results for the year ended 31 december 1999. outline stuart morris financial highlights ...

Results for the year

ended 31 December 1999

OUTLINEOUTLINE

Stuart Morris

Financial highlights

Provisions

Richard Laubscher

Metric dashboard

Divisions

Positioning

FINANCIAL HIGHLIGHTSFINANCIAL HIGHLIGHTS

Dec-99 Dec-98 ChangeMargin 3.64% 3.70%NIR to total income 44.4% 45.0%Efficiency ratio 51.7% 56.2%Attributable income 2 406 1 900 27%EPS 1 024 822 25%Shareholders' funds 10 066 9 131 10%ROE 25.3% 23.3%Capital ratio 12.0% 10.8%Deposits 118 225 106 900 11%Advances 103 783 96 483 8%Total assets 129 844 117 527 10%ROA 1.95% 1.74%

INCOME STATEMENTINCOME STATEMENT3 yr Rm Dec-99 Dec-98 Growth PF

12% Net interest income 4 359 3 925 11% 12%19% Non-interest revenue 3 486 3 211 9% 14%15% Total Income 7 845 7 136 10% 13%36% Provisions (869) (698) 24% 26%13% Net Income 6 976 6 438 8% 11%

9% Expenses (4 054) (4 008) 1% 4%21% Net Operating Income 2 922 2 430 20% 23%

Capital profits 717CBD properties write-down (225)General provision (492)Net income before taxation 2 922 2 430 20% 23%

7% Taxation (625) (589) 6% 10%26% Net income after taxation 2 297 1 841 25% 27%

Earnings of associates 130 59 120% 80%Income attributable to minorities (21)

28% Attributable income 2 406 1 900 27% 27%

EARNINGS PER SHARE - UP 25%EARNINGS PER SHARE - UP 25%EARNINGS PER SHARE - UP 25%EARNINGS PER SHARE - UP 25%

528

665

822

1024

217

224

231235

0100200300400500600700800900

10001100

96 97 98 99

190195200205210

215220225230235

EPS {lhs} WA No of Shares {rhs}

CAGR 3 Year 25%

PEER GROUPPEER GROUP

25.3%

12.0%

23.3%

10.8%

20.1%

10.5%

19.0%

10.6%

15.5%

10.5%

ROE Capital ratio

Nedcor 99 Nedcor 98 Firstrand Standard ABSA

PEER GROUPPEER GROUP

51.7%

56.2%

61.1% 61.4%

67.2%

Efficiency ratio

Nedcor 99

Nedcor 98

Firstrand

Standard

ABSA

OPERATING COMPANIESOPERATING COMPANIESOPERATING COMPANIESOPERATING COMPANIES

Rm Dec-99 Dec-98 Change % of Group

Nedcor Bank & group ops 1 862 1 447 29% 77%Nedcor Investment Bank * 479 400 20% 20%Cape of Good Hope 65 53 23% 3%TOTAL 2 406 1 900 27% 100%

* NIB reported earnings growth of 25% to R500 million, of which R21 million was attributable to NIB minorities

NET INTEREST MARGINNET INTEREST MARGIN

Dec-99 Dec-98 Change (bp)Pure margin 3.19% 3.20% (1)Interest reserve -0.19% -0.15% (4)Shareholders' funds 1.08% 1.06% 2Fixed assets -0.21% -0.22% 1Investments -0.23% -0.19% (4)Reported margin 3.64% 3.70% (6)

SHAREHOLDERS’SHAREHOLDERS’ FUNDS UP 10%FUNDS UP 10%

31-Dec-98 9 131Net income 2 406Dividends (552)Share capital & premium raised 265Goodwill written off (1 325)Didata International (542)

Edward Nathan & Friedland (400)

Other (383)

NIB minorities & other 14131-Dec-99 10 066

PROVISIONSRm avg advs Rm avg advs

INCOME STATEMENT

Provison charge 869 0.85% 698 0.77% - incl. interest reserve 1 099 1.07% 857 0.94%

BALANCE SHEET

Specific provisions 1 808 1.8% 1 449 1.6%General provisions 1 028 1.0% 419 0.5%

2 836 2.8% 1 868 2.0%Credit insurance 193 0.2% 0.0%TOTAL 3 028 3.0% 1 868 2.0%

Dec-99 Dec-98

Provisions were bolstered, not fed into earnings

NON-PERFORMING LOANSNON-PERFORMING LOANS

Rm of advs Rm of advs

Non-performing loans 3 513 3.3% 2 640 2.7%Expected recoveries (1 703) -1.6% (1 249) -1.3%Expected losses 1 810 1.7% 1 391 1.4%

Adequacy of provisions

Gross coverageNet coverage

Dec-99 Dec 98

86%

Dec-99 Dec-98

71%167% 134%

Metric dashboard

Beacons or markers

Multiple of revenue / earningsMultiple of revenue / earnings

• Marker = ROE– gearing level - financial leverage, financial risk

– benchmarks in low inflation economies

– proportion of NAV in hard currencies

– ROE required to self-service capital

– separate management of shareholders’ funds

– capital allocated to best ROE opportunities

RESULTS OF ROE FOCUSRESULTS OF ROE FOCUS

• Capital ratio grown to 12%– Gearing of 8.5 times is low

– Surplus capital held centrally and allocated to best ROE opportunities

• Exit inadequate ROE businesses– Travel, air-ticket processing, linked products

– Duplicate areas & international businesses

• Positioned to gear capital mix at low rates• Much less need for earnings retention

ROE PROSPECTSROE PROSPECTS

• >R6bn invested in hard currencies– plans to create currency for further acquisitions, for

example listing DDIL

• Capital held in cash during high rates– recent moves with Didata - R3bn invested

– market value surplus of >R3bn not booked

– high earnings growth, hard currency assets

– cellular & internet deals in pipeline

• Shareholders’ funds are working hard

ASSET PRODUCTIVITYASSET PRODUCTIVITY

• Marker = ROA– nearing 2%

– high return relative to low risk

– provisions nearly 3% of advances• Gross coverage 86%, net coverage 167%

• Ahead of indicated standardised provision regulations

– strong provisions enable improvements to flow through to bottom line

RETAIL DIVISIONRETAIL DIVISION

• Capital One JV for underserved through Peoples Bank– pilots show high upside– information based strategy - data analysis– empowerment deal under negotiation

• Right client, brand affinity & attitudinal pull– Nedbank & Permanent Bank– positioned to follow suburban drift

• Nedbank Private Bank– merged Nedbank, Syfrets & UAL, leading player

• New card system– big growth in electronic base

COMMERCIALCOMMERCIAL

• ROE per client capability– focused service (six-pack teams) on valued clients

– factored into all credit decisions

– manage client channel choices• 65% of commercial clients have electronic facilities

• 75 000 business clients use telecentre

• specialised service centres (outside branches)

• High ROE/low cost ratio division• Formative relationships, piggy-back growth

CORPORATECORPORATE

• Core credit analysis capability– clean sheet, small share of main failures

• Quality growth– running at 24%, 18-20% prospective

• Term lending = 40% (annuity component)• Rate competition has always been keen• Client profitability MIS capability• New electronic platform • NIB/ENF deal flow

INTERNATIONALINTERNATIONAL

• Do not do– High-street banking

– Investment banking

– Global treasury

– Take risk in unknown countries

• Do– go virtual

– minimise capital intensity

– share skills and risk with partners

– use armour-piercing strategies for barriers to entry

RESULTSRESULTS

• Only major bank gaining market share• Commercial market gains, doubled in 5yrs• High ROA, high asset quality, low risk

– high provisions/low NPLs

– economic upturn goes directly to bottom line

• CBD properties written down

NON-INTEREST REVENUENON-INTEREST REVENUE

• Marker = NIR/Total income– target 45%

– low capital intensity

– choice of channel, ability to analyse activity

– high inflation protection

– high intellectual capital

• Results– cost consequences of channel choice

– insurance sales platform, at least R150m upside

– private equity growing

EXPENSESEXPENSES

• Efficiency ratio (cost/income)– sustainable efficiency without compromising service

via process re-engineering culture

• Other beacons/markers– assets per employee up by 20% in 1999 to R7.5m

– profits per employee up by 37% in 1999 to R139 000

– fixed assets/income now inside 3 months

– transaction volumes, cycle times, error rates, unit costs

Efficiency curveEfficiency curveEfficiency curveEfficiency curve

PROCESSENGINEERING

IT BASED PROCESS

RE-ENGINEERING

VOLUME& SCALE

INTERNATIONALISE

Un

it C

ost

25%

50%

20%

ADD VOLUME 3rd Party/Stanbic Underbanked

PROJECT SYNERGYPROJECT ALPHA

REPLICATEINTERNATIONALLY

75%

EXPENSE FOCUS RESULTSEXPENSE FOCUS RESULTS• Cost ratio now under 52%

– lowest in SA

– international benchmarks within sight

– continuing momentum, eg R400m via projects

– ratio in Retail >60% under attack

• Branch closures & repositioning• Staff productivity way ahead of peers• Share options in lieu of bonuses• 3rd year of zero increase in processing costs• State of the art technology platform

– substantial volume headroom

PLATFORMSPLATFORMS

• Major spend on– new internet engine

– direct telecentre

– cell phone (view phone)

– electronic banking

– network “pipe”

• Client choice, pricing for functionality

PLATFORM RESULTSPLATFORM RESULTS

• 903 4th generation ATMs, top in Saswitch• 337 SSTs, user friendly touch screen• 90 000 business clients contracted at Nedtel

– first with WAP/MMM internet connectivity

• 45 000 internet clients– 770 000 transactions per month

• Lower costs/higher functionality

BUSINESS MODELBUSINESS MODEL

• Smaller units– co-operation, participation, ownership– performance driven, individual and team– invest in performers/exit non-performers

• Values based culture– fairness, development, integrity, performance– people management rewarded

• Concentration on– virtual form & ensuring convergence play– intellectual capacity– partnerships (share knowledge & risk)

• Didata , Capital One , Dresdner & BNP , HSBC , Old Mutual , State Street, American Express

CONCLUSIONCONCLUSION

• Less risk• More capital appreciation• Higher returns• Inch by inch sustainable performance

improvements• Pick-ups in GDP, volume & efficiency go

straight to the bottom line