Transcript No Slide Title

Results for the year
ended 31 December 1999
OUTLINE

Stuart Morris
 Financial highlights
 Provisions

Richard Laubscher
 Metric dashboard
 Divisions
 Positioning
FINANCIAL HIGHLIGHTS
Margin
NIR to total income
Efficiency ratio
Attributable income
EPS
Shareholders' funds
ROE
Capital ratio
Deposits
Advances
Total assets
ROA
Dec-99
Dec-98 Change
3.64%
3.70%
44.4%
45.0%
51.7%
56.2%
2 406
1 900
27%
1 024
822
25%
10 066
9 131
10%
25.3%
23.3%
12.0%
10.8%
118 225 106 900
11%
103 783
96 483
8%
129 844 117 527
10%
1.95%
1.74%
INCOME STATEMENT
3 yr
12%
19%
15%
36%
13%
9%
21%
Rm
Net interest income
Non-interest revenue
Total Income
Provisions
Net Income
Expenses
Net Operating Income
Capital profits
CBD properties write-down
General provision
Net income before taxation
7% Taxation
26% Net income after taxation
Earnings of associates
Income attributable to minorities
28% Attributable income
Dec-99
4 359
3 486
7 845
(869)
6 976
(4 054)
2 922
717
(225)
(492)
2 922
(625)
2 297
130
(21)
2 406
Dec-98
Growth
11%
3 925
3 211
9%
7 136
10%
(698)
24%
6 438
8%
(4 008)
1%
2 430
20%
PF
12%
14%
13%
26%
11%
4%
23%
2 430
(589)
1 841
59
20%
6%
25%
120%
23%
10%
27%
80%
1 900
27%
27%
EARNINGS PER SHARE - UP 25%
1100
1000
900
800
700
600
500
400
300
200
100
0
235
231
1024
224
822
217
665
528
96
97
EPS {lhs}
CAGR
3 Year
98
99
WA No of Shares {rhs}
25%
235
230
225
220
215
210
205
200
195
190
PEER GROUP
25.3%
23.3%
20.1%
19.0%
15.5%
12.0%
10.8% 10.5% 10.6% 10.5%
ROE
Nedcor 99
Capital ratio
Nedcor 98
Firstrand
Standard
ABSA
PEER GROUP
67.2%
61.1%
61.4%
56.2%
51.7%
Nedcor 99
Nedcor 98
Firstrand
Standard
ABSA
Efficiency ratio
OPERATING COMPANIES
Rm
Nedcor Bank & group ops
Nedcor Investment Bank *
Cape of Good Hope
TOTAL
Dec-99
Dec-98
1 862
479
65
2 406
1 447
400
53
1 900
Change
29%
20%
23%
27%
* NIB reported earnings growth of 25% to R500 million, of which
R21 million was attributable to NIB minorities
% of
Group
77%
20%
3%
100%
NET INTEREST MARGIN
Pure margin
Interest reserve
Shareholders' funds
Fixed assets
Investments
Reported margin
Dec-99
3.19%
-0.19%
1.08%
-0.21%
-0.23%
3.64%
Dec-98 Change (bp)
3.20%
(1)
-0.15%
(4)
1.06%
2
-0.22%
1
-0.19%
(4)
3.70%
(6)
SHAREHOLDERS’ FUNDS UP 10%
31-Dec-98
Net income
Dividends
Share capital & premium raised
Goodwill written off
Didata International
Edward Nathan & Friedland
Other
NIB minorities & other
31-Dec-99
9 131
2 406
(552)
265
(1 325)
(542)
(400)
(383)
141
10 066
PROVISIONS
Dec-99
Rm
Dec-98
avg advs
Rm
avg advs
INCOME STATEMENT
Provison charge
- incl. interest reserve
869
1 099
0.85%
1.07%
698
857
0.77%
0.94%
1 808
1 028
2 836
193
3 028
1.8%
1.0%
2.8%
0.2%
3.0%
1 449
419
1 868
1.6%
0.5%
2.0%
0.0%
2.0%
BALANCE SHEET
Specific provisions
General provisions
Credit insurance
TOTAL
Provisions were bolstered, not fed into earnings
1 868
NON-PERFORMING LOANS
Dec-99
Rm
of advs
Non-performing loans
Expected recoveries
Expected losses
3 513
(1 703)
1 810
3.3%
-1.6%
1.7%
Dec 98
Rm
of advs
2 640
(1 249)
1 391
Adequacy of provisions
Dec-99
Dec-98
Gross coverage
Net coverage
86%
167%
71%
134%
2.7%
-1.3%
1.4%
Metric dashboard
Beacons or markers
Multiple 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 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 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 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 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
COMMERCIAL
• 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
CORPORATE
• 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
INTERNATIONAL
• 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
RESULTS
• 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 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
EXPENSES
• 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 curve
PROJECT SYNERGY
PROJECT ALPHA
Unit Cost
25%
ADD VOLUME
 3rd Party/Stanbic
 Underbanked
75%
REPLICATE
INTERNATIONALLY
50%
20%
PROCESS
ENGINEERING
IT BASED
PROCESS
RE-ENGINEERING
VOLUME
& SCALE
INTERNATIONALISE
EXPENSE 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
PLATFORMS
• Major spend on
–
–
–
–
–
new internet engine
direct telecentre
cell phone (view phone)
electronic banking
network “pipe”
• Client choice, pricing for functionality
PLATFORM 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 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
CONCLUSION
•
•
•
•
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