The recovery programme implemented by South African banking group Nedcor in 2004 is delivering tangible benefits as is evidenced by the vastly improved results for the past financial year, which saw headline earnings grow from R55-million to R1,45-billion.
CEO Tom Boardman says the group has delivered on its commitment made to shareholders by reducing earnings volatility, improving risk management and establishing a competitive and sustainable base for growth.
He says a detailed recovery programme was implemented with clear priorities and that all key objectives of this programme have been achieved so far.
The group has consolidated its brand portfolio from 14 at the beginning of 2004 to eight brands in December. The planned disposal of non-core operations and assets is also progressing well, Boardman says.
Offshore subsidiaries sold include Chiswell Associates, BoE Life International, BoE International Fund Services and BoE International Fund Managers, and the Stenham Group.
“A review of the international businesses resulted in the closure of the Asian operations, which reduced risk and will improve the return on ordinary shareholders’ funds. Advances have been reduced to $26-million (from more than $400-million), with no additional losses.
“Repatriation of the capital from the Asian businesses commenced in October 2004 with the first $1-million, followed by $19-million in January 2005, and the balance is expected to be remitted in May 2005,” Boardman says.
The group has remaining non-core assets of approximately R1,1-billion that are earmarked for disposal.
The group has also reduced its headcount by 3 102 people from 24 205 to 21 103.
Nedcor undertook a rights issue in May 2004, which was successful in raising R5,15-billion of tier-one capital and strengthening the group’s capital base.
The group repaid R2,5-billion of subordinated debt (tier-two capital) from the rights issue proceeds. This improved the balance between tier-one and tier-two capital. The balance was used to reduce expensive funding.
“Nedcor set a target of reaching a group tier-one capital adequacy ratio of at least 7,.5% by the year-end and is pleased to report that, through the rights issue and proactive capital management, the group tier-one capital adequacy ratio at year-end was 8,1% and total group capital adequacy was 12,1%,” Boardman says, adding that this provides the group with a strong foundation for future growth.
“Management remains committed to a targeted return on equity of 20% in 2007. Detailed plans for the next three years are in place to meet this target,” he adds.
The improved capital position, Boardman says, has stabilised the group’s credit ratings.
The capital and earnings volatility arising from foreign exchange movements has also been substantially reduced. In the past financial year, the group repatriated, converted and/or hedged R5,058-billion of capital sensitive to foreign-exchange movements, reducing its foreign-exchange translation loss from R416-million to R372-million.
Had these steps not been taken, foreign currency translation losses would have amounted to R929-million.
Looking ahead, Boardman says that as the benefits of the increased focus on client service becomes evident, the group expects to show growth in advances and anticipates bringing asset growth back into line with market growth in the second half of 2005.
“The directors and management are aware that a considerable amount of effort lies ahead in the recovery programme and that not all the fruits of these endeavours will be reflected in 2005. The business is, however, well- placed to deliver improved earnings in 2005.”
The group also plans, subject to shareholder approval, to change its name from Nedcor to Nedbank Group. The proposal will be put to shareholders at the group’s annual general meeting in May 2005. — I-Net Bridge