National Australia Bank Limited · ASX:NAB
National Australia Bank — H1 2003 Earnings Presentation
54 slides from National Australia Bank's earnings presentation, May 14, 2003
Slide 1: 2003 Half Year Results
‘ies 2003 Half Year Results Frank Cicutto, Managing Director and CEO Richard McKinnon, Chief Financial Officer 14 May 2003 ¥National national.com.au
Slide 2: Agenda
Agenda Overview and Highlights - Frank Cicutto Financial Overview - Richard McKinnon _ - Group Result - Divisional Results Outlook - Frank Cicutto % National
Slide 3: Overview
Overview * This is a good result in difficult market conditions — $2.1 billion in cash earnings from ongoing operations — Solid banking results, especially in Australia & NZ — Weak investor sentiment affects Wealth Management — Non-cash items impact net profit of $1.9 billion * We continue to delive
Slide 4: Highlights
Highlights Strong underlying profit performance Conservative approach to credit risk Good balance between revenue growth and cost savings Ongoing investments for future growth % National
Slide 5: Agenda
Agenda Overview and Highlights = - Frank Cicutto Financial Overview - Richard McKinnon - Group Result | - Divisional Results Outlook - Frank Cicutto % National
Slide 6: First half result built on traditional strengths
= First half result built on traditional strengths : of the National March 03 v March 03 v March 02 September 02 Average Interest Earning Assets 10.3% 4 7.0% Total income - Banking | | = | 6.6% a 3.4% Cost income ratio - Banking 47.3% , 70 bp ¥ | Underlying Profit - Banking | a ae 8.0% a - Asset qua
Slide 7: Net profit impacted by non cash items
Net profit impacted by non cash items March Sept March Mar 03 Mar 03 03 02 02. vSep02 vMar02 1 | Net Profit 1,877. 1,116 2,263 68.2% (17.1%) j Wealth Management revaluation 205 389. (287) HomeSide 9 (107) Goodwill ; 49 53.48 Significant items 389 17 Cash earnings ongoing operations 2,131 1,956 © 1,9
Slide 8: Banking net interest income up 5% driven by strong housing and deposit growth
Banking net interest income up 5% driven | by strong housing and deposit growth Gross loans and advances up 16.4% Housing up 21.0% Cards up 5.3% Leasing up 5.2% Term Lending up 3.0% H2 02 H1 03 ¥National exchange rates
Slide 9: CIB
CIB Money Markets 0.06% Other 0.6% Retail CIB Banking (0.07%) (0.06%) Haif Year Half Year Adjusted Sep 02 March 03 March 03 % National
Slide 10: Australian retail margins impacted by changes in mix
{Australian retail margins impacted by Ichanges in mix Volume growth Australian retail banking volume growth Product margin % Mar 2003 v Mar 2002 & % 25 March 2003 product margin comparison 6.0 + 5.0 20 + + 40 15 + Ne 1 3.0 10 + 1 2.0 5 oy 1 10 o 4 L 0.0 Home Other Loans Lending Volume Growth =—_ Pr
Slide 11: Australian retail margins impacted by quality improvements in business lending
= Australian retail margins impacted by : quality improvements in business lending % of BFS Loans CRS 1-7 % of BFS Loans CRS 12-15 8% 7% 8% 5% 4% Dec-01 Mar-02 Jun-02 Sep-02 Dec-02 Mar-03 Dec-01 Mar-02 dun-02 Sep-02 Dec-02 Nar-03 % of fully secured loans in BFS Portfolio 72% T1% *% of BFS loans CRS
Slide 12: Banking - other operating income up 9.5%
Banking - other operating income up 9.5% $b 2.2 2.1 ete Up 9.5% on 2.0 ~— 1.9 1.8 1.7 1.6 1.5 H1 02 H2 02 H1 03 % National
Slide 13: Other operating income components
2.1 2.0 1.9 1.8 1.7 1.6 1.5 Loan fees Money Transfer fees | Fees and commissions Trading income 2.2% 413.1% M15.6% 200.400 .-.600 $ M's H1 02 Growth on H1 02 A7.2% % National
Slide 14: Expenses contained
Expenses contained $b 3.5 Wi Wealth Management Banking General Expenses fal fl) Occupancy | Personnel % National
Slide 15: Banking expenses
0 { 55 to : OC LCL ay 7 - ie ee FSE — excluding eee FSA pension costs Banking 5 CIB 35 ' H1 02 H2 02 H1 03 % National
Slide 16: FTE
FTE 580 $m _58¢ — 3000 500 400 370 2000 300 200 1000 100 mi Balance Remaining IN 0 : HZ) Progress to March 2003 Restructuring Annualised Net FTE expense savings Reductions % National
Slide 17: Continued reduction in impaired assets
$m 3000 2500 Continued reduction in impaired assets March 2002 Written (60) Written New off off R Returned to Petlonaine Performing or repaid or repaid . . Foreign Foreign Currency Currency Translation |, Translation adjustmen adjustment Sept 2002 % National
Slide 18: Gross NALs
$b 2.0.~ 1.5.°- 1.0... 0.5 = is) zl Ee is Sep Sep 95 96 i Gross NALs 0.59% . Sep Sep Sep Sep Sep Mar Sep Mar 97 98 99 00 01 02 02 03 ——@— Gross NALs to Gross Loans & Acceptances 2.00% 1.50% 1.00% 0.50% 0.00% % National
Slide 19: Improved portfolio composition and level of security
5 Improved portfolio composition and level of j security Loan Composition ~ Sep-02 Loan Composition ~ Mar-03 8 Housing mm Leasing Credit Cards Term Lending 4 Overdrafts Other Group Balance - Business Customers 70 ‘Fully Secured _C (© Partially | ‘Secured TZ Unsecured % National
Slide 20: Charge to provide for doubtful debts remains stable
Charge to provide for doubtful debts remains stable $m 700 600 500 400 ' 300 200 100 y) a Sep Mar Sep 99 00 00 01 Mar Sep Mar 02 02 03 ¥National
Slide 21: Strong provisioning adequacy through the cycle 1996 - 2003
Strong provisioning adequacy through the cycle 1996 - 2003 700 $m 120% 600 5 500 + 400 5 99% 300 200 + 400 + 0 National Australia Bank Average Other MTBs (ANZ, CBA, WBC) | Average net write offs «7, Average net write offs Average P&L charge He) fl] a Average P&L charge National % = Average charge /
Slide 22: Asset quality remains sound - coverage ratios
200% 180% 160% 140% 120% 100% 80% 60% 40% 20% 0% Asset quality remains sound - coverage ratios ——— ————e / Total Provision to Impaired Assets f Specific. Provision to.lmpaired Assets ltrs nemesis lea 4 4 | 1, n n n Sep-97 Sep-98 Sep-99 Sep-00 Sep-01 Mar-02 Sep-02 Mar-03 % National
Slide 23: Asset quality - selected sectors
Asset quality - selected sectors As at Mar 03 % of total Investment Exposures Group Grade Non-accrual $bn Exposure $bn $bn 2.63 0.64 1.48 0.03 Energy - Gas/ Electricity | ai j2. 282 8.81 O27 Hospitality 5.31 1.29 0.04 __ Insurance (excl. Government) 730 ATT 7s Ts Technology Telecommunications % Nati
Slide 24: New capital benchmark & target ranges
New capital benchmark & target ranges * Movement to Adjusted Common Equity (ACE) ratio as key capital benchmark * Reset of capital targets following internal capital review Capital Targets (%) Old New ACE/RWA = 4.75 -5.25 Core Tier 1 §.25.— 5.75 6.00. -.6.50 Tier 1 6.25 —6.75 7.00 — 7.50 Total Regul
Slide 25: Strong capital position
Strong capital position % 12 10 mq Tier 2 (less 8 deductions) Tier 1 (hybrid 6 instruments) [i Core Tier 4 ‘ @ ACE 2 % National
Slide 26: Increased dividend and payout
Increased dividend and payout Dividend: Growth Cents 460 * Dividend of 80 cents per sao | 7 %% share, franked to 100% 120 «11.1% increase on Mar 02 100 es Consistent dividend growth .° s™ - 9.3% CAGR over last 5 6 56% years . ss% °* Expect to maintain 100% 3 | say franking for final dividend 1997 19
Slide 27: Economic Value Added - 30% growth
Economic Value Added - 30% growth 900 800 700 600 500 400 300 200 H2 01 H1 02 H2 02 H1 O03 EVA® is a registered trademark of Stern, Stewart & Co ¥National
Slide 28: Agenda
Agenda Overview and Highlights Frank Cicutto Financial Overview Richard McKinnon - Group Result - Divisional Results Outlook Frank Cicutto % National
Slide 29: % National
% National
Slide 30: Financial Services Australia
Financial Services Australia Cash Earnings after Tax 1000 900 800 700 600 500 H1.02 H2 02 H1.03 Comparatives before significant items ¥National
Slide 31: Financial Services Australia
Financial Services Australia Oza st\anisle(eciicemecyem ° Underlying profit up 13.7% on Mar 02 * Loans up 16% (Housing up 22%) on Mar 02 * Cost to income ratio improved from 48.9% to 45.6% * Asset quality improved - NALs/ Loans was 0.52%. $m Up 3.9% on Mar 02 800 700 600 500 H1 02 H2 02 H1 03 Compar
Slide 32: Maintaining market share and improving quality in business banking
Maintaining market share and improving quality in business banking Total Loans. & Acceptances for. Business Lending Australia 74,000 $m 70,000 68,000 66,000 + 64,000 |. 62,000 Sep.02 Mar.03 % National
Slide 33: Strong market share growth in Housing and Retail Deposits
Strong market share growth in Housing and Retail Deposits Housing Market Share in Australia 17.9% 17.8%} 17. Dope ey 17.6% | 17. 5%t 17 4%} 17.3%t 17.2%} 17.1%} 17.0% Mar-02.. Sep-02..-Mar-03 Retail Deposit Market Share in Australia 15.8% 15.6% }~~ 15.4% 15.2% 15.0%, 14.8% 14.6% 14.4% Mar-02 Sep-02
Slide 34: Financial Services Europe
200 Up 2.2% ; on Mar 02 * Cash earnings of up 8.2% on Sep 02 150 * Deposits up 8.1% on Mar 02 * Cost to income ratio 47.7%, 100 (excluding pension fund expense) 50 * Asset quality improved - NALs/ Loans to 0.80% 0 H1 02 H2 02 H1 03 Comparatives before significant items % National
Slide 35: Financial Services New Zealand
Financial Services New Zealand Cash Earnings after Tax 200 poser Up 21.5% Poo No NZ$m__| on Mar o2 * Total income up 12.8% on 150 |-- ~ Mar 02 mth _ * Cost to income ratio 50.8%, 100 }- ~ improved from 53.2% * Asset quality improved - 80 Popes NALs/ Loans to 0.17% 0 T 1 H1 02 H2 02 H1 03 Comparative
Slide 36: Corporate & Institutional Banking
Corporate & Institutional Banking Cash Earnings after Tax* 500 $m | UP.9.3% | Ne * 11% growth in client based 400 on Mar 02 ~ revenue on Mar 02 * Decline in Money Markets 300 -- income * Asset quality steady - NALs/ 200 ~ Loans to 0.7% 100 -- * 86% of credit balances are investment grade or above 0
Slide 37: Total Income, Client Revenue, Risk & Trading, Securities Services
Total Income Client Revenue Risk & Trading Securities Services (excl. Securities Services) % National
Slide 38: Wealth Management cash earnings
$m Cash Earnings after Tax* * Continued poor investor sentiment and investment 250 market volatility - lower fee Down 24.8% revenue on Mar 02 200 * Stable life company profit * Stable disability claims 150 experience * Actively managed business 100 expenditure * Increased regulatory & 50 compliance
Slide 39: Wealth Management revaluation
Wealth Management revaluation $M — *-Lower Retail NS Sales Volumes mh * Weak pra. NeCange | Shahan international 211 assumptions & 191 Operating 450) Environments * Active Expense Management Gross business valuation loss ($239)M pre-tax 30 Sep 2002 31-Mar.2003 % National
Slide 40: Summary
Summary * Strong result from Banking * Strong volume growth * Cost savings on target * Continued productivity improvements * Asset quality sound * Wealth Management well placed for market turnaround % National
Slide 41: Agenda
Agenda Financial Overview - Group Result - Divisional Results Overview and Highlights. .- Frank Cicutto - . Richard McKinnon Outlook - Frank Cicutto % National
Slide 42: Economic Environment
Economic Environment * Australian and New Zealand expected to maintain recent growth * The economic and competitive environment in the United Kingdom will remain difficult * Equity market outcomes are difficult to predict due to ongoing global uncertainty * Stronger A$ % National
Slide 43: Targets Confirmed
Targets Confirmed Target Cash EPS Growth Return on Equity 2003 targets Efficiency targets - Financial Services Australia - Financial Services Europe - Financial Services New Zealand - Corporate & Institutional Banking Insurance - Expenses to Income Investments... - Expenses to FUM.A 2004 targets 46%
Slide 44: Committed to the UK
Committed to the UK * Significant progress on medium term organic strategy * Revenue growth through differentiated products and capability * Expand Business Banking distribution footprint * New current account and deposit offerings ¢ Leverage mortgage success from Yorkshire to Clydesdale ¢ Medium te
Slide 45: Summary
Summary ¢ Strong underlying profitability * Continued focus on asset quality * Enhanced shareholder returns * Continue to balance revenue growth, efficiency and investment in future growth % National
Slide 46: National - www.national.com.au
¥National www. national.com.au % National
Slide 47: Disclaimer
Disclaimer The preceding material is a presentation of general background information about the National’s activities current at the date of the presentation, May 14, 2003. It is information given in a summary form and does not purport to be complete. It is not intended to be relied upon as advice t
Slide 48: Asset Quality - Aviation & associated industries
Asset Quality - Aviation & associated industries Portfolio Exposure by geography Z AAA to BBB+ Hi BBB to BBB- BB+ to BB BB- H >-BB- Mar-2003 Total. Exposure $2.66n Aust/NZ (80.4% Inv Grade) B +to CCC $0.1bn (2.5%) El. UK/Europe (0.1% Inv Grade) Non Accrual $0.0bn. (1.1%) Investment Grade . .$1.5bn .
Slide 49: Asset Quality - Energy - Gas/Electricity
Asset Quality - Energy - Gas/ Electricity Portfolio Exposure by geography @ AAA to BBB+ 4% Hi BBB to BBB- BB+-to BB BB- > BB- Mar-2003 Total E 11.1 otal Exposure $1.1.1bq Aust/NZ (83.9% Inv Grade) 0, B+ to. CCC $0.0bn (0.2%) H Americas (46.5% Inv Grade) Non Accrual $0.27bn (2.4%) ] UK/Europe (91.2%
Slide 50: Asset Quality - Hospitality
Portfolio AAA to BBB+ BBB to BBB- BB+ to BB BB- > BB- Mar-2003 Total Exposure $5.3bn B+to.CCC Non Accrual $0.0bn (0.5%) $0.0bn.. (0.8%) Investment Grade 3.3bn- (62.2%) Asset Quality - Hospitality Exposure by geography Aust/NZ (64.7% Inv Grade) [UK/Europe (57.2% Inv.Grade) % National
Slide 51: Asset Quality - Insurance
AAA to BBB+ BBB to BBB- BB+ to BB BB- > BB- Total Exposure B+to.CCC Non Accrual Investment Grade Mar-2003 $7.3bn $0.0bn.: (0.0%) $0.0bn (0.0%) $7.1bn (97.3%) Asset Quality - Insurance Portfolio Exposure by geography 26% 33% El Aust/NZ (94.3% Inv Grade) H Americas (100.0% Inv Grade) Cl UK/Europe (98.
Slide 52: Asset Quality - Technology
AAA to. BBB+ BBB to .BBB- BB+ to BB BB- Portfolio Midd > BB- Total Exposure B+to CCC Non Accrual Investment Grade Mar-2003 $1.1bn $0.0bn (1.3%) $0.0bn (0.9%) $0.7bn (61.2%) Asset Quality - Technology Exposure by geography 22% 53% 19% 6% Aust/NZ (83.9%. Inv Grade) HB Americas (0.0% Inv Grade) |) UK/E
Slide 53: Asset Quality - Telecommunications
Asset Quality - Telecommunications Portfolio Exposure by geography Hl AAA to BBB+ 4% Hi BBB to BBB- BB+ to BB BE: 54% > BB- Mar-2003 7% Total Exposure $3.0bn Aust/NZ (87.7% Inv Grade) 0, B+ t0.CCC $0.0bn -(0.1%) H Americas (60.0% Inv Grade) Non Accrual $0.07bn (2.3%) £] UK/Europe (73.6% Inv Grade) L
Slide 54: Capital Management and Buyback
Capital Management and Buyback NAB Share Buyback 20 Dec 01:-— 31-Mar 03 #1 37.00 +1 36.00 | 35.00 -| 34.00 33.00 32.00 31.00 30.00 29.00 28.00 27.00 7,000,000 | 6,000,000 5,000,000 4,000,000 | 3,000,000 }/ 2 e = w a & ® 2 = a 2,000,000 | Shares Traded (Cut-off >7m) 1,000,000 os S s ah @ ee a aoe a w
National Australia Bank — H1 2003 Earnings Presentation on 6ix