Old Mutual - Nedbank Group Q3 trading statement

RNS Number : 3328V

Old Mutual PLC

27 October 2014

 



Old Mutual plc

Ref 258/14

27 October 2014

NEDBANK GROUP - THIRD QUARTER 2014 TRADING UPDATE

Nedbank Group Limited ("Nedbank Group"), the majority-owned South African banking subsidiary of Old Mutual plc, released its third quarter trading update for the three months ended 30 September 2014, today, 27 October  2014.

The following is the full text of Nedbank Group's announcement:

"NEDBANK GROUP - THIRD QUARTER 2014 TRADING UPDATE

"Nedbank Group's performance in the nine months to 30 September continues to be reflective of the early actions taken in anticipation of a challenging macro-economic environment.

We are focused on the drivers of long term value creation for our shareholders as we build our transactional banking franchise and our pan-African banking network. Through the 20% shareholding in Ecobank Transnational Incorporated (ETI), we have strengthened our strategic alliance with ETI and therefore our ability to provide banking service support for our clients across 39 countries in West and Central Africa. Economic growth in the rest of Africa is faster than South Africa and our investment in ETI offers our shareholders access to earnings in these higher economic growth markets.

Our balance sheet metrics remain strong and our ability to generate earnings and capital should continue to support our progressive dividend policy. We remain well positioned to meet our full-year guidance for growth in organic diluted headline earnings per share of greater than nominal GDP growth."

Mike Brown

Chief Executive

OPERATIONAL PERFORMANCE

Net interest income for the nine months ended 30 September 2014 ("the period") grew by 8,4% to R17 043m (Q3 2013: R15 725m) underpinned by average interest-earning banking assets growth of 9,9% (Q3 2013: 6,5%). The net interest margin narrowed to 3,53% (Q3 2013: 3,58%) with the increase in endowment income offset by asset mix and pricing changes as lower margin wholesale advances grew faster than higher yielding retail advances.

The credit loss ratio improved to 0,77% (Q3 2013: 1,15%) for the period from 0,83% at June 2014, reflecting the outcome of the asset mix changes referred to above, together with effective credit risk management policies, including early actions taken in reducing unsecured lending and the approach of selective origination followed in the last few years, all leading to an advances book of good quality.

Non-interest revenue (NIR) increased 2,4% to R14 509m (Q3 2013: R14 166m). The increase was driven by commission and fee income growth of 3,4%; insurance income decreasing 3,5%; trading income growth of 1,1% and negative fair-value adjustments of R64m (Q3 2013: Positive R110m and June 2014: Negative R35m).

Total advances grew 6,8% (annualised) to R608,7bn, largely due to growth in wholesale banking advances. Deposits increased 8,0% (annualised) to R638,8bn.

The group remains well capitalised and following the payment of the interim dividend in September 2014, the group's capital ratios are as follows:

Nedbank Group (Basel III)	Q3 2014	June 2014	Internal target range	Regulatory minimum¹
Common-equity tier 1 capital ratio	11,9%	12,1%	10,5% - 12,5%	5,5%
Tier 1 capital ratio	12,8%	13,1%	11,5% - 13,0%	7,0%
Total capital ratio	14,6%	15,0%	14,0% - 15,0%	10,0%

(Ratios include unappropriated profits.)

1.     The Basel III regulatory minima are being phased in between 2013 and 2019, and exclude Pillar 2B add-ons.

INVESTMENT IN ECOBANK TRANSNATIONAL INCORPORATED ('ETI')

In October 2014the group announced that it had exercised its rights to subscribe for 20% of ETI for a cash consideration of USD493,4m (R5,6bn), equivalent to a price of USD10,93 cents per ETI share. This transaction deepens the strategic alliance between ETI and Nedbank that has been in existence for six years, and this now includes a commitment to provide reciprocal technical banking expertise and management support. Together, ETI and Nedbank Group will offer a unique one-bank experience to their clients across the largest banking network in Africa, comprising more than 2,000 branches and offices in 39 countries.

The table below sets out the unaudited proforma financial effects of the strategic investment in ETI for the six months ended 30 June 2014 on an equity accounted basis, assuming Nedbank Group had exercised its rights on 1 January 2014. These do not represent the future financial position of Nedbank Group and are provided for illustrative purposes only.

Proforma financial metrics¹ Six months ended - 30 June 2014	Change	Post transaction	Prior to transaction
Headline earnings per share (HEPS) (cents)	4,3%	1035	992
Diluted headline earnings per share (DHEPS) (cents)	4,4%	1007	965
Return on equity (excl. Goodwill) (%)²	0,7	17,2	16,5
Common-equity tier 1 (%)	(0,8)	11,3	12,1

1.     The above metrics are based on:

a)     ETI's published unaudited interim financial results for the period ended 30 June 2014 (20% of the attributable income of USD164m at an average exchange rate of R/USD 10,6937);

b)    Nedbank Group's investment cost of USD493,4m (R5,6bn); and

c)     Associated funding at an average after tax cost of 5,6% (62,9% of average prime interest rate).

2.     Annualised.

PROSPECTS

The group's forecast for gross domestic product (GDP) growth for 2014 is currently at 1,5% with risk to the downside. Interest rates are currently forecast to increase by another 25 basis points in November 2014, resulting in a cumulative 100 basis point increase for 2014, adding further pressure to highly indebted consumers. Credit growth is expected to continue to be driven largely by the wholesale sector including activity in the rest of Africa. 

Our financial guidance for organic growth in DHEPS in 2014 to be greater than nominal GDP growth remains unchanged as communicated at the 2014 interim results presentation.

Shareholders are advised that these forecasts and the figures stated in this trading update have not been reviewed or reported on by the group's auditors.

BOARD APPOINTMENTS

Paul Hanratty, executive director and Chief Operating Officer of Old Mutual plc, was appointed as a non-executive director of Nedbank Group and Nedbank with effect from 8 August 2014.

FORWARD-LOOKING STATEMENT

This announcement contains certain forward-looking statements with respect to the financial condition and results of operations of Nedbank Group and its group companies, which by their nature involve risk and uncertainty because they relate to events and depend on circumstances that may occur in the future. Factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, global, national and regional economic conditions, levels of securities markets, interest rates, credit or other risks of lending and investment activities, together with competitive and regulatory factors."

Enquiries

External communications

Patrick Bowes                           UK        [phone]

Investor relations

Dominic Lagan                           UK        [phone]

Media

William Baldwin-Charles                          [phone]

                                                             [phone]

Notes to Editors

Old Mutual provides investment, savings, insurance and banking services to more than 16 million customers in Africa, the Americas, Asia and Europe. Originating in South Africa in 1845, Old Mutual has been listed on the London and Johannesburg Stock Exchanges, among others, since 1999.

In the year ended 31 December 2013, the Group reported adjusted operating profit before tax of £1.6 billion (on an IFRS basis) and had £294 billion of funds under management from core operations.

For further information on Old Mutual plc, please visit the corporate website at www.oldmutual.com 

 

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