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