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Nedcor Limited - Trading Statement
NEDCOR LIMITED
(Incorporated in the Republic of South Africa)
Registration number: 1966/010630/06
JSE share code: NED
ISIN code: ZAE000004875
(`Nedcor` or `the group`)
NEDCOR LIMITED - TRADING STATEMENT
OVERVIEW
The directors are pleased to report that the unaudited trading results for the
three months to 31 March 2005 (`the period`) are in line with management
expectations.
Compared to the quarter ended 31 March 2004, net interest income (`NII`)
increased by 22,6% to R2,0 billion. Non-interest revenue (`NIR`), which
increased by 5,0% to R1,7 billion, is slightly behind internal forecasts, but
this was offset by lower than expected expenditure levels.
Average total assets increased by 8% to R324 billion and average interest-
earning assets increased 8% to R265 billion. Residential home loan and credit
card balances increased by 10,7% and 9,5% respectively over the same period.
This loan growth continued to be lower than market growth rates, although the
rate of market share loss in residential home loans, in particular, has
decreased over the period. The structural and strategic actions taken in 2004
continue to impact performance positively.
Nedcor is reporting in accordance with the International Financial Reporting
Standards (IFRS) with effect from 1 January 2005. The group`s 2004 results, as
noted in an announcement on SENS on 3 May 2005, have been restated to reflect
the impact of reporting under IFRS. The major impact of IFRS relates to the
accounting treatment of share options, goodwill, foreign exchange gains/losses,
revenue recognition and impairments.
PERFORMANCE FOR THE PERIOD
Movements in key income statement items include:
- NII continues to benefit from the improved funding profile and hedging
strategies. Margin (based on average interest-earning assets) has improved from
2,80% for the three months ended March 2004 to 3,10% for the period. This can be
ascribed to:
- the uplift created from the rights offer cash received
in May 2004;
- reduced funding drag as a result of the banking book
being relatively interest neutral following the hedging
strategy;
- income on the proceeds from the sale of non-core
investments;
- the repatriation of certain foreign capital during 2004;
and
- increased trading revenue reflected in NII.
This improvement in margin was negatively impacted by the 1% reduction in the
taxation rate for companies which resulted in a R54 million reduction in margin
arising from the IAS 12 (previously AC102) treatment of structured finance
deals. This debit is offset by a corresponding credit in the taxation line and
reverses over time.
- NIR is marginally higher than the corresponding period in 2004, as referred to
above. Trading revenue increased by approximately 8%, although NIR was
negatively impacted as a higher proportion was reflected in NII than the
corresponding period. The Nedbank Capital pipeline of potential transactions
remains strong.
- Total impairments amounted to R441 million for the period. Credit quality
continues to benefit from the strong economic conditions and the impairment
charge is expected to decrease from these levels for the remainder of the
period.
- Total expenses for the period totalled R2,5 billion and show no growth over
last year. The cost to income ratio (excluding foreign translation gains/losses)
has improved to below 70% from 77,6% in the comparative period last year. This
improvement can be attributed to lower staff costs following the retrenchment
programme in 2004, improved efficiencies across most areas of the group, a
timing delay in some recovery expenditure and the growth in gross operating
income.
- Income growth is well ahead of expense growth.
- The taxation rate for companies has been reduced from 30% to 29%. While tax on
earnings decreases as a result, the revaluation of the deferred taxation asset
to take account of the corporate taxation rate decrease has had a negative
effect of approximately R90 million in the first quarter. Notwithstanding the
benefit of the R54 million adjustment referred to above, this has resulted in
the taxation rate being marginally higher than management`s expectations.
- Headline earnings and ROE are in line with expectations.
OTHER OPERATIONAL HIGHLIGHTS
Nedbank Retail is starting to benefit from the turnaround strategy implemented
during 2004. The Peoples Bank integration is progressing according to plan and
is scheduled to be completed by the end of 2005.
Staff morale continues to be a key focus of management. Morale is improving
following the staff roadshows by management during the period and frequent staff
communication as well as the normalisation of bonuses which were paid in March.
Strategic initiatives implemented through the Recovery Programme are having a
positive effect on the group and the implementation of the three-year plan is
progressing well.
Nedcor`s broad-based black economic empowerment (BEE) transaction was announced
on 19 April 2005. The deal will be implemented in late July or early August,
subject to regulatory and shareholder approval.
EARNINGS FORECASTS - SIX MONTHS TO 30 JUNE 2005
Assuming exchange rates remain at current levels, the directors expect headline
earnings per share for the six months to 30 June 2005 to be between 15% and 30%
higher than the IFRS restated 245 cents per share reported for the first half of
2004. Headline earnings for the six months to 30 June 2005 are expected to be
between 38% and 56% higher than the R802 million restated results under IFRS for
the first half of 2004.
Based on the forecast range of headline earnings per share above, attributable
earnings per share for the six months to 30 June 2005 is estimated to be between
16% and 31% greater than the IFRS restated 247 cents per share reported for the
first half of 2004.
Shareholders are advised that these forecasts have not been reviewed or reported
on by the group`s auditors.
Sandton
5 May 2005
For further information kindly contact:
Tier 1 Investor Relations
+27 (0)21 702 3102
Sponsors:
Merrill Lynch South Africa (Pty) Ltd
Nedbank Capital
Date: 05/05/2005 08:31:07 AM
Produced by the JSE SENS Department
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