Nedcor warns on lower earnings and initiates recovery programme SANDTON, JOHANNESBURG, South Africa, November 17 /PRNewswire/ -- - Estimates on merger benefits revised upwards Banking group Nedcor Ltd today cautioned shareholders that core earnings for the second half of the year to 31 December 2003 would be materially lower than analysts' forecasts. In a trading statement, the group said higher funding costs and lower non-interest revenue were the main reasons for the reduced earnings estimates. Nedcor said a recovery and restructuring programme has been initiated to take the group back onto a sustainable growth path. The group's core earnings for the ten-month period to 31 October 2003 reflect the impact of a stronger Rand, lower interest rates from June which affected margins, and the adverse market climate for investment banking. The continued reduction in interest rates has impacted Nedcor due to the current structure of its funding book. The strengthening of the Rand has affected all divisions with foreign currency earnings, notably wealth management. The lower interest rates have, however, stimulated retail credit demand and led to an improvement in arrears. Advances have grown year on year by 4.3%, while retail deposits have increased by 13.9%. Newly appointed chief executive designate, Tom Boardman, said that while he was disappointed at the group's earnings estimates, the recovery and restructuring programme now initiated would take the group back onto a sustainable growth path. "Our recovery programme includes a review of strategy to get the bank "back to basics", simplify the strategy, and position the group for growth. The group's integration process, which is now past the half-way mark, will improve earnings by maximising synergy benefits in the next few years." The integration of BoE, Nedcor Investment Bank Holdings and Cape of Good Hope Bank is progressing to schedule with higher operational synergies now expected. The synergies have been revised upwards by R40 million to R700 million a year which will be achieved from 2006 onwards. The synergies continue to be realised slightly ahead of target. The total estimated merger costs remain unchanged at R868 million. Boardman said Nedcor is solidly profitable with a strong balance sheet, evidenced by shareholders' funds of over R19 billion. The group remains adequately capitalised with a capital adequacy ratio in excess of the statutory level of 10%. Nedbank, the main bank within the group, has a capital adequacy ratio of close to 12%. "We have the full support of our parent shareholder Old Mutual Plc. They are working alongside us to ensure that Nedcor again becomes the best place to bank and the best place to work. It is critical that we develop an empowered culture of accountability and transparency." At the time of Boardman's appointment last month, he outlined a five-point plan to address the immediate strategic priorities: - Review Nedcor's strategy and ensure the business is positioned for earnings recovery; - Review the executive team, the management processes and the management model; - Deliver on the merger targets; - Practice a culture of transparency with a responsible approach to stakeholder reporting; - Deliver client service excellence. While all strategies across the group are being reviewed, Boardman said a decision in principle has been taken by the boards of Nedcor and Peoples Bank - and agreed to by the minorities of Peoples Bank - to investigate the most effective method of integrating their retail businesses. This is aimed at achieving a greater level of critical mass and cost efficiency. Most importantly, the integration will also advance the black economic empowerment transformation of Nedcor. Nedcor plans to sell Chiswell Associates, an asset management company in London, which was acquired through the BoE merger. Boardman said work had also started on reviewing the group's joint ventures and technology investments. The group is to be restructured in line with changes to the strategy and seven new appointments have been made to the group executive committee. The nine business units of Nedbank Corporate will be amalgamated into two businesses, namely Investment Banking and Corporate Banking. Executive director Derek Muller will oversee the transition of Nedbank Corporate into the new structure. In addition, Muller will take on a new role in the chief executive's office where he will be responsible for group human resources, the implementation of the Financial Sector Charter into Nedcor, and corporate client relations. Brian Kennedy, previously head of Capital Markets, will be accountable for Investment Banking, and Graham Dempster the Corporate Banking division. Ivan Mzimela will continue to head the Group Human Resources division. Nolitha Fakude, the current managing director of the Black Management Forum, has been appointed to drive the implementation of Nedcor's Charter initiatives. Pete Backwell will be accountable for the Retail and Wealth Management division, and executive director Lot Ndlovu will continue to lead Peoples Bank. Stuart Morris continues as group financial director until after the publication of the 2003 annual report and sufficient time to allow for an orderly hand over of responsibility to a new incumbent. Morris will then take on responsibility for group risk, including the Basel II implementation programme. Potential candidates, both internal and external for the position of finance director, have been short-listed and an announcement will be made in due course. Executive director Izak Botha will continue to be accountable for the merger and restructuring process and Group Capital Management. It is intended that capital management will become part of the new group financial director's responsibilities. Tony Routledge will be retiring and Rob Shuter will take on responsibility for Corporate Affairs, including communications, marketing and group merger and acquisition activities. Barry Hore will be accountable for Technology Product, Process and Management Services, which includes the card processing business. Hore will also work closely with Boardman to manage the recovery programme. Operations will be separated from Technology and will be headed by Len de Villiers. The intention is to align Operations more closely with the business divisions. Boardman stressed that further changes are expected to be made to the executive team over the forthcoming months. The Nedcor board is confident that the newly-appointed executive team has the ability to deliver on the strategic recovery plan and successfully complete the merger process. "While we realise this will take time our aim is to restore Nedcor to the position of the leading financial services group," said Boardman. Issued by: Nedcor Ltd Website address: www.nedcor.com DATASOURCE: Nedcor Limited Contact: Gayle Rodrigues, +27 11 294-0372/ 083 307 6484

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