Wrap Text
Nedbank Group - Audited financial results for the year ended 31 December 2012
NEDBANK GROUP LIMITED
Reg No: 1966/010630/06
ISIN: ZAE000004875
JSE share code: NED
NSX share code: NBK
NEDBANK GROUP - AUDITED FINAL RESULTS
COMMENTARY
NEDBANK GROUP LIMITED
Audited financial results for the year ended 31 December 2012
- Headline earnings increased 21,4% to R7 510m(1)
- Diluted headline earnings per share up 19,0% to 1 595 cents(1)
- Strong NIR growth of 12,4% to R17 324m(1)
- ROE (excluding goodwill) increased to 16,4% (2011:15,3%)(1)
- Common equity Tier 1 ratio increased to 11,4% (2011: 10,5%)
- Full-year dividend per share up 24,3% to 752 cents(1)
'In a tough economic environment Nedbank Group's strong franchise and
growth orientation together with the momentum built in the first half of the year
resulted in the group delivering diluted headline earnings per share growth of
19,0%. This performance was achieved through strong revenue growth, an
improved credit loss ratio and responsible expense management while
strengthening the balance sheet and investing for growth.
We are committed to sustainable stakeholder delivery and contributing to SA's
development through our support of the National Development Plan
objectives. In 2012 we created over 450 new permanent jobs in South Africa
and our great-value banking offerings led to 655 000 more clients banking
with Nedbank, taking the total number of clients who choose to bank with us
above six million. We continue to lead in transformation as the JSE's most
empowered large company under the Department of Trade and Industry
codes, and to make a difference as South Africa's green bank.
Nedbank Group has strongly growing and diverse annuity income streams, a
long-term record of disciplined expense management, a sound funding base,
improving asset quality trends and higher coverage ratios, strong capital
levels and stable management teams. These attributes, together with a
multiyear focus on the importance of culture and values, position us well to
continue to deliver to all our stakeholders in 2013 and to adapt to a volatile
and challenging economic environment.'
Mike Brown
Chief Executive
Banking and economic environment
The global economic slowdown continued for most of 2012, with recessionary
conditions in many advanced economies negatively affecting growth in
leading emerging economies such as China, India and Brazil. Signs of
improvement in various geographies emerged in the fourth quarter of the year,
giving rise to cautious optimism that global economic conditions may stabilise
and potentially start to improve in 2013.
The temporary aversion of the fiscal cliff in the United States of America was
a key positive development and, together with the release of improved US
housing, employment and credit data, added to the positive sentiment. In
Europe the extraordinary actions by central bankers have significantly
reduced tail risk in the Eurozone and declining bond yields have helped to
ease fiscal pressure. Further uplift in sentiment came from China's producing
a modest recovery in growth to just below 8% in the fourth quarter, after
reporting a downward trend in growth for 10 successive quarters.
SA's gross domestic (GDP) is expected to have grown at around 2,5% in
2012 after expanding 3,1% in 2011. Concerns around the operating
environment and infrastructure constraints, the widening current account
deficit, rising national debt, higher inflation, high levels of unemployment and
declining trends in competitiveness with wage settlements outpacing
productivity were included in the rationale by international rating agencies,
Moody's, Standard & Poor's and Fitch Ratings for the downgrade of SA's
sovereign-debt rating, which in turn placed pressure on the rand. Domestic
bond yields have, however, remained stable.
Households remained the primary driver of private sector credit demand, with
the unexpected 50 basis points (bps) reduction in interest rates in July 2012
providing some relief for highly indebted consumers against rising electricity,
food and fuel costs. Growth rates in unsecured lending are slowing as
expected.
Corporate credit demand improved towards the end of the year as the
recovery in public sector infrastructure spending supported industries
producing capital goods and other inputs for local projects, although
corporates on the whole remained cautious, constrained by a weak Eurozone
and a relatively sluggish domestic economic environment.
Review of results
Nedbank Group made excellent progress in delivering on our strategic focus
areas, producing a strong set of results for the year ended 31 December 2012
('the year'). The results reflect an improvement in all key performance
indicators and headline earnings growth in all business clusters.
Headline earnings grew 21,4% to R7 510m (2011: R6 184m), driven by good
revenue growth, an improving credit loss ratio (CLR) and responsible expense
management while investing for growth.(1)
Diluted headline earnings per share increased 19,0% to 1 595 cents (2011:
1 340 cents) and diluted earnings per share increased 18,4% to 1 588 cents
(2011: 1 341 cents). In line with the earnings guidance range provided in the
trading statement released on 20 February 2013, the group recorded headline
earnings per share and basic earnings per share of 1 646 and 1 638 cents per
share respectively.(1)
The group generated economic profit (EP) of R1 511m, up 63,5% (2011: EP
of R924m). The return on average ordinary shareholders' equity (ROE)
excluding goodwill, increased to 16,4% (2011: 15,3%) and ROE increased to
14,8% (2011: 13,6%), with the return on assets (ROA) increasing to 1,13%
(2011: 0,99%).(1)
Nedbank Group is well capitalised, with our Basel II.5 common equity Tier 1
ratio at 11,4% (2011: pro forma Basel II.5 ratio 10,5%). With the introduction
of Basel III on 1 January 2013, the pro forma Basel III common equity Tier 1
ratio at 31 December 2012 is a robust 11,6%. Funding and liquidity levels
remained sound. Surplus liquidity buffers were maintained at a level of around
R24bn and the average long-term funding ratio increased to 26,0% (2011:
25,0%) in the fourth quarter of 2012.
The net asset value per share continued to increase, growing 9,7% to 11 798
cents at 31 December 2012 (2011: 10 753 cents).(1)
Delivering sustainably to all our stakeholders
The group has developed a strategic framework that will enable delivery of
our vision of building Africa's most admired bank by all our stakeholders and
assist in creating a vibrant and flourishing SA through appropriate alignment
of our activities with the National Development Plan (NDP). This is
underpinned by a firm belief that our long-term success is inextricably linked
to our ability to fulfil our social purpose.
We are committed to delivering sustainable value to all our stakeholders as
demonstrated by the following highlights for 2012:
- For staff creating over 450 new permanent jobs in SA, investing R352m
in the development of our staff and supporting more than 1 300 managers
through our personal mastery and team effectiveness programme known
as 'Leading for Deep Green' and 8 500 staff through our Batho Pele
diversity programme. This focus on values-based behaviour has led to
higher levels of staff morale and an ongoing positive shift in corporate
culture, now measuring at world-class levels.
- For clients paying out R144bn in new loans up 24,1% on 2011;
launching various market-leading innovations such as the Nedbank App
SuiteTM, MyFinancialLifeTM, Small Business FridayTM in association with
the National Small Business Chamber, cash management solutions and
longer-term deposit products; providing great-value banking and saving
clients R163m through the use of bundled products; increasing our
footprint by 80 net new staffed outlets and 476 net new ATMs; and
achieving multiyear highs in client satisfaction as measured by Net
Promoter Scores across the group. As a result, more clients chose to bank
with Nedbank, resulting in a net gain of 655 000 new retail clients in the
year, including 377 000 entry-level banking clients, 165 000 middle-market
clients, 1 113 high-net-worth clients, 775 and 27 new business banking
and corporate primary-banked clients, respectively. Nedbank was
recognised by Euromoney as the best bank in South Africa in 2012.
- For shareholders delivering R1 511m EP, generating a 34,3% total
shareholder return and a total dividend increase of 24,3%, as well as
maintaining excellence in transparency and reporting as acknowledged by
numerous reporting awards. We have created an opportunity for
shareholders to participate in the Africa growth story through our rights to
acquire 20% in Ecobank Transnational Incorporated (ETI).
- For regulators increasing capital levels further and being well
positioned for the implementation of Basel III on 1 January 2013 and the
Solvency Assessment and Management regime on 1 January 2015,
making cash taxation contributions of R6,2bn relating to direct, indirect and
other taxation and supporting the National Treasury in our actions and
commitments to responsible banking practices. Our credit rating was
upgraded by Fitch in July 2012, while the five largest SA banks were
downgraded in January 2013 following the downgrade of the SA
sovereign-risk rating.
- For communities making banking more accessible and affordable for
the entry-level market and rural communities; identifying numerous non-
urban areas for footprint expansion; increasing staffed outlets and ATMs
by over 48% and 74% respectively since the beginning of 2009. To date
we have donated more than R200m to charities through our innovative
card affinity programmes, and in 2012 we contributed R116m to
socioeconomic development. The group achieved Department of Trade
and Industry (DTI) code level 2 for the fourth consecutive year and was
ranked first overall among the top 50 JSE-listed companies in the
Financial Mail/Empowerdex Top Empowered Companies survey.
Furthermore 75,5% of our procurement was sourced locally. Our
leadership role in environmental sustainability was demonstrated by
initiatives such as funding a large percentage of SA's renewable-energy
programme and the introduction of Nedbank's Green Savings Bond, the
value of which has increased to R866m since its launch. We maintained
our carbon-neutral status and received the Financial Times 2012
Sustainable Bank of the Year for Africa and the Middle East award as well
as African Business Environmental Sustainability in Africa 2012 award.
Cluster performance
Our business clusters generated an increased ROE of 17,9% (2011: 17,1%)
and headline earnings growth of 16,3%, with all line clusters delivering good
performances.(1)
% change Headline earnings ROE
(Rm) (%)
2012 2011 2012 2 2011*
Nedbank Capital 16,3 1 428 1 228 25,4 22,6
Nedbank Corporate** 15,7 1 817 1 571 22,5 24,5
Nedbank Business Banking 9,0 944 866 21,5 21,3
Nedbank Retail 22,0 2 552 2 091 12,1 10,8
Nedbank Wealth 9,5 716 654 29,6 27,7
Line clusters 16,3 7 457 6 410 17,9 17,1
Centre** 53 (226)
Total 21,4 7 510 6 184 14,8 13,6
* Restated for enhancements to capital allocation methodologies
implemented in 2012.
** 2011 restated for the transfer of the Rest of Africa division from Nedbank
Corporate to the centre.
Strong earnings growth of 16,3% and the 25,4% ROE in Nedbank Capital
were driven by good asset growth and pipeline conversion in investment
banking, together with strong performance from global markets that resulted
in materially increased structuring and trading income. The cluster's CLR
improved, although remaining above its through-the-cycle range.
Nedbank Corporate performed well, producing good earnings growth of 15,7%
and an ROE of 22,5%, underpinned by increased cash and electronic banking
volumes, a strong delivery from the listed-property investment portfolio and
favourable deposit growth. This performance was achieved within a well-
managed impairment and expense environment across the businesses.
Nedbank Business Banking achieved headline earnings growth of 9,0% to
R944m through maintaining quality client relationships and outstanding risk
management practices, as reflected in the CLR of 0,34% (2011: 0,53%).
Good underlying momentum was noted in asset payouts, deposits and new
client gains, notwithstanding the protracted challenges facing the small- and
medium-enterprise (SME) sector in SA, which resulted in EP for the year of
R368m and a sustained high ROE of 21,5%.(1)
Nedbank Retail's momentum is reflected in the 22,0% headline earnings
growth and ROE improvement to 12,1%, narrowing the gap in relation to the
cost of equity. This is testimony to the excellent progress strategically and
financially in repositioning the cluster. The embedding of sound risk practices
is reflected in the CLR of 2,01% (2011: 1,98%) remaining within the through-
the-cycle range, while continuing to reduce defaulted loans and strengthen
balance sheet impairments(1). Investment in distribution and distinctive client
value propositions is yielding strong client gains and related transactional,
deposit and lending volumes.
Nedbank Wealth continued to record sound earnings growth of 9,5% and an
excellent ROE of 29,6%, supported by solid performance in the asset
management and insurance businesses(1). These results were achieved
despite pressure on impairments, a considerable deterioration in the short-
term insurance claims environment in the second half of 2012 and the
R31,5m (post-tax) rebranding costs relating to the launch of our new single
high-net-worth offering, Nedbank Private Wealth.
The centre produced a small profit in 2012 from a loss of R226m in 2011,
largely as a result of the R200m portfolio impairment provision recognised at
group level in the prior year. The Rest of Africa division, now included in the
centre, delivered a strong increase in headline earnings of 35,2%.(1)
Detailed segmental information is available on the group's website at
www.nedbankgroup.co.za under the 'Financial information' section.
Financial performance
Net interest income
Net interest income (NII) increased 9,1% to R19 680m (2011: R18 034m)(1)
and average interest-earning banking assets grew 7,5% (2011 growth: 5,1%).
The net interest margin (NIM) increased to 3,53% from the restated 3,48%*
level achieved in 2011. The margin expansion reflects the ongoing benefits of
risk-adjusted pricing of new advances and portfolio-tilt-driven changes in the
asset and deposit mix, partially offset by:
- the negative endowment effect of lower average interest rates in 2012;
- the cost of lengthening the group's funding profile; and
- the cost of carrying higher levels of lower-yielding liquid assets as the
group prepared for the implementation of Basel III liquidity coverage ratios.
* Restated from 3,46% to exclude clients' indebtedness for acceptances
from interest-earning banking assets to align with the rest of the industry.
Impairments
Lower levels of impairments at R5 199m (2011: R5 331m) were reported. The
CLR improved to 1,05% for the year (2011: 1,13%), remaining above the
group's through-the-cycle range of 60 to 100 basis points.(1)
CLR analysis (%) Dec H2 H1 Dec
2012(1) 2012 2012 2011(1)
Specific impairments 0,91 0,84 1,00 1,01
Portfolio impairments 0,14 0,16 0,11 0,12
Total CLR 1,05 1,00 1,11 1,13
Given the levels of overall consumer indebtedness, credit risk management
remained a strong area of focus. The reduction in specific impairments to 0,91%
(2011: 1,01%) was driven by a 17,0% decrease in defaulted advances to
R19 273m (2011: R23 210m), while further strengthening the portfolio
impairments charge to 0,14% (2011: 0,12%) mainly on the performing
personal loans, Motor Finance Corporation (MFC) and homeloans books.
The increased level of portfolio impairments was mainly as a result of further
model conservatism and book growth in personal loans as well as the
lengthening of the emergence period in the MFC book. The group retained the
R200m central portfolio provision set aside last year for unknown events that
may have already occurred but which will only be evident in the future. The
total impairment coverage ratio increased to 56,4% (2011: 49,5%), largely due
to asset mix changes in the group's banking book.
Our collections processes, enhanced by additional collections staff and more
effective collections processes, generated a 35,1% increase in bad-debt
recoveries amounting to R866m (2011: R641m).
CLR (%) Dec H2 H1 Dec Through-
2012(1) 2012 2012 2011(1) the-cycle
target
ranges
Nedbank Capital 1,06 0,72 1,41 1,23 0,10 0,55
Nedbank Corporate 0,24 0,18 0,30 0,29 0,20 0,35
Nedbank Business Banking 0,34 0,28 0,41 0,53 0,55 0,75
Nedbank Retail 2,01 2,02 2,00 1,98 1,50 2,20
Nedbank Wealth 0,61 0,76 0,46 0,25 0,20 0,40
Group 1,05 1,00 1,11 1,13 0,60 1,00
CLRs in the wholesale clusters improved in the second half of the year.
Nedbank Retail's CLR was maintained within its through-the-cycle range and
at levels similar to those in the first six months of the year, reflecting the effect
of asset mix changes as unsecured lending attracts higher levels of
impairments than secured lending. Nedbank Wealth's CLR deteriorated
mainly due to the impact of a subdued property market.
Non-interest revenue
The continued investment in the Nedbank franchise contributed to strong NIR
growth of 12,4% to R17 324m (2011: R15 412m), lifting the ratio of NIR to
expenses to 84,4% (2011: 81,5%), close to the group's medium-to-long-term
target of > 85,0%(1). The group has delivered compound growth in NIR,
excluding fair-value adjustments, of 11,0% over a four-year period.
Commission and fee income increased by R1,5bn, rising by 13,7% to
R12 538m (2011: R11 031m) on the back of increased activity in the
transactional banking, card, personal loans, investment banking and advisory
activities of the group.(1)
Insurance income grew strongly, increasing 24,9% to R1 695m (2011:
R1 357m) from good insurance sales and underwriting performance,
notwithstanding the poor weather conditions and fire-related claims in the
second half of the year.(1)
Favourable market conditions and good performance in the trading business,
notably in fixed-income delivered excellent trading income growth of 22,0% to
R2 644m (2011: R2 168m). Realisations and dividends received in Nedbank
Corporate property and Nedbank Capital investment portfolios generated
R211m (2011: R323m) in private equity income.(1)
Negative fair-value adjustments of R265m (2011: R60m loss)(1) were
recognised mainly as a result of basis risk on centrally hedged positions,
accounting mismatches in hedged portfolios, including fixed-rate retail
deposits and personal loans, and credit spread unwind on certain of
Nedbank's Tier 2 debt.
Following the scheduled termination of the contract with Swisscard that
previously housed the Tando card processing operations, NIR was negatively
impacted as no further revenue was generated in 2012 (2011: R214m).
Expenses
Nedbank's strong cost management culture remains a key differentiator and
contributed to a lower level of expense growth for 2012 in line with guidance.
Expenses increased 8,5% to R20 528m (2011: R18 919m)', consisting of 4,1%
for business-as-usual activities, 2,1% for investing in growth initiatives and 2,3%
for variable compensation.
Growth in expenses was primarily from:
- Staff-related expenses increasing 11,2% and comprising:
- remuneration and other staff cost growth of 8,5%, following
inflation-related annual increases averaging 6,5% and 0,9%
headcount growth;
- short-term incentive costs increasing 18,7% driven by 21,4%
headline earnings and 63,5% EP growth; and
- long-term incentive costs increasing by 71,4% as 2011 contained a
higher reversal of costs when corporate performance targets were
not met and related incentive awards lapsed.
- Volume-driven costs, such as fees and computer processing costs,
continuing to grow in support of revenue-generating business activities.
- Investing for growth initiatives, including footprint rollout, headcount growth
in frontline and collections staff, new innovative offerings and
enhancements in product and system functionality.
The efficiency ratio improved to 55,5% (2011: 56,6%)(1), absorbing the negative
impact of the interest rate cut in July on endowment and consequently NII
growth.
Since 2007 Nedbank Group's five-year compound NIR growth of 10,6%
exceeded the related compound expense growth of 8,8%.
Taxation
The tax charge increased 30,9% to R2 871m (2011: R2 194m), with the
effective tax rate increasing to 26,8% (2011: 25,2%)(1). The increase resulted
mainly from lower levels of dividend income received and an increase in
capital gains tax (CGT) rate from 14,0% to 18,65%.
Statement of financial position
Capital
The group's capital ratios strengthened during the year, positioning the
organisation favourably for the adoption of Basel III that was successfully
implemented on 1 January 2013. All capital adequacy ratios remained well
above the Basel II.5 minimum regulatory capital requirements and the group's
new Basel III internal target ranges. The group's strong capital position
enabled the redemption of a further R1,8bn Tier 2 subordinated debt during
2012 in line with our capital management planning and positioning for Basel III.
In August 2012 the group obtained approval from the South African Reserve
Bank (SARB) to manage the MFC book on its Advanced Internal Ratings-
based Credit Approach. The resultant reduction in risk-weighted assets, along
with good earnings growth, contributed to further strengthening of the Basel
II.5 common equity Tier 1 ratio to 11,4%.
The group reset its internal targets in line with the new SA Basel III
regulations based on the increased minimum regulatory requirements for
common equity Tier 1 in 2019, and Tier 1 and total ratios in 2015.
The new internal targets include a conservative management buffer and
allowance for potential Pillar 2B bank-specific add-ons while taking
cognisance of anticipated Basel III capital levels in other jurisdictions, the view
of rating agencies and Nedbank's Internal Capital Adequacy Assessment
Process. The Basel III regulatory minimums include minimum regulatory
requirements for common equity Tier 1 in 2019, Tier 1 and total ratios in 2015
as well as a conservative Pillar 2B add-on, but exclude any countercyclical
capital buffer requirements.
Dec 2012 Dec 2012 Dec 2011 Internal Regulatory
(Pro forma (Basel II.5) (Basel II.5) target minimum
Basel III) range (Basel III)
(Basel III)
Common 11,6% 11,4% 10,5% 10,5% 9,00%
equity Tier 12,5%
1 ratio
Tier 1 ratio 13,1% 12,9% 12,0% 11,5% 11,25%
13,0%
Total 15,1% 14,9% 14,6% 14,0% 13,50%
capital 15,0%
ratio
(Ratios calculated include unappropriated profits.)
The group's ratios are anticipated to continue improving in 2013, driven by
projected earnings growth and the portfolio tilt strategy.
Further detail on capital and risk management will be available in the risk and
balance sheet management review section of the group's analyst booklet and
the Pillar 3 Report to be published at the end of March 2013 on the website at
www.nedbankgroup.co.za.
Capital allocation to the businesses
As reported during our 2012 interim results, economic capital allocated to the
business clusters was revised from 10,0% to 11,0% to align the businesses
with the higher operating capital levels held by the group under Basel III and
the allocation of capital impaired against certain intangible assets, previously
held at the centre. The upward revision of capital allocated to the clusters
resulted in a dilution of the clusters' ROE performance, given higher capital
levels. Headline earnings and ROE numbers for the business clusters for
2011 were restated on a like-for-like basis. These enhancements had no
impact on the group's overall headline earnings, capital levels and ROE.
Funding and liquidity
Nedbank Group remains well funded with a strong liquidity position and a
lengthened funding profile, with the fourth-quarter average long-term funding
ratio increasing further to 26,0% (2011:25,0%).
In addition to launching a number of competitive and innovative savings and
investment products for the retail market, the following funding strategies were
implemented during the year:
- Issuing of R3,2bn of senior unsecured debt with a tenure ranging from
three to seven years.
- Issuing of R1,8bn through the Greenhouse securitisation programme with
tenure of up to five years;
- Maintaining a significant surplus liquidity buffer in excess of R24,0bn.
- Improving the group's sources of quick liquidity to R107,5bn (2011:
R103,6bn).
In May the SARB announced that banks would be able to include cash
reserves in the calculation of the liquidity coverage ratio (LCR), and the SARB
would make available a committed liquidity facility (CLF) of up to 40% of the
LCR requirements. Taking into account Nedbank's cash reserves, the liquid
assets held for regulatory purposes, the surplus liquidity buffer and the
notional ability to access the CLF, Nedbank would be compliant with the
Basel III LCR on a pro forma basis at 31 December 2012.
This was further supported by amendments to the LCR by the Basel
Committee on Banking Supervision (BCBS) on 6 January 2013, which are
likely to be adopted by the SA regulator. These amendments are positive in
that they:
- allow for a longer lead time to implement the LCR, starting from 60%
(previously 100%) in January 2015 and increasing to 100% in January
2019;
- result in a broader definition of qualifying high-quality liquid assets (HQLA);
and
- reduce HQLA requirements given refinements to various cash outflow
assumptions in the LCR formula.
The revisions to the LCR will be beneficial for banks, with associated cost
savings and more time to implement the LCR.
Having finalised the LCR, the BCBS is now expected to focus on the net
stable funding ratio (NSFR). The impact of NSFR compliance by SA and most
banking industries worldwide would be punitive if implemented as currently
set out in the draft requirements, significantly impacting both global and
domestic economic growth and job creation. Structural constraints within SA
financial markets will add further challenges to domestic compliance with the
NSFR. The SARB and National Treasury, in conjunction with the financial
services industry, are engaging proactively during the observation period prior
to implementation in order to address any unintended consequences for SA. It
is anticipated, based on extensive global discussion and the experiences
gained from the LCR implementation process, that a fundamental revision and
a pragmatic approach will be applied to the NSFR well in advance of its
proposed implementation in 2018.
Loans and advances
Loans and advances grew 5,6% to R527bn (2011: R499bn), with strong
growth in trading advances of 49,2%. Excluding trading advances, banking
advances growth of 3,8% was largely underpinned by advances growth in
Nedbank Capital and Nedbank Retail.(1)
Loans and advances by cluster at year-end are as follows(1):
Dec Dec % change
Rm(1) 2012(1) 2011(1)
Nedbank Capital 82 494 68 510 20,4
Banking activity 52 732 48 558 8,6
Trading activity 29 762 19 952 49,2
Nedbank Corporate 162 730 157 271 3,5
Nedbank Business Banking 60 115 58 856 2,1
Nedbank Retail 190 647 183 748 3,7
Nedbank Wealth 19 864 19 624 1,2
Other 11 316 11 014 2,7
527 166 499 023 5,6
Nedbank Capital's banking advances growth was driven by the successful
conversion of its robust investment banking pipeline and increased trading
advances as the interbank funding desk experienced significantly better
market conditions than in the year before. Nedbank Corporate recorded
favourable growth in term loans and commercial mortgages of 8,4% and 5,3%
respectively, while reducing the levels of lower-yielding overnight loans.
Continuing pressure in the SME environment saw Nedbank Business
Banking's clients defer expansion plans, deleverage further and transact less,
which together with judicious risk management kept advances growth to
2,1%. Retail's advances growth came from strong gains in cards of 16,1%
(2011: 9,2%) and in MFC of 10,3% (2011: 9,7%), while tightening criteria
resulted in personal loans growing at a reduced rate of 28,7% (2011: 36,5%).
Low consumer demand for homeloans in conjunction with selective advances
growth and the rolloff of the backbook led to a 5,5% reduction in the retail
homeloans book, with origination through our own client relationships and
channels being emphasised.
Deposits
Deposits grew by a healthy 5,1% to R551bn (2011: R524bn), maintaining a
strong loan-to-deposit ratio of 95,7% (2011: 95,2%).(1)
The lengthening of the funding profile was primarily due to ongoing growth in
call and term deposits of 9,9% and fixed deposits of 8,2% as a result of a
strong uptake in the Retail Savings Bond of R3,3bn and wholesale deposit
offerings such as Corporate Saver. Cash management deposits grew 7,5%,
boosted by net primary banking client gains, whereas the more volatile
negotiable certificate of deposit (NCD) category decreased 21,4%.
Current and savings accounts grew well, increasing 7,9% and 9,3%
respectively, underpinned by Nedbank's strong franchise. Altogether, these
improvements in the funding profile ensured that Nedbank continued to hold a
higher proportion of household deposits relative to the size of our retail bank.
However, strong competition for deposits in 2012 resulted in some loss of
overall market share in household deposits. The launch of innovative new
deposit products such as Nedbank Money Trader, increasing functionality on
our world-class internet and mobile banking applications, and various other
initiatives will contribute to growing the transactional client base and
positioning Nedbank strongly for sustainable growth in savings and
investment deposits.
Group strategic focus
The Nedbank Group strategy is outward-looking, with a focus on growing the
franchise and delivering on its key strategic initiatives of repositioning
Nedbank Retail, growing NIR, implementing the portfolio tilt strategy and
expanding into the rest of Africa.
- Nedbank Retail is allocated 39,1% of the group's capital and its strategic
repositioning will contribute significantly to ongoing improvements in the
group's performance. While endeavouring to leverage early turnaround
gains to achieve an ROE at or above the cost of equity (COE) of 13% by
the end of 2013, a year ahead of the original 2014 target, the deteriorating
credit health of consumers noted in the last quarter of 2012 could make
this challenging to deliver. Continued excellent progress was made in
positioning Nedbank Retail as a more client-centred and integrated
business while maintaining growth momentum in the underlying
businesses, growing the number and quality of clients, embedding
effective risk management practices and strengthening balance sheet
impairments.
- The group's NIR-to-expenses ratio target of > 85% is a key focus area as
we continue to deliver good-quality annuity income through commission
and fee growth from primary-client gains, volume growth, new innovative
products and cross-sell. In our technology division we enabled greater
efficiencies, including the rationalisation of 20 banking systems and the
reduction of our servers from 3 500 to 1 139 since 2009.
- The portfolio tilt strategy continued to gain traction, supporting EP growth
from R57m in 2009 to R1 511m in 2012. Excellent growth in 2012 in
commission and fee income of 13,7%, insurance income of 24,9%, assets
under management of 34,1% and deposits of 5,1%, while emphasising
profitable secured lending, demonstrates the benefit of focusing on these
strategically important EP-rich, lower-capital and liquidity-consuming
activities.
- In the short to medium term the group's primary focus on SA and the
Southern African Development Community (SADC) area continues to
benefit the group as this region has the largest EP pool for financial
services in sub-Saharan Africa. The rights to acquire a shareholding of up
to 20% in ETI in less than two years creates a path to provide a significant
benefit to Nedbank's clients in the rest of Africa and the opportunity for
shareholders to gain access to the higher economic growth in the rest of
Africa in a prudent yet substantive manner.
Economic outlook
Despite a more promising start to many financial markets in 2013, there
appears to be downside risk in most developed and many emerging-market
economies, and forward visibility is limited.
SA's GDP is forecast to grow by 2,6% in 2013. Interest rates are likely to
remain lower for longer and are expected to be unchanged through most of
2013.
Consumer indebtedness is anticipated to ease gradually, but remains high
compared with historical levels, particularly with 39-year-low interest rates.
This, combined with the lack of job security, is expected to limit the growth in
demand for housing and other secured loans. Growth rates in unsecured
lending are expected to continue to moderate.
Uncertainty is likely to continue to affect the level of business confidence and
contain capital expenditure and growth in wholesale assets in the private
sector. Government and public corporations are forecast to escalate their
infrastructure spending, which should contribute to improved wholesale
advances growth.
Prospects
In the context of the anticipated economic environment and continued low
interest rates in SA, the group's guidance for 2013 is as follows:
- Advances to grow at mid to upper single digits.
- NIM to remain at levels similar to those in 2012.
- The CLR to continue improving into the upper end of the group's through-
the-cycle target range.
- NIR (excluding fair-value adjustments) to grow at low double digits, and
allow the group to meet the medium-to-long-term NIR-to-expenses target
of > 85%.
- Expenses to increase by mid to upper single digits.
The group's medium-to-long-term targets remain unchanged, with the
exception of revised targets relating to capital adequacy and dividend cover
following finalisation of the SARB's revised guidelines on Basel III capital
levels and the new dividend tax regime in SA announced during the year.
2012 Medium-to-long-term 2013
Metric performance targets outlook
ROE (excluding 5% above cost of Improving,
goodwill) 16,4% ordinary shareholders' remaining below
equity target.
Growth in diluted
headline > Consumer price
earnings per 19,0% index + GDP growth + Meet target.
share 5%
Between 0,6% and Improving into
CLR 1,05% 1,0% of average upper end of target.
banking advances
NIR-to-expenses Improving to meet
ratio 84,4% > 85% the target.
Improving,
Efficiency ratio 55,5% < 50,0% remaining above
target.
Common equity Strengthening,
Tier 1 capital remaining around
adequacy ratio 11,6% 10,5% to 12,5% mid-point of new
(Basel III) target.
Internal Capital Adequacy Assessment Process (ICAAP):
Economic capital A debt rating (including 10% capital buffer)
Dividend cover 2,19 times 1,75 to 2,25 times 1,75 to 2,25 times
Shareholders are advised that these forecasts have not been reviewed or
reported on by the group's auditors.
Board and executive changes
The group previously advised that Alan Knott-Craig resigned as independent
non-executive director with effect from 24 February 2012.
Professor Brian de Lacy Figaji retired as independent non-executive director
of Nedbank Group and Nedbank Limited with effect from 4 May 2012.
Ian David Gladman was appointed as non-executive director of Nedbank
Group and Nedbank Limited with effect from 7 June 2012.
Wendy Lucas-Bull resigned as independent non-executive director of
Nedbank Group and Nedbank Limited with effect from 5 November 2012.
Gawie Nienaber retired as Group Company Secretary with effect from 30
June 2012 after reaching the mandatory retirement age in terms of Nedbank
Group's normal retirement policy. Thabani Jali was appointed as Group
Company Secretary and Jackie Katzin was appointed as Deputy Group
Company Secretary of Nedbank Group and Nedbank Limited with effect from
1 July 2012.
Appreciation
The performance of the past year highlights the quality of management and
leadership and the depth of talent within the group. We are continually striving
to exceed the expectations of our stakeholders, and wish to thank all of you
for your guidance, support and commitment in ensuring that the group
continues to deliver across the social, economic, environmental and cultural
pillars of sustainability. Your contribution is highly valued as we continue
building Africa's most admired bank.
Accounting policies(1)
Nedbank Group Limited is a company domiciled in SA. The summarised
consolidated annual financial results of the group at and for the year ended 31
December 2012 comprise the company and its subsidiaries (the 'group') and
the group's interests in associates and jointly controlled entities.
Nedbank Group's principal accounting policies have been prepared in terms
of International Financial Reporting Standards (IFRS) of the International
Accounting Standards Board and have been applied consistently over the
current and prior financial years, except for clients' indebtedness for
acceptances and liabilities for acceptances that have been reclassified to
loans and advances, and amounts owed to depositors respectively in order to
achieve improved comparability with the majority of the group's SA banking
peers. These items were previously separately disclosed in the group's
statement of financial position. Nedbank Group's summarised consolidated
annual financial results have been prepared in accordance with the
recognition and measurement criteria of IFRS, interpretations issued by the
IFRS Interpretations Committee, and the presentation and disclosure
requirements with International Accounting Standard (IAS) 34: Interim
Financial Reporting and the Financial Reporting Guide as issued by the
Accounting Practices Board, the JSE Listing Requirements and the
requirements of the Companies Act of South Africa.
In the preparation of these consolidated annual financial results, the group
has applied key assumptions concerning the future and other inherent
uncertainties in recording various assets and liabilities. The assumptions
applied in the financial results for the year ended 31 December 2012 were
consistent with those applied during the 2011 financial year. These
assumptions are subject to ongoing review and possible amendments. The
financial results have been prepared under the supervision of Raisibe Morathi,
the group's Chief Financial Officer.
Events after the reporting period(1)
There are no material events after the reporting period to report on.
Audited results auditors' report
KPMG Inc and Deloitte & Touche, Nedbank Group's independent auditors,
have audited the consolidated annual financial results of Nedbank Group
Limited from which the summarised consolidated financial results have been
derived, and have expressed an unmodified audit opinion on the consolidated
annual financial statements. The summarised consolidated annual financial
results comprise the consolidated statement of financial position at
31 December 2012, consolidated statement of comprehensive income,
condensed consolidated statement of changes in equity and condensed
consolidated statement of cashflows for the years then ended and selected
explanatory notes. The related notes are marked with(1). The audit report is
available for inspection at Nedbank Group'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 that, by their nature, involve risk and uncertainty because
they relate to events and depend on circumstances that may or may not 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; as well
as competitive and regulatory factors. By consequence, all forward-looking
statements have not been reviewed or reported on by the group's auditors.
Final dividend declaration
Notice is hereby given that a gross final dividend of 412 cents per ordinary
share has been declared, payable to shareholders for the year ended 31
December 2012. The dividend has been declared out of income reserves.
The dividend will be subject to a dividend withholding tax rate of 15%
(applicable in South Africa) or 61,8 cents per ordinary share, resulting in a net
dividend of 350,2 cents per ordinary share, unless the shareholder is exempt
from paying dividend tax or is entitled to a reduced rate in terms of an
applicable double-tax agreement. No Secondary Tax on Companies (STC)
credits were available to be utilised as part of this declaration. Nedbank Group
Limited's tax reference number is 9375/082/71/7 and the number of ordinary
shares in issue at the date of declaration is 507 509 491.
In accordance with the provisions of Strate, the electronic settlement and
custody system used by JSE Limited, the relevant dates for the dividend are
as follows:
Event Date
Last day to trade (cum dividend) Wednesday, 27 March 2013
Shares commence trading (ex dividend) Thursday, 28 March 2013
Record date (date shareholders recorded in Friday, 5 April 2013
books)
Payment date Monday, 8 April 2013
Share certificates may not be dematerialised or rematerialised between
Thursday, 28 March 2013 and Friday, 5 April 2013, both days inclusive.
On Monday, 8 April 2013, the dividend will be electronically transferred to the
bank accounts of all certificated shareholders where this facility is available.
Where electronic funds transfer is either not available or not elected by the
shareholder, cheques dated Monday, 8 April 2013, will be posted on that date.
Holders of dematerialised shares will have their accounts credited at their
participant or broker on Monday, 8 April 2013.
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.
For and on behalf of the board
Dr Reuel J Khoza Michael WT Brown
Chairman Chief Executive
25 February 2013
Registered office
Nedbank Group Limited, Nedbank Sandton, 135 Rivonia Road, Sandown,
Sandton, 2196.
PO Box 1144, Johannesburg, 2000.
Transfer secretaries in SA
Computershare Investor Services (Pty) Limited, 70 Marshall Street,
Johannesburg, 2001, SA.
PO Box 61051, Marshalltown, 2107, SA.
Transfer secretaries in Namibia
Transfer Secretaries (Pty) Limited, Shop 8, Kaiserkrone Centre, Post Street
Mall, Windhoek, Namibia.
PO Box 2401, Windhoek, Namibia.
Directors
Dr RJ Khoza (Chairman), MWT Brown* (Chief Executive), TA Boardman, TCP
Chikane, GW Dempster* (Chief Operating Officer), MA Enus-Brey, ID
Gladman (British), DI Hope (New Zealand), PM Makwana, NP Mnxasana, RK
Morathi* (Chief Financial Officer), JK Netshitenzhe, JVF Roberts (British), GT
Serobe, MI Wyman** (British).
* Executive ** Senior independent non-executive director
Company Secretary: TSB Jali
Reg No: 1966/010630/06
JSE share code: NED
NSX share code: NBK
ISIN: ZAE000004875
Sponsors in SA: Merrill Lynch South Africa (Pty) Limited
Nedbank Capital
Sponsor in Namibia: Old Mutual Investment Services (Namibia) (Pty)
Limited
This announcement is available on the group's website at
www.nedbankgroup.co.za, together with the following additional information:
- Detailed financial information in HTML and PDF formats.
- Financial results presentation to analysts.
- Link to a webcast of the presentation to analysts.
For further information kindly contact Nedbank Group Investor Relations at
nedbankgroupir@nedbank.co.za.
31 DECEMBER 2012
Financial highlights
at
Audited Audited
31 December 31 December
2012 2011
Statistics
Number of shares listed m 507.5 507.4
Number of shares in issue, excluding shares held by group entities m 457.3 455.2
Weighted average number of shares m 456.3 452.9
Diluted weighted average number of shares m 470.7 461.5
Preprovisioning operating profit Rm 15,580 13,709
Economic profit * Rm 1,511 924
Headline earnings per share cents 1,646 1,365
Diluted headline earnings per share cents 1,595 1,340
Ordinary dividends declared per share cents 752 605
- Interim cents 340 265
- Final cents 412 340
Ordinary dividends paid per share cents 680 533
Dividend cover times 2.19 2.26
Net asset value per share cents 11,798 10,753
Tangible net asset value per share cents 10,065 9,044
Closing share price cents 18,800 14,500
Price/earnings ratio historical 11.4 10.6
Market capitalisation Rbn 95.4 73.6
Number of employees * 28,748 28,494
Key ratios (%)
Return on ordinary shareholders' equity (ROE) 14.8 13.6
ROE, excluding goodwill 16.4 15.3
Return on total assets (ROA) 1.13 0.99
Net interest income to average interest-earning banking assets 3.53 3.48
Credit loss ratio - banking advances 1.05 1.13
Non-interest revenue to total operating expenses 84.4 81.5
Non-interest revenue to total income 46.8 46.1
Efficiency ratio 55.5 56.6
Efficiency ratio (excluding BEE transaction expenses) 55.3 56.0
Effective taxation rate 26.8 25.2
Group capital adequacy ratios (including unappropriated profits): **
Common equity Tier I * 11.4 11.0
Tier 1 * 12.9 12.6
Total * 14.9 15.3
Statement of financial position statistics (Rm)
Total equity attributable to equity holders of the parent 53,950 48,946
Total equity 57,730 52,685
Amounts owed to depositors 550,878 524,130
Loans and advances 527,166 499,023
- Gross 538,037 510,520
- Impairment of loans and advances (10,871) (11,497)
Total assets administrated by the group 833,474 760,358
Total assets 682,979 648,127
Assets under management 150,495 112,231
Life assurance embedded value 2,030 1,522
Life assurance value of new business 563 409
* These amounts and ratios have not been audited by the group's independent auditors.
** 2012 ratios are disclosed based on Basel II.5 (2011: Basel II).
Consolidated statement of comprehensive income
for the year ended
Audited Audited
31 December 31 December
Rm 2012 2011
Interest and similar income 44,730 42,880
Interest expense and similar charges 25,050 24,846
Net interest income 19,680 18,034
Impairments charge on loans and advances 5,199 5,331
Income from lending activities 14,481 12,703
Non-interest revenue 17,324 15,412
Operating income 31,805 28,115
Total operating expenses 20,528 18,919
- Operating expenses 20,450 18,725
- BEE transaction expenses 78 194
Indirect taxation 561 505
Profit from operations before non-trading and capital items 10,716 8,691
Non-trading and capital items (18) (14)
- Net profit on sale of subsidiaries, investments, and property and equipment 33 40
- Net impairment of investments, property and equipment, and capitalised development costs (51) (54)
Fair-value adjustments of investment properties (12)
Profit from operations 10,686 8,677
Share of profits of associates and joint ventures 1 *
Profit before direct taxation 10,687 8,677
Total direct taxation 2,875 2,174
- Direct taxation 2,871 2,194
- Taxation on non-trading and capital items 4 (20)
- Taxation on revaluation of investment properties *
Profit for the year 7,812 6,503
Other comprehensive income net of taxation 247 697
- Exchange differences on translating foreign operations 162 469
- Fair-value adjustments on available-for-sale assets 43 (21)
- (Losses)/Gains on property revaluations 42 249
Total comprehensive income for the year 8,059 7,200
Profit attributable to:
Equity holders of the parent 7,476 6,190
Non-controlling interest - ordinary shareholders 43 32
Non-controlling interest - preference shareholders 293 281
Profit for the year 7,812 6,503
Total comprehensive income attributable to:
Equity holders of the parent 7,719 6,879
Non-controlling interest - ordinary shareholders 47 40
Non-controlling interest - preference shareholders 293 281
Total comprehensive income for the year 8,059 7,200
Basic earnings per share cents 1,638 1,367
Diluted earnings per share cents 1,588 1,341
* Represents amounts less than R1m.
Headline earnings reconciliation
for the year ended
Audited Audited
31 December 31 December
2012 2011
Rm Gross Net of taxation Gross Net of taxation
Profit attributable to equity holders of the parent 7,476 6,190
Less: Non-headline earnings items (30) (34) (14) 6
- Net profit on sale of subsidiaries, investments, and property and equipment 33 29 40 60
- Net impairment of investments, property and equipment, and capitalised development costs (51) (51) (54) (54)
- Fair-value adjustments of investment properties (12) (12)
Headline earnings 7,510 6,184
Consolidated statement of financial position
at Audited Audited
31 December 31 Decembe
Rm 2012 2011
Assets
Cash and cash equivalents 14,445 13,457
Other short-term securities 43,457 35,986
Derivative financial instruments 13,812 12,840
Government and other securities 26,753 30,176
Loans and advances 527,166 499,023
Other assets 9,488 12,051
Current taxation receivable 246 698
Investment securities 16,577 14,281
Non-current assets held for sale 508 8
Investments in associate companies and joint ventures 668 568
Deferred taxation assets 399 266
Investment property 205 614
Property and equipment 6,398 6,312
Long-term employee benefit assets 2,258 2,118
Mandatory reserve deposits with central banks 12,677 11,952
Intangible assets 7,922 7,777
Total assets 682,979 648,127
Equity and liabilities
Ordinary share capital 457 455
Ordinary share premium 16,033 15,934
Reserves 37,460 32,557
Total equity attributable to equity holders of the parent 53,950 48,946
Non-controlling interest attributable to
- ordinary shareholders 219 178
- preference shareholders 3,561 3,561
Total equity 57,730 52,685
Derivative financial instruments 13,454 13,853
Amounts owed to depositors 550,878 524,130
Provisions and other liabilities 15,526 14,751
Current taxation liabilities 193 200
Other liabilities held for sale 36
Deferred taxation liabilities 781 1,345
Long-term employee benefit liabilities 1,591 1,479
Investment contract liabilities 9,513 8,237
Insurance contract liabilities 2,979 2,005
Long-term debt instruments 30,298 29,442
Total liabilities 625,249 595,442
Total equity and liabilities 682,979 648,127
Condensed consolidated statement of changes in equity
Non-controlling Non-controlling
Total equity interest interest
attributable to attributable to attributable to
equity holders ordinary preference
Rm of the parent shareholders shareholders Total equity
Balance at 31 December 2010 44,101 153 3,560 47,814
Dividend to shareholders (2,608) (11) (2,619)
Dividend in respect of BEE transaction (310) (310)
Preference share dividend (281) (281)
Issues of shares net of expenses 323 323
Shares acquired/cancelled by group entities and BEE trusts 95 95
Total comprehensive income for the year 6,879 40 281 7,200
Share-based payment reserve movement 446 446
Dilution of shareholding in subsidiary 11 (11) -
Acquisition of subsidiary 7 1 8
Other movements 9 9
Balance at 31 December 2011 48,946 178 3,561 52,685
Dividend to shareholders (3,248) (8) (3,256)
Preference share dividend (293) (293)
Issues of shares net of expenses 14 14
Shares acquired/cancelled by group entities and BEE trusts 119 119
Total comprehensive income for the year 7,719 47 293 8,059
Share-based payment reserve movement 396 396
Regulatory risk reserve provision 2 2
Acquisition of subsidiary 2 2
Other movements 2 2
Balance at 31 December 2012 53,950 219 3,561 57,730
Condensed consolidated statement of cashflows
for the year ended
Audited Audited
31 December 31 December
Rm 2012 2011
Cash generated by operations 18,804 16,552
Change in funds for operating activities (5,947) (4,080)
Net cash from operating activities before taxation 12,857 12,472
Taxation paid (3,914) (3,609)
Cashflows from operating activities 8,943 8,863
Cashflows utilised by investing activities (4,696) (3,702)
Cashflows (utilised by)/from financing activities (2,552) 557
Effects of exchange rate changes on opening cash and cash equivalents (excluding foreign borrowings) 18 (54)
Net increase in cash and cash equivalents 1,713 5,664
Cash and cash equivalents at the beginning of the year* 25,409 19,745
Cash and cash equivalents at the end of the year* 27,122 25,409
* including mandatory reserve deposits with central banks.
Condensed segmental reporting
for the year ended Audited Audited Audited Audited Audited Audited
31 December 31 December 31 December 31 December 31 December 31 December
2012 2011 2012 2011 2012 2011
Rm Total assets Operating income Headline earnings
Nedbank Capital 142,286 149,789 4,044 3,091 1,428 1,228
Nedbank Corporate 175,073 167,074 4,410 3,865 1,817 1,571
Total Nedbank Retail and Nedbank Business Banking 290,198 279,323 18,989 17,102 3,496 2,957
Nedbank Retail 198,072 190,398 14,693 13,107 2,552 2,091
Nedbank Business Banking 92,126 88,925 4,296 3,995 944 866
Nedbank Wealth 42,270 37,759 2,993 2,690 716 654
Shared Services 6,594 7,315 20 259 36 3
Central Management, including Rest of Africa 26,558 6,867 1,349 1,108 17 (229)
Total 682,979 648,127 31,805 28,115 7,510 6,184
The segmental results for the year ended 31 December 2011 has been restated for the following adjustments: (a) enhancements to the allocation
of economic capital; (b) the reallocation of negotiable certificates of deposit from Nedbank Capital to the centre; and (c) transferring the Rest
of Africa Cluster from Nedbank Corporate to Central Management. These restatements have no effect on the group results and ratios, and only affect
the segment results and related ratios.
Condensed geographical segmental reporting
for the year ended Audited Audited Audited Audited
31 December 31 December 31 December 31 December
2012 2011 2012 2011
Rm Operating income Headline earnings
SA 29,748 26,228 6,906 5,695
- Business operations 29,748 26,228 7,267 6,162
- BEE transaction expenses (68) (186)
- Profit attributable to non-controlling interest - preference shareholders (293) (281)
Rest of Africa 1,259 1,101 290 246
Rest of world - business operations 798 786 314 243
Total 31,805 28,115 7,510 6,184
Date: 25/02/2013 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
Sharenet Sites 
