South Africa’s largest commercial banking group, Nedcor, has confirmed its previous earnings forecasts for the financial year to the end of December, saying on Thursday it expects its headline earnings per share (excluding translation gains or losses) to be between 6% and 19% lower than the 502 cents per share reported in 2003.
At the same time, attributable earnings per share are estimated to be between 315 and 377 cents per share, compared with the loss of 546 cents per share in 2003.
Nedcor said in a trading statement that the forecasts are the same as those released at the time of its interim results to the end of June, and assume a stable rand exchange rate for the remainder of the year.
Trading for the nine months to September 30 remained “in line with forecasts”, it added.
The forecast for the bank’s overall headline earnings (excluding translation gains or losses) for the year also remains unchanged, at between 0% and 15% greater than the R1,471-billion reported in 2003.
The better performance in headline earnings compared with headline earnings per share is due to the dilutionary effect of the issuance of new shares during the period.
Most of the key risks faced by the group at the beginning of the year had been addressed during the period, it said.
Its margin (based on average interest earning assets) rose to 3,13% for the period, from 3,05% for the six months to June 2004, with advances rising from R206,3-billion at June 30 2004 to R208,6-billion at end-September.
Net interest income for the period amounted to R5,6-billion, continuing to benefit from the improved funding profile and hedging strategies.
Net interest income had also improved with the uplift created from the rights offer cash received in May, reduced funding drag as a result of the banking book being relatively interest-rate neutral following the hedging strategy, the sale of non-core investments reported on in August and the repatriation of certain foreign capital.
At the same time, non-interest revenue, while still anticipated to be lower in 2004 than 2003 levels, had shown an improvement since June, amounting to R5,5-billion, and deal flow had improved during the quarter to September 30.
Exchange and securities dealing revenue, however, remains muted.
Operating expenses for the period totalled R7,8-billion (before merger and recovery programme costs and fees due to alliance partners). Staff numbers had fallen by a further 1Â 395 since June 2004 to a total of 21Â 777.
The group’s cost-to-income ratio (excluding merger and recovery programme costs and foreign exchange translation losses) for the period of 71,1% improved from the 73% reported for the six months to June 2004.
Credit quality had generally been satisfactory, and the charge against income for impairments remained stable, with total impairments amounting to R1,14-billion for the period.
Taxation remained low, mainly because of the accounting treatment of structured finance transactions that required the tax benefit to be reflected in the tax line with a corresponding reduction in margin.
At September 30 2004, the group’s year-to-date foreign currency translation losses on the remaining foreign capital, reflected in the income statement, amounted to R72-million, compared with the position at June 30 2004 when these losses amounted to R213-million.
Commenting on the bank’s strategic recovery programme, it said it is “progressing as planned”. The BoE merger is nearing completion, with the migration of the NBS branch clients on to the Nedbank and Peoples Bank systems having been completed in October.
In August, the group estimated costs for 2004 for the recovery programme of R459-million and for the merger of R315-million. While this remains the estimate, a portion of these costs might only be incurred in 2005.
Nedcor also continues to pursue its target of achieving a return on ordinary shareholders’ funds of at least 20% for 2007. Expense control remains a key focus, and management aims to keep the growth in operating expenditure (excluding merger and restructuring costs) below revenue growth in order to achieve this target. Management is also targeting a cost-to-income ratio of 55% in 2007.
The board remains confident that Nedcor’s tier-one capital (that used to meet the government’s reserve requirements) will exceed the target of 7,5% at year-end. — I-Net Bridge