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Nedbank Group - Audited Final Results 2013
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24 February 2014
NEDBANK GROUP – AUDITED FINAL RESULTS 2013
Nedbank Group Limited ("Nedbank Group"), the majority-owned South African banking subsidiary of Old Mutual plc,
released its audited summarised financial results for the year ended 31 December 2013 today, 24 February 2014.
The following is the full text of Nedbank Group's announcement:
NEDBANK GROUP LIMITED
Audited financial results for the 12 months ended 31 December 2013
- Headline earnings increased 15,9% to R8 670m(1)
- Diluted headline earnings per share up 15,0% to 1 829 cents(1)
- NIR growth of 11,8% to R19 361m(1)
- ROE (excluding goodwill) increased to 17,2%
- Common-equity tier 1 ratio increased to 12,5% (2012: 11,6%)
- Full-year dividend per share up 19,0% to 895 cents
'Nedbank's growing franchise, together with the progress made with our strategic focus areas,
has enabled the group once again to meet its target for growth in diluted headline earnings per share.
In a challenging environment the group delivered a strong performance across a broad front, which
resulted in improvements in both returns on assets and returns on equity.
Globally, capital flows have shifted in favour of developed markets, and conditions in emerging markets,
including SA, are more volatile. Our historic focus on growing our transactional banking franchise,
selective advances growth and prudent impairment methodologies, combined with our positive exposure
to increased endowment, should position Nedbank favourably in an environment of rising interest rates.
Given the uncertain economic environment, forecast risk has increased. For the year ahead we are currently
expecting organic growth in diluted headline earnings per share to be greater than the growth in nominal
gross domestic product'.
Mike Brown
Chief Executive
Banking and economic environment
Globally, economic conditions improved during 2013, led by better prospects
in key developed economies. In contrast, growth in emerging-market
economies generally slowed during the year. The improved US environment
has resulted in a tapering off of quantitative easing, and significant liquidity
outflows from emerging markets and lower commodity prices led to currency
depreciation in many emerging markets, in particular those with current and
fiscal account deficits.
Locally, the economic environment remained challenging, with growth in gross
domestic product (GDP) slowing to an expected 1,8% in 2013 and the current
account and fiscal deficits continuing to widen. The downgrading of SA's
sovereign credit rating by three of the major credit rating agencies in late 2012
and early 2013, now placing SA two notches above investment grade and the
US commencement of the tapering off of quantitative easing contributed to the
rand's 23,7% depreciation against the US dollar in 2013.
Growth in household credit demand fell to levels last seen during the global
financial crisis as a result of lower overall wages due to strike action,
persistently high unemployment rates and increases in administered prices,
which, together with elevated levels of indebtedness, eroded consumer
confidence.
Declining business confidence kept private sector investment at low levels.
The demand for corporate credit generally fared better than household credit
demand, as a modest increase in government fixed-capital investment on
energy, transport and other infrastructure sectors provided some support.
Review of results
Nedbank Group performed well over the year ended 31 December 2013 ('the
period'). The results reflect the tougher-than-anticipated economic
environment offset by delivery on our strategic focus areas and continued
internal momentum in building and growing the Nedbank franchise.
Headline earnings increased 15,9% to R8 670m (2012: R7 483m)(1), driven by
good revenue growth, impairments increasing at a slower rate than net
interest income and disciplined expense management.
Diluted headline earnings per share (HEPS) increased 15,0% to 1 829 cents
(2012: 1 590 cents) and diluted earnings per share increased 15,1% to 1 822
cents (2012: 1 583 cents).(1)
We have continued to create value for our shareholders by increasing net
asset value per share by 12,1% to 13 143 cents (2012: 11 721 cents) and
dividends per share by 19,0% to 895 cents per share (2012: 752 cents per
share).(1)
The group generated economic profit (EP) of R2 114m, up 39,0% (2012: R1
521m). The return on average ordinary shareholders' equity (ROE), excluding
goodwill, increased to 17,2% (2012: 16,4%) and the ROE increased to 15,6%
(2012: 14,8%), benefiting from an increased return on assets (ROA) of 1,23%
(2012: 1,13%).
Nedbank Group is well capitalised, with the Basel III common-equity tier 1
ratio at 12,5% – at the top end of our internal target range (2012: Basel III pro
forma ratio 11,6%). Funding and liquidity levels remained sound, with the
surplus liquidity buffer at R28,0bn (2012: R24,4bn), and the final-quarter
average long-term funding ratio was maintained at 26,2%.
Delivering sustainably to all our stakeholders
Our commitment to our vision to be Africa's most admired bank by delivering
sustainably to all our stakeholders – staff, clients, shareholders, regulators,
and communities – is demonstrated by the following:
For staff – providing employment to an additional 588 permanent staff in SA;
investing R396m in training our people; 1 521 of our staffmembers
participating in our Leading for Deep Green culture and values development
programme; staff and culture survey results remaining good; and progressing
well on staff transformation initiatives.
For clients – significantly investing in our distribution footprint to be a bank for
all, with 334 additional ATMs and 28 reformatted 'branch of the future' outlets,
with more to follow; systems uptime at multiyear highs; accelerating delivery in
innovation, including market leading products such as PocketPOS™,
MyFinancialLife™, the My eBills™ invoice issuing and payment system, the
award-winning Nedbank App Suite™; offering clients a lower-priced credit life
product with increased benefits; increasing loan payouts to R158,9bn (2012:
R144bn) and assets under management by 26,5% to R190,3bn (2012:
R150,5bn); and increasing total group client numbers by 9,8% to 6,7m in 2013
(2012: 6,1m).
For shareholders – delivering EP of R2 114m, increasing the ROE
(excluding goodwill) to 17,2% and increasing the full-year dividend by 19,0%,
ahead of 14,9% growth in HEPS; delivering total shareholder return of 16,0%;
positioning the group for future shareholder value creation through our long-
term, risk-mitigated and capital-efficient Pan-Africa banking strategy; and
being voted as the Financial Times and The Banker magazine's 2013 SA
Bank of the Year. Our 2012 Integrated Report was the overall winner of the
2013 Chartered Secretaries Southern Africa and JSE Annual Report awards.
For regulators – implementing Basel III successfully on 1 January 2013, with
the group's common-equity tier 1 strengthening further to 12,5%; making cash
taxation contributions of R8,0bn relating to direct, indirect, PAYE and other
taxation; continuing with our strong, open and transparent relationships with
all regulators and our commitment to responsible banking and insurance
practices; and aspiring to be worldclass at managing risk and having
appropriate remediation where required.
For communities – expanding our distribution footprint; contributing R413m
to socioeconomic development since 2009 (2013: R111m); supporting 163
external bursars across 17 universities; maintaining our level 2 broad-based
black economic empowerment (B-BBEE) contributor status for the fifth
consecutive year; sourcing 78,1% of our procurement locally, improving on an
already high benchmark; and being recognised as a leader in socially
responsible banking at the 2013 African Banker Awards and winning the
Sunday Times Top 100 Companies CSI Award.
Cluster performance
The group benefited from the diversified earnings streams from our clusters.
Stronger earnings growth rates were achieved by our wholesale clusters,
while earnings growth in Nedbank Retail and Nedbank Business Banking was
impacted by higher impairments and continued investment for growth.
Headline
% earnings ROE
change (Rm) (%)
Year-end 2013 2012 2013 2012
Nedbank Capital 20,6 1 726 1 431 29,4 25,4
Nedbank Corporate 23,6 2 245 1 817 26,4 22,5
Nedbank Business Banking (1,6) 929 944 19,4 21,5
Nedbank Retail (0,5) 2 539 2 552 11,6 12,1
Nedbank Wealth 25,3 900 718 36,2 29,7
Business clusters 11,8 8 339 7 462 19,1 17,9
Centre, including Rest of Africa >100,0 331 21
Total 15,9 8 670 7 483 15,6 14,8
Nedbank Capital produced an outstanding set of results. Growth in earnings
came from good drawdowns in the investment banking pipeline and
improvements in impairments to within the cluster's through-the-cycle target
range.
Nedbank Corporate's strong earnings and ROE growth was achieved through
excellent performance by Property Finance as a result of strong advances
growth coupled with fair-value gains. Corporate Banking contributed to this
achievement through continued growth in transactional income and increased
liability revenues. This performance was underpinned by stable impairments
and good expense management.
Nedbank Business Banking delivered headline earnings and an ROE similar
to those in 2012, notwithstanding the single-client specific-impairments charge
in June 2013. The full-year credit loss ratio (CLR) at 0,65% is within the target
range due to the quality of client advances and proactive risk management
practices. The strong growth in non-interest revenue (NIR) and asset payouts,
mainly to existing clients, is reflective of good underlying business momentum,
despite the protracted challenges facing the small-and-medium-enterprise
sector in SA.
Nedbank Retail generated headline earnings of R2,5bn, which included
absorbing a pretax charge of R323m in additional impairments as downside-
risk protection for deteriorating levels of consumer credit health, fuelled by the
high, industrywide unsecured lending growth rates in preceding years and
resultant industry tightening of credit availability. The embedding of sound risk
management practices and early comprehensive risk-mitigating actions
resulted in the CLR of 2,16%, which is within the Retail CLR target range.
Overall defaulted loans continued to decline, while coverage strengthened
further.
The excellent momentum in sustainably repositioning the Retail Cluster,
strategically and financially, was maintained in a very challenging
macroeconomic and competitive environment. Investment in distribution and
distinctive client value propositions is yielding significant client gains, with
increases in related transactional, deposit and lending volumes contributing to
good NIR growth – still ahead of expense growth. The proactive measures to
derisk personal loans by slowing advances growth and offering lower priced
credit life products with increased benefits have lowered NIR growth by one
percentage point.
Nedbank Wealth achieved record headline earnings in 2013. The results were
mainly attributable to strong growth in the areas of asset management,
financial planning and stockbroking, as well as a significant year-on-year
reduction in impairments.
Headline earnings at the centre represent, inter alia, an increase in earnings
in the Rest of Africa Division, a reversal of R88m of insurance provisions
following court rulings in our favour in the first half of the year, a small fair-
value profit on hedging activities and net interest income (NII) earned on
higher levels of surplus equity held at the centre. These were offset by an
R60m portfolio provision raised in the second half of the year in view of
various economic and regulatory uncertainties.
Detailed segmental information is available on the group's website at
nedbankgroup.co.za under the financial information section.
Financial performance
NII
Net interest income grew 7,8% to R21 220m (2012: R19 680m)(1), with average
interest-earning banking assets growth of 6,8% (2012 growth: 7,5%).
The net interest margin (NIM) increased to 3,57% (2012: 3,53%), led by
liability margin gains from a lower cost of marginal wholesale funding, deposit
mix benefits and slightly lower levels of average long-term debt, partially offset
by a decrease in asset margins. Notwithstanding improved risk-adjusted
pricing of new advances, the asset margin was impacted by mix changes from
the planned slowdown in growth of personal loans.
Impairments charge on loans and advances
Impairments increased 7,0% to R5 565m (2012: R5 199m)(1). The CLR was
similar to that of 2012 at 1,06% (2012: 1,05%), having improved from 1,31%
at June 2013.
CLR (%) Dec Jun Dec
2013 2013 2012
Specific impairments 0,95 1,24 0,91
Portfolio impairments 0,11 0,07 0,14
Total CLR 1,06 1,31 1,05
Sound asset quality and proactive risk management resulted in lower levels of
inflows into defaulted advances, which declined 9,4% to R17 455m (2012:
R19 273m), and amounted to 2,95% of gross advances (2012: 3,58%).
All clusters reported CLR within their respective through-the-cycle target
ranges. The total CLR remained above the group's target range due to the
higher weighting of retail impairments. Nedbank Retail's CLR of 2,16% is up
on the 2012 ratio of 2,01% due to the additional aforementioned R323m
impairment charges. The six-month writeoff period for personal loans,
methodology changes and steps taken in prior periods to reduce risk led to
personal-loan defaulted advances peaking in May 2013 and the CLR
improving since June 2013.
CLR (%) % Dec Jun Dec 2013
banking 2013 2013 2012 through-
advances the-cycle
target
ranges
Nedbank Capital 11,5 0,51 0,77 1,06 0,10 – 0,55
Nedbank Corporate 32,1 0,23 0,30 0,24 0,20 – 0,35
Nedbank Business Banking 12,0 0,65 1,02 0,34 0,55 – 0,75
Nedbank Retail 38,2 2,16 2,56 2,01 1,50 – 2,20
Nedbank Wealth 4,0 0,28 0,24 0,61 0,20 – 0,40
Group 1,06 1,31 1,05 0,60 – 1,00
The coverage ratio for total and specific impairments increased to 65,6%
(2012: 56,4%) and 42,8% (2012: 38,6%) respectively. Portfolio coverage on
the performing book continued to strengthen to 0,70% (2012: 0,66%).
Our collections processes are robust and generated post-writeoff recoveries
of R888m (2012: R866m), reflecting the prudency of cash accounting
recoveries on the written-off book. This includes recoveries in Personal Loans
of R276m (2012: R243m).
Non-interest revenue
NIR increased by 11,8% to R19 361m (2012: R17 324m)(1), due to the following:
- Commission and fee income increased strongly by 11,8% to R14 023m
(2012: R12 538m)(1) from good transactional volume increases across the
group and improved cross-sell.
- Insurance income growth of 13,7% to R1 927m (2012: R1 695m) remained
robust, with good sales in motor vehicle insurance and an improvement in
the claims environment partly offset by the volume-related slowdown in
credit life income.
- Trading income held up well, increasing 4,1% to R2 564m (2012: R2
464m) off the high 2012 base.
- Private-equity income of R225m (2012: R391m) was recorded following
unrealised losses in Nedbank Capital and the higher realisations in 2012.
- Sundry income increased to R526m (2012: R394m) mostly owing to the
reversal of insurance provisions following court rulings in our favour in
June 2013.
- Fair-value gains of R40m (2012: R265m loss) were recognised mainly as a
result of basis risk on centrally hedged banking book positions and
accounting mismatches in the hedged fixed-rate advances portfolios.
Our strategy to grow NIR has resulted in an NIR increase of 13,0% (excluding
fair-value adjustments) on a compound basis since 2009, with an increase in
the NIR-to-expenses ratio from 78,8% in 2009 to 86,4% (2012: 84,4%) to
exceed our medium-to-long-term target of > 85% for the first time over a full
year since the introduction of this metric.
Expenses
Disciplined cost management, combined with ongoing investment in the
franchise, resulted in operating expenses growing 9,2% to R22 362m (2012:
R20 485m)(1).
Growth in expenses was primarily driven by:
- a staff-related cost increase of 10,5%, comprising salary and wage cost
growth of 8,3% following average inflation-related annual increases of 6,5%
and 1,4% growth in average headcount, and a variable-compensation
increase in line with the group's financial performance, with the short-term
incentive (STI) up 15,9% and long-term incentive (LTI) up 23,4%;
- investment in distribution channels of R151m;
- marketing costs growth of 13,3% as we invest in building our franchise and
transactional banking client base; and
- a computer processing increase of 10,5% in line with increases in
business volume growth.
Taxation
The base effect of capital gains tax and secondary tax on companies in 2012,
together with lower levels of dividend income, resulted in a lower effective tax
rate of 25,2% (2012: 26,8%)(1).
Statement of financial position
Capital
Strong balance sheet management and organic earnings growth during the
period caused all capital adequacy ratios to remain well above the Basel III
minimum regulatory capital requirements and at or above the top of the
group's Basel III internal target ranges.
Nedbank 2013 2012 Internal target Regulatory
Group (Basel III) (Pro forma range minimum*
Basel III) (Basel III) (Basel III)
Common- 12,5% 11,6% 10,5% – 12,5% 4,5%
equity tier 1
ratio
Tier 1 ratio 13,6% 13,1% 11,5% – 13,0% 6,0%
Total capital 15,7% 15,1% 14,0% – 15,0% 9,5%
ratio
(Ratios include unappropriated profits.)
* The Basel III regulatory minima are being phased in between 2013 and 2019, and exclude
Pillar 2B add-ons.
During the year a total of R3,0bn of new-style, fully loss-absorbent, Basel III-
compliant, tier 2 subordinated debt was successfully issued to replace the
R2,1bn of Basel II tier 2 capital that matured in September 2013.
Further detail on risk and capital management will be available in the Risk and
balance sheet management review section of the group's results booklet and
the Pillar 3 Report to be published on the website at nedbankgroup.co.za on
31 March 2014.
Funding and liquidity
Nedbank Group's surplus liquid asset buffer increased to R28,0bn (2012:
R24,4bn), reflecting a strong liquidity position. The group has low levels of
reliance on interbank and foreign currency funding, and continues
successfully to diversify and lengthen its funding profile.
The last-quarter average long-term funding ratio was maintained at 26,2%,
supported by the successful conclusion of a R2,0bn five-year commercial-
mortgage securitisation in March 2013 as well as R5,8bn in senior unsecured
debt issued during the year, replacing R3,4bn that matured in March and April
2013. The group has been compliant with the Basel III Liquidity Coverage
Ratio on a pro forma basis since 31 December 2012.
Loans and advances
Loans and advances increased 9,9% to R579,4bn (2012: R527,2bn)(1), with
good wholesale banking advances growth of 16,1%. Gross new-advances
payouts increased 10,1% to R158,9bn (2012: R144,3bn).
Loans and advances by cluster are as follows:
Rm 2013 2012 % change
Nedbank Capital 109 549 82 494 32,8
Banking activities 72 066 52 732 36,7
Trading activities 37 483 29 762 25,9
Nedbank Corporate 175 274 162 730 7,7
Nedbank Business Banking 62 785 60 115 4,4
Nedbank Retail 195 435 190 647 2,5
Nedbank Wealth 22 082 19 864 11,2
Centre, including Rest of Africa 14 247 11 316 25,9
579 372 527 166 9,9
Banking advances growth in Nedbank Capital remained robust, following
steady drawdown of the deal pipeline throughout the year, including the
Renewable Energy Independent Power Producer Procurement Programme
(REIPPPP), of which Nedbank supported over a third of the allocated
renewable-energy capacity in the first and second phases. Growth in the
trading advances book came largely from foreign-currency placements and
deposits placed under reverse repurchase agreements related to surplus
liquidity and the hedging of the group's liquid asset portfolio.
The increase in Nedbank Corporate's advances is comprised of 5,3% growth
in corporate banking and 11,0% growth in property finance. Nedbank's
market-leading commercial property franchise earned the accolade of being
voted the best property finance bank in SA in the PWC SA banking survey
2013.
Nedbank Business Banking recorded advances growth of 4,4% as the small-
to-medium-sized enterprises sector continued to experience economic
pressure throughout 2013.
Retail banking advances continued to grow modestly at 2,5%. Advances
growth was led by an increase of 14,2% and 13,8% for card and vehicle
finance respectively, while personal-loan and home loan advances declined
9,4% and 2,1% respectively in line with the selective origination strategy in
both advances categories ahead of expected interest rate increases.
At group level personal-loan advances now represent 3,6% and home loan
advances 23,0% of total advances.
Growth in advances at the centre was led by increased business activity in the
Rest of Africa, consistent with the group's focus on deepening its Pan-African
banking client relationships and expanding its presence in the rest of Africa.
Deposits
Deposits grew 9,5% to R603,0bn (2012: R550,9bn)(1) and a sound loan-to-
deposit ratio of 96,1% (2012: 95,7%) was maintained.
The Portfolio Tilt Strategy to drive deposit growth is reflected in good
contributions seen from all the clusters. Current accounts increased 5,1%
(2012: 7,9%) and savings accounts grew by a strong 30,3% (2012: 9,3%), as
saving deposits held in Nedbank Wealth were boosted by rand depreciation.
Call and term deposit balances were 9,7% (2012: 9,9%) higher due to
increased funding from the commercial and asset management sectors. The
strategy also focused on increasing fixed deposits, which resulted in 16,3%
(2012: 8,2%) growth in fixed deposits while negotiable certificates of deposit
were up 13,7% (2012: negative 21,4%).
Group strategic focus
Over the past four years Nedbank's franchise has grown strongly as reflected
in our brand value increasing by 38,0% to R10,9bn (2009: R7,9bn), as
measured by Brand Finance SA's 50 Most Valuable Brands Survey. We have
made great strides in delivering on our four key strategic focus areas of
repositioning Nedbank Retail, growing NIR, implementing the portfolio tilt
strategy and expanding into the rest of Africa.
- Nedbank Retail has been fundamentally repositioned into a client-centred,
aspirational bank for all with excellent risk management practices, while
delivering a sustainable turnaround in financial performance. Since 2009
headline earnings increased from a loss of R27m to a profit of R2,5bn and
ROE from a negative 0,2% to 11,6% in 2013. This was achieved by
generating R3,5bn incremental NIR at a 14% compound annual growth
rate (CAGR), increasing NII by R2,7bn at a 7,2% CAGR as the quality, mix
and pricing of the advances portfolio improved off moderate advances
growth of 3,9% CAGR. Balance sheet impairments were strengthened
materially by R1,8bn while reducing defaulted advances by R9,1bn to
5,4% of Retail advances, with coverage at 51%. Efficiencies of R1,1bn
were extracted to invest R1,7bn in branches and ATMs, which have
increased by 41% and 83% respectively; technology systems; people skills
development; and new, innovative value propositions for all market
segments with client-insight-led marketing that has changed client
perceptions of Nedbank. The 2,2m growth in new clients to 6,4m is
testimony to the excellent progress in strengthening the transactional
banking franchise. Accelerating levels of consumer financial distress,
increased conservatism in impairment methodologies while continuing to
build the franchise sustainably and the higher cost of capital make it more
challenging to achieve ROE at or above the cost of equity in the short
term. Internal momentum, together with consistency in risk management,
strategy and leadership, will ensure that Nedbank Retail continues to
improve financial returns while growing our transactional franchise and
contributing positively to the group.
- Excellent progress has been made in growing our NIR-to-expense ratio
from 78,8% in 2009 to 86,4% in 2013, which exceeds our medium-to-long-
term target of more than 85%. Over this period our client base has grown
across all clusters and transactional banking volumes have increased. As
a result, commission and fee income grew at a compound annual growth
rate of 13,1% to R14 023m (2009: R8 583m).
- Under the portfolio tilt strategy EP increased significantly from R57m in
2009 to R2,1bn in 2013, supported by selective advances growth to
mitigate against downside risk in personal loans and home loans while
focusing on strongly EP generative activities such as, inter alia, deposit
growth, cards, vehicle finance, insurance, asset management and
investment banking.
- Our Rest of Africa strategy incorporates our strategic alliance with
Ecobank in West and Central Africa, and strengthening our existing
network and expanding our presence in the Southern African Development
Community (SADC) and East Africa. Nedbank has the rights to take up to
a 20% shareholding in ETI and a formal decision will be made during the
rights exercise period in 2014. The acquisition of a majority shareholding
of Banco Unico in Mozambique, along with the acquisition of the initial
stake of 36,4%, has been approved, with completion targeted for the end
of March 2014, providing the group with a pathway to control over time.
This will contribute to the strengthening of Nedbank's franchise and client
proposition in SADC and East Africa, increasing our presence to six
countries. During 2013 the group concluded an alliance agreement with
the Bank of China.
Refined strategic focus areas from 2014
Following the progress made on our four key strategic focus areas, the
emphasis going forward will be on the five underlying strategic growth drivers.
These are: client-centred innovation; growing our transactional banking
franchise; optimise to invest; strategic portfolio tilt; and Pan-African banking
network.
- 'Client-centred innovation' is vital in accelerating and building on the
innovations launched in the past two years to enhance Nedbank's client
value propositions and drive client growth and product cross-sell.
- 'Growing our transactional banking franchise' focuses on capturing a
greater share of the overall groupwide transactional banking opportunity,
with growing NIR and client deposits a key outcome.
- 'Optimise to invest' is aimed at driving internal efficiencies in an
environment of slower revenue growth and enhancing our ability to invest
in the franchise for the longer term. Significant information technology (IT)
innovations are planned to enhance our systems and deliver business
benefits through managed evolution. Our 'rationalise, standardise and
simplify' IT strategy forms part of this intent as we move from 220 to 60
core systems over time and embark on initiatives such as Project 4321, a
SAP ERP system replacement in finance, human resources and
procurement. In 2013 alone 30 IT systems were decommissioned.
- 'Strategic portfolio tilt' continues to emphasise the strategic nature of
portfolio tilt and EP generative activities while incorporating Nedbank's Fair
Share 2030 initiative, which encompasses a carefully calculated flow of
money allocated each year to invest in future-proofing the environment,
society and our business. We have also increased cooperation with our
parent company, Old Mutual plc, and our sister companies in South Africa.
New business flows from our financial planners to Old Mutual SA
increased 58% in 2013 and we entered the direct insurance market in
partnership with Mutual & Federal.
- 'Pan-African banking network' reflects the importance of providing banking
services for our clients as they expand across the continent, and creating
shareholder value through appropriate investment opportunities that are
aligned with the Nedbank strategy and culture and meet our financial
hurdles.
Economic outlook
The economic outlook for developed economies is expected to be more
positive in 2014, with accelerated momentum in the US and UK, and the
Eurozone beginning to show signs of fragile growth. These improved
prospects, together with the effects of a tapering off of quantitative easing, will
lead to global volatility and pose downside risk to many emerging markets. A
further concern is China's economic slowdown, given its importance as a
trade partner for SA.
The group currently anticipates GDP growth of 2,6% for SA in 2014. This is
higher than the expected 1,8% growth in 2013, but remains below growth
rates required to reduce unemployment levels meaningfully. The key drivers
are likely to be better export performance and an increase in gross fixed-
capital formation. Downside risk to growth has increased as interest rates
have started on an upward trajectory, with a 50 basis point increase in
January 2014 and further potential increases later in the year.
Growth in household credit demand is unlikely to improve in 2014 while
employment conditions remain poor, real income constrained and consumer
debt levels high. Growth across most retail advances categories will continue
to be muted and consumer credit risks are likely to increase. The rate and
extent of further interest rate increases will impact the ability of consumers to
service their debt.
Corporate credit demand is expected to remain above retail credit demand,
but will continue to be subdued as corporates delay committing to new
projects in an environment of infrastructure constraints and low levels of
confidence.
Prospects
In the context of a volatile and uncertain economic outlook forecast risk is
high. Against this background the financial performance for 2014 is currently
anticipated as follows:
- Advances to grow at mid to upper single digits.
- NIM to remain at levels similar to those of 2013.
- The CLR to be within the new CLR range of 80 to 120 basis points,
improving slightly on 2013.
- NIR (excluding fair-value adjustments) to grow at mid to upper single
digits, incorporating the 0% transactional fee increase in 2014.
- Expenses to increase at upper single digits.
In the light of the volatile economic conditions the group is currently expecting
organic diluted HEPS growth in 2014 to be greater than the growth in nominal
GDP. As usual, this will be updated at our interim results presentation.
The group's medium-to-long-term targets are highlighted below. Our CLR
target range of 0,60% to 1,00% was amended to 0,80% to 1,20% to reflect
Nedbank Retail's more prudent provisioning methodologies and asset mix
changes. The efficiency ratio target was amended from < 50,0% to a range of
50,0% to 53,0% to reflect the lower-interest-rate pattern and our strategy of
investing for growth in the franchise.
2013 Medium-to-long-term 2014
Metric
performance targets outlook
ROE (excluding 5% above cost of
goodwill) 17,2% ordinary shareholders' Below target
equity
>- consumer price >- consumer price
Growth in diluted
15,0% index + GDP growth + index + GDP
HEPS
5%
growth
Between 0,8% and Meet target,
CLR 1,06%
1,2% of average improving slightly
banking advances on 2013
NIR-to-expense
86,4% > 85% At target
ratio
Efficiency ratio 55,2% 50,0% to 53,0% Above target
Common-equity
tier 1 capital At or above the top
12,5% 10,5% to 12,5%
adequacy ratio end of target
(Basel III)
Internal Capital Adequacy Assessment Process (ICAAP):
Economic capital
A debt rating (including 10% capital buffer)
Dividend cover 2,11 times 1,75 to 2,25 times 1,75 to 2,25 times
Shareholders are advised that these forecasts are based on organic earnings
and our latest macroeconomic outlook and have not been reviewed or
reported on by the group's independent auditors.
Board changes
David Adomakoh was appointed independent non-executive director of
Nedbank Group and Nedbank Limited with effect from 21 February 2014.
The following departures of non-executive directors of Nedbank Group and
Nedbank Limited occurred during 2013:
- Don Hope, with effect from 30 June 2013, following his retirement from Old
Mutual plc at the end of June 2013; and
- Thenjiwe Chikane, with effect from 13 August 2013.
Accounting policies(1)
Nedbank Group Limited is a company domiciled in SA. The summarised
consolidated financial results of the group at and for the year ended 31
December 2013 comprise the company and its subsidiaries (the 'group') and
the group's interests in associates and joint arrangements.
Nedbank Group's summarised consolidated financial results have been
prepared in accordance with the framework, measurement and recognition
criteria of International Financial Reporting Standards (IFRS) and are
presented in accordance with the disclosures prescribed by International
Accounting Standards (IAS) , the South African Institute of Chartered
Accountants (SAICA) Financial Reporting Guides as issued by the Accounting
Practices Committee, the Financial Pronouncement as issued by Financial
Reporting Standards Council and the provisions of the SA Companies Act, 71
of 2008.
Nedbank Group's principal accounting policies have been applied in terms of
IFRS as issued by the International Accounting Standards Board (IASB) and
have been applied consistently during the current and prior financial years,
with the exception of changes noted below.
The following new standards and amendments have been mandatorily
adopted with effect from 1 January 2013:
- IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements
and IFRS 12 Disclosure of Interests in Other Entities, as well as the
consequential amendments to IAS 27 Separate Financial Statements
(2011) and IAS 28 Investments in Associates and Joint Ventures (2011).
As a result of adopting IFRS 10 the group has changed its accounting policy
with respect to determining whether it has control over and consequently
whether it is required to consolidate an investee. IFRS 10 introduces a new
set of criteria for assessing control by referring to the investor's exposure or
rights to variable returns from its involvement with the investee and the ability
to affect those returns through its power over the investee.
IFRS 11 requires that the group classifies its interests in joint arrangements as
either joint operations or joint ventures depending on the group's rights to
assets and obligations for the liabilities of the arrangements. There has been
no change to the method of accounting for joint arrangements.
IFRS 12 introduces additional disclosure requirements in respect of interest in
subsidiaries and associates, and also introduces new disclosure requirements
for unconsolidated structured entities.
These standards and amendments have been applied retrospectively and
have not required any significant restatement in the groups' financial report.
- IFRS 13 Fair-value Measurement
- IFRS 13 provides a revised definition of fair value and establishes a
single source of guidance for the measurement of fair value, which had
previously been included in various standards. The prospective
adoption of this standard did not have a material impact on the
measurement of the group's assets and liabilities. The group has an
established control framework with respect to the measurement of fair
value, which includes an ongoing review of the valuation
methodologies applied.
- Disclosures – Offsetting Financial Assets and Financial Liabilities
(amendments to IFRS 7)
The group has adopted the amendments to IFRS 7, which requires
extensive disclosures in respect of offsetting. The adoption had no
impact on the measurement of the group's assets and liabilities.
- IAS 19 Employee Benefits (2011)
The group has adopted IAS 19 Employee Benefits (2011). The
amendments include revised requirements for pensions and other
postemployment benefits, termination benefits and certain other
changes. The key amendments impacting the group include:
- requiring the recognition of changes in net defined-benefit
liabilities/assets due to changes in determined expense/income in
'other comprehensive income' (eliminating the 'corridor approach'
previously permitted in IAS 19);
- modifying the accounting for termination benefits; and
- clarifying various miscellaneous issues.
The adoption of the amendments to IAS 19 has been applied retrospectively
and the resulting restatements, which are not considered material are set out
in the note on restatements.
- IAS 1 Presentation of Financial Statements
Amendments to IAS 1 require identification of items that may be
reclassified from 'other comprehensive income' to 'profit or loss', and those
that may not be so reclassified. As a consequence of adopting the
amendments to IAS 1, items that may be reclassified from 'other
comprehensive income' to 'profit or loss' have been denoted as such in the
statement of comprehensive income.
In the preparation of these summarised consolidated financial results the
group has applied key assumptions concerning the future and other inherent
uncertainties in recording and measuring various assets and liabilities. The
assumptions applied in the financial results for the year ended 31 December
2013 were consistent with those applied during the 2012 financial year. These
assumptions are subject to ongoing review and possible amendments. The
summarised consolidated financial results have been prepared under the
supervision of Raisibe Morathi, the Chief Financial Officer.
Events after the reporting period(1)
In line with the bank's scheduled capital plans, there was a full capital
redemption of NED8, the R1,7bn unsecured subordinated note that qualified
as tier 2 capital under Basel II, with effect from 8 February 2014.
Audited summarised consolidated results – independent auditors' report
KPMG Inc and Deloitte & Touche, Nedbank Group's independent auditors,
have audited the consolidated 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 financial
statements. The auditor's report on the consolidated financial statements is
available for inspection at Nedbank Group's registered office. The related
notes are marked with (1).
The summarised consolidated financial results comprise the consolidated
statement of financial position at 31 December 2013, consolidated statement
of comprehensive income, condensed consolidated statement of changes in
equity and condensed consolidated statement of cashflows for the year then
ended and selected explanatory notes. The directors take full responsibility for
the preparation of the summarised consolidated financial results and that the
financial information has been correctly extracted from the underlying audited
annual financial statements.
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 505 cents per ordinary
share has been declared, payable to shareholders for the 12 months ended
31 December 2013. The dividend has been declared out of income reserves.
The dividend will be subject to a dividend withholding tax rate of 15%
(applicable in SA) or 75,75 cents per ordinary share, resulting in a net
dividend of 429,25 cents per ordinary share, unless the shareholder is exempt
from paying dividend tax or is entitled to a reduced rate in terms of a
applicable double-tax agreement. 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 510 204 377.
In accordance with the provisions of Strate, the electronic settlement and
custody system used by JSE Limited, the relevant dates for the final dividend
are as follows:
Event Date
Last day to trade (cum dividend) Friday, 28 March 2014
Shares commence trading (ex dividend) Monday, 31 March 2014
Record date (date shareholders recorded in Friday, 4 April 2014
books)
Payment date Monday, 7 April 2014
Share certificates may not be dematerialised or rematerialised between
Monday, 31 March 2014, and Friday, 4 April 2014, both days inclusive.
On Monday, 7 April 2014, 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, 7 April 2014, will be posted on that date.
Holders of dematerialised shares will have their accounts credited at their
participant or broker on Monday, 7 April 2014.
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 RJ Khoza MWT Brown
Chairman Chief Executive
24 February 2014
Financial highlights
at 31 December 31 December
2013 2012
(Audited) (Audited)
Restated
Statistics
Number of shares listed m 510.3 507.5
Number of shares in issue, excluding shares held by group entities m 461.2 457.3
Weighted average number of shares m 460.2 456.3
Diluted weighted average number of shares m 474.1 470.7
Preprovisioning operating profit* Rm 17,268 15,543
Economic profit* Rm 2,114 1,521
Headline earnings per share* cents 1,884 1,640
Diluted headline earnings per share* cents 1,829 1,590
Ordinary dividends declared per share cents 895 752
– Interim cents 390 340
– Final cents 505 412
Ordinary dividends paid per share cents 802 680
Dividend cover* times 2.11 2.18
Net asset value per share* cents 13,143 11,721
Tangible net asset value per share* cents 11,346 9,989
Closing share price cents 21,000 18,800
Price/earnings ratio* historical 11.1 11.5
Market capitalisation Rbn 107.2 95.4
Number of employees 29,513 28,748
Key ratios (%)
Return on ordinary shareholders' equity (ROE)* 15.6 14.8
ROE, excluding goodwill* 17.2 16.4
Return on total assets (ROA) 1.23 1.13
Net interest income to average interest-earning banking assets 3.57 3.53
Credit loss ratio – banking advances 1.06 1.05
Non-interest revenue to total operating expenses* 86.4 84.4
Non-interest revenue to total income 47.7 46.8
Efficiency ratio* 55.2 55.6
Efficiency ratio [excluding black economic empowerment (BEE) transaction expenses]* 55.1 55.4
Effective taxation rate 25.2 26.8
Group capital adequacy ratios (including unappropriated profits):**
Common equity tier 1 12.5 11.4
Tier 1 13.6 12.9
Total 15.7 14.9
Statement of financial position statistics (Rm)
Total equity attributable to equity holders of the parent* 60,617 53,601
Total equity* 64,336 57,375
Amounts owed to depositors 602,952 550,878
Loans and advances 579,372 527,166
– Gross 590,828 538,037
– Impairment of loans and advances (11,456) (10,871)
Total assets administered by the group 939,935 833,453
– Total assets* 749,594 682,958
– Assets under management 190,341 150,495
Life assurance embedded value 2,137 2,030
Life assurance value of new business 352 563
* 2012 restated to reflect the adoption of IAS 19 Employee Benefits (revised 2011).
** 2012 and 2013 ratios were calculated according to Basel II.5 and Basel III principles respectively. These ratios are not reviewed
by or reported on by the group's auditors.
Consolidated statement of comprehensive income
for the year ended 31 December 31 December
2013 2012
(Audited) (Audited)
Rm Rm
Restated
Interest and similar income 46,087 44,730
Interest expense and similar charges 24,867 25,050
Net interest income 21,220 19,680
Impairments charge on loans and advances 5,565 5,199
Income from lending activities 15,655 14,481
Non-interest revenue 19,361 17,324
Operating income 35,016 31,805
Total operating expenses 22,419 20,563
– Operating expenses** 22,362 20,485
– BEE transaction expenses 57 78
Indirect taxation 601 561
Profit from operations before non-trading and capital items 11,996 10,681
Non-trading and capital items (56) (18)
– Net profit on sale of subsidiaries, investments, and property and equipment 11 33
– Net impairment of investments, property and equipment, and capitalised development costs (67) (51)
Fair-value adjustments of investment properties 6 (12)
Profit from operations 11,946 10,651
Share of profits of associate companies and joint arrangements 27 1
Profit before direct taxation 11,973 10,652
Total direct taxation 3,016 2,865
– Direct taxation** 3,033 2,861
– Taxation on non-trading and capital items (18) 4
– Taxation on revaluation of investment properties 1 *
Profit for the year 8,957 7,787
Other comprehensive income net of taxation 1,675 171
– Exchange differences on translating foreign operations*** 690 162
– Fair-value adjustments on available-for-sale assets*** 32 43
– Remeasurements on long-term employee benefit assets** 731 (76)
– Gains on property revaluations*** 222 42
Total comprehensive income for the year 10,632 7,958
Profit attributable to:
equity holders of the parent** 8,637 7,449
non-controlling interest – ordinary shareholders** 28 45
Non-controlling interest – preference shareholders 292 293
Profit for the year 8,957 7,787
Total comprehensive income attributable to:
equity holders of the parent** 10,295 7,620
non-controlling interest – ordinary shareholders** 45 45
non-controlling interest – preference shareholders 292 293
Total comprehensive income for the year 10,632 7,958
Basic earnings per share** cents 1,877 1,632
Diluted earnings per share** cents 1,822 1,583
* Represents amounts less than R1m.
** 2012 restated to reflect the adoption of IAS 19 Employee Benefits (revised 2011).
*** These items may be reclassified subsequently as profit or loss.
Headline earnings reconciliation
for the year ended
31 December 31 December 31 December 31 December
2013 2013 2012 2012
(Audited) (Audited) (Audited) (Audited)
Rm Rm Rm Rm
Restated Restated
Gross Net of taxation Gross Net of taxation
Profit attributable to equity holders of the parent* 8,637 7,449
Less: non-headline earnings items (50) (33) (30) (34)
– Net profit on sale of subsidiaries, investments, and property and equipment 11 11 33 29
– Net impairment of investments, property and equipment, and capitalised development costs (67) (49) (51) (51)
– Fair-value adjustments of investment properties 6 5 (12) (12)
Headline earnings 8,670 7,483
* 2012 restated to reflect the adoption of IAS 19 Employee Benefits (revised 2011).
Consolidated statement of financial position
at 31 December 31 December 31 December
2013 2012 2011
(Audited) (Audited) (Audited)
Rm Rm Rm
Restated Restated
Assets
Cash and cash equivalents 20,842 14,445 13,457
Other short-term securities 42,451 43,457 35,986
Derivative financial instruments 13,390 13,812 12,840
Government and other securities 32,091 26,753 30,176
Loans and advances 579,372 527,166 499,023
Other assets 8,673 9,488 12,051
Current taxation assets 565 246 698
Investment securities ** 19,348 16,213 13,881
Non-current assets held for sale 12 508 8
Investments in private-equity associates, associate companies and joint arrangements ** 1,101 1,032 968
Deferred taxation assets* 216 541 354
Investment property 214 205 614
Property and equipment 6,818 6,398 6,312
Long-term employee benefit assets* 2,980 2,095 2,102
Mandatory reserve deposits with central banks 13,231 12,677 11,952
Intangible assets 8,290 7,922 7,777
Total assets 749,594 682,958 648,199
Equity and liabilities
Ordinary share capital 461 457 455
Ordinary share premium 16,343 16,033 15,934
Reserves* 43,813 37,111 32,307
Total equity attributable to equity holders of the parent 60,617 53,601 48,696
Non-controlling interest attributable to:
– ordinary shareholders* 246 213 174
– preference shareholders 3,473 3,561 3,561
Total equity 64,336 57,375 52,431
Derivative financial instruments 16,580 13,454 13,853
Amounts owed to depositors 602,952 550,878 524,130
Provisions and other liabilities 14,682 15,526 14,751
Current taxation liabilities 301 193 200
Other liabilities held for sale 36
Deferred taxation liabilities* 789 793 1,341
Long-term employee benefit liabilities* 1,842 1,913 1,809
Investment contract liabilities 11,523 9,513 8,237
Insurance contract liabilities 3,321 2,979 2,005
Long-term debt instruments 33,268 30,298 29,442
Total liabilities 685,258 625,583 595,768
Total equity and liabilities 749,594 682,958 648,199
* 2012 restated to reflect the adoption of IAS 19 Employee Benefits (revised 2011).
** Certain investments were reclassified from investment securities to investments in private-equity associates, associate companies and joint arrangements
to align better with industry practice. No adjustments to the carrying value of the financial instruments arose as a result of the reclassification.
Furthermore, no changes were made to the categorisation of the financial instruments and they remain classified as designated at fair value through profit or loss.
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
of the parent shareholders shareholders Total equity
Rm Rm Rm Rm
Balance at 31 December 2011 48,946 178 3,561 52,685
Adoption of IAS 19 Employee Benefits (revised 2011) (250) (4) (254)
Restated balance at 31 December 2011 48,696 174 3,561 52,431
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* 7,620 45 293 7,958
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 53,601 213 3,561 57,375
Dividend to shareholders (3,821) (9) (3,830)
Preference share dividend (292) (292)
Issues of shares net of expenses 475 475
Shares (acquired)/cancelled by group entities and BEE trusts (132) (132)
Total comprehensive income for the year 10,295 45 292 10,632
Share-based payment reserve movement 206 206
Regulatory risk reserve provision (4) (4)
Preference shares held by group entities (88) (88)
Disposal of subsidiary (3) (3)
Other movements (3) (3)
Balance at 31 December 2013 60,617 246 3,473 64,336
* Restated to reflect the adoption of IAS 19 Employee Benefits (revised 2011).
Condensed consolidated statement of cashflows
for the year ended 31 December 31 December
2013 2012
(Audited) (Audited)
Rm
Rm Restated
Cash generated by operations ** 20,553 18,769
Change in funds for operating activities ** (4,507) (5,912)
Net cash from operating activities before taxation 16,046 12,857
Taxation paid (3,890) (3,914)
Cashflows from operating activities 12,156 8,943
Cashflows utilised by investing activities (4,341) (4,696)
Cashflows utilised by financing activities (800) (2,552)
Effects of exchange rate changes on opening cash and cash equivalents (excluding foreign borrowings) (64) 18
Net increase in cash and cash equivalents 6,951 1,713
Cash and cash equivalents at the beginning of the year* 27,122 25,409
Cash and cash equivalents at the end of the year* 34,073 27,122
* Including mandatory reserve deposits with central banks.
** 2012 restated to reflect the adoption of IAS 19 Employee Benefits (revised 2011).
Condensed segmental reporting
for the year ended 31 December 31 December 31 December 31 December 31 December 31 December
2013 2012 2013 2012 2013 2012
(Audited) (Audited) (Audited) (Audited) (Audited) (Audited)
Rm Rm Rm Rm Rm Rm
Restated Restated Restated
Total assets Operating income Headline earnings
Nedbank Capital 180,708 142,290 4,380 4,044 1,726 1,431
Nedbank Corporate 188,363 175,073 5,084 4,410 2,245 1,817
Total Nedbank Retail and Nedbank Business Banking 302,371 290,198 19,929 18,989 3,468 3,496
Nedbank Retail 203,155 198,072 15,502 14,693 2,539 2,552
Nedbank Business Banking 99,216 92,126 4,427 4,296 929 944
Nedbank Wealth 50,911 42,270 3,553 2,993 900 718
Shared Services 7,346 6,048 78 4 159 40
Central Management, including Rest of Africa 19,895 27,079 1,992 1,365 172 (19)
Total 749,594 682,958 35,016 31,805 8,670 7,483
The segmental results for 2012 have been restated to reflect the adoption of IAS 19 Employee Benefits (revised 2011) and the transfer of a subsidiary from
Shared Services to Central Management, including Rest of Africa. The amendments to IAS 19 include revised requirements for pensions and other postretirement benefits,
termination benefits and certain other changes.
Condensed geographical segmental reporting
for the year ended 31 December 31 December 31 December 31 December
2013 2012 2013 2012
(Audited) (Audited) (Audited) (Audited)
Rm Rm Rm Rm
Restated Restated
Operating income Headline earnings
SA 32,721 29,748 8,054 6,869
– Business operations* 32,721 29,748 8,409 7,230
– BEE transaction expenses (63) (68)
– Profit attributable to non-controlling interest – preference shareholders (292) (293)
Rest of Africa* 1,427 1,259 335 297
Rest of world – business operations* 868 798 281 317
Total 35,016 31,805 8,670 7,483
* 2012 restated to reflect the adoption of IAS 19 Employee Benefits (revised 2011).
Fair-value hierarchy
FINANCIAL INSTRUMENTS CARRIED AT FAIR VALUE
The fair value of a financial instrument is the price that would be received for the sale of an asset or paid for the transfer of a liability in an orderly transaction
between market participants at the measurement date. Underlying the definition of fair value is a presumption that an entity is a going concern without any intention or
need to liquidate, to curtail materially the scale of its operations or to undertake a transaction on adverse terms. Fair value is not, therefore, the amount that an entity
would receive or pay in a forced transaction, involuntary liquidation or distressed sale.
The existence of published price quotations in an active market is the most reliable evidence of fair value and, where they exist, they are used to measure the financial
asset or financial liability. A market is considered to be active if transactions occur with sufficient volume and frequency to provide pricing information on an ongoing basis.
These quoted prices would generally be classified as level 1 in terms of the fair-value hierarchy.
Where a quoted price does not represent fair value at the measurement date or where the market for a financial instrument is not active, the group establishes fair value by using
a valuation technique. These valuation techniques include, but are not limited to, reference to the current fair value of another instrument that is substantially the same in nature,
reference to the value of the assets of underlying business, earnings multiples, discounted cashflow analysis and various option pricing models. Valuation techniques applied by the
group would generally be classified as level 2 or level 3 in terms of the fair-value hierarchy. The determination of whether an instrument is classified as level 2 or level 3 is dependent
on the significance of observable inputs versus unobservable inputs in relation to the fair value of the instrument. Inputs typically used in valuation techniques include, but are not
limited to, discount rates, appropriate swap rates, volatility, servicing costs, equity prices, commodity prices, counterparty credit risk, and the group's own credit on financial
liabilities.
The group has an established control framework for the measurement of fair value, which includes formalised review protocols for the independent review and validation of fair values
separate from the business unit entering into the transaction. The valuation methodologies, techniques and inputs applied to the fair-value measurement of the financial instruments have been
applied in a manner consistent with that of the previous financial year (nedbankgroup.co.za).
FAIR-VALUE HIERARCHY
The financial instruments recognised at fair value have been categorised into the three input levels of the International Financial Reporting Standards (IFRS) fair-value hierarchy as follows:
Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date.
Level 2: Valuation techniques based on (directly or indirectly) market-observable inputs. Various factors influence the availability of observable inputs. These factors may vary from product
to product and change over time. Factors include the depth of activity in the relevant market, the type of product, whether the product is new and not widely traded in the market, the maturity
of market modelling and the nature of the transaction (bespoke or generic).
Level 3: Valuation techniques based on significant inputs that are not observable. To the extent that a valuation is based on inputs that are not market-observable, the determination of the fair
value can be more subjective, depending on the significance of the unobservable inputs to the overall valuation. Unobservable inputs are determined on the basis of the best information available
and may include reference to similar instruments, similar maturities, appropriate proxies or other analytical techniques.
FINANCIAL ASSETS
Total financial assets Total financial assets Total financial assets Total financial assets
Total financial assets recognised at amortised cost classified as level 1 classified as level 2 classified as level 3
31 December 31 December 31 December 31 December 31 December 31 December 31 December 31 December 31 December 31 December
2013 2012 2013 2012 2013 2012 2013 2012 2013 2012
(Audited) (Audited) (Audited) (Audited) (Audited) (Audited) (Audited) (Audited) (Audited) (Audited)
Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm
Restated Restated Restated Restated Restated
Cash and cash equivalents 34,073 27,122 34,073 27,122
Other short-term securities 42,451 43,457 13,409 16,599 643 818 28,399 26,040
Derivative financial instruments 13,390 13,812 - 67 10 13,323 13,800 - 2
Government and other securities 32,091 26,753 13,932 10,381 10,685 10,230 7,474 6,142 -
Loans and advances 579,372 527,166 480,952 441,407 90 67 98,297 85,575 33 117
Other assets* 8,673 9,488 4,969 5,376 3,704 4,112 - -
Investments in private-equity
associates, associate companies
and joint arrangements** 860 1,000 - - - 860 1,000
Investment securities** 19,348 16,213 - 826 534 17,567 14,606 955 1,073
730,258 665,011 547,335 500,885 16,015 15,771 165,060 146,163 1,848 2,192
FINANCIAL LIABILITIES
Total financial liabilities Total financial liabilities Total financial liabilities Total financial liabilities
Total financial liabilities recognised at amortised cost classified as level 1 classified as level 2 classified as level 3
31 December 31 December 31 December 31 December 31 December 31 December 31 December 31 December 31 December 31 December
2013 2012 2013 2012 2013 2012 2013 2012 2013 2012
(Audited) (Audited) (Audited) (Audited) (Audited) (Audited) (Audited) (Audited) (Audited) (Audited)
Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm
Restated Restated Restated Restated Restated
Derivative financial instruments 16,580 13,454 31 6 16,549 13,447 - 1
Amounts owed to depositors 602,952 550,878 455,126 416,097 - 147,826 134,781 -
Provisions and other liabilities 14,682 15,526 10,096 9,148 4,469 6,318 117 60 -
Investment and insurance contract
liabilties 14,844 12,492 - - 14,844 12,492 -
Long-term debt instruments*** 33,268 30,298 29,490 24,668 2,317 5,447 1,461 183 -
682,326 622,648 494,712 449,913 6,817 11,771 180,797 160,963 - 1
* An amount of R301m was reclassified from level 2 to level 1 due to more accurate information becoming available.
** An amount of R364m was reclassified from investment securities to investments in private-equity associates, associate companies and joint arrangements to align better with industry practice. No adjustments
to the carrying value of the finnacial instruments arose as a result of the reclassification. Furthermore, no changes were made to the categorisation of the financial instruments and they remain classified as
designated at fair value through profit or loss.
*** During the year certain long-term debt instruments were determined to be trading in an inactive market. Previously the fair-value measurement of these instruments was determined with reference to published
market values. Now the fair-value measurementis determined by using an appropriate valuation technique, which incorporates observable inputs for similar instruments, with similar maturities and coupons.
This change in valuation methodology has resulted in a transfer of the affected instruments from level 1 to level 2.
Gains/(Losses) in
Gains/(Losses) in comprehensive Closing balance at 31
Opening balance at 1 January profit for the year income for the year Purchases and issues Sales and settlements Transfers in/(out) December
2013 (Audited) Rm Rm Rm Rm Rm Rm Rm
FINANCIAL ASSETS
Derivative financial instruments 2 - - - (2) - -
Loans and advances 117 - - - (84) - 33
Investment securities 1,073 21 - 200 (339) - 955
Investments in private-equity associates,
associate companies and joint arrangements 1,000 (22) - 59 (177) - 860
2,192 (1) - 259 (602) - 1,848
FINANCIAL LIABILITIES
Derivative financial instruments 1 - - - (1) - -
1 - - - (1) - -
Gains/(Losses) in
Gains/(Losses) in comprehensive Closing balance at 31
2012 (Audited) Opening balance at 1 January profit for the year income for the year Purchases and issues Sales and settlements Transfers in/(out) December
Restated Rm Rm Rm Rm Rm Rm Rm
FINANCIAL ASSETS
Derivative financial instruments 29 2 (29) 2
Loans and advances 91 29 (3) 117
Investment securities 1,053 104 4 49 (137) 1,073
Investments in private-equity associates,
associate companies and joint arrangements 945 (142) 275 (78) 1,000
2,118 (7) 4 324 (247) - 2,192
FINANCIAL LIABILITIES
Derivative financial instruments 5 (8) 4 1
5 (8) - - 4 - 1
EFFECT OF CHANGES IN SIGNIFICANT UNOBSERVABLE ASSUMPTIONS TO REASONABLE POSSIBLE ALTERNATIVES
The fair value of financial instruments is, under certain circumstances, measured by means of valuation techniques based on assumptions that are not market-observable. Where these scenarios apply,
the group performs stress testing on the fair value of the relevant instruments. In stress testing, appropriate levels are chosen for the unobservable input parameters so that they are consistent
with prevailing market evidence and in line with the group's approach to valuation control.
The sensitivity of the fair-value measurement is dependent on the unobservable inputs. Significant changes to the unobservable inputs in isolation will have either a positive or a negative impact
on the fair value. The following information is intended to illustrate the potential impact of the relative uncertainty in the fair value of financial instruments, the valuation of which depends on
unobservable input parameters. However, it is unlikely in practice that all unobservable parameters would simultaneously be at the extremes of their ranges of reasonably possible alternatives.
Furthermore, the disclosure is neither predictive nor indicative of future movements in fair value.
Favourable change in
Value per statement of fair value due to Unfavourable change in fair
Valuation technique Principal assumption stressed Stress parameters financial position stress test value due to stress test
December 2013 (Audited) % Rm Rm Rm
FINANCIAL ASSETS
Loans and advances Discounted cashflow model Credit spreads and discount rates Between (14) and 14 33 3 (4)
Investment securities Discounted cashflows, adjusted Valuation multiples, correlations,
net asset value, earnings volatilities and credit spreads Between (25) and 25 955 104 (119)
multiples, third-party
valuations, dividend yields
Investments in private-equity associates,
associate companies and joint arrangements Discounted cashflows, Valuation multiples Between (11) and 11 860 83 (93)
earnings multiples
Total financial assets classified as level 3 1,848 190 (216)
Favourable change in
Value per statement of fair value due to Unfavourable change in fair
Valuation technique Principal assumption stressed Stress parameters financial position stress test value due to stress test
December 2012 (Audited)
Restated % Rm Rm Rm
FINANCIAL ASSETS
Derivative financial instruments Discounted cashflow model, Correlations, volatilities and Between (14) and 14 2 * *
Black-Scholes model and credit spreads
multiple valuation
techniques
Loans and advances Discounted cashflow model Credit spreads and discount rates Between (14) and 14 117 13 (16)
Investment securities Discounted cashflows, adjusted Valuation multiples, Between (25) and 25
net asset value, earnings correlations, volatilities
multiples, third-party and credit spreads
valuations, dividend yields
1,073 151 (178)
Investments in private-equity associates,
associate companies and joint arrangements Discounted cashflows, earnings Valuation multiples Between (11) and 11 1,000 70 (70)
multiples
Total financial assets classified as level 3 2,192 234 (264)
FINANCIAL LIABILITIES
Derivative financial instruments Discounted cashflow model, Discount rates, risk-free rates, Between (25) and 25 1 * *
Black-Scholes model and volatilities, credit spreads
multiple valuation and valuation multiples
techniques
* Represents amounts less than R1m.
UNREALISED GAINS AND LOSSES
The unrealised gains or losses arising on instruments classified as level 3 include the following:
31 December 31 December
2013 2012
(Audited) (Audited)
Rm Rm
Trading income/(losses) 11 (19)
Private-equity losses (12) (25)
Other fair-value adjustments 29
(1) (15)
SUMMARY OF PRINCIPAL VALUATION TECHNIQUES - LEVEL 2 INSTRUMENTS
The following table sets out the group's principal valuation techniques used in determining the fair value of financial assets and financial liabilities classified as
level 2 in the fair-value hierarchy:
Assets Valuation technique Key inputs
Other short-term securities Discounted cashflow model Discount rates
Derivative financial instruments Discounted cashflow model Discount rates
Black-Scholes model Risk-free rate and volatilities
Multiple valuation techniques Valuation multiples
Government and other securities Discounted cashflow model Discount rates
Loans and advances Discounted cashflow model Interest rate curves
Investment securities Discounted cashflow models Money market rates and interest rates
Adjusted net asset value Underlying price of market traded instruments
Dividend yield method Dividend growth rates
Liabilities
Derivative financial instruments Discounted cashflow model Discount rates
Black-Scholes model Risk-free rate and volatilities
Multiple valuation techniques Valuation multiples
Amounts owed to depositors Discounted cashflow model Discount rates
Provisions and liabilities Discounted cashflow model Discount rates
Investment and insurance contract liabilities Adjusted net asset value Underlying price of market traded instruments
Long-term debt instruments Discounted cashflows Discount rates
Offsetting financial assets and financial liabilities
In accordance with the requirements of IFRS 7 Financial Instruments: Disclosures, the table below sets out the impact of:
- recognised financial instruments that are set off in the statement of financial position in accordance with the requirements of International Accounting Standard (IAS)
32 Financial Instruments: Presentation; and
- financial instruments that are subject to an enforceable master netting arrangement or similar agreement that covers similar financial instruments and transactions
that did not qualify for presentation on a net basis.
The group reports financial assets and financial liabilities on a net basis in the statement of financial position only if there is a legally enforceable right to set off the
recognised amounts and there is intention to settle on a net basis, or to realise the asset and settle the liability simultaneously.
Certain master netting arrangements may not meet the criteria for offsetting in the statement of financial position because:
- these agreements create a right of setoff that is enforceable only following an event of default, insolvency or bankruptcy; and
- the group and its counterparties do not intend to settle on a net basis or to realise the assets and settle the liabilities simultaneously.
Master netting arrangements and similar agreements include derivative clearing agreements, global master repurchase agreements and global master securities lending
agreements.
2013 (Audited)
Total amounts
subject to IFRS 7
offsetting
Amounts disclosure
recognised in recognised in
the statement the statement
of financial Amounts that Net amounts of financial Total amounts
position and may be netted reflecting the position, Amounts not recognised in
subject to off on the effect of master excluding the subject to the statement
netting occurrence of a Financial netting effect of offsetting of financial
Rm arrangements future event collateral arrangements collateral disclosure position
Assets
Derivative financial instruments 12,835 (6,700) 6,135 12,835 555 13,390
Loans and advances 27,838 27,838 27,838 551,534 579,372
Other assets 3,349 (597) (545) 2,207 3,349 5,324 8,673
44,022 (7,297) (545) 36,180 44,022 557,413 601,435
Liabilities
Derivative financial instruments 15,846 (7,320) 8,526 15,846 734 16,580
Amounts owed to depositors 61,660 61,660 61,660 541,292 602,952
Provisions and other liabilities 2,610 (1,846) (764) - 2,610 12,072 14,682
80,116 (9,166) (764) 70,186 80,116 554,098 634,214
2012 (Audited)
Total amounts
subject to IFRS 7
offsetting
Amounts disclosure
recognised in recognised in
the statement the statement
of financial Amounts that Net amounts of financial Total amounts
position and may benetted reflecting the position, Amounts not recognised in
subject to off on the effect of master excluding the subject to the statement
netting occurrence of a Financial netting effect of offsetting of financial
Rm arrangements future event collateral arrangements collateral disclosure position
Assets
Derivative financial instruments 13,231 (7,021) 6,210 13,231 581 13,812
Loans and advances 24,338 24,338 24,338 502,828 527,166
Other assets 3,734 (499) 3,235 3,734 5,754 9,488
41,303 (7,021) (499) 33,783 41,303 509,163 550,466
Liabilities
Derivative financial instruments 13,386 (6,183) 7,203 13,386 68 13,454
Amounts owed to depositors 17,142 (7,319) 9,823 17,142 533,736 550,878
Provisions and other liabilities 4,069 (4,069) 4,069 11,457 15,526
34,597 (6,183) (11,388) 17,026 34,597 545,261 579,858
Restatements and reclassifications
During the year the group restated certain prior-year information due to the mandatory adoption of IAS 19 Employee Benefits and other reclassifications identified. The impact of the
relevant restatements and reclassifications are
detailed below:
Consolidated statement of financial position
December 2012 January 2012
Other As previously Other As previously
Rm Restated IAS 19* Reclassifications** reported Restated IAS 19* Reclassifications** reported
Assets
Cash and cash equivalents 14,445 14,445 13,457 13,457
Other short-term securities 43,457 43,457 35,986 35,986
Derivative financial instruments 13,812 13,812 12,840 12,840
Government and other securities 26,753 26,753 30,176 30,176
Loans and advances 527,166 527,166 499,023 499,023
Other assets 9,488 9,488 12,051 12,051
Current taxation assets 246 246 698 698
Investment securities*** 16,213 (364) 16,577 13,881 (400) 14,281
Non-current assets held for sale 508 508 8 8
Investments in private-equity associates, associate companies and joint arrangements 1,032 364 668 968 400 568
Deferred taxation assets 541 142 399 354 88 266
Investment property 205 205 614 614
Property and equipment 6,398 6,398 6,312 6,312
Long-term employee benefit assets 2,095 (163) 2,258 2,102 (16) 2,118
Mandatory reserve deposits with central bank 12,677 12,677 11,952 11,952
Intangible assets 7,922 7,922 7,777 7,777
Total assets 682,958 (21) - 682,979 648,199 72 - 648,127
Equity and liabilities
Ordinary share capital 457 457 455 455
Ordinary share premium 16,033 16,033 15,934 15,934
Reserves * 37,111 (349) 37,460 32,307 (250) 32,557
Total equity attributable to equity holders of the parent 53,601 (349) - 53,950 48,696 (250) - 48,946
Non-controlling interest attributable to:
- ordinary shareholders 213 (6) 219 174 (4) 178
- preference shareholders 3,561 3,561 3,561 3,561
Total equity 57,375 (355) - 57,730 52,431 (254) - 52,685
Derivative financial instruments 13,454 13,454 13,853 13,853
Amounts owed to depositors 550,878 550,878 524,130 524,130
Provisions and other liabilities 15,526 15,526 14,751 14,751
Current taxation liabilities 193 193 200 200
Other liabilities held for sale 36 36 - -
Deferred taxation liabilities 793 12 781 1,341 (4) 1,345
Long-term employee benefit liabilities 1,913 322 1,591 1,809 330 1,479
Investment contract liabilities 9,513 9,513 8,237 8,237
Insurance contract liabilities 2,979 2,979 2,005 2,005
Long-term debt instruments 30,298 30,298 29,442 29,442
Total liabilities 625,583 334 - 625,249 595,768 326 - 595,442
Total equity and liabilities 682,958 (21) - 682,979 648,199 72 - 648,127
* On 1 January 2013 the group adopted IAS 19 Employee Benefits (revised 2011) (IAS 19R). The adoption of IAS 19R resulted in the group restating its previously reported financial results,
in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.
** Certain investments were reclassified from investment securities to investments in private-equity associates, associate companies and joint arrangements to align better with industry practice.
No adjustments to the carrying value of the financial instruments arose as a result of the reclassification.
Furthermore, no changes were made to the categorisation of the financial instruments and they remain classified as designated at fair value through profit or loss.
*** An amount of R846m was reclassified from held for trading to designated at fair value to reflect management's original intention.
Consolidated statement of comprehensive income
December 2012
As previously
Rm Restated IAS 19 reported
Interest and similar income 44,730 44,730
Interest expense and similar charges 25,050 25,050
Net interest income 19,680 - 19,680
Impairments charge on loans and advances 5,199 5,199
Income from lending activities 14,481 - 14,481
Non-interest revenue 17,324 17,324
Operating income 31,805 - 31,805
Total operating expenses 20,563 35 20,528
- Operating expenses 20,485 35 20,450
- BEE transaction expenses 78 78
Indirect taxation 561 561
Profit from operations before non-trading and capital items 10,681 (35) 10,716
Non-trading and capital items (18) (18)
Fair-value adjustments of investment properties (12) (12)
Profit from operations 10,651 (35) 10,686
Share of profits of associate companies and joint arrangements 1 1
Profit before direct taxation 10,652 (35) 10,687
Direct taxation ** 2,865 (10) 2,875
Profit for the year 7,787 (25) 7,812
Other comprehensive income/(loss) net of taxation 171 (76) 247
- Exchange differences on translating foreign operations 162 162
- Fair-value adjustments on available-for-sale assets 43 43
- Remeasurements on long-term employee benefit assets (76) (76)
- Gains on property revaluations 42 42
Total comprehensive income for the year 7,958 (101) 8,059
Profit attributable to:
- Equity holders of the parent 7,449 (27) 7,476
- Non-controlling interest - ordinary shareholders 45 2 43
- Non-controlling interest - preference shareholders 293 293
7,787 (25) 7,812
Total comprehensive income attributable to:
- Equity holders of the parent 7,620 (99) 7,719
- Non-controlling interest - ordinary shareholders 45 (2) 47
- Non-controlling interest - preference shareholders 293 293
Total comprehensive income for the year 7,958 (101) 8,059
Basic earnings per share (cents) 1,632 (6) 1,638
Diluted earnings per share (cents) 1,583 (5) 1,588
Registered office
Nedbank Group Limited, Nedbank 135 Rivonia Campus, 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, 4 Robert Mugabe Avenue, Windhoek, Namibia.
PO Box 2401, Windhoek, Namibia.
Directors
Dr RJ Khoza (Chairman), MWT Brown* (Chief Executive), DKT Adomakoh
(Ghanaian), TA Boardman, GW Dempster* (Chief Operating Officer), MA
Enus-Brey, ID Gladman (British), 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
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.
Enquiries
External communications
Patrick Bowes UK +44 20 7002 7440
Investor relations
Dominic Lagan UK +44 20 7002 7190
Kelly de Kock SA +27 21 509 8709
Media
William Baldwin-Charles +44 20 7002 7133
+44 7834 524833
Notes to Editors
Old Mutual
Old Mutual provides life assurance, asset management, banking and general insurance to more than 14 million customers in Africa,
the Americas, Asia and Europe. Originating in South Africa in 1845, Old Mutual has been listed on the London and Johannesburg
Stock Exchanges, among others, since 1999.
In the year ended 31 December 2012, the Group reported adjusted operating profit before tax of GBP1.6 billion (on an IFRS basis) and
had GBP262 billion of funds under management from core operations.
For further information on Old Mutual plc, please visit the corporate website at www.oldmutual.com
Lead Sponsor to Old Mutual:
Merrill Lynch South Africa (Pty) Limited
Joint Sponsor to Old Mutual:
Nedbank Capital
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