NOTES TO THE COMPANY FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER
     

1

OPERATING EXPENSES

    
    2010  
Rm   		 2009  
Rm  
   
  Audit fees – current year 8   6  
  BEE transaction share-based payments expenses   2  
  Directors’ fees 7   7  
  Other 3   3  
    18   18  
       

2

DIRECT TAXATION

    
  2.1  Charge for the year    
          Foreign withholding tax 8    
          Deferred taxation   (4)  
    Secondary taxation on companies   21   56  
      29   52  
         
  2.2  Taxation rate reconciliation    
      2010  
%  		 2009  
%  
     
          Standard rate of SA normal taxation 28   28  
          Non-taxable income (28)   (28)  
    Secondary taxation on companies   1   1  
    Effective taxation rate   1   1  
       

3

SUNDRY DEBTORS

   
  Sundry debtors and accrued interest 87   91  
       
  These assets are repayable on demand or at short notice and are all owed within South Africa.
       

4

SHARE CAPITAL

   
    2010  
Rm  		 2009  
Rm  
 
  Ordinary share capital    
  Authorised    
  600 000 000 (2009: 600 000 000) ordinary shares of R1 each 600   600  
  Issued ordinary share capital    
  514 891 827 (2009: 498 671 016) fully paid ordinary shares of R1 each 515   499  
       

5

SUNDRY CREDITORS

    
  Creditors and other accounts 23   20  
         

6

IMPAIRMENT OF INTERGROUP LOANS AND ADVANCES

     
  A specific impairment has been raised on intergroup loans and advances made by Nedbank Limited to fellow subsidiary companies. Nedbank Group Limited has guaranteed these intergroup loans and advances, for which a provision has been recognised.
 
           
    2010  
Rm  		 2009  
Rm  		  
     
  Balance at the beginning of the year 73   185    
  Statement of comprehensive income release/(charge) 10   (112)    
  Balance at the end of the year 83   73    
           
         

7

CASH GENERATED BY OPERATIONS

       
  Reconciliation of profit before taxation to cash generated by operations        
  Profit before taxation 1 851   3 015    
  Adjusted for:        
  – BEE transaction share-based payments expenses   2      
  – Foreign exchange translation loss 13        
  – Impairment of advances 10   (112)    
  – Impairment of investments (1)   (167)    
  – Capital profit on sale of investment 39   (6)      
  Cash generated by operations 1 912   2 732    
           
         

8

TAXATION PAID

        
  Amounts prepaid at the beginning of the year (9)   (8)      
  Statement of comprehensive income charge – foreign withholding tax 8        
    –STC 21   56    
  Amounts prepaid at the end of the year 9   9      
    29   57    
           

9

RETROSPECTIVE RESTATEMENT OF ERROR

  
  Nedbank Group Limited accounts for investments in subsidiary companies on a
cost-less-impairment basis. All investments in subsidiaries are reviewed on an annual basis and impaired as required. During 2009 a subsidiary was erroneously valued and impaired by R273 million.

The effects of the prior-year error as follows:		  
      2009
Rm
 
  Statement of financial position    
  Total assets   (273)
  Equity attributable to equity holders of the parent   (273)
      –
  Statement of comprehensive income    
  Impairment of investment in subsidiary companies   (273)
      (273)
           

10

SHARE-BASED PAYMENTS

    
  Equity instruments are granted to business partners and non-executive directors as an incentive to retain business and develop growth within the group. The share-based payments expenses and reserve balances in respect of the Black Business Partner Scheme and the Non-executive Directors’ Scheme, implemented in 2005, were accounted for in the Nedbank Group Limited consolidated financial statements and in the Nedbank Group Limited standalone financial statements. Both of these schemes will be equity-settled.
   
  As the company cannot estimate reliably the fair value of services received nor the value of additional business received, the company rebuts the presumption that such services and business can be measured reliably. The company therefore measures their fair value by reference to the fair value of the equity instruments granted, in line with the group’s accounting policy. The fair value of such equity instruments is measured at the grant date utilising the Black-Scholes valuation model.    
           
           

        10.1 Description of arrangements    
Scheme Trust/SPV Description Vesting requirements Maximum term
    Nedbank Eyethu BEE schemes
    Black Business Partner Scheme Wiphold Financial Services   Number Two Trust and Brimstone-Mtha Financial Services Trust Each trust was issued an equal number of restricted shares at R1,87 per share, with notional funding over a   period of 10 years. The beneficial ownership of the shares resides with the participants, including the voting and dividend rights. No dealing in the shares   during the 10-year notional funding period. 10 years
             
    Non-executive Directors’ Scheme* Nedbank Eyethu Non-executive Directors’ Trust Certain non-executive directors acquired restricted shares at  par value, with notional funding over a    period of six years. The beneficial ownership of the shares resides with the participants, including the   voting and dividend rights. Six years’ service and no dealing in the shares during this notional funding period. So as not to compromise the non-executive directors’ independence, no specific performance conditions will apply to the directors’ participation. 6 years
    See the Directors’ Report for information on events after the reporting period relating to this scheme.

  10.2 Effect on profit and financial position        
        Share-based
payments expense		 Share-based
payments reserve
       
        2010   2009   2010   2009  
        Rm   Rm   Rm   Rm  
    Black Business Partner Scheme     215   215  
    Non-executive Directors’ Scheme   2   22   22  
        –   2   237   237  


  10.3 Movements in number of instruments
          2010 2009
           
Weighted
Weighted
           
average
average
          Number of
exercise
price
Number of
exercise
price
          instruments R instruments R
    Black Business Partner Scheme
    Outstanding at the beginning of the year 7 891 300   171,82   7 891 300   171,82  
    Outstanding at the end of the year 7 891 300   171,82   7 891 300   171,82  
    Exercisable at the end of the year – – – –
                 
    Non-executive Directors’ Scheme        
    Outstanding at the beginning of the year 621 743   104,04   575 021   103,88  
    Granted     46 722   105,99  
    Outstanding at the end of the year 621 743   104,04   621 743   104,04  
    Exercisable at the end of the year – – – –
                 
  10.4 Instruments outstanding at the end of the year by exercise price
          2010 2009
            Weighted     Weighted  
            average     average  
            remaining     remaining  
          Number of   contractual   Number of   contractual  
          instruments life (years)   instruments life (years)  
    Black Business Partner Scheme        
    171,82     7 891 300   4,6   7 891 300   5,6  
          7 891 300   4,6   7 891 300   5,6  
                 
    Non-executive Directors’ Scheme        
    78,81     81 815   0,6   81 815   1,6  
    105,99     46 722   0,6   46 722   1,6  
    108,04     493 206   0,6   493 206   1,6  
          621 743   0,6   621 743   1,6  
                 
  10.5 Instruments granted during the year

   

The weighted average fair value of instruments granted during the year has been calculated using the Black-Scholes option pricing model, using the following inputs and assumptions:
    Non-executive Directors’ Scheme 2010 2009
    Number of instruments granted   46 722  
    Weighted average fair value per instrument granted (R)   8,22  
    Weighted average share price (R)   70,00  
    Weighted average exercise price (R)   105,99  
    Weighted average expected volatility (%)   52,0  
    Weighted average life (years)   1,2  
    Weighted average expected dividends (%)   0,0  
    Weighted average risk-free interest rate (%)   7,7  
    Number of participants   1  
    Weighted average vesting period (years)    
    Possibility of not vesting (%)   0,0  
    Expectation of meeting performance criteria (%)   100  
         

11

RELATED PARTIES
  11.1 Relationship with parent, ultimate controlling party and investees
    The company’s parent company is Old Mutual (South Africa) Limited (OMSA), which, through its subsidiaries, holds 51,37% (2009:52,21%) of Nedbank Group Limited’s ordinary shares. The ultimate controlling party is Old Mutual plc, incorporated in the United Kingdom.
     
    Material subsidiaries of the company are identified here and associates and joint ventures of the company are identified here.
   
  11.2 Key management personnel compensation
    Key management personnel are those persons who have authority and responsibility for planning, directing and controlling the activities of the company, directly or indirectly, including all directors of the company and its parent, as well as members of the executive committee who are not directors, as well as close members of the family of any of these individuals.
     
    Details of the compensation paid to the board of directors are disclosed in the Remuneration Report here and details of their shareholdings in the company are disclosed here. Compensation paid to the board of directors is aggregated below, together with the aggregate compensation paid to the executive directors, as well as the number of share options and instruments held:
      Key  
      management  
    Directors   personnel   Total  
  Compensation (Rm)      
  2010      
  Directors’ fees 11     11  
  Remuneration – paid by subsidiaries 40   72   112  
     Short-term employee benefits 28   65   93  
     Gain on exercise of options 12   7   19  
         
    51   72   123  
         
  2009      
  Directors’ fees 11     11  
  Remuneration – paid by subsidiaries 31   71   102  
     Short-term employee benefits 27   56   83  
     Gain on exercise of options 4   15   19  
         
    42   71   113  
         
  Number of share options and instruments      
  2010      
  Outstanding at the beginning of the year 1 601 613   2 181 290   3 782 903  
  Granted 318 648   436 816   755 464  
  Forfeited (4 439)   (262 679)   (267 118)  
  Exercised (339 439)   (523 939)   (863 378)  
  Expired (152 765)   (270 500)   (423 265)  
  Transferred 313 744   (313 744)   –  
  Outstanding at the end of the year 1 737 362   1 247 244   2 984 606  
         
  2009      
  Outstanding at the beginning of the year 1 256 009   1 489 812   2 745 821  
  Granted 463 014   1 024 520   1 487 534  
  Forfeited (8 700)   (438 165)   (446 865)  
  Exercised (108 705)   (450 379)   (559 084)  
  Transferred (5)   555 502   555 497  
  Outstanding at the end of the year 1 601 613   2 181 290   3 782 903  

  11.3 Related party transactions  
   

The following significant transactions were entered into between Nedbank Group Limited and the following related parties. All of these transactions were entered into in the normal course of business.
      Due from/(Owing to)
    Outstanding balances (Rm) 2010 2009
    Subsidiaries    
    Loan from BoE Management Limited – interest-free (3 687)   (3 687)  
    Loan from BoE Investment Holdings Limited – interest-free (1 070)   (1 069)  
    Loan from Nedbank Nominees (Pty) Limited – interest-free (4)   (5)  
    Advance to NBG Capital Management Limited 1 612    
    Loan from The Board of Executors 1838 (45)   (45)  
    Bank accounts with Nedbank Limited – interest-free 1 673   1 417  
    Advance to NEST 139   22  
    Advance to BoE (Pty) Limited 117   139  
    Advance to Nedgroup Investment Holdings 101 Limited 37   60  
    Due from Nedbank Limited on exercise of share options during the year – interest-free 27    
    Tando AG – dividend   71  
    Impairment provision in respect of amounts due to Nedbank Limited by its subsidiaries (64)   (53)  
    Impairment provision in respect of amounts due to Nedgroup Investments Limited by its subsidiaries (1)   (2)  
    Impairment provision in respect of amounts due by BoE Limited (18)   (18)  
         
    Key management personnel    
    The Wiphold and Brimstone consortia are related parties since certain key management personnel of the group have significant influence over these entities. These consortia are participants in the Nedbank Eyethu BEE schemes and the share-based payments reserve recognised in respect of these consortia and key management personnel is detailed below:    
         
    Wiphold consortium (108)   (108)  
    Brimstone consortium (107)   (107)  
    Non-executive directors (22)   (22)  
    Share-based payments reserve (237)   (237)  
         
      Income/(Expense)
    Transactions (Rm) 2010   2009  
    Parent    
    Dividend declared to OMSA via its subsidiaries (1 155)   (1 321)  
         
    Subsidiaries    
    BoE (Pty) Limited 37   60  
    BoE Limited 156   66  
    Fairbairn Private Bank Limited   14  
    Mutual and Federal (Pty) Limited 30    
    Nedbank Limited 995   2 070  
    NedEurope Limited 98   113  
    Nedgroup Insurance Company Limited 140   30  
    NedGroup Investment Holdings 101 Limited 102   253  
    Nedgroup Investments (Pty) Limited 158   76  
    Nedgroup Life Assurance Company Limited 156   66  
    Tando AG 58    
    Dividends declared by subsidiaries 1 930   2 748  
         
    Key management personnel    
    The share-based payments charge in respect of the entities that are participants in the Nedbank Eyethu BEE schemes and key management personnel is detailed below:    
    Non-executive directors   (2)  
    Share-based payments expense – (2)