nedcor limited 2003 results & rights issue. agenda highlights 2003 results & action steps ...
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Nedcor Limited2003 Results & Rights Issue
Agenda
Highlights
2003 results & action steps
Recovery programme: progress to date
Unlocking the value of the franchise
The rights issue
Summary
Highlights
New EXCO team
Balance sheet clean up & implementing controls
Capital restored & strengthened
Recovery programme in place
Delivery on transparency & accountability
Old Mutual relationship strengthened
Significant scope for improving profitability
Results
Funding Expenses Currency Clean up the balance sheet
2003 2002
Headline earnings Rm 55 2 476
NAV per share cents 4 240 6 300
Capital adequacy % 10,1 11,0
Capital – Why the rights issue?
What happened to capital? AC133 Attributable loss Dividends Balance sheet clean up
Partially offset by preference shares & Tier 2
Why the rights issue? Restore Tier 1 Capital Optimise Tier 1 & 2 mix Meet future regulatory requirements
Strategic & operational imperatives
Back to basics Focus on Southern Africa Improved measurement Better governance Clear accountability Aggressive cost reduction Enhanced risk & balance sheet management Focus on client service
Highly rated & respected SA bank
2003 results & action steps
Financial agenda
Set 2003 baseline– Balance sheet clean up – Implement AC133– Assessment of regulatory capital– Improve transparency & quality
of earnings Gain control over risks
– Interest rates– Foreign exchange– Capital/asset growth– Nature of the investments
Implement value management– Risk based MIS– Aggressive cost cutting– Driving accountability
DeliverROE
ROE – Income drivers 2003
2003 2002
NII / AIEA* % 2,96 2,95
NIR / AIEA* % 2,85 2,78Expenses / AIEA* % 4,50 3,74Efficiency (excl. FX) % 70,1 59,2
Provisions / AIEA* % 0,90 0,52Effective tax rate % 32,0 10,0
ROA % 0,02 0,84
ROE % 0,32 14,05
*Average interest earning assets
What happened to our capital?
Regulatory capital (Rbn)
Risk weighted assets (Rbn)
Ratio (%)
Opening position at 31/12/2002 23,0 208,7 11,0
Post tax attributable earnings impact on capital & adjustments (incl. pre-acqs) 0,4 0,2
Dividends (1,4) (0,7)
Foreign exchange (1,6) (5,5) (0,5)
Growth in risk weighted assets 9,7 (0,5)
AC133 impact on capital (2,8) (1,3)
17,6 212,9 8,2
Capital raising 4,0 1,9
Closing position at 31/12/2003 21,6 212,9 10,1
Net interest income
Achieved a similar margin of 2,96% for the 2003 year Major negative influences
– BoE related funding– Management of interest rate risk– Accounting policy changes (AC133, AC102)– Historically oversold tax base– Peoples Bank “put”
Roll-off of expensive deposits - April 2004 Implementing interest rate & foreign
exchange risk policies Reconstituted ALCO Introducing funds transfer pricing & risk
based capital allocation Identify & focus on profitable business
Optimisation of margin
Non-interest revenue
(Rm) 2003 2002
Commission & fees 5 208 4 540
Total 5 431 4 540
BoE JV (now equity accounted) (223) -
Exchange & securities trading 1 713 1 199
Pre AC133 1 201 1 199
AC133 fair value adjustments 512 -
Other 1 032 1 083
NIB currency gains - 116
Dividends from other investments 152 173
Sale of assets 243 317
Other 637 477
7 953 6 822 Focus on annuity type income Improve trading income within defined risk limits Capital not to be applied for speculative
purposes Apply consistent pricing discipline
Better quality earnings
Expenses
Efficiency ratio 70,1%* - unacceptable Operating expenses up to R9 950m
– Inclusion of BoE for full year
– Incentive awards expensed
– Technology projects & resultant write-offs
– Consolidation of businesses
Aggressive implementation
- detailed report by half year results
*Excludes foreign exchange translation
Merger cost reducing & savings increasing Integration of Peoples Bank into Nedbank
Rationalise back office processes & support functions & centralise procurement
Review unprofitable businesses Flatten management structures Cross-charging for internal services
- Internal customers- SLAs
Taxation
Income Statement– Effective tax rate increased from 10% to 32%
– In future will trend towards statutory rate
– Reallocation of NII to taxation
– Impact of AC133
– Increase in STC Balance Sheet
– Additional provisions of R844m
– R583m relating to BoE pre-acquisition items
Active resolution of outstanding issues
Exceptional items
(Rm) 2003 2002
Dimension Data - (1 080)
Goodwill amortisation & impairment (1 803) (501)
Disposal of subsidiaries, investments & fixed assets 349 (58)
Impairment of investments & fixed assets (239) (119)
Merger & reorganisation costs - (35)
(1 693) (1 793)
Financial priorities 2004
Implement risk policies & manage businesses accordingly Set, enforce & measure accountability Proactive capital management
– Better allocation of capital
– Optimise structure of balance sheet
– Improve profitability Drive down expenses Clear understanding & focus on value drivers Deliver ROE & ROA
Core businesses are solid -need to optimise
Recovery programme:progress to date
New EXCO team
Strategic overview
Deliver the merger
Improved transparency
Focus on customer service
“Five Point Plan”
Recovery programme
Progress
Implement new EXCO & structure Nov ’03 & Feb ‘04
Appoint new CFO H1 2004
Appoint new Risk Manager H1 2004
Alignment of operations with businesses Jan ‘04
Finance, ALCO & Capital combined Jan ‘04
Facilitate reduction of board Feb ’04 & May ’04
New EXCO team & structure
Progress
2003 baseline & clean balance sheet Feb ‘04
Finalise & benchmark 2004 budget Feb ‘04
Capital raising May ‘04
Integrated retail strategy – decision taken Nov ‘03
Review & dispose of non-core assets 2004
Strategic review
Deliver the merger
On track
Corporate client migrations substantially completed
NBS migration to be completed in 2004
Systems & data centre rationalisation in 2004
Operational synergies fully extracted by 2005
Progress
External stakeholders
- Greater interactionNov, Dec ’03 & Feb
’04 - Detailed progress report Aug ‘04Staff - Continued improvement in communication
- Staff surveys & feedback Nov ’03
Improved segmental analysis Work in progress
Improved transparency
Rebuild reputation
Enhanced staff training
Client focused products delivered by systems with improved functionality
Intensified client research
Alignment of staff incentive schemes
Unlock the value of the franchise
Focus on customer service
Unlocking the value of the franchise
Client focused structure Dominant in commercial &
industrial property Strong mid-size corporate
franchise Strong regional presence Significant cross-sell opportunities Reward systems to drive ROE Institutional bancassurance
CorporateBanking
Business Banking
Property & Asset Finance
International
Africa
Nedbank Corporate
Nedbank Corporate
Unlock the value of the franchise
Nedbank Capital
TreasuryCorporate Finance
Treasury trading subscale Single ‘house view’ for client
servicing Extensive BEE advisory &
financing Strong project finance credentials Capital markets/securitisation Leading M&A business
Capital Markets
ENF
Nedbank Capital
Unlock the value of the franchise
RetailBanking
Retail & Wealth Management
Nedbank: increased focus on sales & service levels beginning to show results
Total market penetration subscale, but good high-end penetration
Go Banking: great partners in Pick ‘n Pay - still building for the future
Old Mutual alliances: access to customers & broker distribution
Peoples Bank integration
Retail & Wealth Management
Banc-assurance
Old MutualBank
Pick ‘n Pay Go Banking
Wealth Management
Unlock the value of the franchise
Embracing the FSC
Dedicated EXCO member in place
Leading advisor/funder of BEE transactions
Design plan for equity ownership in H2 2004
Procurement project will assist in FSC compliance
Transformation – behind the curve
Committed to meeting the FSC objectives
Governance
Board changes Relationship agreement with Old Mutual to align
strategy Better information flow to stakeholders Clear statement of expectations Internal audit reports to Audit Committee Checks & balances to prevent individual dominance
The rights issue
Sizing the issue
Current Post rights
issue *End 2004
Rm % Rm % %
Tier 1 capital 10 640 5,0 15 490 7,3 7,5%+
Tier 2 capital 10 469 4,9 7 969 3,7
Tier 3 capital 480 0,2 480 0,2
Total capital 21 589 10,1 23 939 11,2
Risk weighted assets 212 850
* R5bn rights issue & repayment of R2,5bn Tier 2 capital to Old Mutual & others
Restore Tier 1 capital Optimise Tier 1 &
Tier 2 mix Anticipate regulatory
requirements Foundation for future
Size based on 3 - 3,5 times
dividend cover & improved earnings
Transaction details
Structure R5bn rights issue
Anticipated timing
GM: 17 March Announce terms by 25 March Subscription period: 13 April - 7 May Closing: mid May
Underwriting Old Mutual to follow their rights Proceeds fully underwritten
Summary
Our position & outlook
Addressed the financial position Excellent platform Necessary human & financial resources New EXCO with skills to deliver
Will unlock the value of the franchise Significant scope for improving profitability
Committed to a target ofROE 20%+ for F2006
Detailed progress report
by August
‘04
Certain statements in these materials constitute forward-looking statements, including, but not limited to, statements that are predictions of or indicate future events, trends, plans or objectives. Forward-looking statements include words such as “expect”, “may”, “believes” and words of similar import. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results and Nedcor’s plans and objectives to differ materially from those expressed or implied in this presentation and, in particular, in such forward looking statements (or from past results). The following factors, among others, may have a direct bearing on Nedcor’s financial condition and results of operations, and on whether Nedcor will achieve its strategic goals: general economic conditions, particularly in South Africa, performance of international financial markets, interest and foreign exchange rate fluctuations, increasing levels of competition, and changes in laws and regulations. Nedcor assumes no responsibility to update any of the forward-looking statements contained herein.
These materials, which have been issued by Nedcor Limited (“Nedcor”), relate to the proposed offering of rights (the “Offering”) by Nedcor.
These materials do not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, any shares in Nedcor, nor shall these materials or any part of them nor the fact of their distribution form the basis of, or be relied upon in connection with, any contract or investment decision in relation thereto.
Recipients of these materials who are considering a purchase of rights in Nedcor in the Offering following publication of the Offering Circular in connection therewith are reminded that any such purchase should be made solely on the basis of the information contained in the Offering Circular. No reliance may be placed for any purposes whatsoever on the information contained in these materials or on their completeness. No representation or warranty, express or implied, is given by or on behalf of Nedcor, its shareholders, any of its directors, officers or employees or any other person as to the accuracy or completeness of the information or opinions contained in these materials, and no liability is accepted for any such information or opinions.
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Neither the rights nor the ordinary shares represented thereby may be offered or sold in the United States (as such term is defined in Regulation S under the Securities Act of 1933) unless they are registered or exempt from registration. There will be no public offer of securities in the United States.
Prices and values of, and income from, shares may go down as well as up and an investor may not get back the amount invested. It should be noted that past performance is no guide to future performance. Persons needing advice should consult an independent adviser.
Questions?
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