in accordance
with IAS 34: Interim Financial Reporting.
Subsequent events
As of the date of this announcement there are no post-balance-sheet events
to report.
Reviewed results - auditors" opinion
The group"s auditors, KPMG Inc and Deloitte & Touche, have reviewed these
results and their review opinion is available for inspection at the
company"s registered office.
Forward-looking statements
This announcement contains certain forward-looking statements with respect
to the financial condition and results of operations of Nedbank Group and
its group companies, which by their nature involve risk and uncertainty
because they relate to events and depend on circumstances that may occur in
the future. Factors that could cause actual results to differ materially
from those in the forward-looking statements include, but are not limited
to: global, national and regional economic conditions, levels of securities
markets, interest rates, credit or other risks of lending and investment
activities, and competitive and regulatory factors.
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 will be issued only to those ordinary
shareholders who elect in respect of all or part of their shareholding, on
or before 12:00 on Friday, 15 September 2006, 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 209 cents per ordinary share (the
cash dividend alternative).
In accordance with the provisions of STRATE, the electronic settlement and
custody system used by JSE Limited, the relevant dates for the
capitalisation award election and the cash dividend alternative are as
follows:
2006
Last day to trade to be eligible to Friday, 8 September
participate in the capitalisation
award or the cash dividend alternative
Shares trade ex the capitalisation Monday, 11 September
award election and the cash dividend
alternative on
Listing of the maximum number of new Monday, 11 September
ordinary shares that may be taken up
in terms of the capitalisation award
on
Last day to elect to receive Friday, 15 September
capitalisation award shares, failing
which the cash dividend alternative
will be received by 12:00
Record date to participate in the Friday, 15 September
capitalisation award or receive the
cash dividend alternative
Payment of the cash dividend Monday, 18 September
alternative to shareholders who have
not elected to participate in the
capitalisation award or have
participated in the capitalisation
award in respect of only part of their
shareholding on
New shares issued and posted or CSDP Monday, 18 September
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
The maximum number of new shares Wednesday, 20 September
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
Shares may not be dematerialised or rematerialised between Monday, 11
September 2006, and Friday, 15 September 2006, both days inclusive.
The above dates and times are subject to change. Any changes will be
published on the Securities Exchange News Service (SENS) and in the press.
The number of capitalisation shares to which shareholders are entitled will
be determined in the ratio that 209 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 Thursday, 31 August 2006. Details of the ratio
will be published on SENS no later than Thursday, 31 August 2006, at 12:00
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 smaller than 0,5.
A circular relating to the capitalisation award and the cash dividend
alternative will be posted to shareholders on or about Wednesday, 23 August
2006.
Note:
Dematerialised shareholders are required to notify their duly appointed
central securities depository participant (CSDP) or broker of their
election in terms of the capitalisation award in the manner and at the time
stipulated in the agreement governing the relationship between shareholders
and their CSDP or broker.
For and on behalf of the board
Dr RJ Khoza TA Boardman
Chairman Chief Executive
7 August 2006
Registered office:
Nedbank Group Limited,
Nedbank 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:
Dr RJ Khoza (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), MA Enus-
Brey, Prof B de L Figaji, RM Head (British), JB Magwaza, ME Mkwanazi, CML
Savage, GT Serobe, JH Sutcliffe (British)
Company Secretary:
GS Nienaber
Reg No: 1966/010630/06
Share code: NED
ISIN code: ZAE000004875
Sponsors:
Merrill Lynch South Africa (Pty) Limited
Nedbank Capital
Financial highlights
Reviewed Reviewed Audited
June June December
2006 2005 2005
Restated
Share statistics
Number of shares m 446,9 395,3 442,8
listed
Number of shares in m 399,7 395,1 401,8
issue excluding
shares held by group
entities
Weighted average m 402,9 394,4 397,2
number of shares
Fully diluted m 413,6 394,5 400,4
weighted average
number of shares
Headline earnings cents 522 354 797
per share
Fully diluted cents 509 354 791
headline earnings
per share
Dividend declared cents 209 105 290
per share
Dividend cover times 2,5 3,4 2,8
Net asset value per cents 5 982 5 029 5 597
share
Tangible net asset cents 4 726 3 764 4 351
value per share
Closing share price cents 11 300 7 439 10 000
Price earnings ratio historical 12 13 13
Market Rbn 50,5 29,4 44,3
capitalisation
Key ratios
Return on ordinary % 18,3 14,8 15,5
shareholders" equity
(ROE)
Return on total % 1,15 0,85 0,93
assets (ROA)
Net interest income % 3,88 3,45 3,55
to interest-earning
banking assets
Non-interest revenue % 47,7 49,1 50,2
to total income
Impairments charge % 0,61 0,54 0,49
to average advances
Efficiency ratio % 57,3 65,1 65,1
Effective taxation % 26,5 22,1 23,4
rate
Group capital
adequacy ratio
- Tier 1 % 9,1 8,5 9,4
- Total % 13,3 12,2 12,9
Number of employees 22 403 21 266 22 188
Balance sheet
Total equity Rm 23 910 19 868 22 490
attributable to
equity holders of
the parent
Total equity Rm 28 038 23 497 26 309
Amounts owed to Rm 280 633 262 949 261 311
depositors
Loans and advances Rm 273 398 227 502 248 408
Gross Rm 278 724 233 673 253 622
Impairment of Rm (5 326) (6 171) (5 214)
loans and advances
Total assets Rm 384 608 336 112 352 258
Assets under Rm 79 730 73 686 72 063
management
Total assets 464 338 409 798 424 321
administered by the
group
Earnings
reconciliation
Profit for the Rm 2 326 1 404 3 836
period
Less: Non-trading Rm 222 6 669
and capital items
Impairment of Rm (1)
goodwill
Profit on sale of Rm 262 6 904
subsidiaries,
investments and
property and
equipment
Net impairment of Rm (7) (202)
investments,
property and
equipment and
capitalised
development costs
Taxation on above Rm (33) (32)
items
Headline earnings Rm 2 104 1 398 3 167
Statement of changes in equity
Ordinary Preference Minority Total
Share- Share- Share- Share-
holders" holders" holders" holders"
Rm equity equity equity equity
Balance at 31 18 497 2 770 681 21 948
December 2004
Additional effect of (160) (1) (161)
adopting IFRS
Restated balance at 18 337 2 770 680 21 787
31 December 2004
Net income recognised 342 96 438
directly in equity
Release of reserves (28) (28)
previously not
available
Foreign currency 48 23 71
translation reserve
movement
Share-based payments 38 38
reserve movement
Available-for-sale 242 242
reserve movement
Capitalisation of 70 70
minorities
Disposals of (10) (10)
subsidiaries
Other movements 42 13 55
Profit for the period 1 404 116 83 1 603
Dividends to (300) (116) (416)
shareholders
Issues of shares net 85 85
of expenses
Balance at 30 June 19 868 2 770 859 23 497
2005
Net income recognised 121 40 161
directly in equity
Release of reserves (42) (42)
previously not
available
Foreign currency 47 (13) 34
translation reserve
movement
Available-for-sale (446) (446)
reserve movement
Revaluation of owner- 153 153
occupied property
Share-based payments 428 428
reserve movement
Acquisition of 27 27
subsidiaries
Capitalisation of 37 37
minorities
Other movements (19) (11) (30)
Profit for the period 2 432 112 150 2 694
Dividends to (427) (112) (539)
shareholders
Issues of shares net 1 251 1 251
of expenses
Shares acquired by (755) (755)
group entities
Balance at 31 22 490 2 770 1 049 26 309
December 2005
Net income recognised 72 20 92
directly in equity
Foreign currency 226 19 245
translation reserve
movement
Available-for-sale (201) (201)
reserve movement
Share-based payments 46 46
reserve movement
Other movements 1 1 2
Profit for the year 2 326 110 146 2 582
Dividends to (742) (110) (7) (859)
shareholders
Issues of shares net 427 427
of expenses
Shares acquired by (663) (663)
group entities
Shares 300 (150) 150
issued/(repurchased)
by subsidiary
Balance at 30 June 23 910 3 070 1 058 28 038
2006
Income statement
for the period ended Reviewed Reviewed Audited
June June December
Rm 2006 2005 2005
Interest and similar income 12 827 10 818 23 234
Interest expense and similar 7 788 6 794 14 705
charges
Net interest income 5 039 4 024 8 529
Impairment charge on loans and 806 620 1 189
advances
Income from lending activities 4 233 3 404 7 340
Non-interest revenue 4 591 3 881 8 609
Operating income 8 824 7 285 15 949
Total expenses 5 516 5 147 11 157
Operating expenses 5 450 5 094 10 609
Merger and recovery programme 53 155
expenses
BEE transaction expenses 66 393
Indirect taxation 155 164 223
Profit from operations before 3 153 1 974 4 569
non-trading and capital items
Non-trading and capital items 255 6 701
Impairment of goodwill (1)
Profit on sale of subsidiaries, 262 6 904
investments and property and
equipment
Net impairment of investments, (7) (202)
property and equipment and
capitalised development costs
Profit from operations 3 408 1 980 5 270
Share of profits of associates 59 77 167
and joint ventures
Profit before direct taxation 3 467 2 057 5 437
Total direct taxation 885 454 1 140
Direct taxation 852 454 1 108
Taxation on non-trading and 33 32
capital items
Profit for the period 2 582 1 603 4 297
Attributable to:
Profit attributable to equity 2 326 1 404 3 836
holders of the parent
Profit attributable to minority 146 83 233
interest - ordinary shareholders
-preference shareholders 110 116 228
Profit for the period 2 582 1 603 4 297
Basic earnings per share cents 577 356 966
Fully diluted basic earnings per 562 356 958
share cents
Dividend declared per share 209 105 290
cents
Dividend paid per share cents 185 76 181
Cash flow statement
for the period ended Reviewed Reviewed Audited
June June December
2006 2005 2005
Rm Restated
Cash generated by operations 4 464 3 015 6 898
Change in funds for operating (7 176) 1 605 2 023
activities
Net cash (used in)/generated from (2 712) 4 620 8 921
operating activities before
taxation
Taxation paid (213) (360) (852)
Net cash (used in)/generated from (2 925) 4 260 8 069
operating activities
Net cash generated from/(used in) 172 (40) (927)
investing activities
Net cash generated from/(used in) 1 005 (238) (303)
financing activities
Net (decrease)/increase in cash (1 748) 3 982 6 839
and cash equivalents
Cash and cash equivalents at 16 889 10 050 10 050
beginning of the period*
Cash and cash equivalents at end 15 141 14 032 16 889
of period*
* Including mandatory deposits with Central Bank
Balance sheet
as at Reviewed Reviewed Audited
June June December
2006 2005 2005
Rm Restated
Assets
Cash and cash equivalents 9 092 8 255 11 142
Other short-term securities 27 707 20 776 17 014
Derivative financial instruments 14 364 21 895 16 176
Government and other securities 20 673 24 320 22 658
Loans and advances 273 398 227 502 248 408
Other assets 14 277 7 699 11 601
Clients" indebtedness for 1 646 1 396 1 291
acceptances
Current taxation receivable 138 200 134
Investment securities 6 700 6 618 6 875
Non-current assets held for sale 150 48 385
Investments in associate 573 1 200 657
companies and joint ventures
Deferred taxation asset 214 1 347 680
Investment property 146 174 163
Property and equipment 3 183 2 745 3 095
Post-employment assets 1 279 1 165 1 225
Computer software and capitalised 1 269 1 322 1 320
development costs
Mandatory reserve deposits with 6 049 5 777 5 747
central bank
Goodwill 3 750 3 673 3 687
Total assets 384 608 336 112 352 258
Total equity and liabilities
Ordinary share capital 400 395 402
Ordinary share premium 10 231 9 976 10 465
Reserves 13 279 9 497 11 623
Total equity attributable to 23 910 19 868 22 490
equity holders of the parent
Minority shareholders" equity
attributable to
- ordinary shareholders 1 058 859 1 049
- preference shareholders 3 070 2 770 2 770
Total equity 28 038 23 497 26 309
Derivative financial instruments 15 051 22 385 17 055
Amounts owed to depositors 280 633 262 949 261 311
Other liabilities 42 902 12 682 32 357
Liabilities under acceptances 1 646 1 396 1 291
Current taxation liabilities 567 276 466
Deferred taxation liabilities 879 1 110 959
Post-employment liabilities 1 129 1 091 1 071
Investment contract liabilities 4 547 3 395 4 166
Long-term debt instruments 9 216 7 331 7 273
Total liabilities 356 570 312 615 325 949
Total equity and liabilities 384 608 336 112 352 258
Guarantees on behalf of clients 12 798 9 352 11 064
Operational segmental reporting
for the period ended Reviewed Reviewed Audited
June June December
2006 2005 2005
Restated Restated
Rbn Rbn Rbn
Total Total Total
assets assets assets
Nedbank Corporate 149 129 138
Nedbank Capital 132 116 117
Nedbank Retail 108 86 96
Imperial Bank 26 18 22
Shared services 7 9 9
Central management 13 18 15
Eliminations (50) (40) (45)
Total 385 336 352
for the period ended Reviewed Reviewed Audited
June June December
2006 2005 2005
Restated Restated
Rm Rm Rm
Operating Operating Operating
income income income
Nedbank Corporate 3 529 2 872 6 223
Nedbank Capital 1 387 1 135 2 442
Nedbank Retail 3 975 3 346 7 208
Imperial Bank 427 315 740
Shared services 23 162 306
Central management (437) (475) (823)
Eliminations (80) (70) (147)
Total 8 824 7 285 15 949
for the period ended Reviewed Reviewed Audited
June June December
2006 2005 2005
Restated Restated
Rm Rm Rm
Headline Headline Headline
earnings earnings earnings
Nedbank Corporate 1 214 885 1 894
Nedbank Capital 576 427 971
Nedbank Retail 711 419 896
Imperial Bank 89 57 147
Shared services (98) (29) 104
Central management (388) (361) (845)
Eliminations
Total 2 104 1 398 3 167
Geographical segmental reporting
for the period ended Reviewed Reviewed Audited
June June December
2006 2005 2005
Operating Operating Operating
Rm income income income
South Africa 8 240 6 704 14 834
Business operations 8 237 6 539 14 708
BEE transaction costs
Merger and recovery programme
expenses
Foreign currency translation 3 165 126
gains
Income attributable to
preference shareholders
Rest of Africa 281 237 512
Rest of world 303 344 603
Business operations 303 344 603
Merger and recovery programme
expenses
8 824 7 285 15 949
for the period ended Reviewed Reviewed Audited
June June December
2006 2005 2005
Headline Headline Headline
Rm earnings earnings earnings
South Africa 1 984 1 210 2 884
Business operations 2 154 1 214 3 406
BEE transaction costs (63) (334)
Merger and recovery programme (53) (86)
expenses
Foreign currency translation 3 165 126
gains
Income attributable to (110) (116) (228)
preference shareholders
Rest of Africa 41 79 135
Rest of world 79 109 148
Business operations 79 109 182
Merger and recovery programme (34)
expenses
2 104 1 398 3 167
Balance sheet restatements
IAS 17 IAS 39 IAS 19
June Operating Fair value
2005 leases through Disability
Rm Reported expensed profit and fund
IFRS* loss
Cash and cash 14 032
equivalents
Derivative financial 22 146
instruments
Loans and advances 227 742 (115)
Other assets 7 435 1
Deferred acquisition 12
costs
Investments in 1 287
associate companies
and joint ventures
Deferred taxation 1 258 53 36
asset
Post-employment 974 191
assets
Mandatory reserve
deposits with
central bank
Reserves 9 657 (121) (82) 43
Total equity 20 028 (121) (82) 43
attributable to
equity holders of
the parent
Minority
shareholders" equity
attributable to
- Ordinary 860 (1)
shareholders
Total equity 23 658 (122) (82) 43
Derivative financial 22 633
instruments
Amounts owed to 262 946 3
depositors
Other liabilities 12 224 176
Deferred taxation 1 092 18
liabilities
Post-employment 961 130
liabilities
Deferred revenue 246
Reclassifications
Mandatory Derivative
deposits with spot trades Loans and
Rm regulators Reclassification Investments
Cash and cash (5 777)
equivalents
Derivative (251)
financial
instruments
Loans and 87
advances
Other assets 251
Deferred
acquisition costs
Investments in (87)
associate
companies and
joint ventures
Deferred taxation
asset
Post-employment
assets
Mandatory reserve 5 777
deposits with
central bank
Reserves
Total equity
attributable to
equity holders of
the parent
Minority
shareholders"
equity
attributable to
- Ordinary
shareholders
Total equity
Derivative (248)
financial
instruments
Amounts owed to
depositors
Other liabilities 248
Deferred taxation
liabilities
Post-employment
liabilities
Deferred revenue
Reclassifications
June
Deferred 2005
Rm revenue Restated
Cash and cash 8 255
equivalents
Derivative 21 895
financial
instruments
Loans and (212) 227 502
advances
Other assets 12 7 699
Deferred (12)
acquisition costs
Investments in 1 200
associate
companies and
joint ventures
Deferred taxation 1 347
asset
Post-employment 1 165
assets
Mandatory reserve 5 777
deposits with
central bank
Reserves 9 497
Total equity 19 868
attributable to
equity holders of
the parent
Minority
shareholders"
equity
attributable to
- Ordinary 859
shareholders
Total equity 23 497
Derivative 22 385
financial
instruments
Amounts owed to 262 949
depositors
Other liabilities 34 12 682
Deferred taxation 1 110
liabilities
Post-employment 1 091
liabilities
Deferred revenue (246)
* Refer SENS announcement 4 August 2005
Restatements of 2005 results
The group"s balance sheet for the June 2005 reporting period was restated,
in line with the final 2005 year-end adjustments, to reflect the
requirements of reporting under IFRS. These restatements, after the 3 May
2005 SENS announcement on the transition to IFRS, are reflected in the
accompanying table as follows:
1 The group changed its treatment of operating leases with fixed
escalations from previously being expensed on a cash basis to being
expensed on a straight-line basis in terms of circular 7/2005 issued by the
South African Institute of Chartered Accountants on 2 August 2005 and in
accordance with IAS 17: Leases.
2 The International Accounting Standards Board issued the fair value option
(FVO) amendment to IAS 39: Financial Instruments: Recognition and
Measurement. The FVO amendment defines the criteria under which an entity
is permitted to designate a financial instrument at initial recognition as
being at fair value through profit or loss (FVTPL).
Previously the group fair-valued certain assets and liabilities, with the
intention of eliminating any accounting mismatch. These instruments were
designated as held-for-trading on transition or inception. The FVO
amendment changed this and the FVTPL designation was applied. Any one of
the following conditions need to be met to designate a financial instrument
as at FVTPL:
- accounting mismatch - this eliminates or significantly reduces a
measurement or recognition inconsistency that would arise from measuring
assets or liabilities or recognising gains or losses on such assets using a
different basis; or
- documented risk management or investment strategy - where a group of
financial assets and liabilities is managed and performance is evaluated on
a fair-value basis and this is documented and reported internally on this
basis.; or
- embedded derivatives - where the financial instrument contains an
embedded derivative, which significantly modifies the cash flows of the
host contract or where the embedded derivative would clearly require
separation.
Nedbank Group, in line with Old Mutual plc, early-adopted the FVO amendment
to IAS 39 as from 1 September 2005 and restated its results as of 1 January
2004. The group reviewed all previously designated assets and liabilities
which were classified as held-for-trading, and all assets and liabilities
that did not meet the required criteria were de-designated.
3 Previously the group did not consolidate its disability fund in the
results. In terms of IAS 27: Consolidated and Separate Financial
Statements, the disability fund was incorporated as at 31 December 2005 and
comparative figures were restated from 1 January 2004.
4 In terms of IAS 1: Presentation of Financial Statements, the group chose,
as at 31 December 2005, to present assets and liabilities on the face of
the balance sheet in order of their liquidity. As a result, mandatory
deposits in terms of the SARB regulations were reclassified from cash and
cash equivalents to a separate line on the face of the balance sheet.
5 Foreign exchange spot trades were reclassified, as at 31 December 2005,
from derivative financial instruments to either other assets or other
liabilities on the balance sheet.
6 In previous periods loans to associates and joint ventures were included
in the carrying value of associate investments and from 31 December 2005
these loans were reclassified on the balance sheet to be included in loans
and advances.
7 Deferred revenue was previously disclosed separately on the balance sheet
and from 31 December 2005 was reclassified against the individual loans and
advances to which it relates.
8 The first-time consolidation of a subsidiary on 1 January 2004 resulted
in realised reserves of R132 million being incorrectly classified as
available-for-sale reserves. These reserves were reclassified in the
December 2005 balance sheet as distributable reserves from 1 January 2004,
with no effect on overall equity attributable to ordinary shareholders.
9 Segmental reporting comparative results were restated for 2005 to take
account of the ongoing changes for improved profitability measurement. The
restatements relate to the introduction, during 2006, of the allocation of
the group"s STC costs in respect of dividends payable to each cluster,
based on profitability, and the alignment of Imperial Bank"s contribution,
net of minorities, to exclude all group profitability measurement
adjustments.
The above restatements have no effect on the June 2005 Nedbank Group income
statement or the earnings per share calculation.
This announcement is available on the group"s website -
www.nedbankgroup.co.za - together with the following additional
information:
* detailed financial information in HTML and PDF 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.
Sponsors:
Merrill Lynch
Global Markets & Investment Banking Group
Nedbank Capital
A Member of the Old Mutual Group
Date: 07/08/2006 08:55:55 AM Produced by the JSE SENS Department
