National Australia Bank Limited · ASX:NAB
National Australia Bank — H1 2003 Earnings Presentation
53 slides from National Australia Bank's earnings presentation, May 22, 2003
Slide 1: 2003 Half Year Investor Presentation
2003 Half Year Investor Presentation ¥kNational national.com.au
Slide 2: Covering note
Covering note Please find a copy of our Half Year Investor Roadshow pack attached. Most of the material in the pack has been extracted from the half year results presentation. In the second attachment there are three slides on capital from the road show pack which may be of particular interest. They
Slide 3: Overview & Group Result
Overview & Group Result | Divisional Results — Outlook — ¥%National
Slide 4: Overview
Overview ie Strong underlying result — $2.1 billion cash earnings from ongoing operations up 7.4% on March 02 — Solid banking results, especially in Australia & NZ — Weak investor sentiment affects Wealth Management — Maintain low risk asset quality profile * We continue to deliver strong returns to
Slide 5: First half result built on traditional strengths
® First half result built on traditional strengths March 03 v March 03 v March 02 September 02 o ih Average Ir Interest Earning A Assets 10.3%. 7.0% 4s Total income - Banking — SS 6.6% h ; 3.4% ap Cost i income ratio - Banking 47.3% ao 70 bp ¥ 90 bp v Underlying Profit Banking oe 8.0% ” 5.3% Ar Asse
Slide 6: 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 $B 4.0 * Gross loans and advances Up 5.0% on up 16.4% Mar 02 35 * Housing up 21.0% * Cards up 5.3% 30 * Leasing up 5.2% ‘ * Term Lending up 3.0% 2.5 2.0 1 H1 02 H2 02 H1 03 ¥%National * volume growth excluding exchange rat
Slide 7: Margin impacted by Money Markets
Margin impacted by Money Markets CIB Money Markets Other 0.06% 0.6% Retail CIB Banking (0.07%) (0.06%) Half Year Half Year Adjusted Sep 02 March 03 March 03 ¥%National
Slide 8: Australian retail margins impacted by changes in mix
§ Australian retail margins impacted by Bchanges 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 + 1 4.0 15 + ~ + 3.0 10 + 1 2.0 5 + 4 4.0 0) l 0.0 Home Other Loans Lending Volume Growth = Prod
Slide 9: Australian retail margins impacted by quality improvements in business lending
f Australian retail margins impacted by t quality improvements in business lending % of BFS Loans CRS 1-7 % of BFS Loans CRS 12-15 8% 7% 6% 5% 4% Dec-01 Mar-02 Jun-02 Sep-02 Dec-02 Mar-03 Dec-01 Mar-02 Jun-02 Sep-02 Dec-02 Mar-03 % of fully secured loans in BFS Portfolio *% of BFS loans CRS 1-7 incr
Slide 10: Banking cost income improves to 47.3%
Banking cost income improves to 47.3 % Sof g 55 New Zealand Retail - 50.8% ae atta . ae ee Europe Retail --47:7% (excluding pension cost) 45 Australia Retail --45.6% Corporate & Institutional -.39.8% 35 H1 02 H2 02 H1 03 ¥%National
Slide 11: FTE
$m 580 FTE ———- 3000 370 2,040 300 200 100 0 Restructuring Annualised expense savings Net FTE Reductions 2000 1000 [2 Balance Remaining —Z Progress to March 2003 ¥%National 7
Slide 12: Continued reduction in impaired assets
$m 3000 2500 2000 1500 Written off Returned to Performing or repaid Continued reduction in impaired assets 45 1599 1586 | written (60) New off Returned to Performing . or.repaid ; Foreign Foreign Currency Currency Translation Translation | adjustmen adjustment |) ¥%National
Slide 13: Gross NALs
$b 2.0.~ 1.5 --- 1.0 0 - 0.5.05 0 Sep Sep Sep Sep Sep Mar Sep Mar 96 97 98 00 01 02 02 03. 2 Gross NALS -~-®— Gross NALs to Gross Loans & Acceptances 2.00% 1.50% 1.00% 0.50% 0.00% ¥%National
Slide 14: Improved portfolio composition and level of security
Improved portfolio composition and level of /security Loan Composition ~ Sep-02 Loan Composition — Mar-03 12% ma Housing @™ Leasing Credit Cards Term Lending 3 Overdrafts Other Group Balance - Business Customers 60% 56.3% 50% 40% 30% 20% | zy a 10% | 0% ° | Fully Secured up 5% fll Partial Secured |
Slide 15: Charge to provide for doubtful debts remains stable
Charge to provide for doubtful debts remains stable } * Charge up $62 m 3 600 : on Sep 02 * Expect full year charge in line with prior year 300 200 | 100 / Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar 98 98 99 99 00 00 01 01 02 02 03 ¥%National
Slide 16: Strong provisioning adequacy through the cycle
Strong provisioning adequacy through the cycle 1996 - 2003 700 + $m 120% 600 + 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 (il ig 9 ; Average P&L charge ¥National % = Average char
Slide 17: Asset quality remains sound - coverage ratios stable
200% 180% 160% 140% 120% 100% 80% 60% 40% 20% 0% Asset quality remains sound - coverage ratios stable ——————e / Total Provision to Impaired Assets - 156% f Specific Provision to Impaired Assets - 36% cnet fname SSA ce 4 4 | 1, 4. |, 1, Sep-97 Sep-98 Sep-99 Sep-00 Sep-01 Mar-02 Sep-02 Mar-03 ¥%Nation
Slide 18: New capital benchmark has minimal impact on capacity for capital management
New capital benchmark has minimal impact on capacity for capital management * Rating agency view of capital continues to be a key driver of surplus capital position * We have moved from using a Tangible Common Ratio (TCR) to using an Adjusted Common Equity (ACE) ratio as our primary capital target *
Slide 19: 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 12 te Ratios Target T ts (Y 10.2 argets (%) Mar 03 Ranges 10 92 a5 ACE
Slide 20: Dividend
Cents * Dividend of 80 cents per r + 80% share, franked to 100% 59% 160 140 420 * 11.1% increase on Mar 02 100 58% * Consistent dividend growth 57% - 9.3% CAGR over last 5 56% years ss% * Expect to maintain 100% franking for final dividend 54% 1997 1998 1999 2000 2001 2002 2003 m=z March +4 w2za Sep
Slide 21: Overview & Group Result
Overview & Group Result | Divisional Results | Outlook : ¥%National
Slide 22: Financial Services Australia
800 700 600 500 $m Up. 3.9% on Mar 02 H1 02 H2 02 H1 03 Comparatives before significant items Oe e=-lllacseecicettcress ° 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
Slide 23: 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 $m 0, 72,000 |. Up 10% on Mar 02 Up -7%. on Sep 02 * 70,000. 68,000 +}... 66,000 64,000 4... 62,000 : : ; Sep 02 Mar 03 * Growth rate on September 02 is. annualised ¥%N
Slide 24: Strong market share growth in Housing and Retail Deposits
Strong market share growth in Housing and Retail Deposits Housing Market Share in Australia 17.9% 17.8%] 17.7% 17.6% ITSM poo 17 AMT 17.3%} 17.2% 17.1%} 17.0% Sep-02 Mar- Retail Deposit Market Share in Australia 15.8% 15.6% 15.4% 15.2% 15.0% 14.8% 14.6% 14.4% Mar-02 Sep-0 Mar-03 * Housing lending up
Slide 25: Financial Services Europe
Financial Services Europe Cash Earnings after Tax Up 2.2% on Mar 02 * Cash earnings of up 8.2% on Sep 02 Deposits up 8.1% on Mar 02 Cost to income ratio 47.7%, (excluding pension fund expense) Asset quality improved - NALs/ Loans to 0.80% H1 02 H2 02 H1 03 Comparatives before significant items ¥%Nat
Slide 26: Financial Services New Zealand
Financial Services New Zealand Cash Earnings after Tax 200 Up.21.5% NZ$m on Mar 02 * Total income up 12.8% on 150 Mar 02 * Cost to income ratio 50.8%, 100 improved from 53.2% * Asset quality improved - 50 | NALs/ Loans to 0.17% 0 q : qT 1 H1 02 H2 02 H1 03 Comparatives before significant items ¥%Nat
Slide 27: Corporate & Institutional Banking
Cash Earnings after Tax* 500 Iem| Up 9.3% * 11% growth in client based on Mar 02 pe revenue on Mar 02 400 / ' * Decline in Money Markets 300 7 income / * Asset quality steady - NALs/ 200 / Loans to 0.7% 400 ' * 86% of credit balances are : investment grade or above 0 q : LJ t H1 02 H2 02 H1 03 *Afte
Slide 28: Corporate Banking Income Analysis
Corporate Banking Income Analysis Total Income - Down 4% Client Revenue * -Up 11% Risk & Trading - Down 28% — ce - Securities Services - Down 16% ¥National * Client Revenue excludes Securities Services revenue (shown separately)
Slide 29: Wealth Management
Down 24.8% on Mar 02 200 150 + 100 50 0 Ht 02 H2 02 *After outside equity interest Comparatives before significant items ° Continued poor investor sentiment and investment market volatility - lower fee revenue Stable life company profit Stable disability claims experience Actively managed business e
Slide 30: Wealth Management embedded value and sales volumes
Hn “i | "Sales Volumes iii * Weak Roll Net Ch: in | Shareholders’ : forwar “business net assets International 211. assumptions. & 191 Operating experience . (450) Environments Gross business ¢ Active Expense valuation loss Management ($239)M pre-tax 30 Sep 2002 31 Mar 2003 ¥%National
Slide 31: Outlook
Overview & Group Result | Divisional Results — [ Outlook ¥%National
Slide 32: Economic Environment
Economic Environment * Australian and New Zealand expected to maintain recent growth * The economic and competitive environment in the United Kingdom will remain difficult ¢ Equity market outcomes are difficult to predict due to ongoing global uncertainty ¢ Stronger A$ ¥National
Slide 33: Targets Confirmed
Targets Confirmed Target Cash EPS Growth Return on Equity 2003 targets 8-11 % 18.0% + Efficiency targets - Financial Services Australia - Financial Services Europe - Financial Services New Zealand - Corporate & Institutional Banking Insurance - Expenses to Income Investments —- Expenses to FUM.A 200
Slide 34: 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 35: Clear Direction and Focus
Clear Direction and Focus * Continue to drive strong underlying profitability * Maintain low risk asset quality profile ¢ Enhance shareholder returns * Continue to balance revenue growth, efficiency and investment in future growth ¥National
Slide 36: www.national.com.au
¥National www.national.com.au ¥National
Slide 37: 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 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 to inv
Slide 38: Asset Quality - Consumer Lending
Asset Quality - Consumer Lending Total Assets Overdrafts 1% Credit Cards 5% Personal Loans 6% Home Loans 88% ¥National
Slide 39: Asset Quality - Consumer Lending
Asset Quality - Consumer Lending 90+ Days Delinquency Values | Personal Unsecured Assets As a Percentage of the Outstanding Balance. Outstanding balance at end March 2003 2.0% Overdrafts 7% Personal Loans 48% Home Personal Credit Overdrafts Total Loans Loans Cards Credit Cards 45% fi Mar-02 Sep-02 B
Slide 40: Historical housing growth in Australia
Historical housing growth in Australia Financial System Housing Credit Growth Annual % change 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 ¥%National
Slide 41: Australian Housing Write Off Rates
Ly £ fional S Q & Yee 0.045% 0.040% 0.030% 0.025% 0.020% 0.015% 0.010% - 0.005% 0.000% - ® Australian Housing Write Off Rates fe 0.035%
Slide 42: Asset quality - selected sectors
Asset quality - selected sectors * 86% of Wholesale book is investment grade * 78% of sectors in table are investment grade As at Mar 03 % of total Investment Exposures Group Grade Non-accrual $bn Exposure $bn $bn Aviation & associated industries 2.63 0.64 1,48 0.03 eee eee ee Hospitality 5.31 1.29
Slide 43: TCR Vs ACE position at March
TCR Vs ACE position at March 03 At March 2003, A$ million TCR Total common equity (excluding tier 1 hybrids=$2,675m) 21,140 DRP accrual 163 Less deductions: — WMintangible at acquisition (2,448) - Goodwill (787) — interim dividend (1,205) — investment in WM deducted from total capital — investment i
Slide 44: Asset Quality - Aviation & associated industries
Asset Quality - Aviation & associated industries Portfolio Exposure by geography WZ AAA to. BBB+ Hi BBB to BBB- BB+ to BB BB- H >. BB- Mar-2003 Total.Exposure $2.8bn Hl Aust/NZ (80.4% Inv Grade) B + to CCC $0.1bn (2.5%) UK/Europe (0.1% Inv Grade) Non Accrual $0.0bn (1.1%) Investment Grade.....$1.5bn
Slide 45: Asset Quality - Energy - Gas/Electricity
Asset Quality - Energy - Gas/ Electricity Portfolio Exposure by geography Bl AAA to BBB+ 4% BBB to BBB- BB+ to BB BB- m.>.BB- Mar-2003 Total Exposure $11.18n lH Aust/NZ (83.9% Inv Grade) B+to CCC $0.0bn (0.2%) H Americas (46.5% Inv Grade) Non Accrual $0.27bn (2.4%) [i UK/Europe (91.2% Inv Grade) U1
Slide 46: Asset Quality - Hospitality
Portfolio AAA to. BBB+ BBB to BBB- BB+ to BB BB- > BB- Mar-2003 Total:Exposure $5.3bn B +to.CCC $0.0bn- (0.5%) Non Accrual $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 47: Asset Quality - Insurance
AAA to BBB+ BBB to BBB- BB+ to BB BB- > BB- Portfolio Total Exposure B+to CCC Non Accrual Investment. Grade $7.3bn $0.0bn. (0.0%) $0.0bn (0.0%) $7.1bn (97.3%) Asset Quality - Insurance Exposure by geography “ Aust/NZ (94.3% Inv Grade) H Americas (100.0%. Inv Grade) E] UK/Europe (98.8% Inv.Grade) ¥%N
Slide 48: Asset Quality - Technology
AAA to BBB+ BBB to BBB- BB+ to BB BB- Portfolio >.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) Americas (0.0% Inv Grade) [] UK/Europe (67
Slide 49: Asset Quality - Telecommunications
Asset Quality - Telecommunications Portfolio Exposure by geography B AAA to BBB+ 4% BBB to BBB- BB+.to BB BB: 54% m > BB- Mar-2003 7% Total Exposure $2,0bn i Aust/NZ (87.7% Inv Grade) B +.to CCC $0.0bn (0.1%) Hi Americas (60.0% Inv Grade) Non Accrual $0.07bn (2.3%) fl UK/Europe (73.6% Inv Grade) U1
Slide 50: Capital Management and Buyback
Capital Management and Buyback NAB Share. Buyback 20 Dec 01:-—31-Mar 03 + 37.00 : 36.00 7,000,000 | 6,000,000 | 35.00 34.00 33.00 5,000,000 4,000,000 3 32.00 3,000,000 31.00 30.00 29.00 Price in $/Share 2,000,000 Shares Traded (Cut-off >7m) 1,000,000 28.00 27.00 A ost a “L 1 e > oo 0S ga oe wee a ay
Slide 51: New capital benchmark has minimal impact on capacity for capital management
New capital benchmark has minimal impact on capacity for capital management * Rating agency view of capital continues to be a key driver of surplus capital position * We have moved from using a Tangible Common Ratio (TCR) to using an Adjusted Common Equity (ACE) ratio as our primary capital target *
Slide 52: Committed to ongoing active capital management
Committed to ongoing active capital management * Comfortable managing capital levels to lower end of ACE target range * Change to ACE has no impact on ongoing capital generation * Regulatory ratios have been aligned to ACE target 12 te Ratios Target T ts (Y 10.2 argets (%) Mar 03 Ranges 10 92 a5 ACE
Slide 53: TCR Vs ACE position at March
TCR Vs ACE position at March 03 At March 2003, A$ million TCR Total common equity (excluding tier 1 hybrids=$2,675m) 21,140 DRP accrual 163 Less deductions: — WMintangible at acquisition (2,448) - Goodwill (787) — interim dividend (1,205) — investment in WM deducted from total capital — investment i
National Australia Bank — H1 2003 Earnings Presentation on 6ix