Financial Results
for the year ended 31 December 2002
Programme
• Year in review – Richard Laubscher
• Financial review – Stuart Morris
• Strategic review – Derek Muller & Tom Boardman
• Prospects – Richard Laubscher
Year in review
Richard Laubscher
The year in context Macro issues • Microlending malaise • Small bank crisis • Industry consolidation • International bank departures • Rising inflation and interest rates • Strengthening Rand • Community Reinvestment Act and
Financial Charter mooted • Mortgage originators and integrators
A challenging year
Strategic initiatives
• Acquisition of BoE • Acquisition of NIB minorities • Integration of banking subsidiaries • New operating structures developed • Enhanced capital structure • Wealth Management rationalisation • Old Mutual Bank JV refined • Acquisition of Planet Finance
Created a stronger group
Strategic scorecard
Acquisitions BoE Imperial Gerrard Private Bank FBC Fidelity ENF Didata Alliances Old Mutual Bank/Bancassurance Pick ’n Pay Go Banking JD/Capital One microlending market Amex/Capital One Outsourcing
Year in review
• Core earnings up from R3,1bn to R3,4bn • Core eps up 4% to 1 330c • Organic growth in interest-earning assets
+17% boosted to +31% by BoE • Topline revenue growth
– Organic: NII +12% NIR +15% – Acquired: NII + 8% NIR +22%
• Expense growth Organic: +13% Acquired: +22% • R266m net contribution from BoE
– Net profit of R520m offset by funding cost of R254m
• Provisions – SME & Microlending
Segmental performances
(Rm) % ch 2002 2001
Nedbank Retail +87 353 189
Nedbank Commercial -56 256 579
Nedbank Corporate -8 866 945
Nedbank International -30 112 161
Peoples Bank +53 299 195
NIB +22 760 625
Cape of Good Hope Bank +26 120 95
T&O Strategic Investments -171 (32) 45
Group Operations +24 238 192
Acquisitions and alliances’ performance
265 BoE (net of funding)
2001 2002 % ch (Rm)
-44 -213
+72
+83
+94
(39) (47)
110
56
72
(27) (15)
64
30
37
Bancassurance initiatives
JD/Capital One Pick ’n Pay Go Banking
Gerrard Private Bank
Imperial Bank
(25) 2 Amex/Capital One
Merger and integration
• Group restructure triggered by: – BoE purchase for R7,7bn – NIB minorities buyout
• Synergy estimates of R905m per annum by 2005
• Regulatory approvals for merger finalised • R9,2bn new capital raised, enhancing capital
structure – Ordinary capital R3,2bn – Subordinated debt R4bn – Preference shares R2bn
Merger and integration Early successes • Legal Day One successful • Key decisions on product offering made • Future technology architecture agreed • Healthy funding flow back into BoE
– NBS deposits 103%; Probanker 100%; Business Banking book 107%; BoE assets 115%; no large depositor concentration issues
• Client and staff retention good • Initial staff survey very positive • Nine sets of terms & conditions and nine payrolls
into one from 1 April 2003 • Employee Development & Deployment Centre up
and running • Over 20 000 employee positions finalised • Operational merger going to plan
Major merger milestones
Activity Legal Day One Migration planning Wealth Management LDO Product offering decision Treasury integration Capital markets integration Systems architecture design Payroll integration CoGH integration into Nedbank retail Credit Life integration BoE Business Bank customer migration PEP Bank integration into Peoples Bank Cashbank integration into Peoples Bank Consumer credit reorganisation Peoples Bank branding developed Private Wealth completion CIS (unit trusts) integration International rationalisation Peoples Bank platform upgrades NBS integration into Peoples Bank Property & Asset Finance integration Business Banking integration
Q1 Q2 Q3 Q4 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 2003 2004 2005
1 Jan 2003 V.1 Final
Financial review
Stuart Morris
Disclosure
• BoE and NIB separately disclosed • BoE pre-acquisition adjustments • Pro forma segmental in Annual Report • AC133 effective 1 January 2003
Income statement: core earnings year ended 31 December
*Excluding BoE
2002 2002 2001 % ch % ch* Rm Rm* Rm Net interest income +20 +12 6 300 5 874 5 268 Non-interest revenue +37 +15 6 929 5 833 5 054 Total income +28 +13 13 229 11 707 10 322 Provisions +68 +62 1 778 1 712 1 058 Net income +24 +8 11 451 9 995 9 264 Expenses +36 +13 7 334 6 140 5 416 Net operating income +7 – 4 117 3 855 3 848 Taxation -25 -26 580 569 772 Net income after taxation 15 7 3 537 3 286 3 076 Associate income -11 -18 162 148 181 Minorities 103 103 (333 (333 (164 Core earnings +9 – 3 366 3 101 3 093 Core eps +4 -5 1 330 1 226 1 284
) ) )
NIB BoE* Funding
365 (363) 1 173 - 1 538 (363) 30 - 1 508 (363) 515 -
993 (363) (150) (109)
843 254 9 -
92 -
Net interest income Non-interest revenue Total income Provisions Net income Expenses Net operating income Taxation Net income after taxation Associate income Minorities Core earnings 760 254
BoE*
789 1 096 1 885
66 1 819
1 194 625
119 506
14 -
520
BoE* contribution
426 1 096 1 522
66 1 456
1 194 262
10 252
14 -
266
2002 Rm
* July – December 2002 Handout only
Income statements year ended 31 December
Core earnings to headline earnings Dec Dec % 2002 2001 change Rm Rm Core earnings 9 3 366 3 093
Translation gains/(losses) (1 011 1 096
General risk provision 400 (400 Merger costs (170 –
Headline earnings -32 2 585 3 789
Headline eps -35 1 022 1 574
)
) )
Rand appreciation
Rand expectations: using end 2000 as base
6
7
8
9
10
11
12
13
00 01 02 03
actual and forecasthighlowexpected
99 00 01 02
Headline earnings to attributable income
Dec 2002
Rm 2 585
(501)
Headline earnings
Goodwill
Dec 2001
Rm 3 789
Didata revaluation (1 080) (3 298) (273)
192
984
Taxation
Attributable income
(171)
13
Merger costs (35) (177) Other impairments (34)
389 Attributable eps 5
–
Goodwill and capital writedowns
Handout only
2002 2001 Rm Rm Goodwill 501 273 BoE 214 – The Internet Solution – 131 IQ Business Group 58 21 Other T&O investments 59 74 MBCA (Zimbabwe) 36 – Other goodwill 134 47 Impairments 119 34 Investment sold 58 – Total 678 307
Net interest income
Rm %
+10.4% +11,1% +8,6% +11,3%
+19,6%
Non-interest revenue
Rm %
+23,0% +8,6% +23,1%
+29,0%
+37,1%
Analysis of provisions by activity % 2002 2001 change Rm Rm Retail Banking 1 417 411 Peoples Bank 73 59 34 Commercial (21 160 202 Imperial Bank 64 105 64 Cape of Good Hope Bank (19 29 36 Corporate (18 50 61 NIB (25 30 40 Other 11 105 (10 861 953 Microlending 550 195 30 SME Book 775 656 75 BoE 66 – 68 1 778 1 058
)
) )
)
)
SME ringfenced collection book
Trading Start statement Now Rm Rm Rm Carrying value 700 700 698 Estimated collections (220 (64 (42 480 636 656 Planned provisioning 480 636 656 2002 – normal 190 190 190 – additional – 400 466 2003 200 46 – 2004 90 – –
) ) )
Non-performing loans
% % % Rm adv Rm adv Rm adv Non-performing loans 8 001 4,0 7 014 4,4 6 974 4,4 Expected recoveries 3 836 2,0 3 603 2,3 3 473 2,2 Expected losses 4 165 2,0 3 411 2,2 3 501 2,2 Provisions (coverage) 6 553 3,1 4 691 3,0 5 154 3,3 Adequacy of provisions – Gross coverage (%) 82 67 74 – Net coverage (%) 157 138 147
Dec 2002 June 2002 Dec 2001
Capitalised development costs
2002 2001 Opening balance 881 480 Development expenditure 386 549 Commissioned (772 (148
Closing balance 495 881
Software amortisation 182 92
) )
Capital adequacy
2002 2001 Rbn %* Rbn %* Tier 1 14,5 7,0 14,1 8,6 – Ordinary capital & reserves 12,5 6,0 14,1 8,6 – Preference capital 2,0 1,0 – – Tier 2 8,5 4,0 4,6 2,8 – Callable notes 6,0 2,6 2,0 1,2 – Other 2,5 1,4 2,6 1,6 Total 23,0 11,0 18,7 11,4 *Percentage of risk-weighted assets
BoE acquisition
2,8 Goodwill
4,9 Adjusted net asset value
7,7 Purchase consideration
Rbn
BoE pre-acquisition adjustments Post-tax
Handout only
Rm Net asset value – 31 March 2002 6 058 Headline earnings April – June 2002 97 Exceptional items (173 Net asset value – 30 June 2002 5 982 Fair value adjustments (899 Accounting policy alignments (170 Adjusted net asset value as at 30 June 2002 4 913
)
) )
Embedded value
Rm 2002 Shareholders’ net assets 566 Value of in-force business 59 Embedded value 625 Value of 15 months’ new business 1 Embedded value earnings as a % of opening embedded value* (4,7%) *Embedded value earnings negative due to change in assumptions
Handout only
Indicative new segmental
Earnings Assets Nedbank Corporate 71% 70%
Corporate Banking 23% 15% Commercial Banking 19% 11% Property Finance 8% 14% International 6% 9% Imperial Bank 3% 4% Treasury 3% 12% Other 9% 5%
Retail 8% 20%
Wealth Management 6% 5% Retail Banking 2% 15%
Peoples Bank 4% 3% Capital & Group Services 17% 7%
Strategic review
Derek Muller
Nedbank Corporate
We are an integrated corporate and investment bank offering a full range of services (advisory, debt, equity, and transactional banking) to large and mid size corporates, based on strong enduring relationships, driven by innovative solutions and leading edge technology
R5m turnover
R250m turnover
Nedbank Corporate
Corporate Banking
Business Banking
No. of clients : 1 700 Market share : ± 22%
No. of clients : 25 000 Market share : ± 24%
Nedbank Corporate
Capital MarketsBrian
Kennedy
CorporateFinance
Rob Shuter
BusinessBanking
Richard Buchholz
Corporate BankingGraham
Dempster
ENFCoenraad
Jonker
W Cape Group ExecMike Thompson
BEE/PublicSector/AfricaSipho Pityana
Property &Asset FinanceMike Brown
TreasuryPeter Lane
InternationalRocco Rossouw
Support ServicesWillie Ross
Ashley Sutton-PryceKevin Hudson
Derek Muller Michael Katz
Nedbank Corporate
Assets No. of (Rm) people Corporate Banking 36 600 310 Business Banking 22 300 3 720 Corporate Finance – 30 ENF – 200 Capital markets 10 700 350 Property & Asset Finance 25 000 1 200 International & Africa 23 200 670 Treasury 34 000 340 Total 151 800 6 820
Nedbank Corporate
• Quality asset growth of 12% • RoE 21% • Excellent credit management with low
levels of specific provisions for the year • Strong growth in black empowerment
transactions • Global trade achieved significant market
share gains • Nedbank Investor Services ranked the
premier custody services provider
Handout only
Nedbank Treasury
• Successful integration of treasury rooms • Integrated six back offices into central
processing area • Foreign currency trading profit up 33% on
prior year • Total trading profit up 16% on prior year
Handout only
Nedbank Commercial
• Asset growth of 11% to R16bn Star performer was instalment credit (+18%)
• Client deposits up 27% to R25bn • NIR growth of 12% to R767m.
Exceptional performance in electronic banking and global trade
Handout only
Nedbank International
Handout only
• African subsidiaries NPAT up 54% • African associates down 29%
(MBCA; HSBC Equator; SBM) • Hong Kong NPAT down 26% • London NPAT down 17% • Focus on trade finance & private banking
Nedbank Corporate Strategic objectives 2003 • Create a common culture • Build on our intellectual capital/
advisory capacity • Build on our very strong corporate relationships • Maximise our regional strengths • Deeper penetration of the mid-market • Greater focus on public sector • Commitment to growth in Africa and offshore • Total commitment to black economic
empowerment
Nedbank Corporate Integration update • Treasury consolidation completed 1 February
2003 • Systems selected • No funding difficulties • No clients lost • Lost very few senior people • Change management: roadshows/workshops
Some recent deals
• Southern Sun/Tsogo Sun – funding • Cell C – funding & swaps • African Legend/Caltex – advisor • Resilient Properties – listing • Harmony/African Vanguard – advisor • Sandton Towers – property structure • Sasol Service Stations – funding • Telkom IPO – legal advisor • ICC/World Cup – legal advisor
Synergy estimates
135
12
-
43
18
-
Capital Markets
Business Banking
Corporate Banking
Finance & International
Treasury
Total
Property & Asset Finance
62
Handout only
Strategic review (continued)
Tom Boardman
Nedbank Retail & Wealth Management
RetailPete
Backwell
WealthManagement
Paul Leaf-Wright
Pete Southworth
Old Mutual BankJack de Blanche
Tom Boardman
View of the market
High net worth Top 300 listed corporates, government, institutions
Businesses
BoE
Old Mutual Bank
Medium size listed, unlisted, professionals
Owner managed
Informal sector
Individuals
Middle income
Mass market
Nedbank Retail
Nedbank Corporate
Peoples Bank
Pick ‘n Pay Go Banking
SA Retail market
Assets > R3 million
Income-based classification
BoE 17 000 clients
Asset-based classification
Nedbank Personal Banking 85 000 clients
Nedbank Retail 719 000 clients
Nedbank Private Banking 13 000 clients
Income > R500 000 p.a.
Income > R36 000p.a.
Income > R200 000p.a.
Nedbank (Retail) – highlights
• Strategy development started in 2000, focusing on 3 main issues: – Create appropriate working environment – Build sustainable competitive advantage – Fix poor performance
• Detailed 5-year plan, ahead of plan at end 2002
Nedbank (Retail) Financial highlights • Retail Division has delivered outstanding
results for 2002: – Client assets +11% – NII +18% – NIR +13% – Expenses +12% – NIAT +87%
Nedbank Retail Integration update • Moved product teams to a new “shared
service” Product Division • Moved Unit Trust Company to Wealth
Management • Move of Wealth Management from
Nedbank Private Bank to Wealth Management – in progress
• Move of Cape of Good Hope Bank branches, staff and retail clients into Retail Division – well on track
• Integration of Manager Direct into Nedbank Retail
Handout only
Pick ’n Pay Go Banking
• Phase 3 commenced July 2002 – 236 Go Bankers in 14 Hypermarkets and
113 Supermarkets – In-store card delivery – Exclusive discounts – 85 000 accounts / 3 000 new applications per week
Old Mutual Bank
• Division of Nedbank Ltd – 50/50 JV • Leverage dominant Old Mutual brand • Banking products, systems and processes
supplied by Nedcor • Sales, marketing and channel management
supplied by Old Mutual
OMB Business Opportunities
• 2 million OMPF customers • 300 000 ex-Permanent Bank customers • No need to create a brand • Huge intermediary network • Established branch distribution network • No need to use expensive originators for
mortgages
Nedcor Wealth Management
Jointly-owned Businesses with Old Mutual
Private Clients
(South Africa)
Credit Protection
(South Africa)
Wholly-owned Businesses
Retail Investment Products & Services
International Companies
(On and Offshore)
Nedcor Wealth Management
Jointly-owned Businesses with Old Mutual
Private Clients
(South Africa)
Credit Protection
(South Africa)
Wholly-owned Businesses
• Scope of offering to High Net Worth Individuals: – Discretionary Portfolio Management – Private Banking – Other Investment Products – Fiduciary Services:Trusts, Wills, Estates
Complete offering both onshore & offshore
Retail Investment Products & Services
International Companies
(On and Offshore)
No. of staff 554/Clients 17500/AUM R23bn
Private Clients business structure
Old Mutual Trust
BoE Private Bank
BoE Personal Stockbrokers
Nedbank Syfrets Private Banking Wealth Mngmnt
Syfrets Trust
FTNIB Private Client Asset Mgt
Handout only
Private Clients One client-centric model
In-sourcing products
FAIRBAIRN CAPITAL
NEDBANK
Relationship Manager Distribution
Products • Private Client Asset Mgmnt • Stockbroking • Structured Lending • Fiduciary
Product provision
Product provision
Handout only
Private Clients Impact of merger • Six different business models to be
combined into one business - presently working with McKinsey & Co to determine optimal business model
• Extended product range for clients – Off-shore opportunities with Gerrard Private Bank – Increase share of wallet of existing customers
(currently single product clients only) • Economies of scale lead to decrease in
relative costs – increasing profitability – eliminate duplication of operations
Handout only
Private Clients International joint venture • Old Mutual and Nedbank have a joint
initiative in Gerrard Private Bank – Comprehensive offering to high net worth individuals – Will be BoE’s offshore offering – Full product range now available on a ‘seamless’
basis • Banking • Trust and Fiduciary Services • Investment Management
– With the representative office recently opened - perfectly positioned to service clients
Handout only
Nedcor Wealth Management
Jointly-owned Businesses with Old Mutual
Private Clients
(South Africa)
Credit Protection
(South Africa)
Wholly-owned Businesses
• Scope of providing banking customers with credit protection – Nedbank customers – JV and Alliances – Other banks customers
Retail Investment Products & Services
International Companies
(On and Offshore)
No. of staff 105 / Premium income R491m / EV R44m
Credit Protection Impact of merger • Single focus on credit protection • Repositioning of business as a ‘Bank
Life Company’ • Utilise the strengths of both
shareholders – distribution from Nedbank – expertise from Old Mutual
Handout only
Nedcor Wealth Management
Jointly-owned Businesses with Old Mutual
Private Clients
(South Africa)
Credit Protection
(South Africa)
Wholly-owned Businesses
• Develops, distributes and supports both international and SA investment product solutions to chosen target markets
Retail Investment Products & Services
International Companies
(On and Offshore)
No. of staff 80/Unit holders 133 000/AUM R7bn
Retail Investment Products & services
Retail Products & Services
Outsourced Asset
Management
Target Market
Outsourced Support Services
Both SA & International
• Product research & development
• All collective investment schemes
• Marketing, sales, distribution support
SA • BoE Private Clients • BoE Trust Services • HNW Intermediaries • LISPs/FOFs • Nedbank Retail • Nedbank Corporate • Group Alliances
International • Gerrard Private Bank • Offshore Trust
Companies • HNW Intermediaries • Gerrard UK • Offshore Life
Companies
SA • BoE • Aka • Nedbank
Treasury • SYmmETRY • OMAM
International • Stenham
Gestinor • NIBi • Chiswell
Associates • OMUS
Handout only
Retail Investment Impact of merger • Amalgamation of four unit trust management
companies (BoE, FT-NIB, Nedbank, NIBi) • Definition of a new value proposition and
product set covering active, passive, multi-managed and absolute ranges
• Rationalisation of more than 50 unit trust funds
• Release R30m of under-utilised capital • Distribution, marketing and operational
consolidation, yielding economies of scale • Consolidated negotiation with suppliers on
performance-related SLAs
Handout only
Nedcor Wealth Management
• 3 main focus areas – Private Clients – Specialised Asset Mgmt – Private Banking
Jointly-owned Businesses with Old Mutual
Private Clients
(South Africa)
Credit Protection
(South Africa)
Wholly-owned Businesses
Retail Investment Products & Services
International Companies
(On and Offshore)
No. of staff 430/Clients 26 000/AUM £4,25bn
International Businesses
Chiswell Associates Fairbairn Trust
Gerrard Private Bank
NIBi International
Stenham Gestinor
BoE International
Handout only
International Businesses Nature of business • Private client asset gathering and management
– Fiduciary services – Hedge Funds – Syndicated Property Investments – Linked Investment platform – Retail pooled investments
• Asset Management - manage investments of – families – charities and small institutional funds
• Gerrard Private Bank - offers clients integrated – banking – asset management – fiduciary services – treasury products
Handout only
International Businesses Impact of merger • Creation of one multi-management
business – Stenham Gestinor Asset Management – NIBi
• Rationalise the trust businesses – BoE Trust Co – SG Trustee Services (Channel Islands.
Switzerland, Luxembourg) – Fairbairn Trust/Gerrard Trust – NIBi Trust Company
• Integration of the management and operations of the international businesses
Handout only
Wealth Management Long-term opportunities • We have all the products that are
needed • We have a huge client base providing
growth potential • Our businesses are already profitable
Leads to rapid growth!
Synergy estimates
660
245
103
36
135
127
14
Shared Services
Nedbank Corporate
Nedbank Retail
Peoples Bank
T&O
Total
Wealth Management
R’m
Integration costs being estimated
Synergies will benefit the Group fully in 2005
Handout only
Strategic review (continued)
Richard Laubscher
Peoples Bank Highlights • Total assets increased 6% despite 19%
decline in FBC assets • 37% increase in NIR • Net effect of “excess” provisions only
R30m • R130m benefit from assessed losses • Restructuring proceeding well
– Risk and compliance centralised – More than 1 million transactional clients – Total assets R12bn (R10bn in advances)
Technology & Operations Highlights • Financial performance • Process culture • M&R Integration • Digitisation
– CAMSII – Alpha cost savings – NetBank
• International – Swisscard on track
Prospects Richard Laubscher
Strategy
SA Banking Corporates Individuals Businesses
Wealth Management
Peoples Bank
International
Outsourcing T&O platform
Bancassurance
Alliances
The year ahead
• Strategic platform in place • Retain and grow client base • Integrate operations • Extract synergies • Address non-performing assets • 2002 low base: 2003 therefore
statistically better • 2004: the power in the model should
evidence itself
Implementation & execution