31

Non-current assets held for sale

32

Deferred taxation

33

Investment property

34

Property and equipment

Registers providing the information regarding land and buildings, as required in terms of Schedule 4 of the Companies Act, 61 of 1973, are available for inspection at the registered office of the company.

Equipment (principally computer equipment, motor vehicles, fixtures and furniture) is stated at cost less accumulated depreciation and impairment losses. Property is recognised at the revalued amount, which is based on external valuations obtained every three years on a rotation basis for all properties in accordance to the group’s accounting policy. The valuers are all members or associates of the Institute of Valuers (SA). An annual internal review is also done on those properties not subject to external valuation. The carrying amount of properties is the fair value as determined by the valuers less subsequent accumulated depreciation and impairment losses. Adjustments in the valuation of the properties are recorded in the revaluation reserve, which is amortised over the remaining useful life of the property.

In respect of certain property there are restrictions of title in terms of regulatory restrictions such as servitudes. This does not have a material effect on the ability of the group to transfer these properties. No material plant and equipment has been pledged as security for liabilities.

In determining the fair value of properties the assumed discount rates applied for future income streams range between 8,5% and 12,5% (2008: 8,5% and 14,0%) and take into account the type of property and the property’s location.

If land and buildings were carried under the cost and not the revaluation model, the carrying amount would have been R2 150 million (2008: R1 434 million).

35

Long-term employee benefits

The group has a number of defined-benefit and defined-contribution plans in terms of which it provides pension, postretirement medical aid and long-term disability benefits to employees and their dependants on retirement, death or disability. All eligible employees and former employees are members of trustee-administered or underwritten schemes within the group, financed by company and employee contributions. All SA retirement plans are governed by the Pension Funds Act of 1956. The defined-benefit funds are actuarially valued using the projected-unit credit method. Any deficits are funded to ensure the ongoing financial soundness of the funds.

The benefits provided by the defined-benefit schemes are based on years of membership and/or salary levels. These benefits are provided from contributions by employees and the group, and income from the assets of these schemes. The benefits provided by the defined-contribution schemes are determined by the accumulated contributions and investment earnings.

At the dates of the latest valuations the defined-benefit plans were in a sound financial position in terms of section 16 of the Pension Funds Act of 1956. During 1998 active members in the Nedgroup Pension Fund (defined-benefit) were granted a further option to transfer to one of the defined-contribution funds and approximately three-quarters of the then valuation surplus was allocated to members and pensioners.

The funds that constitute the assets and liabilities that the group has recognised in the statement of financial position in respect of its defined-benefit plans are listed below. The latest actuarial valuations were performed at 31 December 2009.

Refer to note 15 for the expense relating to the defined-contribution plans.

Postemployment benefits

Defined-benefit pension and provident funds

• Nedgroup Pension Fund (including the Optiplus policy).
  
• BoE Funds, which consist of NBS Group Pension Fund, BoE Limited Pension Fund (1969), Pension Fund of BoE Bank: Business Division.
  
• Nedbank UK Pension Fund.
  
• Other funds, which consist of Nedbank Swaziland Limited Pension Fund and Nedbank Lesotho Pension Fund.
  

Defined-contribution pension and provident funds

• Fairbairn Funds, which consist of Fairbairn Private Bank Pension and Provident Funds.

Defined-benefit medical aid schemes

• Nedgroup Medical Aid Scheme for Nedbank employees and pensioners.
  
• Nedgroup Medical Aid Scheme for past BoE employees and pensioners.
  
• Nedbank Namibia Medical Aid Fund.
  

Other long-term employee benefits

Disability fund

• Nedbank Group Disability Fund [including the Old Mutual Alternative Risk Transfer Fund (OMART) policy].

Insurance policies held with related parties

• Optiplus (Nedgroup Pension Fund) and OMART (Nedbank Group Disability Fund) are insurance policies, the proceeds of which can only be used to pay or fund the employee benefits under the specific funds. However, these policies are not qualifying insurance policies in terms of IAS 19 Employee Benefits, since they are held with related parties. These rights to reimbursement are therefore recognised as separate assets and in all other respects are treated in the same way as other plan assets.
  

36

Intangible assets

37

Acquisitions

On 5 June 2009 Nedbank Group Limited acquired the remaining 50% share in the joint ventures of Nedgroup Life Assurance Company Limited (NedLife) and BoE (Pty) Limited, and the remaining 29,8% share in subsidiary Fairbairn Private Bank from Old Mutual plc and its subsidiaries. The transaction included the existing client bases held by the companies and the brandnames. These transactions were financed by the issue of 12,9 million shares, as agreed at the general meeting held on 5 June 2009.

There were no contingent consideration arrangements and indemnification assets recognised on the acquisition of these entities. No contingent liabilities have been recognised by the group as a result of these acquisitions.

The receivables recognised by the group are included in other assets and represent their fair value due to their short-term nature. Management is of the opinion that the gross contractual cashflows receivable are not materially different to the fair value of the receivables recognised.

NedLife is a life assurance company that provides non-underwritten credit life assurance and other simple risk and investment products primarily to Nedbank Group clients. A large proportion of NedLife’s business is derived from the provision of life cover linked to Nedbank Group’s lending activities. NedLife also sells credit life assurance through two of the largest mortgage originators in South Africa.

BoE (Pty) Limited is one of South Africa’s largest private client wealth management houses, offering a fully integrated range of financial services and advice, including private and specialised banking, investment management, stockbroking and trust and fiduciary services to various niche markets.

Fairbairn Private Bank is an award-winning offshore private bank offering comprehensive transactional banking, credit, treasury, fiduciary and corporate services as well as execution and discretionary asset management. Its client base consists of high-net-worth individuals, professional intermediaries, non-trading companies, trusts, governments and institutional investors.

The principal reasons for the acquisitions are that it will allow the group to:

• simplify and focus its group structure and create a substantive, wholly owned bancassurance and wealth division;
  
• facilitate the natural flow and segmentation of clients, products and services provided by these businesses to and from the wider Nedbank Group;
  
• extend the scope and range of products that Nedbank Group will sell to its clients in future, particularly in the competitive bancassurance market; and
  
• acquire a diverse stream of non-banking income that will increase Nedbank Group’s non-interest revenue (NIR).
  

Management is of the opinion that the ability of the group to generate new business and enhanced synergies as a result of these acquisitions justified the goodwill recognised in the statement of financial position. The goodwill recognised as a result of the transaction is not tax-deductible.

Nedbank Group acquired the balance of the joint ventures’ shareholding and loan account from Old Mutual South Africa Limited for the issue of 10 157 719 shares (total purchase consideration R926 million).

The acquired businesses contributed R619 million to the group’s NIR and R259 million to the group’s profit for the period after the acquisition. If the acquired businesses had been included in the statement of financial position for the entire year, it would have resulted in NIR of R920 million and profit for the period of R370 million, relating to the aquired businesses, being recognised in the consolidated statement of comprehensive income.

There was a deemed disposal of the existing joint ventures, which were previously equity-accounted, that resulted in a non-headline after-tax capital profit of R547 million being recognised in profit and loss. The acquisition date fair value of the equity interest in the entities immediately before acquisition was R846 million.

The merging entities are Nedbank Limited and Imperial Bank Limited. Imperial Bank’s businesses will be combined, in principle, with the following clusters:

• The Motor Finance Corporation will be included in Nedbank Retail.
  
• Supplier Asset Finance will be included in Nedbank Business Banking.
  
• Property Finance will be included in Nedbank Corporate.
  
• Professional Finance will be included in both Nedbank Wealth Management and Nedbank Retail.
  

The purchase price is R1 853 million [R1 775 million plus a Johannesburg Interbank Agreed Rate (JIBAR) factor applied up to 5 February 2010], which excludes total transaction costs of R5 million that will be recognised in the statement of comprehensive income. These transaction costs exclude costs associated with the integration of the above business units into the group.

The total purchase consideration will be settled in four instalments. The total amount, which will include interest at the three-month JIBAR, amounts to R1 889 million and will be settled by 13 August 2010.

38

Share capital

• Issued
  498 671 016 (2008: 468 939 397) fully paid ordinary shares of R1 each

• Issued
  349 082 721 (2008: 312 781 032) non-redeemable, non-cumulative preference shares of R0,001 each

• Issued
  3 000 000 (2008: 3 000 000) non-redeemable, non-cumulative, non-participating preference shares of R0,0005 each

The preference shares are classified as equity instruments by Nedbank Limited and Imperial Bank Limited (‘the entities’) and have therefore been classified as non-controlling interest in the consolidated financial statements.

Each preference share confers on the holder the right to capital of the company in the form of a cash dividend prior to payment of dividends to any other class of shareholder. The rate is limited to 75% of the prevailing prime rate for Nedbank Limited and 70% of the prevailing prime rate for Imperial Bank Limited on a deemed value of R10 for Nedbank Limited and R100 for Imperial Bank preference shares, and is never compounded. The dividends, if declared, accrue half-yearly on 30 June and 31 December and are payable within 120 days of these dates respectively.

If a preference dividend is not declared, the dividend will not accumulate and will never become payable by the entities, whether in preference to payments to any other class of share or otherwise.

If, due to any amendment of the Income Tax Act, 58 of 1962, the dividends become taxable in the hands of the shareholders and the payment of the preference share dividends becomes a deductible expense for the entities, then the 75% of prevailing prime rate will be increased to the extent that the entities incur a saving on servicing the preference shares. If such an amendment does not result in a saving for the entities, but a decrease in the returns on the preference share investment, no amendment to the rate is envisaged.

Each preference share confers on the holder the right to a return of capital on the winding-up of the entities prior to any payment to any other class of share, but holders are not entitled to any further participation in the profits, assets or any surplus assets of the entities in such circumstances.

The holders of this class of share are not entitled to be present or vote (not even by proxy) at any meeting of the entities, except when a declared dividend or part thereof remains in arrears and unpaid after six months from the due date or a resolution is proposed that directly affects the rights attached to the preference share or the interests of the holder, including resolutions to wind up the entities or reduce the share capital.

At every general meeting where the preference shareholder is entitled to vote the voting rights are restricted to the holder’s nominal value in proportion to the total nominal value of all shares issued by the entities.

No shares in the capital of the entities, in priority to the preference shares, can be created or issued without prior sanction of the holders of preference shares by way of a resolution passed at a separate class meeting properly constituted in terms of the provisions set out in the articles of association.

Share options granted under the Nedcor Group (1994) Employee Incentive Scheme and Nedbank Group (2005) Share Option, Matched and Restricted Share Scheme have an exercise price fixed at the market price of the share on the day prior to the date on which the option is granted. Options may be exercised at rates determined by the schemes’ trustees and expire at the earlier of termination or at varying periods of up to 10 years from the granting of the option. On exercise of the option, the schemes will subscribe for shares in Nedbank Group Limited at the full market price then ruling. The difference between such market price and the exercise price is recoverable from the subsidiary that employs the relevant employee in respect of these options granted before 7 November 2002. Any amounts accrued by subsidiaries prior to exercise are transferred to non-distributable reserves net of the amount paid in respect of options exercised. As all options issued before 7 November 2002 have expired, this reserve is no longer required in the current year.

Refer here for further details on share option schemes.

39

Amounts owed to depositors

40

Provisions and other liabilities

The group enters into transactions where the fair value of the financial instruments are determined using valuation models for which certain inputs are not based on market-observable prices or rates. Such financial instruments are initially recognised at the transaction price, which is the best indicator of fair value. The transaction price may differ from the valuation amount obtained, giving rise to a day-one profit or loss.

The difference between the transaction price and the valuation amount, commonly referred to as ‘day-one profit or loss’, is deferred and either amortised over the life of the transaction, deferred until the instrument’s fair value can be determined using market-observable inputs, or realised when the financial instrument is derecognised.