1999 Full Year Financial Results

National Reports Record $2.8 Billion Profit

National Australia Bank announced today a record Group operating profit of $2,821 million for the year to 30 September 1999. This is an increase of 12.3 per cent on the previous year (excluding abnormal items).

Directors declared a final dividend of 58 cents a share, payable on December 15. The final dividend is franked to 79 per cent.

Total dividend for the year has increased from 102 cents to 112 cents a share, franked to an average of 89 per cent.

Earnings attributable to ordinary shareholders (operating profit after tax before abnormals after deducting distributions to other equity holders) increased by 9.7 per cent to $2,747 million.

Basic earnings per share rose from 174.6 cents to 186.6 cents, or 6.9 percent for the year.

The latest profit is $807 million or 40.1 per cent higher than the $2,014 million profit reported for the year to 30 September 1998. That result included abnormal costs of $497 million after tax.

The latest result was the seventh successive year of record earnings for the Group. During the past 10 years, net profit has increased by an average of 16 per cent per annum.

Underlying profit (before tax, charge for doubtful debts and abnormals) was up 9.0 per cent from $4,295 million in 1998 to $4,681 million for the current year.

For the September 1999 quarter, profit after tax was $734 million, 5.3 per cent higher than the June quarter profit of $697 million.

In commenting on the National's latest result, Managing Director Mr Frank Cicutto said the Group was pleased with the past year's results.

"We made considerable progress with a number of key strategic initiatives such as the implementation of our global business model, the integration of HomeSide and the acceleration of our e-commerce program.

"We also launched a number of large scale programs that will have significant long term benefits. These include major changes to our product and service delivery, a boost to our wealth care product development and marketing and a more intense focus on the content and value of our portfolio of businesses across the Group.

"Our success with National Income Securities was a key component of our overall capital management effort. This will also prove to be highly beneficial in providing the Group with the maximum flexibility in evaluating its future strategic options.

"Each of these individual successes are indicative of the confidence with which the Group has pursued its Australian and global ambitions," Mr Cicutto said.

The highlights of the latest results include:

• The Group earned nearly half of its after tax profit (49.9 per cent) from its international activities. This reflects the value of its various overseas operations and diversity of revenue streams.

• A 16.2 per cent increase in economic profit from $1,465 million in 1998 to $1,703 million in the latest period. Economic profit represents the excess of cash earnings over the cost of capital employed in the business plus the value of franking credits generated. The National believes this is an important measure of growth in shareholder value.

• Cash earnings (earnings before goodwill and abnormal items) rose by 12.4 per cent from $2,692 million to $3,027 million.

• The successful issue of National Income Securities. This was strongly supported by investors and raised $2 billion of cost effective Tier 1 capital.

• A 15.4 per cent increase in other operating income from $3,953 million to $4,563 million. This represented 42.9 per cent of total income compared with 40.3 per cent in the prior year.

• An excellent first year contribution from HomeSide. The company contributed $153 million to Group profit for the year to September 1999.

• A 9.2 per cent increase in loans and advances for the Group, in local currency terms. Key growth areas in Australia were housing loans (up 11 per cent) and overdraft facilities (up 11 per cent). In Europe, growth was achieved in housing loans (up 11 per cent), overdraft facilities (up 20 per cent) and lease finance (up 33 per cent).

• The underlying increase in salaries was 0.9 per cent. The increase in total personnel costs of 7.6 per cent for year reflects the full year impact of HomeSide, higher on-costs (such as long service leave and superannuation contributions) and restructuring charges. The number of full-time equivalent staff fell by 1.3% during the year.

The decline in interest margins from 3.17 per cent for year to 30 September 1998 to 3.00 per cent in the latest period was the result of a lower interest rate environment impacting retail deposit margins in Europe, Australia and New Zealand.

Income from HomeSide's mortgage servicing and origination fees in the United States, treasury operations and growth in volumes were the main reasons for the increase in other operating income.

The Group's cost to income ratio was down from 54.4 per cent in 1998 to 54.0 per cent in the latest year.

Australia

Australia had another satisfactory year with after tax profit (before abnormal items) up 7.3 per cent from $1,316 million to $1,412 million for the year to 30 September 1999.

The result reflects higher operating income and a lower charge for doubtful debts.

In the customer facing units of Australian Financial Services, net interest income grew 3.4 per cent in a very competitive market. This reflected growth in lending volumes. Lending for housing, overdraft facilities and leasing each grew around 11 per cent. Credit card outstandings grew by 18 per cent.

Other operating income rose 11.5 per cent to $2,106 million. The main contributors to the increase in other operating income were treasury related income and the fees earned from the sale of various products such as investment and superannuation funds.

The contribution of the National's investment and funds management companies such as National Australia Financial Management, National Asset Management and County Investment Management increased 11.1 per cent to $65.5 million.

National Australia Custodian Services confirmed its industry leadership and increased both market share and assets under administration to $180 billion.

International

The Group earned $1,409 million from its overseas operations. This represents nearly 50 per cent of its after tax profit and indicates the continued success of its international expansion.

Profit after tax (before abnormal items) of the European Group grew 6.7 per cent from $713 million to $761 million.

Net interest income rose 6.8 per cent reflecting strong growth in volumes of over 10 per cent offset by lower margins.

Other operating income rose 8.8 per cent due to higher income from personal insurance, custodial income and fees from banking activities.

In the United States, profit after tax (before abnormal items) increased from $229 million in 1998 to $376 million. The result includes higher net interest income from the issue of the National Income Securities in June 1999 and Preference shares in 1998.

Michigan National Corporation had another good year with profit up 12.4 per cent from $226 million to $254 million. Gains were recorded in both interest and other operating income.

HomeSide contributed $153 million to Group profit for the year to September 30, 1999, its first full year with the Group. Profit growth continued in the September quarter with an after tax profit of $41 million; $4 million higher than the June 1999 quarter.

The New Zealand Group's profit after tax (before abnormals) for 1999 was $240 million, 15.9 per cent higher than 1998. The impact of lower margins on net interest income and a stronger Australian dollar was more than offset by higher operating income and lower costs.

A profit of $18 million for the September quarter lifted Asia's full year earnings to $32 million. The result reflects the impact of a stronger Australian dollar, higher income from wholesale activities and reduced provisioning in the second half of the 1999 year.

General

The Group has completed a comprehensive program to ensure a smooth Year 2000 transition. The program has been underway for nearly three years and has given the Group the confidence to assure customers their assets will be protected and effectively managed.

The charge for doubtful debts for the year to September 1999 was $540 million, $32 million or 5.6 per cent lower than the previous corresponding period.

The Group's impaired asset portfolio remains modest with the ratio of non accrual loans to risk weighted assets of 0.8 per cent at September 1999.

The Tier 1 capital ratio at September 1999 was 7.8 per cent compared with 6.4 per cent in September 1998. The total capital ratio is 10.4 per cent, up from 9.2 per cent in September 1998.

Outlook

Commenting on the outlook for 1999/2000, Mr Cicutto said the Group was well placed to benefit from the major changes underway in the Australian and international banking and financial services sectors.

"Changes in industry structure and operations will continue at a rapid pace over the coming year," Mr Cicutto said.

"These will be driven by further consolidation in the United States and Europe, which will in turn impact all other developed economies.

"The other major factors will include increased customer use of web based applications and a progressive increase in demand in what we call the wealth care market. This includes retirement, superannuation and personal investment products.

"The National's international reach and assets will be leveraged to enable it to take advantage of these growth opportunities either on its own behalf or in alliance with other global institutions," Mr Cicutto said.

Melbourne, 4 November 1999

For further information:

Ron Burke
General Manager
Global Corporate
Relations
Tel: (03) 8641 3876

Brandon Phillips
Group Manager
Group Media
Relations
Tel: (03) 8641 3857