| Tue 14 Nov 2006, 8:00 | | Nedbank Group - Unaudited results for the nine mon |
|
NED
NED
Nedbank Group - Unaudited results for the nine months ended 30 September 2006
Nedbank Group 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 -- UNAUDITED RESULTS FOR THE NINE MONTHS ENDED 30 SEPTEMBER 2006
OVERVIEW
Following the acquisition of Skandia by Nedbank Group"s holding company, Old
Mutual plc, and the resultant listing of Old Mutual plc shares on the Stockholm
Stock Exchange, Old Mutual plc has adopted quarterly reporting from the period
ended 30 September 2006. Nedbank Group has therefore also commenced quarterly
reporting.
The unaudited results for the nine months to 30 September 2006 (the period)
reflect a continuation of the positive momentum shown at the interim stage.
The overall environment for banks remains positive, despite increased levels of
credit stress in parts of the retail environment, continued pressure on fees
and greater market volatility.
Headline earnings per share for the period increased by 39,1% to 801 cents
(2005: 576 cents). Basic earnings per share grew by 10,6% to 846 cents (2005:
765 cents).
The group"s return on average ordinary shareholders" equity (ROE) continued to
improve, increasing from 18,3% reported for the six months to 30 June 2006 to
18,6% for the period under review.
Tom Boardman, Chief Executive, said: "We are pleased with the 39,1% increase in
headline earnings per share and, in particular, the levels of income growth
across all operating divisions. This growth, together with appropriate cost
disciplines and our active capital management programme, has kept the group on
track to meet its ROE target of 20% in 2007. The cost of additional retail
outlets, ATMs and frontline staff, combined with price reductions across a range
of products, will benefit the group and its clients in the long term, but makes
the short-term efficiency ratio target of 55% in 2007 more challenging".
FINANCIAL PERFORMANCE
The group"s headline earnings increased by 41,2%, from R2 277 million for the
corresponding period in 2005, to R3 216 million for the period. Basic earnings
increased by 12,2% to R3 394 million (2005: R3 025 million).
Net interest income (NII)
NII grew by 28,8% to R7 928 million. The group"s margin increased from 3,88% for
the six months ended June 2006 to 3,94% for the period. NII growth is mainly
attributable to:
- an increase in average interest-earning banking assets of 16,1%
(annualised) during the period;
- the endowment benefit from the increased endowment together with the rise
in interest rates; and
- positive 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.
Impairment charge on loans and advances
The impairment charge to average advances ratio improved from 0,61% for the six
months to 30 June 2006 to 0,50% for the period. This improvement is largely due
to provisions raised in Nedbank Capital in the first half of the year not being
repeated and recoveries on corporate advances in both Nedbank Corporate and
Nedbank Capital during the third quarter.
The group anticipates that the impairment charge will increase in the medium
term as a result of the recent interest rate increases combined with increasing
levels of household debt. Nedbank Corporate"s impairment levels are also
currently at unusually low levels and are expected to increase as the level of
recoveries is expected to decrease.
Non-interest revenue (NIR)
NIR for the period increased by 14,1% to R6 786 million (excluding translation
gains, NIR increased by 16,5%). This growth was driven by continued volume
growth in Nedbank Corporate and Nedbank Retail, property revaluations and
realisations in Nedbank Corporate amounting to R256 million (2005: R100
million), private equity revaluations and realisations in Nedbank Capital of
R129 million (2005: R14 million), and strong growth in Bond Choice origination
fees.
NIR growth has been offset by the price reduction strategy implemented in
Nedbank Retail in July this year, together with a slowdown in trading income in
Nedbank Capital.
Expenses
Expenses continue to be well managed, increasing by 6,9% to R8 496 million.
Staff expenses increased by 11,6%, reflecting the investment the group has made
in client-facing staff and a relative increase in variable pay as a result of
the continued improvement in operating performance. Marketing costs increased as
planned by 37,5% off the low base set in 2005 as the group invested in the
Nedbank brand.
The "jaws" ratio continued to improve, with total revenue growth of 21,6% being
14,7% above expense growth of 6,9%, resulting in the efficiency ratio improving
from 65,7% for 2005 to 57,7%. As expected, this ratio is above the level of
57,3% reported in June 2006 and is also forecast not to be sustained at this
level for the full year.
Non-trading and capital items
Income after taxation from non-trading and capital items amounted to R178
million for the period. The main component was the profit on the sale of the
remaining shares in Net 1 UEPS Technologies Inc (NUEPS) in the first half of the
year, which amounted to R221 million, offset by net investment and computer
software writedowns of R43 million. In the prior period the sale of the major
portion of the investment in NUEPS (6,65 million shares) realised a R793 million
profit when the company listed on NASDAQ.
Balance sheet
Capital
The group is well capitalised and, including profit appropriations, group
capital adequacy remained above target levels with Tier 1 capital adequacy at
8,7% and total regulatory capital adequacy at 12,4%.
Advances
Net advances increased by R55,2 billion from December 2005 and average interest-
earning banking assets grew by R29,0 billion or 16,1% (annualised).
Details of advances growth by category are as follows:
Rm September December Annualised
2006 2005 increase (%)
Home loans 90,736 75,333 27,3
Commercial mortgages 43,561 37,993 19,6
Properties in possession 144 309 (71,4)
Credit cards 4,627 4,074 18,1
Overdrafts 12,931 11,604 15,3
Leases and instalment debtors 40,533 34,935 21,4
Other loans 116,476 89,374 40,5
Impairment of advances (5,401) (5,214) 4,8
Total 303,607 248,408 29,7
The increase in other loans of 40,5% is partly attributable to unusually high
month-end balances of certain foreign correspondent accounts in September 2006.
Deposits
The group maintained a strong liquidity position throughout the period.
Deposits increased by 25,7% (annualised) from December 2005. Growth in wholesale
deposits continues to outpace growth in retail deposits.
Capital management
During the period the group:
- concluded, in the first half of the year, a subordinated debt issue (NED 5)
of R1,5 billion, which was priced at 70 basis points above the five-year
benchmark R153 rate (issued at 7,845%);
- concluded, in the third quarter, a subordinated debt issue (NED 6) of
R1,5 billion, which was priced at 105 basis points above the seven-year
benchmark R201 rate (issued at 9,84%);
- redeemed the NED 1 R2,0 billion bond on 20 September 2006; and
- executed share buybacks amounting to 5,5 million shares at a cost of
R616 million in the first half of the year and a further 8,2 million shares at a
cost of R892 million during the third quarter.
These initiatives are part of the group"s ongoing long-term capital management
programme that seeks to achieve an optimal and prudent capital structure. The
group currently has a Basel I target minimum total capital adequacy ratio of 12%
and a target minimum Tier 1 ratio of 8%.
Prospects
Performance in the last quarter 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;
- continued market reliance on wholesale funding;
- an endowment benefit in the margin from the recent interest rate
increases;
- signs of increased levels of credit stress in parts of the retail
environment and an anticipated slowdown in wholesale recoveries;
- a slowdown in positive property and private equity revaluations;
- reduced growth in trading revenues;
- investment in distribution and branding; and
- ongoing capital management activities.
Consequently the group is currently expecting ROE and the efficiency ratio to
show a slight decline in the last quarter from the levels reported for the
period.
ROE and the efficiency ratio are, however, anticipated to improve in 2007 as the
group strives to meet its stated targets.
Earnings forecasts to December 2006
The directors have reaffirmed the earnings forecasts given at the interim
reporting stage.
Accounting policies
The Nedbank Group interim results have been prepared in accordance with IAS 34:
Interim Financial Reporting. The group"s principal accounting policies, as
stated in the 2005 annual financial statements, have been applied consistently
in preparing these results.
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.
Financial highlights
Unaudited Audited
September December
2006 2005
Share statistics
Number of shares listed m 449,4 442,8
Number of shares in issue,
excluding shares held by group entities m 393,7 401,8
Weighted average number of shares m 401,4 397,2
Fully diluted weighted average number
of shares m 411,5 400,4
Headline earnings per share cents 801 797
Fully diluted headline earnings per share cents 782 791
Fully diluted basic earnings per share cents 825 958
Dividend paid per share cents 394 181
Net asset value per share cents 6,043 5,597
Tangible net asset value per share cents 4,773 4,351
Closing share price cents 11,420 10,000
Price-earnings ratio historical 11 13
Market capitalisation Rbn 51,3 44,3
Key ratios
Return on ordinary
shareholders" equity (ROE) % 18,6 15,5
Return on total assets (ROA) % 1,12 0,93
Net interest income to
interest-earning banking assets % 3,94 3,55
Non-interest revenue to total income % 46,1 50,2
Impairment charge to average advances % 0,50 0,49
Efficiency ratio % 57,7 65,1
Effective taxation rate % 27,2 23,4
Group capital adequacy ratio
- Tier 1 % 8,7 9,4
- Total % 12,4 12,9
Number of employees 22,853 22,188
Balance sheet statistics
Total equity attributable
to equity holders of the parent Rm 23,790 22,490
Total equity Rm 27,989 26,309
Amounts owed to depositors Rm 311,461 261,311
Loans and advances Rm 303,607 248,408
Gross Rm 309,008 253,622
Impairment of loans and advances Rm (5,401) (5,214)
Total assets Rm 417,304 352,258
Assets under management Rm 85,920 72,063
Total assets administered by the group 503,224 424,321
Earnings reconciliation
Profit for the period Rm 3,394 3,836
Less: Non-trading and capital items Rm 178 669
Impairment of goodwill Rm (1)
Profit on sale of subsidiaries, investments
and property and equipment Rm 254 904
Net impairment of investments, property and
equipment, and capitalised development costs Rm (55) (202)
Taxation on above items Rm (21) (32)
Headline earnings Rm 3,216 3,167
Income statement
for the period ended
Unaudited Unaudited Audited
September September December
2006 2005 2005
Rm
Interest and similar income 20,174 16,996 23,234
Interest expense and similar charges 12,246 10,841 14,705
Net interest income 7,928 6,155 8,529
Impairment charge on loans and advances 1,055 686 1,189
Income from lending activities 6,873 5,469 7,340
Non-interest revenue 6,786 5,949 8,609
Operating income 13,659 11,418 15,949
Total expenses 8,496 7,947 11,157
Operating expenses 8,387 7,809 10,764
BEE transaction expenses 109 138 393
Indirect taxation 223 232 223
Profit from operations before non-trading and
capital items 4,940 3,239 4,569
Non-trading and capital items 199 766 701
Impairment of goodwill - - (1)
Profit on sale of subsidiaries, investments
and property and equipment 254 876 904
Net impairment of investments, property and
equipment, and capitalised development costs (55) (110) (202)
Profit from operations 5,139 4,005 5,270
Share of profits of associates and joint
ventures 85 130 167
Profit before direct taxation 5,224 4,135 5,437
Total direct taxation 1,390 758 1,140
Direct taxation 1,369 740 1,108
Taxation on non-trading and capital items 21 18 32
Profit for the period 3,834 3,377 4,297
Attributable to:
Profit attributable to equity holders of the
parent 3,394 3,025 3,836
Profit attributable to minority interest
- ordinary shareholders 221 124 233
- preference shareholders 219 228 228
Profit for the period 3,834 3,377 4,297
Basic earnings per share cents 846 765 966
Fully diluted basic earnings per share cents 825 576 958
Dividend paid per share cents 394 181 181
Balance sheet
as at
Unaudited Audited
September December
2006 2005
Rm
Assets
Cash and cash equivalents 10,528 11,142
Other short-term securities 24,482 17,014
Derivative financial instruments 15,713 16,176
Government and other securities 23,785 22,658
Loans and advances 303,607 248,408
Other assets 13,212 11,601
Clients" indebtedness for acceptances 2,362 1,291
Current taxation receivable 98 134
Investment securities 6,485 6,875
Non-current assets held for sale 153 385
Investments in associate companies and joint ventures 779 657
Deferred taxation asset 105 680
Investment property 143 163
Property and equipment 3,243 3,095
Post-employment assets 1,268 1,225
Computer software and capitalised development costs 1,210 1,320
Mandatory reserve deposits with central bank 6,344 5,747
Goodwill 3,787 3,687
Total assets 417,304 352,258
Total equity and liabilities
Ordinary share capital 394 402
Ordinary share premium 9,545 10,465
Reserves 13,851 11,623
Total equity attributable to equity holders of the
parent 23,790 22,490
Minority shareholders" equity attributable to
- ordinary shareholders 1,129 1,049
- preference shareholders 3,070 2,770
Total equity 27,989 26,309
Derivative financial instruments 17,687 17,055
Amounts owed to depositors 311,461 261,311
Other liabilities 41,748 32,357
Liabilities under acceptances 2,362 1,291
Current taxation liabilities 596 466
Deferred taxation liabilities 1,093 959
Post-employment liabilities 1,095 1,071
Investment contract liabilities 4,648 4,166
Long-term debt instruments 8,625 7,273
Total liabilities 389,315 325,949
Total equity and liabilities 417,304 352,258
Guarantees on behalf of clients 12,764 11,064
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 December 2004 18,337 2,770 680 21,787
Net income recognised directly in
equity 463 - 136 599
Release of reserves previously
not available (70) (70)
Foreign currency translation
reserve movement 95 10 105
Available-for-sale reserve
movement (204) (204)
Revaluation of owner-occupied
property 153 153
Share-based payments reserve
movement 466 466
Capitalisation of minority 107 107
Other movements 23 19 42
Profit for the period 3,836 228 233 4,297
Dividends to shareholders (727) (228) (955)
Issues of shares net of expenses 1,336 1,336
Shares acquired by group entities (755) (755)
Balance at 31 December 2005 22,490 2,770 1,049 26,309
Net income recognised directly in
equity 396 - 20 416
Foreign currency translation
reserve movement 447 19 466
Available-for-sale reserve
movement (171) (171)
Share-based payments reserve
movement 125 125
Other movements (5) 1 (4)
Profit for the year 3,394 219 221 3,834
Dividends to shareholders (1,562) (219) (11) (1,792)
Issues of shares net of expenses 629 629
Shares acquired by group entities (1,557) (1,557)
Shares issued/(repurchased) by
subsidiary 300 (150) 150
Balance at 30 September 2006 23,790 3,070 1,129 27,989
Cash flow statement
for the period ended Unaudited Audited
September December
2006 2005
Rm
Cash generated by operations 6,704 6,898
Change in funds for operating activities (4,879) 2,023
Net cash generated from operating activities before
taxation 1,825 8,921
Taxation paid (543) (852)
Net cash generated from operating activities 1,282 8,069
Net cash used in investing activities (92) (927)
Net cash used in financing activities (1,207) (303)
Net (decrease)/increase in cash and cash equivalents (17) 6,839
Cash and cash equivalents at beginning of the period* 16,889 10,050
Cash and cash equivalents at end of the period* 16,872 16,889
* Including mandatory reserve deposits with central bank
Operational segmental reporting
for the period ended
Unaudited Audited Unaudited Unaudited
September December September September
2006 2005 2006 2005
Rbn Rbn Rm Rm
Total Total Operating Operating
assets assets income income
Nedbank Corporate 170 138 5,520 4,467
Nedbank Capital 141 117 1,873 1,678
Nedbank Retail 116 96 6,269 5,274
Imperial Bank 27 22 673 514
Shared Services 7 9 87 208
Central Management 14 15 (621) (610)
Eliminations (58) (45) (142) (113)
Total 417 352 13,659 11,418
Audited Unaudited Unaudited Audited
December September September December
2005 2006 2005 2005
Rm Rm Rm Rm
Operating Headline Headline Headline
income earnings earnings earnings
Nedbank Corporate 6,223 1,912 1,434 1,894
Nedbank Capital 2,442 771 606 971
Nedbank Retail 7,208 1,194 727 896
Imperial Bank 740 140 94 147
Shared Services 306 (141) 56 104
Central Management (823) (660) (640) (845)
Eliminations (147)
Total 15,949 3,216 2,277 3,167
Geographical segmental reporting
for the period ended Unaudited Unaudited Audited
September September December
2006 2005 2005
Operating Operating Operating
income income income
Rm
South Africa 12,752 10,614 14,834
Business operations 12,747 10,486 14,708
BEE transaction costs
Merger and recovery programme expenses
Foreign currency translation gains 5 128 126
Income attributable to preference
shareholders
Rest of Africa 441 354 512
Rest of world 466 450 603
Business operations 466 450 603
Merger and recovery programme expenses
13,659 11,418 15,949
for the period ended Unaudited Unaudited Audited
September September December
2006 2005 2005
Headline Headline Headline
earnings earnings earnings
Rm
South Africa 2,977 2,008 2,884
Business operations 3,295 2,293 3,406
BEE transaction costs (104) (136) (334)
Merger and recovery programme expenses (49) (86)
Foreign currency translation gains 5 128 126
Income attributable to preference
shareholders (219) (228) (228)
Rest of Africa 74 113 135
Rest of world 165 156 148
Business operations 165 156 182
Merger and recovery programme expenses (34)
3,216 2,277 3,167
Sandton
14 November 2006
Sponsors
Merrill Lynch South Africa (Pty) Limited
Nedbank Capital
Date: 14/11/2006 08:00:29 AM Produced by the JSE SENS Department
