NIB Interim Results

Old Mutual PLC 31 July 2001 OLD MUTUAL PLC Nedcor Investment Bank Holdings Limited Interim report for the six months ended 30 June 2001 Old Mutual plc is an integrated financial services group, based in London, with a substantial life assurance business in southern Africa, annuity business in the United States, an international range of businesses in asset management (including unit trusts, portfolio management and stockbroking services), together with businesses in banking and general insurance. Nedcor Investment Bank Holdings Ltd ('NIB'), the South African investment bank, in which Nedcor Limited, the South African banking group has majority control, has today issued financial results for the six month ended 30 June 2001. Old Mutual plc ('Old Mutual') has a 53.3% holding in Nedcor Ltd. The full text of the NIB announcement is attached, which has been drawn up in accordance with South African GAAP. The results will be consolidated in Old Mutual's accounts in accordance with UK GAAP. 31 July 2001 ENQUIRIES: Old Mutual, London Tel: + 44 20 7569 0100 James Poole, Director Investor Relations College Hill, London Tel: + 44 20 7457 2020 Matthew Gregorowski Old Mutual, Cape Town Tel: + 27 21 509 2732 Bruce Allen, Manager, Group Media Communications College Hill, Johannesburg Tel: + 27 11 447 3030 Linda Baker NEDCOR INVESTMENT BANK HOLDINGS LIMITED Interim report for the six months ended 30 June 2001 Headline earnings up 20% to R376 million Headline earnings per share up 18% Return on average equity 25% Expense to income ratio down to 32% Financial highlights Unaudited Audited 6 months Year ended 31 ended December 30 June % 2001 2000 Change 2000 Selected ratios Return on average equity (%) 24.5 25.3 (3) 23.3 Return on average Banks Act risk-adjusted 4.3 4.3 - 3.8 assets (%) Non-interest revenue to total income (%) 77.5 75.0 3 71.9 Expense-to-income ratio (%) 32.1 36.3 12 35.4 Capital adequacy Shareholders' funds (Rm) 3,373 2,840 19 3,203 Total assets (Rm) 28,053 22,679 24 25,171 Group capital adequacy ratio (%) 12.0 13.5 (11) 13.5 Share statistics Headline earnings per share (cents) 23.4 19.8 18 38.6 Diluted headline earnings per share 22.3 18.6 20 36.8 (cents) Weighted average number of shares (m) 1,609 1,583 2 1,591 Shares in issue (m) 1,610 1,598 1 1,608 Share price (cents) 300 320 (6) 270 Market capitalisation (Rbn) 4.8 5.1 (5) 4.3 Comparative figures are restated, where necessary, to afford a proper comparison. Percentages are calculated using actual numbers. NEDCOR INVESTMENT BANK HOLDINGS LIMITED Interim report for the six months ended 30 June 2001 Group income statement Unaudited Audited 6 months Year ended 31 ended December 30 June 2001 2000 % 2000 Rm Rm Change Rm Interest income 1,257 1,185 6 2,465 Interest expense 1,102 1,033 (7) 2,133 Net interest income 155 152 2 332 Non-interest revenue 535 457 17 850 Operating income 690 609 13 1,182 Specific and general provisions 22 10 (116) 35 Net income 668 599 11 1,147 Operating expenditure 221 221 (0) 419 Net operating income 447 378 18 728 Income from associated companies 1 6 (84) 17 Net capital profit on disposal and restructuring of businesses - - - 13 Net income before taxation 448 384 16 758 Taxation 72 71 (1) 77 Income attributable to shareholders 376 313 20 681 Headline earnings reconciliation Income attributable to shareholders 376 313 20 681 Less: Net capital profit on disposal and restructuring of businesses - - - (13) Taxation: exceptional items - - - (53) Headline earnings 376 313 20 615 NEDCOR INVESTMENT BANK HOLDINGS LIMITED Interim report for the six months ended 30 June 2001 Group balance sheet Unaudited Audited 6 months Year ended 31 December ended 30 June 2001 2000 2000 Rm Rm Rm Assets Cash and short-term funds 4,312 1,028 1,668 Other short-term securities 1,646 1,948 1,794 Government and public sector securities 2,314 3,075 2,498 Advances and other accounts 18,604 15,489 18,088 Associated companies 37 26 58 Other investments 1,073 1,005 975 Property and equipment 67 99 81 Customers' indebtedness for acceptances - 9 9 Total assets 28,053 22,679 25,171 Equity and liabilities Shareholders' funds 3,373 2,840 3,203 Long-term debt 2 2 1 Deposit, current and other accounts 24,678 19,828 21,958 Liabilities under acceptances - 9 9 Capital, reserves and liabilities 28,053 22,679 25,171 NEDCOR INVESTMENT BANK HOLDINGS LIMITED Interim report for the six months ended 30 June 2001 Segmental analysis of headline earnings Unaudited Audited 6 months Year ended 31 ended December 30 June 2001 2000 % 2000 By major business area Rm Rm Change Rm Advisory Services 16 13 23 33 Capital Account - Endowment 77 76 1 138 Capital Account - Value Added 91 52 75 113 Private Equity Investments 17 22 (23) 19 Property Finance 12 19 (37) 32 Strategic Alliances 1 6 (83) 17 Structured and Project Finance 83 58 43 134 Treasury 79 67 18 129 376 313 20 615 NEDCOR INVESTMENT BANK HOLDINGS LIMITED Interim report for the six months ended 30 June 2001 Consolidated statement of changes in equity Ordinary Share Non-distributable Distributable Total share premium reserves reserves capital Capital Premium Reserves Rm Rm Rm Rm Rm Balance as at 1 January 16 398 16 2,105 2,535 2000 Issue of new share 9 9 capital Transfers (3) 3 - Currency translation 1 (9) (8) and other adjustments Attributable earnings 313 313 Dividend - cash (9) (9) election Balance as at 30 June 16 407 14 2,403 2,840 2000 Issue of new share 27 27 capital Currency translation (3) (28) (31) and other adjustments Attributable earnings 367 367 Balance as at 31 16 434 11 2,742 3,203 December 2000 Issue of new share 4 4 capital Currency translation 12 (14) (2) and other adjustments Attributable earnings 376 376 Dividend - cash (208) (208) Balance as at 30 June 16 438 23 2,896 3,373 2001 NEDCOR INVESTMENT BANK HOLDINGS LIMITED Interim report for the six months ended 30 June 2001 Consolidated cash flow statement Unaudited Audited 6 months Year ended 31 ended December 30 June 2001 2000 2000 Rm Rm Rm Cash flows from operating activities 478 398 817 Cash received from clients 1,729 1,611 3,248 Cash paid to clients, employees and (1,316) (1,246) (2,529) suppliers Dividends received on investments 65 33 98 Changes in working funds 2,512 340 565 Taxation paid (70) (71) (48) Net cash utilised in investment activities (92) (436) (419) Net cash utilised by financing activities (184) (8) (52) Net cash generated 2,644 223 863 Cash and short-term funds at beginning of 1,668 805 805 period Cash and short-term funds at end of period 4,312 1,028 1,668 Comparative figures are restated, where necessary, to afford a proper comparison. Percentages are calculated using actual numbers. Commentary The business environment for the period to 30 June 2001 remained challenging, both in South Africa and internationally. Domestically, economic momentum has been lost due to the slower growth in manufactured goods and weaker agricultural conditions. There are also signs that consumer spending is starting to falter after a positive 2000. The economic environment worsened as the slowdown in the US economy intensified, and international equity markets came under further pressure. Increased risk aversion among investors reduced capital flows to emerging markets and kept the US dollar strong against most other currencies. Through its primary focus on its core activities and niche skills, Nedcor Investment Bank Limited ('NIB') reported headline earnings growth of 20% to R376 million and headline earnings per share growth of 18% to 23 cents per share, despite these weak economic conditions. Earnings per share were diluted by the issuing of ordinary shares during the first six months. Structured and Project Finance, Treasury and Capital Account all produced strong performances, with Advisory Services continuing to show sound improvement. The return on average equity achieved was 25% (2000: 25%). Operating margins continued to strengthen, resulting in an improved ratio of operating expenses to total income of 32% (2000: 36%). As at 30 June 2001 shareholders' funds amounted to R3,4 billion. The group consolidated capital adequacy ratio of 12,0%, compliant with the new Banks Act regulations, exceeds the 10% capital adequacy requirement that is effective from 1 October 2001. Balance sheet growth for the year has resulted in part from a temporary higher level of money market activity. In addition to improvements in operating margins and earnings for the period, a number of longer-term strategic milestones were achieved: * The foreign currency component of NIB's earnings grew to 36% (2000: 24%), with a significant contribution coming from Capital Account and improved contributions from Structured and Project Finance, and Multi-Manager. This growth is expected to continue, consistent with our ongoing strategic objective. * Certain directly held private equity investments were moved into focused investment funds. NIB participates in the management companies responsible for these funds. * Structured and Project Finance's strong performance includes mandates for projects totalling in excess of R1 billion. * The strengthened Corporate Finance Unit continued to attract new business and grow revenue, achieving favourable rankings among its industry peers. Edward Nathan & Friedland ('ENF') continues to hold a leading position as corporate law adviser, is positioning itself as a provider of multidisciplinary services in selected niche areas, and is exploring synergies with other advisory businesses in the Nedcor Group. This is reflected in a number of joint mandates that have been signed. * Significant progress was achieved in reducing the properties in possession portfolio ('PIPs'), with a large proportion disposed of during the period. * NIB sold its 20% interest in Galaxy to Old Mutual at a book cost of R20 million in June 2001. REVIEW OF DIVISIONAL OPERATIONS Advisory Services A general slowdown in corporate activity in the first six months has resulted in difficult conditions in the corporate finance market. Despite this, the Corporate Finance Unit and ENF have made progress through their strong respective skill bases in growing client base and revenues. In spite of the depressed merger and acquisition market, ENF advised on major transactions, including merger and unbundling initiatives in the mining, steel, empowerment, media and resource sectors. In addition to ENF's core activities, good progress has been made in positioning it to service chosen niches, including corporate governance, sports and environmental law. Considerable advancement has been made in the area of cooperation between NIB Corporate Finance and ENF. Joint mandates have been performed for clients, which include Allied Electronics Corporation Limited, Mutual & Federal Insurance Company Limited and Sycom Property Fund. The recent Ernst & Young merger and acquisition survey ranked NIB third among financial advisers in the category of number of transactions advised. Capital Account NIB continued pursuing opportunities in optimising the risk and return from Capital Account, which manages shareholders' funds on a ringfenced, fully costed, marginal-contribution basis. The capital structure of NIB's foreign operations has been increased by the retention of foreign earnings. Emphasis continues to be placed by all business units on growing NIB's foreign earnings base. Foreign shareholders' funds continue to be employed and actively managed offshore in a manner that optimises the contribution thereof to the group, and provide a potential source of funding for suitable investing and business opportunities. NIB's Namibian operation has been restructured and recapitalised, with the joint involvement of the International Finance Corporation and two prominent Namibian empowerment partners. The deployment of shareholders' funds domestically has been optimised in terms of asset allocations and return on assets. For the purposes of segmental analysis the following wholly owned activities have been incorporated under Capital Account. NIB Quantitative Asset Management ('Quants') Despite depressed markets, Quants' indexed assets under management continue to grow steadily, albeit off a small base. As the asset management industry continues to consolidate, various inorganic alternatives are currently being reviewed. NIB Multi-Manager ('NIBi') NIBi continues to grow its assets under management (R7,5 billion), a significant portion of which is internationally managed by NIB's foreign operations. Property Investments The value of PIPs has been reduced over the six-month period from R467 million to R254 million. The commitment to dispose of the remaining balance of PIPs within the medium term remains a priority. Private Equity Investments Market conditions continue to be difficult, evidenced not only by a deterioration in market values but also by an inability to realise investments according to original exit strategies. As a consequence, the carrying values of certain investments were written down by a net R17 million against non-interest revenue. A strategy of creating focused investment funds that involve coinvestors has been implemented, resulting in the formation of the Treacle Fund (a technology fund) and the NIB-MDM Fund (a general small-capitalisation company fund) to be launched, with capital of R255 million and R105 million respectively. NIB's small-capitalisation portfolio was sold into the NIB-MDM Fund and the Treacle Fund made its first major investment of R25 million in Datacentrix Limited. A third fund, namely the Transformation Fund (an infrastructure fund), is planned to be launched in the next six months. NIB participates in the management companies of these funds. Property Finance The market has slowed down, with the book size increasing only marginally this financial year. This slowdown is in line with the division's policy of writing quality business, sometimes at the expense of growth, particularly in times of market weakness. The outlook for property remains neutral, and caution is being exercised due to large quantities of new lettable space coming on stream in areas such as Sandton. The surplus of lettable space was forecast some time ago with the result that, for the past 18 months, very little untenanted development has been financed by NIB. Structured and Project Finance During the first six months of the year the division experienced increased demand for funding and a number of transactions have been concluded. The Project Finance team continues to be expanded in line with NIB's intention to place greater emphasis on its limited-recourse funding and advisory activity. New financing mechanisms are currently being researched to satisfy clients' needs for tailored solutions to financial requirements. Mandates completed by the Project Finance team on a limited-recourse basis include acquisition funding for Harmony Limited and funding to develop a waste disposal plant for a major corporate. NIB has also been appointed as agent and trustee of the N4 Platinum Toll Road. Structured Finance continues to expand internationally, receiving a number of mandates that have been concluded in Namibia. Treasury The first half of 2001 was a challenging period for Treasury, with volatile trading conditions and the rand and equity markets under pressure. In contrast, the strong bond and money markets helped to underpin earnings. These conditions are expected to prevail in the foreseeable future. The business unit continues to explore opportunities in the structured-product and corporate bond market. Enhanced risk management capabilities are now fully operational through an arrangement with Nedcor Group Treasury Risk Control, resulting in additional cost savings from a more efficient systems and administration environment. Strategic Alliances NIB Securities (Pty) Limited ('NIBSec') The volatility and negative sentiment in equity markets continue to have an adverse effect on industry turnover and volumes. While industry brokerage margins have been significantly reduced, NIBSec, as a result of its low-cost structure, is positioned to sustain itself through these adverse trading conditions. Syfrets Trust Limited The merger of the KwaZulu-Natal fiduciary practices of Deloitte & Touche and NIB was successfully completed during May. The business continues to perform satisfactorily. Franklin Templeton NIB Asset Management (Pty) Limited ('FTNIBAM') The first half of the year was typified by volatile equity markets, during which period FTNIBAM's investment performance was satisfactory. New business volumes remain subdued, particularly in unit trusts where investors are defensively seeking to invest offshore or in guaranteed products. FTNIBAM has benefited from new business flows into the offshore retail and private client businesses. Accounting policies and presentation The interim consolidated financial statements are prepared in accordance with 'AC127 - Interim Financial Reporting'. The accounting policies applied in the preparation of these interim consolidated financial statements are consistent with those used in the annual financial statements for the year ended 31 December 2000. Directors Having reached retirement age, Mr GH Bulterman stepped down as a director with effect from 20 June 2001. We are most grateful for his valuable contribution since the formation of the company. STRATE NIB is scheduled to move to the STRATE system during August and September 2001. Dematerialisation will start on 27 August, with electronic trading commencing on 17 September and the first electronic settlement taking place on 24 September. From 17 September 2001 no paper scrip will be accepted for settlement and therefore shareholders who have not yet entered the STRATE environment should appoint a Central Securities Depository Participant as soon as possible. Dividends No interim dividend has been declared, as NIB has an annual dividend payment policy. Accordingly, the board will consider the declaration of a final dividend for the full financial year in early 2002. Prospects The strategy of addressing the lack of liquidity in NIB shares remains a priority. Key drivers in the economic outlook for South Africa relate to foreign capital flows and business confidence. These would be materially affected by a recovery in the US, which in turn should improve South Africa's exports and act as a catalyst for government privatisation initiatives. While investment banks are inherently subject to volatility in earnings, NIB remains cautiously optimistic about its prospects for the remainder of the year, given the markets within which it operates. Appropriate opportunities complementary to NIB's current key focus areas, as well as the introduction of additional functional activities, will continue to be pursued. Prof MM Katz Dr IJ Botha Chairperson Chief Executive 30 July 2001 Company JS Eisenhammer Secretary: Registered 1 Newtown Avenue, Killarney, Johannesburg, 2193 office: Transfer Mercantile Registrars Limited, 11 Diagonal Street, Johannesburg, secretaries: 2001 Transfer Secretaries (Pty) Limited, PO Box 2401, Windhoek, Namibia Directors: Prof MM Katz *(Chairperson), Dr IJ Botha *(Chief Executive), JR Bestbier*, RG Cottrell, ML Davis, BE Davison, PG Joubert, PH Lane*, RCM Laubscher, CF Liebenberg, E Molobi, SG Morris, Dr LA Porter, GF Richardson, WC Ross*, AA Routledge, R van Wyk* (* Executive Directors) Web site: www.nib.co.za

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