financial results - nedbank

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)



Private Clients

(South Africa)

Credit Protection

(South Africa)


• 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



(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



Private Clients

(South Africa)

Credit Protection

(South Africa)


• Scope of providing banking customers with credit protection – Nedbank customers – JV and Alliances – Other banks customers



(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



Private Clients

(South Africa)

Credit Protection

(South Africa)


• Develops, distributes and supports both international and SA investment product solutions to chosen target markets



(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


• 3 main focus areas – Private Clients – Specialised Asset Mgmt – Private Banking


Private Clients

(South Africa)

Credit Protection

(South Africa)




(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

financial results - nedbank

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