National Australia Bank Limited · ASX:NAB
National Australia Bank — FY2003 Earnings Presentation
48 slides from National Australia Bank's earnings presentation, Nov 26, 2003
Slide 1: 2003 Full Year Roadshow Pack
2003 Full Year Roadshow Pack November 2003 nabgroup.com Vk National
Slide 2: Index
Index Slides - Banking earnings analysis oo 28 - 36 Additional asset quality & economics — 37-42 Other | 3 45 National
Slide 3: Full year results overview
Full year results overview Targets achieved 10.2% CAGR from Ongoing Operations = 8.2 % EPS growth after currency and pensions impact ® Strong results across most $m divisions 4000 = Asset quality improves 3000 Strong shareholder returns 2000 ® 10.9% increase in final dividend to 83c LL . Sep 99 Sep0
Slide 4: Solid result - 11% cash earnings growth from ongoing operations
Solid result - 11% cash earnings growth from ongoing operations ® Cash earnings growth from ongoing operations up 11.0% before pensions and currency impact ® Pensions and foreign exchange movements reduce cash earnings by 2.9% m $ Other Wealth Large | 30.5% Ls NZ Corporate i i ve) 0, Pension; Europe
Slide 5: Result built on traditional strengths of the business
Result built on traditional strengths of the National Sep 03 v Sep 03 v Sep 02 Sep 02 (ex FX) Average Interest Earning Assets 8.4% AN 10.5% t Total income - Banking 55% n | “7. 1% ae , | Cost i income ratio - Banking (ex pensions) 4 47.6% 30 bp Wy | Underlying Profit - Banking | 4.9% = 6.4% Ar Asset
Slide 6: Australia - strong competitive position and earnings momentum
Australia - strong competitive position and earnings momentum Financial Services Australia Cash Earnings $m 2000... — — — . CAGR - 17% * Compound cash earnings growth of 17% since 2001 1750. * Cost to income ratio down 1500 400 bp to 45.7% since 2001 1250 * NAL’s to gross loans down 17 bp to 0.35% i
Slide 7: Financial Services Australia - Strong market shares and leading share of wallet
Financial Services Australia —- Strong market shares and leading share of wallet Personal Market Shares 20% — Housing | . . | eee otner Personal Housing market share has 18% ____nmm Retail Deposits" _ grown from 16.5% to 18% since ‘ —— 2000 ' seacoast tg, = 47% share of wallet in consumer - nearest
Slide 8: New Zealand - strong competitive position and earnings momentum
New Zealand - strong competitive position and earnings momentum Financial Services New Zealand Cash Earnings $NZD 350 | * Compound cash earnings CAGR - 18% growth 18% since 2001 300 * Cost to income ratio down 590 oy 360 bp to 50.3% since 2001 * NAL’s to gross loans of 0.12% 200 - FY01 FY 02 FY03 %
Slide 9: Strength and diversity of New Zealand
Strength and diversity of New Zealand Underlying Profit* NZD$M 400 ° Segment Lending Share 47% m FY 02 = FY 03 Business 24 % 4 8%, 300 — Agribusiness 19 % 200 Housing 16 % 4 23% Personal 16 % 100 Cards 31% 0 q Business Personal Agribusiness Cards * Excludes internal recharges & provisions National 3
Slide 10: Corporate & Institutional Banking strong growth in customer related banking
Corporate & Institutional Banking strong growth in customer related banking Cash Earnings 6.2% Refocussed on client based business Growth * $m 1000 Asset quality improving 800 Strong capability # Leader in A$ debt markets 600 ® Derivatives and commodities * Structured finance and securitisation 400
Slide 11: Improving quality of Corporate business
10 Improving quality of Corporate business 100% 90% | 80%] 70%) Corporate & Institutional Banking Investment Grade Distribution Ss Investment Grade ep-02 Mar-03 O Sub investment Grade Client based income up 14%* Income $m 2000 1,938 1,897 1500)- 1000} 500 }~ Sep Sep 02 «(03 02 «03S 02s 3 02 «(03 Sep
Slide 12: Wealth Management - distinctive capability focused on distribution
Wealth Management - distinctive capability focused on distribution not manufacturing Diversified Business) Multi Channel Distribution(?) Insurance 56% IFAs 31% Other 5% Aligned 44% Investments 9, 39% Salaried 25% Key Differentiation * 4th largest Manager of Managers globally * Integrated model * Ide
Slide 13: Wealth Management - strong position in key segments
Wealth Management - strong position in key segments Australian Retail Risk Business* Australian Investments Business $M . 4207 18 % Share of FUM Rank 380° | Platforms - master funds / wraps () 19% 1 | 7 14% F 340: i ° Retail funds management “ 14% 2 7 SME®) 15% 2 300-. H . 13% Implemented. Consultin
Slide 14: Financial Services Europe results in line with expectations
Financial Services Europe results in line with expectations Cash earnings after tax £m 400 28% Growth. Cash eamings up 5.9% on — 9% Sep 02 excluding pension fund Growth expense ® Deposits up 6.9% = Cost to income ratio 49.1%, (excluding pension fund expense) ® Asset quality improved - NALs/ Loans to
Slide 15: UK provides good growth opportunities but we have work to do
UK provides good growth opportunities but we have work to do Platform for growth * Solid starting base * Transfer of capability - Yorkshire experience * Take advantage of international scale The right people * John Stewart * Some of the group’s best talent including local customer facing executives
Slide 16: Progress on efficiency and growth initiatives
Progress on efficiency and growth initiatives Merging Clydesdale and Yorkshire legal entities * Important step in creating one integrated bank in UK and Ireland - completion 04 * Retaining brands Converging Clydesdale and Yorkshire technology platforms * New front end platform for Yorkshire Bank in
Slide 17: Asset quality - improved ratings and security position
Asset quality - improved ratings and security position 50% 40% 30% 20% 10% 0% Business banking rating distribution 65% Bi sep 02 [Sep 03 60% 55% 50% 45% 40% AAAto BBBto BB+to BB NAL BBB+ BBB- BB ccc Dec 01 Sep 02 Sep 03 * Category A & B lending where security is > 100% of the facility Business Secur
Slide 18: Coverage ratios and through the cycle provisioning remains sound
Coverage ratios and through the cycle provisioning remains sound Provisioning coverage Average write offs to B&DD charge over past 8 years 200% 700 $m 115 % 150% 500 Total Provision to Impaired Assets 100% 300 Specific Provision to Impaired Assets 50% TER 100 0% Sep 97 Sep 99 Sep 01 Sep 03 National
Slide 19: Australian Economic and Financial Outlook
Australian Economic and Financial Outlook Sustained Growth, % Slightly Lower Unemployment 12 i 10. ” a "ey Unemployment Benen Sete 6 ° +44? ee 4 L 2: 8) b 2 L 4 1982 1986 1990 1994 1998 2002 % Relatively Low, But Rising Interest Rates % Low Inflation, About Middle of Target 20 T 15 - 10. 5- | 90 day
Slide 20: Consumer and housing dynamics
Consumer and housing dynamics Interest paid to house prices as % of average income 120 100 a 07 a 60, FT aw 40 20 9 Dec-83 Dec-87 Dec-91 Dec-95 Dec-99 Dec-03 Financial System Housing Credit % 9 Growth Annual % change 25 77-80 85 90 95 00 «603 Household Balance Sheet 0.55 Household loans to financial
Slide 21: Delinquency rates remain stable
Delinquency rates remain stable Group 90 day delinquency 25% ; + Home Loan delinquencies low and 2.0%: stable + Write off rates stable at below 2bp * Same credit standards are applied to all home loans irrespective of origination channel 1.5%" 1.0%: 0.5%: Personal loans wa Mar 02 @E Mar 03 ™ Sep 02
Slide 22: Loan to value ratios are consistent across investment and owner occupied housing
Loan to value ratios are consistent across investment and owner occupied housing Dynamic LVR f@ Owner Occupied @ Investment 70% 50% 30%~ | 1% | < 60% 60-<70% 70-<80% 80%+ LVR Historical LVR i Owner Occupied @ investment 45% 35% + 25% 15% 5% < 60% 60-< 70% Ro < 80% 80%+ + LVR’s for investment housing
Slide 23: Risk profile for inner city apartments acceptable
Risk profile for inner city apartments acceptable Housing portfolio segmentation for Australia = Recently completed a comprehensive review of this segment of the portfolio ® This includes the CBD and surrounding postcodes ® Tighter credit criteria for this lending » Average LVR for inner city is 66%
Slide 24: Committed to ongoing active capital management
Committed to ongoing active capital management * Comfortable managing capital levels to lower end of ACE target range ™ Change to ACE has no impact on ongoing capital generation ™ Regulatory ratios have been aligned to ACE target 9 7 10.2 10.2 10 Tar ; rao Oe Sent ACE/RWA 4.75 -5.25 4.95 6 Core Tier
Slide 25: Dividend increases 10.9%
Dividend increases 10.9% cents per Dividend Growth share Payout 170 ™ Final dividend of 83 cents per 460 61% share, franked to 100% 140 ™ Total dividend of 163 cents per on 5% share, franked to 100% is 57% — Consistent dividend growth . 55% — 9.8% CAGR over last 5 years ee eee : 53% 1998 1999 2000 2
Slide 26: Outlook
Outlook * Economic outlook is positive * Financial Services Europe earnings will be impacted by reinvestment, higher pensions costs * Expect the remainder of our businesses to continue producing solid results in the next 12 months * Remain confident in strength of our businesses * Will continue to p
Slide 27: Our strategy plays to our strengths
Our strategy plays to our strengths ‘Our Purpose: “Growth through excellent relationships” Our Vision: We will be a leading international financial services ‘company __ which is trusted by you and renowned for getting itright = Strategic Pillars: Deliver solutions that help meet customer’s complete
Slide 28: Index
Index Slides Overview . 2-4 Divisions = = 5-15 | Asset quality and Housing 16-22 Capital, Dividends & Outlook 23 - 26 National
Slide 29: Banking cash earnings drives the result
Banking cash earnings drives the result ® Cash earnings up 6.5% ® Cash earnings up 9.6% before pensions and currency impact Nil 45% Oll OE! 11.7% Expenses B&DD Tax 65% 0.2% 4.2% Sep 02 adjusted Sep 03 Sep 03 National 28
Slide 30: Strong volumes drive net interest income
Strong volumes drive net interest income Banking Net interest income Volume / margin contribution $B 75 6.5 5.5 45 3.5 3.0 | Volume Margin Sep 02 Sep 03 * excluding currency impacts National 29
Slide 31: Strong volumes drive net interest income
Strong volumes drive net interest income Growth September 2002 to September 2003 Gross loans and advances 7% 3% Housing 7% Term loans 8% Retail banking deposits Hf Growth from September 2002 & Growth from September 2002 excluding currency impacts National "30
Slide 32: Strong volumes drive net interest income
Strong volumes drive net interest income Group margin analysis Retail CIB Banking Other (0.11%) (0.08%) 0.05% Sep 02 Sep 03 National 31
Slide 33: Strong Banking other operating income growth
Strong Banking other operating income growth $B 45 Up 11.7%" | 4.0 | nl 3.5 3.0 Sep 02 Sep 03 * excludes currency impacts Loan fees Money Transfer fees Fees and commissions Trading income @Large $M 500 1,000 1,500 Other income H Sep 02 fi Growth on Sep 02 excluding currency impacts % National 32
Slide 34: Banking expenses up 5%
Banking expenses up 5% = Modest growth in personnel and occupancy costs ® Large increase in FSE pension expenses contributes 1.2% to growth ® Increasing compliance expense ® Non-core adds 2.0% Pensions* FX 1.7% Sep 02 ics Sep 03 * FSE pension costs National 33
Slide 35: Non-core expenses
Non-core expenses ® |mpact of IFRS and Basel Il on ISI Program - Bank Analyser to replace SEM Banking - Write down $ 40 million ® UK related $41 million - EMU write off expense - Acquisition due diligence - DLC development - Funding structures ® Other - $26 million - reclassification - $19 million -
Slide 36: Positioning for Growth FTE targets achieved
Positioning for Growth FTE targets achieved $m 580 No. 500 370 2,040 400 + me 2,000 300 470 2,033 200 31 1,000 100 Restructuring Annualised © + NetFTE expense savings reductions Mi Progress to Sep 03 v2 Balance remaining National 35
Slide 37: Ongoing productivity improvement
Ongoing productivity improvement Banking Cash earnings per average FTE 125 A $000s 100 50 Sep 01 Sep 02 Sep 03 Financial Services Europe 35 Cash earnings per FTE £000s 30 25 15 Sep 01 Sep 02 Sep 03 Financial Services Australia Cash earnings per FTE 125 A $000s 100 7 50 Sep 01 Sep 02 Sep 03 Financial
Slide 38: Active management of non-accrual loans
Active management of non-accrual loans Gross non-accrual loans $m $m 2.0% 3000 1500 FX translation 1.5% adjustment 2500 1000 4.0% 17% (636) Bt 500 0.5% (0.51% 1500 — Written ml . off | Sep Sep Sep Sep Sep Sep Sep Sep Returned to 96 97 98 99 00 01 02 03 500 performing or repaid @ Gross NALs -_ vom, G
Slide 39: Asset quality — ratings improved
Asset quality — ratings improved Percentage of balance 50% 40% 30% 20% 10% 0% Business banking rating distribution ate ee AAAto BBBto BBtto BB- NAL BBB+ BBB- BB ccc Misep 02 © Sep 03 66% 62% 58% 54% 50% \* 65% 60% 55% 50% 45% 40% 44 Financial Services Australia business - CRS 1-7 Sep 01 Sep 02 Sep 0
Slide 40: A higher proportion of growth has occurred in lower risk products
A higher proportion of growth has occurred in lower risk products NAB Balance Sheet Growth ANZ Balance Sheet Growth 30% 30% 25% 25% 20% 20% 15% 15% 10% 10% bY 5% O% 0% -B% -B% -10% “10% -18% “15% Growth in '03 Growth in '02 Growth in '03 Growth in ‘02 CBA Balance Sheet Growth WBC Balance Sheet Growt
Slide 41: B&DD Charge to Gross Loans & Acceptances
B&DD Charge to Gross Loans & Acceptances 0.6% 0.5% 0.4% 0.3% 0.2% 0.1% 0.0% Total Bad & Doubtful Debt Charge to Gross Loans & Acceptances 0.43% 22 to 33 bps 0.26% 0.33% ™ 0.22% 0.24% 0.23% 2000 2001 4HO02 2H02 4HO3 2H03 % National 40
Slide 42: Quality of broker originated loans is sound
Quality of broker originated loans is sound Housing portfolio composition 13% { NAB originated @ Broker originated ~ 87% Housing - new business flows for last 6 months » Volume growth is strong in both channels * Retail channel has grown at 17% vs system growth of 20% in last year * Broker channel i
Slide 43: Key Economic issues for Australia
Key Economic issues for Australia + Very strong domestic demand and now improving globally exposed sectors plus rural (up 30% in 03/04 and will add 0.75% to GDP) + NAB survey shows further acceleration of growth into the December quarter. Capacity utilisation, forward orders and confidence at 9 year
Slide 44: ... and the currency expected to stabilise around low US$0.70
... and the currency expected to stabilise around low US$0.70 Model & confidence intervals v Actual L * Currency 0.9 A appreciation partly Ay due to strong kW q economic 08 \ performance vA r \ ih 0.7 Noy wae ig A A * More upside 06 | Ni y I] | likely in 03/04 LI Mv ....GDP picks up 0.5 W ....World
Slide 45: Hybrid funding on financial results
Hybrid funding on financial results TrUEPrs TPS Issued Sep 98 Sep 03 Amount USD450m GBP400m Cost of distributions 8% fixed 5.62% fixed P&L Impact TrUEPrs TPS NII -- swap and Fixed USD Fixed rate GBP funding required / swapped to swapped to replaced floating AUD, | floating rate GBP NZD Debt funding
Slide 46: Illustrative impact of Hybrid transactions
Illustrative impact of Hybrid transactions 2003/04 2004/05 Full year Impact Impact Impact NII — swap 18 0 18 NII — replacement / retirement funding 15 (16) (i) Total NII impact 33 (16) 17 Tax effect (5) (2) (7) NPAT impact 28 (18) 10 Distributions (17) 21 4 “EPS impact” 3} 3 14 Note: Subject to timi
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, November, 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
Slide 48: National - www.nabgroup.com
Vi National www.nabgroup.com
National Australia Bank — FY2003 Earnings Presentation on 6ix