4th Aug 2005 09:59
Old Mutual PLC04 August 2005 NEDBANK GROUP LIMITEDRegistration number 1966/010630/06Share code NEDISIN code ZAE000004875 INTERIM RESULTS 2005Reviewed 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 thebenefits are increasingly being reflected in our financial performance.Income is growing at a faster rate than expenses, with the efficiency ratioimproving steadily and return on equity increasing. We continue to deliveron the commitments we have made to our shareholders and havereaffirmed our stated financial targets for 2007. Tom BoardmanChief 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. Thedirectors have resolved, in line with the circular to shareholders on the blackeconomic empowerment (BEE) scheme, to offer a capitalisation award with a cashdividend alternative amounting to 105 cents per share, up from the dividend of44 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 monthsto 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 ReportingStandards (IFRS) with effect from 1 January 2005. The group's 2004 results havebeen 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 outlinedfive major action plans that form the foundation of the group's three-yearplan. To provide shareholders with an update on the group's progressdelivery 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. StrategyNedbank 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 respectedbank by employees, clients, shareholders, regulators and communities. Business environmentThe environment for the banking sector remained positive throughout the period.Stable, low interest rates and low inflation continued to drive consumerspending and retail advances growth. The positive economic conditions alsostimulated equity markets and ensured a continuation of the positive creditenvironment. While the demand for credit in business banking and commercialproperty finance remains steady, and the initial signs of an increase ininfrastructure spend are being noted, the demand for large corporate debt hasbeen muted. The investment banking markets continued to experience strong dealflows, driven primarily by BEE transactions. Financial performanceNedbank Group continued to show a turnaround in performance, with headlineearnings 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 incomeNet interest income (NII) increased by 21,2% from R3 319 million to R4 024million. The group's net interest margin for the period was 3,45%, up from2,99% 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 byexcluding trading activities and to facilitate easier peer group comparison,the group has reclassified certain trading revenues from NII to non-interestrevenue (NIR). As a result, the previously reported NII of R3 595 million forthe period to June 2004 has decreased by R276 million to R3 319 million.The previously reported comparative for NIR has consequently increased by R276million 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 taxationrate for companies, which resulted in a R54 million reduction in margin arisingfrom the treatment of structured finance deals. This reduction is offset by acorresponding reduction in the taxation line and will reverse over time. Margins have also been compressed by the impact of the lower interest rateenvironment and resulting drop in the endowment income earned on capital andthe net of non-interest-paying liabilities and non-interest-earning assets. % of daily average interest-earning assets - unaudited % RmDecember 2004 reported 3,13 7 582Trading revenue and assets excluded from margin 0,05 (437)Adjusted 2004 margin 3,18 7 145H1 2005 asset growth 719Net endowment effect 0,18 166- Rights issue 0,13 122- Other 0,05 44Current and savings accounts margin compression (0,10) (93)Market margin compression (0,16) (151)Expensive funding drag 0,11 100Foreign capital repatriated 0,06 56Subordinated debt hedge 0,05 46Expensive empowerment funding for Peoples Bank 0,07 70Tax structured deals impact 0,06 64Other (7)June 2005 annualised 3,45 8 115 Non-interest revenueNIR, excluding foreign currency translation gains/losses, decreased by1,5% from R3771 million for the period to June 2004 to R3 716 million forthe 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 fromthese subsidiaries. Commission and fee income in the remaining businessescontinued to grow steadily, increasing by 11,1%. Trading revenue increased fromR554 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 2004comparative, 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 RmBondChoice 138 63Realisation of endowment policies 3 32Subsidiaries sold during 2004 228First-time and pro rata consolidations 68 6 Taking the above factors into account, on a directly comparable basis, NIRincreased by 1,0%. Foreign currency translation gainsIn line with the strategy of focusing on the basics of banking and reducingearnings volatility the group reduced its exposure to foreign currencymovements during 2004, retaining sufficient capital to support the offshorebusinesses. Owing to the 18% decline in the value of the rand, which weakenedfrom R5,63:US$1,00 on 31 December 2004 to R6,67:US$1,00 on 30 June 2005, thegroup benefited from translation gains of R165 million on the remaining capitalheld in its foreign subsidiaries and treated as rand functional currency foraccounting purposes under IFRS. The adoption of IFRS has led to an increased portion of the foreign currencytranslation gains/losses being treated as movements in the balance sheetforeign currency translation reserve rather than being taken through the incomestatement. During the period, the group recorded balance sheet translationgains of R48 million. After further planned restructuring of offshore subsidiaries in the next sixmonths and the associated repatriation of capital, the relative proportion oftranslation movements flowing through the balance sheet, as opposed to theincome statement, is anticipated to increase further. This will further reducethe volatility of earnings resulting from exchange rate movements. Impairment losses on loans and advancesThe introduction of IFRS means that all banks now provide for creditimpairments on an 'incurred loss' basis, as opposed to an 'expected loss' basis.In addition, the discount rate used to calculate the recoverable amount nowexcludes any allowance for a credit spread. This will create more volatility inthe reporting of impairment losses on loans and advances in the incomestatement charge. As reported in May 2005, the impact of IFRS requirements on the impairmentscharge for the period to June 2004 was a reduction from the previously reportedR719 million to R409 million. A major portion of the change to the June 2004impairment charge for reporting in terms of IFRS was due to the improvingcredit environment at that time, combined with the move from reporting on an'expected' to an 'incurred' loss basis. This improved environment was sustainedthroughout 2004 and in the first half of 2005, with the resulting impairmentcharge for the six months to June 2005 of R620 million. Non-performing loans and properties in possession improved, as reflected in thetable below.Non-performing advances (Rm) - unaudited June 2005 Dec 2004 % change Rm RmNon-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 2004to 97% at 30 June 2005 and the net coverage ratio improved from 149% at 31December 2004 to 157% at 30 June 2005. ExpensesExpenses were well-controlled and declined by 3,9% from R5 524 million to R5311 million, with the efficiency ratio (excluding foreign currency translationgains / 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 RmFirst time consolidation of subsidiaries 35Subsidiaries 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) 56Other movements, mainly due to inflation 192Total decrease in expenses (213) Excluding the one-off merger and recovery expenses from 2004, base expensegrowth was held at 1,2%. Approximately R48 million of recovery programme expenses have been deferredfrom the first half of 2005 to the second half of the year. Combined recoveryprogramme and merger expenses are expected to be about R150 million for theyear ending December 2005. TaxationThe tax rate for companies was reduced from 30% to 29% during the reportingperiod. While tax on earnings decreased as a result, the downward revaluationof the deferred taxation and structured finance assets has resulted in thereduction of headline earnings by approximately R80 million. R54 million ofthis decrease was reflected as a reduction in NII, as outlined above.The balance of R26 million increased the taxation charge. This, together with asmaller relative impact on taxation from structured deals and an increase insecondary tax on companies (STC), has resulted in the effective taxation rateincreasing from 14% to 22%. Balance sheetCapital The group's capital position continues to strengthen, with the Tier 1 groupcapital adequacy ratio increasing from 8,1% in December 2004 to 8,5% in June2005. The total group capital adequacy ratio has remained stable at 12,2%(December 2004: 12,1%). AdvancesAlthough asset growth rates are behind those of the rest of the market, advancesincreased by 5,9% to R228 billion on an annualised basis, compared with December2004. Residential home loan advances grew by 22,3%, with home loans in NedbankRetail growing at 19%, narrowing the gap between Nedbank's growth and that ofits 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 10,2Nedbank Corporate 98 085 93 123 10,7Nedbank Capital 34 395 32 606 11,1Other 22 010 25 810 (29,7)Total 227 742 221 275 5,9 DepositsDeposits have remained stable and the group has maintained a strong liquidityposition. Divisional performanceManagement information systems and reporting continue to be enhanced, withmatched-maturity funds transfer pricing now operational and activity-justified funds transfer pricing refined to allocate additional costs from thecentre to the respective operating divisions. The segmental reports have beenadjusted to reflect these changes as well as other changes as a result of thegroup reorganisation completed in late 2004. Good progress has also been madein implementing economic capital measurement, which is currently being run inparallel with the existing reporting systems, with a view to fullimplementation for 2006. Nedbank CapitalNedbank Capital increased headline earnings by 25,9% from R355 million to R447Million, and ROE improved from 23,5% to 28,2%. This was driven by 18,6% growthin trading revenue in Treasury due to favourable market conditions as well asgood deal flow and a strong performance from Debt Capital Markets, EquityCapital Markets, Nedcor Securities, Investment Banking and Specialised Finance. Expenses have reduced despite higher joint-venture fees paid to Macquarie as aresult of higher earnings. The expense reduction was aided by the sale ofEdward Nathan & Friedland and lower rental costs following the relocation ofthe London offices to premises shared with Old Mutual plc. The benefits of an integrated investment bank with a strong focus on specificsectors are becoming evident and the transaction pipeline remains strong. Nedbank CorporateNedbank Corporate increased headline earnings by 14,2% from R812 million toR927 million, while ROE increased from 17,7% to 19,1%. NII was negativelyimpacted by lower endowment levels, while margins (excluding endowment) wereunchanged. Corporate loan growth is muted as clients remain cash flush, and themarket is highly competitive. Growth in Business Banking assets in KwaZulu-Natal and the Western Cape is below average and some market share has been lostin these regions following the merger integration process. Property Financecontinues to perform strongly and Nedbank Africa performed in line withexpectations. NIR was boosted by the consolidation of Fasic (not included in the comparativeperiod for 2004), a strong performance from BondChoice and growth intransactional banking. Fee generation on foreign exchange commission was lowerthan expected and there is increasing pressure on specialised fees. The impairment environment continues to be favourable, reflecting the currentpositive economic cycle. Operating expenses remain well-controlled. However, the expected appointment offurther sales staff to improve client service is expected to result in a slightincrease in staff expenses in the second half of 2005. New managing directors were appointed in Corporate Banking, Business Bankingand Nedbank Africa at the start of the year. In addition, five divisionaldirectors were appointed to head geographically based business unitsestablished in Business Banking to enhance client service, accountability andperformance through decentralised and empowered management. Our commitment togoing "beyond transformation" is reflected through five of the eightappointments being either black or female executives. Pressure on margins in the current low-interest-rate environment, competitivepricing, disintermediation and corporate clients being cash flush will continueto impact earnings growth, particularly within Corporate Banking. Nedbank Corporate continues to build strong relationships with its core clientsand to work closely with both Nedbank Retail (card acquiring and schemes) andNedbank Capital to leverage client relationships and broaden the range ofproducts and services to add greater value for clients. Nedbank RetailNedbank Retail increased headline earnings by 105,1% from R214 million to R439million, and ROE increased from 9,2% to 18,3%. Despite the negative endowmentimpact from the interest rate cut in April, NII was driven by strong advancesgrowth primarily due to the 19% year-on-year growth in home loans.NIR benefited from increased volumes, insurance commissions and increasedstockbroking activity in BoE Private Clients. The growth in credit impairments is distorted by the prior year IAS39restatements that caused a R206 million reduction in the restated firsthalf 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 operationalefficiencies and delays in marketing spend. Marketing spend is planned toincrease in the second half of 2005. The rate of market share losses continues to slow, particularly in the keyhome loans sector. This has been driven by improved channel management andprocess and structural changes made in Nedbank Retail. The Nedbank / Peoples Bank integration is progressing well. The Peoples Bankand Nedbank branches are operating on a common IT platform and Peoples Bank isscheduled to convert fully to the Nedbank systems in August 2005. It isanticipated that 146 branches will be rebranded to Nedbank, 56 closed and 24new branches opened. 11 branches have been closed to date, with the remaining45 earmarked for closure by the end of 2005. The rationalisation and rebrandingcosts will amount to approximately R52 million, ,of which R10 million hasalready 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-serviceterminals at a capital cost of approximately R160 million. This is planned forcompletion by the second half of 2006. Good progress has been made in the first half of 2005 towards setting thefoundation for the turnaround of Nedbank Retail. The key future focus areas inNedbank Retail are client service, advances growth, reduction in impairments,bancassurance and staff morale. Imperial BankImperial Bank increased headline earnings by 19,1% from R47 million to R56million. NII grew by 17,0%, despite the negative endowment impact of theinterest rate cut. This was driven by strong growth of Motor Vehicle Finance,while advances growth in Property Finance slowed due to a more conservativeapproach to this sector of the business. Impairments declined by 12,5% due to amore favourable credit environment and to a reduction in provisioningrequirements in both Property Finance and Aviation. Nedbank Group and Imperial Holdings each contributed R70 million of additionalcapital to Imperial Bank in March 2005. This has resulted in an initialdilution 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 FinancialOfficer and Chief Risk Officer were appointed. This new management team hassettled down well and staff morale is good. The outlook for the remainder ofthe year remains robust, with continued strong advances growth in the motorsector and a good credit environment expected to continue. Central ServicesCosts in central services divisions in 2004 have been restated to reflect theReorganisation, which saw a number of previously centralised functions moving tothe operating divisions, including the move of all branch operations to NedbankRetail. Overall the headline loss from shared services has reduced from R128million (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 andCentral Funding comprises primarily the preference share dividend, the fundingof the group's goodwill, the cost of the expensive empowerment funding forPeoples Bank, the excess cost of the subordinated debt and the deferred taxrate adjustment, offset by the foreign currency translation gain. SustainabilityNedbank Group continues to focus on sustainable development for the long- termbenefit of the company and the communities it serves. The group has again beenincluded in the JSE Socially Responsible Investment (SRI) Index for 2005 andwas rated among the top three companies in its category. ProspectsNedbank Group reaffirms its targets of achieving a return on average ordinaryshareholders' equity of 20% and an efficiency ratio of 55% for 2007. Assuming a stable interest rate environment, the performance in the secondhalf 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-relatedprojects. Strategic initiatives are in progress to upgrade several legacysystems while at the same time preparing for the Basel ll systems requirements.Projects to upgrade transactional banking systems and consolidate multipleCorporate Banking channels are in progress. New financial processing systemsand client information projects have been approved to support the client-centric strategy of the bank. All data and voice networks in the group havebeen outsourced, in conjunction with Old Mutual (SA), to a Telkom/CSCconsortium, which will replace all existing network infrastructure withup-to-date technology. This outsourcing contract will save Nedbankapproximately R700 million over the next five years, with savings ofR60 million in 2005. The group is in the process of centralisinginformation 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 forecastAs a result of the improved performance to date and expected earnings for thebalance of the year - and assuming that exchange rates remain constant - thegroup forecasts headline earnings of between 58% and 78% higher than theR1 742 million restated results under IFRS for 2004.Headline earnings per share are estimated to be between 44% and 62% greaterthan the IFRS-restated 483 cents per share reported for December 2004. Basicearnings per share for the full year will be between 65% and 85% higher thanthe 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 transactionOn 19 April 2005 the group announced its intention to implement a BEE ownershipTransaction, which would increase black shareholding by 11,5% of the value ofNedbank's South African businesses. The proposals involve the issue of new ordinary shares in Nedbank Group tovarious share trusts for the benefit of black employees within the group, blackclients and black business partners in South Africa. The proposals wereapproved by shareholders at a general meeting held on 22 July 2005. Implementation of the proposals will take place during August 2005, resultingin the listing of 41 268 130 new ordinary shares. Of these, 39 843 139 ordinaryshares 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 berecognised on issue of the company's shares, are estimated at R933 million, ofwhich R156 million is expected to be incurred in the second half of 2005. Changes to board of directorsDuring the period under review, the following changes were made to the board ofNedbank 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 policiesThe Nedbank Group financial results have been prepared in accordance withInternational Financial Reporting Standards (IFRS), as expected to be effectivefor the year ending 31 December 2005. These standards are subject to ongoingreview and possible amendment in terms of interpretive guidance from theInternational 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 beenrestated to reflect the requirements of reporting under IFRS. These restatedresults for 2004 were disclosed in an announcement on 3 May 2005.The material adjustments for reporting under IFRS are noted in thereconciliation of results, as reported below. 2. Income reclassification - during the period under review the group changedits disclosure in respect of income and the 2004 results have been restatedaccordingly. The components of net interest income (NII) and non-interestrevenue (NIR) were analysed and the nature and classification of interestincome and non-interest revenue was refined. In essence, all income earned inrespect of banking activities (i.e. transactions entered into for thepurpose of earning a margin between interest earned and interest paid) isclassified as either interest income or interest expense and included inNII. By the same token all transactions entered into for the purpose oftrading activities are classified as part of NIR. The effect of this changein disclosure is to decrease NII by R276m for the period ended 30 June 2004and R437m for the year ended 31 December 2004, with a simultaneous increasein NIR in the relevant periods. 3. Balance sheet reclassifications - certain provisions for leave pay andonerous leases totalling R425m have been reclassified, for the reportingperiod 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 takeinto account the changes in improved profitability measurement and grouprestructures implemented late in 2004. The restatements include the newinternal funds transfer pricing system, improved activity-justified transferpricing process, and a risk-weighted capital allocation and chargingmethodology, while liquid assets and cash reserving costs are no longer heldat the centre, but are charged to the operating segments. Operating lease costs - the historical accounting and interpretation in SouthAfrica of AC105/IAS17 has not been in line with international interpretationand application. Interpretive guidance by the Accounting Practices Committee ofthe South African Institute of Chartered Accountants - Circular 7/2005 issuedon 2 August 2005- required minimum lease payments, which are subject to a fixedrate escalation, to be spread over the life of the lease and the escalation notto be accounted for in the year of occurrence. The group has assessed themateriality of any adjustment in terms of this requirement, and does not expectthis adjustment materially to affect the current reported results. The impact onopening shareholders' equity is presently being assessed and, should this bematerial, the group will inform the market of any prior year adjustmentrequired. Reviewed results - auditors' opinionThe group's auditors, KPMG Inc and Deloitte & Touche, have reviewed theseresults and the review opinion is available for inspection at the company'sregistered office. Capitalisation award with a cash dividend alternativeNotice is hereby given that the directors of the company have resolved to issuefully paid ordinary shares in the company as a capitalisation award to ordinaryshareholders. Ordinary shareholders will be entitled, in respect of all or partof their shareholding, to elect to receive new fully paid ordinary shares, whichshares will be issued only to those ordinary shareholders who elect in respectof all or part of their shareholding, on or before 12:00, Friday, 9 September2005, to receive the capitalisation award shares. Shareholders not electing toreceive new fully paid ordinary shares in respect of all or part of theirshareholding will be entitled to receive a cash dividend alternative of 105cents per ordinary share (the cash dividend alternative). In accordance with the provisions of STRATE, the electronic statement andcustody system used by JSE Limited, the relevant dates for the capitalisationaward election and the cash dividend alternative are as follows: 2005Last day to trade to participate in thecapitalisation award or thecash dividend alternative Friday, 2 SeptemberShares trade ex the capitalisation award electionand the cash dividend alternative on Monday, 5 SeptemberListing of the maximum number of new ordinary sharesthat couldbe taken up in terms of the capitalisation award on Monday, 5 SeptemberLast day to elect to receive capitalisation awardshares, failing whichthe cash dividend alternative, to be receivedby 12:00 Friday, 9 SeptemberRecord date to participate in the capitalisationaward or receive the cash dividendalternative Friday, 9 SeptemberPayment of the cash dividend alternative toshareholders who have elected not toparticipate in the capitalisation award or haveparticipated in the capitalisation award inrespect of only part of their shareholding Monday, 12 SeptemberNew shares issued and posted orcentral securities depository participant (CSDP)or broker accounts credited regarding theshares to be issued to shareholders participatingin the capitalisation award in respect of all or partof their shareholding on Monday, 12 SeptemberThe maximum number of new shares listed in terms ofthe capitalisation award adjusted to reflectthe actual number of shares issued in terms of thecapitalisation 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 timesare 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 bedetermined in the ratio that 105 cents per ordinary share bears to the 30-dayvolume-weighted average price for the company's share, to be determined by nolater than Friday, 26 August 2005. Details of the ratio will be published onSENS no later than Friday, 26 August 2005, and in the financial press thefollowing business day. Trading in the STRATE environment does not permitfractions and fractional entitlements. Accordingly, where a shareholder's entitlement to new ordinary sharescalculated in accordance with the above formula gives rise to a fraction of anew ordinary share, such fraction will be rounded up to the nearest wholenumber where the fraction is greater than or equal to 0,5 and rounded down tothe nearest whole number where the fraction is less than 0,5. A circular relating to the capitalisation award and the cash dividendalternative will be posted to shareholders on or about Monday, 22 August 2005. Note:Dematerialised shareholders are required to notify their duly appointedCSDP or broker of his/her election interms of the capitalisation award in the manner and at the time stipulated inthe agreement governing the relationship between the shareholder and his/herCSDP or broker. For and on behalf of the board WAM Clewlow TA BoardmanChairman Chief Executive 4 August 2005 Registered officeNedbank Group LimitedNedbank Sandton135 Rivonia RoadSandown, 2196PO Box 1144Johannesburg, 2000 Transfer secretariesComputershare Investor Services 2004 (Pty) Ltd,70 Marshall StreetJohannesburg, 2001PO Box 61051Marshalltown, 2107 DirectorsWAM 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 NienaberReg No: 1966/010630/06Share code: NEDISIN code: ZAE000004875 SPONSORSMerrill Lynch South Africa (Pty) LtdNedbank Capital 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 bye-mail at [email protected]. Financial highlightsfor the period ended Reviewed Restated Restated June June December 2005 2004 2004 Share statisticsNumber of shares listed m 395,3 392,9 394,2Weighted average number of shares m 394,4 327,8 360,9Fully diluted weighted averagenumber of shares m 394,5 330,1 361,8Headline earnings per share cents 354 245 483Fully diluted headline earningsper share cents 354 243 481Basic earnings per share(previously attributableearnings per share) cents 356 247 423Fully diluted basic earningsper share cents 356 245 422Dividend declared per share cents 105 44 120Dividend paid per share cents 76 35 79Dividend cover times 3,4 5,6 4,0Net asset value per share(Investments at market value) cents 5 067 4 499 4 692Tangible net assetvalue per share(Investments at market value) cents 3 803 3 162 3 400Closing share price cents 7 439 6 170 7 780Price earnings ratio historical 21 25 16Market capitalisation Rbn 29,4 24,2 30,7Key ratiosReturn on ordinaryshareholders' equity % 14,6 11,7 11,0Return, excluding foreigncurrency translation gains/losses, on ordinaryshareholders' equity % 12,9 13,1 12,7Return on total assets % 0,85 0,53 0,54Return, excludingforeign currency translation gains/losses,on total assets % 0,75 0,58 0,62Net interest income tointerest-earning assets % 3,45 2,99 3,18Non-interest revenue tototal income % 49,1 52,5 53,1Impairments to total loansand advances % 2,6 3,2 2,9Efficiency ratio % 67,2 79,0 74,8Efficiency ratio (excludingforeign currency translation gains/losses) % 68,6 77,9 73,5Effective taxation rate % 22 14 24Group capital adequacy ratio: Tier 1 % 8,5 7,9 8,1 Total % 12,2 12,3 12,1Number of employees 21 266 23 172 21 103Balance sheetTotal equity attributableto equity holders Rm 20 028 17 677 18 497Total shareholders' equity Rm 23 658 21 112 21 948Amounts owed to depositors Rm 262 946 236 193 254 299Loans 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 900Assets under management Rm 73 686 87 574 68 982Total assets administered by the group Rm 409 844 388 375 396 882Earnings reconciliationIncome attributable to equity holders Rm 1 404 810 1 527Less: Non-headline-earnings items Rm 6 8 (215)Non-trading and capital items Rm 6 (9) (254)Taxation on non-tradingand capital items Rm 17 39Headline earnings Rm 1 398 802 1 742Headline earnings (excludingforeign currency translation gains/losses) Rm 1 233 900 2 022 Income statement for the period ended Reviewed Restated Restated June June DecemberRm 2005 2004 2004Interest and similar income 10 818 11 350 22 789Interest expense and similar charges 6 794 8 031 15 644Net interest income 4 024 3 319 7 145Impairment charge on loans and advances 620 409 1 217Income from lending activities 3 404 2 910 5 928Non-interest revenue 3 716 3 771 8 373Foreign currency translationgains/(losses) 165 (98) (280)Operating income 7 285 6 583 14 021Total 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 379Profit from operations beforenon-trading andcapital items 1 974 1 059 2 617Non-trading and capital items 6 (9) (254) Impairment of goodwill (91) (87) Profit/(Loss) on sale ofsubsidiaries, investmentsand property and equipment 6 137 (74) Net impairment of investments,property and equipment and capitaliseddevelopment costs (55) (93)Profit from operations 1 980 1 050 2 363Share of profits of associatesand joint ventures 77 80 147Profit before taxation 2 057 1 130 2 510Taxation 454 159 668Taxation on non-trading and capital items (17) (39)Profit for the period 1 603 988 1 881Minority 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 reportedunder IFRSReviewed for the period 30 June 31 DecemberRm Note 2004 2004As previously reported 380 974Adjustments for: Credit impairment 1 215 140 Revenue recognition anddeferred 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 sheetas at Reviewed Restated Restated June June DecemberRm 2005 2004 2004AssetsCash and balances withcentral banks 14 032 11 809 10 050Other short-term securities 20 776 9 549 16 310Government and other securities 24 320 22 322 26 224Derivative financial instruments 22 146 21 509 27 560Loans and advances to customers 227 742 206 553 221 275Other assets 7 447 8 391 6 816Current taxation receivable 200 174 196Investments in associatecompanies and joint ventures 1 287 1 464 1 089Investment securities 6 618 8 167 6 565Post-employment assets 974 506 992Deferred taxation asset 1 258 1 245 1 169Investment property 174 133 174Property, plant and equipment 2 745 2 704 2 828Non-current assets held for sale 48 13 48Computer software andcapitalised development costs 1 322 1 558 1 419Goodwill 3 673 3 695 3 676Customers' indebtednessfor acceptances 1 396 1 009 1 509Total assets 336 158 300 801 327 900Shareholders' equityand liabilitiesOrdinary share capital 395 393 394Ordinary share premium 9 976 9 832 9 892Reserves 9 657 7 452 8 211Total equity attributableto equity holders 20 028 17 677 18 497Minority shareholders'equity attributable to - ordinary shareholders 860 665 681 - preference shareholders 2 770 2 770 2 770Total shareholders' equity 23 658 21 112 21 948Derivative financial instruments 22 633 19 856 28 055Amounts owed to depositors 262 946 236 193 254 299Other liabilities 12 224 9 413 9 117Deferred revenue 246 225 257Current taxation liabilities 276 189 193Deferred taxation liabilities 1 092 864 1 125Post-employment liabilities 961 640 979Investment contract liabilities 3 395 3 803 3 109Long-term debt instruments 7 331 7 497 7 309Liabilities under acceptances 1 396 1 009 1 509Total liabilities 312 500 279 689 305 952Total shareholders' equityand liabilities 336 158 300 801 327 900Guarantees on behalf ofcustomers excluded IAS39: Balance sheet classification of financial instrumentsreviewed as at 30 June 200530 June 200431 December 2004 Liab-Rm Assets ilities AssetsFair value 59 422 34 399 56 939Financial assetsand liabilitiesat fair valuethroughprofit and loss 54 287 34 399 54 369Available for sale 5 135 2 570Amortised cost 267 316 276 735 234 340Loans andreceivables 260 509 232 990Held to maturity 6 807 1 350Non-tradingliabilities 276 735Other assets andliabilities 9 420 1 367 9 522Total shareholders'equity 23 657 336 158 336 158 300 801 Liab- Liab-Rm ilities Assets ilitiesFair value 27 137 66 438 36 153Financial assetsand liabilitiesat fair valuethroughprofit and loss 27 137 63 283 36 153Available for sale 3 155Amortised cost 251 499 251 952 268 481Loans andreceivables 244 879Held to maturity 7 073Non tradingliabilities 251 499 268 481Other assets andliabilities 1 053 9 510 1 318Total shareholders'equity 21 112 21 948 300 801 327 900 327 900 Cash flow statementfor the period ended Reviewed Restated Restated June June DecemberRm 2005 2004 2004Cash flows from operating activities 3 019 2 663 5 723Change in working funds 1 688 (6 345) (11 804)Cash generated/(utilised) by operatingactivities before taxation 4 707 (3 682) (6 081)Taxation paid (360) (285) (835) Net cash generated/(utilised)by operating activities 4 347 (3 967) (6 916)Cash flows from investment activities (127) 1 228 2 836Cash flows from financing activities (238) 2 321 1 903Net increase/(decrease) in cash andcash equivalents 3 982 (418) (2 177)Cash and balances with central banks atbeginning of period 10 050 12 227 12 227Cash and balances with central banksat end of period 14 032 11 809 10 050 Statement of changes in shareholders' equity Ordinary Minority Preference Total share- share- share- holders' holders' holders'Rm equity equity equityBalance at31 December 2003, aspreviously reported 11 647 652 2 802 15 101IAS transitionaladjustment (105) (30) (135)Restated balance at31 December 2003 11 542 622 2 802 14 966Shares issued foroptions exercisedunder theNedcor Group (1994)Employee Incentive Scheme 94 94Shares issued in termsof rights offer 5 151 5 151Other share issues 101 101Share issue expenses (197) (197)Preference sharecumulative dividend (32) (32)Income attributableto equity holders 810 68 110 988Preference sharedividend paid (110) (110)Release of reservepreviously not available (25) (25)Foreign currencytranslation reservemovements (116) (116)Revaluation of property (13) (13)Share-based paymentsreserve movements 5 5Acquisition of subsidiaries (10) (10)Disposals of subsidiaries (5) (5)Dividends to shareholders (97) (97)Available for sale reserve 416 416Other 6 (10) (4)Balance at 30 June 2004 17 677 665 2 770 21 112Shares issued for optionsexercised under the NedcorGroup (1994) EmployeeIncentive Scheme 77 77Other share issues 3 3Share issue expenses (18) (18) Shares held by subsidiaries (1) (1)Preference share dividend paid (119) (119)Income attributable toequity holders 717 57 119 893Release of reservepreviously not available (23) (23)Foreign currency translationreserve movements (32) (32)Revaluation of property (21) (21)Share-based paymentsreserve movements 21 21Dividends to shareholders (172) (15) (187)Available for sale reserve 205 205Acquisition of subsidiaries (28) (28)Disposals of subsidiaries 5 5Other 64 (3) 61Balance at 31 December 2004 18 497 681 2 770 21 948Shares issued for optionsexercised under theNedcor Group (1994)Employee Incentive Scheme 86 86Share issue expenses (1) (1)Preference sharedividend paid (116) (116)Income attributable toequity holders 1 404 83 116 1 603Release of reserveRelated Shares:
Old Mutual PLC