| National Shows True Value With Record $2.5 Billion Annual Profit National Australia Bank announced today a record Group operating profit (before abnormal items) of $2,511 million for the year to 30 September 1998. This is a 13.0% increase on the previous year.
Directors declared a final dividend of 53 cents a share, payable on December 16. Total dividend for the year has increased from 94 cents to 102 cents a share and will be fully franked. Basic earnings per share (before abnormal items) rose from 151.6 cents to 174.6 cents. Return on equity (before abnormals and goodwill amortisation) was up from 17.8% to 19.2% as a result of the earnings growth and the Group's focus on generating the maximum value from its capital resources. After abnormal items, profit after tax was $2,014 million for the year to 30 September 1998. The latest result was the sixth successive year of record earnings for the Group. During the past 10 years, net profit has increased by an average of 16% annually. Underlying profit (before tax, charge for doubtful debts and abnormals) jumped 17.7% from $3,648 million in 1997 to $4,295 million in the latest period. In commenting on the National's latest result, Managing Director, Mr Don Argus said it showed the true value of the Group's strategies, businesses and operating efficiencies. "We have come through one of the most difficult economic periods in recent history without losing focus or pace. "Major banks throughout the world have been hit by the impact of economic downturns and poor risk management practices. "The National has demonstrated an ability to operate successfully both in Australia and overseas in the world's most competitive markets. "This versatility and consistency provides an important platform for future growth," Mr Argus said. The highlights of the latest results include: - A 33.7% increase in the operating profit (before abnormal items) of the Group's various offshore units. The contribution to Group profit from offshore operations continued to rise strongly. During the past year 47.6% of the Group's operating profit after tax (before abnormal items) was generated outside Australia (40.2% previously)
- A 35.9% increase in non interest income. The Group derived 40.3% per cent of its income from non interest sources in the latest year compared with 35.2% previously
- An 8.2% increase in the profit (before abnormal items) of Australian Financial Services to $1,403 million during a difficult and highly competitive trading period in Australia
- Rapid progress with the introduction of the National Business Model - an enhanced operating framework that enables the Group to efficiently implement common strategies across all of its Australian and overseas business units
The Group was active during the past year in restructuring its operations to ensure continued growth and efficiency. It booked restructuring costs of $380 million ($252 million after tax) and has already achieved benefits from this expenditure. It also booked a charge of $369 million ($245 million after tax) to recognise the adoption of a statistically based provisioning methodology. The restructuring and additional provisioning charges have been classified as abnormal items due to their size and effect on the Group's results. Net interest income during the latest year was up 9.3% from $5,358 million to $5,858 million. Reflecting the highly competitive situation in all markets, the Group net interest margin eased from 3.5% in 1997 to 3.1% for 1998. Most of this decline occurred in the first half of the year. Total loans and advances increased 22.1% over the year with strong growth in housing lending (up 17.0%), lease financing (up 37.0%) and credit cards (up 17.6%). The 35.9% jump in non interest income to $3,953 million was particularly pleasing given the National's recent focus on the need for geographic and income stream diversification. The major contributors to the growth in non interest income included $340 million in net mortgage servicing fees, net mortgage origination fees and other income from the recently acquired HomeSide, Inc. in the United States. Loan and money transfer fee income rose significantly, as did trading income from treasury operations, particularly in Australia and the United States. The National continued to expand its financial services activities with assets under administration now totalling in excess of $400 billion. Australia Australian Financial Services produced a strong result with operating profit after tax (before abnormal items) increasing by $106 million or 8.2% over the previous corresponding period. Despite strong competition from local and foreign financial services providers, non interest income was up 22.2% and net interest income rose 2.7%. Reflecting the benefits of the restructuring program begun a year ago, the cost income ratio improved during the period from 49.9% to 49.6%. The National continues to be the clear leader in this important indicator of major bank performance. Progress was equally as impressive in the National's building of its funds under management and the profitability of its various financial services subsidiaries. Total funds under management of National Australia Financial Management, National Australia Asset Management and County Investment Management amounted to $17.1 billion at September 30 1998. Europe Clydesdale Bank (up 35.5%), Yorkshire Bank (up 51.5%) and Northern Bank (up 42.0%) all recorded impressive after tax (before abnormal items) profits. They also continued to improve their cost income ratios. Earnings of National Irish Bank were steady at $33 million. New Zealand Profit of the Bank of New Zealand was $280 million compared with $297 million in the previous year. This reflected the impact of a "one-off" non lending loss provision writeback in 1997 and the transfer to Australian Financial Services of BNZ Australia in 1998. Michigan National Corporation Michigan National recorded significant gains in both net interest income (up 27.2%) and non interest income (up 24.5%). The Bank's operating profit rose from $222 million to $226 million in the latest period. HomeSide Inc. In its debut with the Group HomeSide Inc made an impressive start with a net profit of $92 million. HomeSide was acquired in February and the profit reflects earnings between then and September 30. Asia The Asian Region continued to improve with operating profit after tax (before abnormal items) increasing from $28 million to $46 million. The National's aggregate exposure to Asia amounted to $14.2 billion at 30 September 1998, a 4.4% reduction since June 1998. Gross impaired assets were down to $27 million or less than 0.2% of the Group's overall shareholders' equity. Future Dividends While the Group's offshore expansion strategy has been extremely successful in delivering shareholder wealth, it has increased the proportion of earnings outside Australia and reduced the capacity of the Group to maintain fully franked dividends in the future. As a result, in the year ahead, the Board expects that any interim dividend declared will be fully franked while the final dividend may be partly franked. However, the level of franking for future dividends will depend on a number of factors including the proportion of Australian and offshore profits and any changes to the current dividend imputation system. In the Federal Government's proposed tax reform package, changes to the dividend imputation system were foreshadowed. The Government's business tax review committee is expected to make recommendations to the Government by the end of the first half of 1999. At this stage, the impact of any proposed changes on the Group and its shareholders is uncertain. The Group will be involved in the consultation process with the committee. Outlook Commenting on the outlook for 1998 - 99, Mr Argus said the Group was confident of its prospects. The fourth quarter result was particularly strong with an 8.3% growth in other operating income and a 6.1% increase in net interest income. The profit (before abnormal items) of $783 million was the highest quarterly result yet recorded by the Group. Despite the obvious economic uncertainty in key markets, the Group has built an international franchise that reduces dependancy on any single market and provides greater earnings security. "A key feature of the latest results is the obvious success of the Group's geographic and income stream diversification. This gives us a clear advantage over our major competitors in Australia in terms of earnings growth potential and shareholder value," Mr Argus said. "We have also demonstrated an extraordinary consistency in performance that reflects our core abilities in deriving benefits from acquisitions and managing in varying market conditions. "Looking ahead it will be those qualities that will be required to maintain growth in extremely competitive and demanding market conditions. "Our Group is well positioned to continue its recent success due to its strong earnings momentum, diversified income streams, a quality balance sheet and sound capital position." Mr Argus said. Melbourne, November 5, 1998. Further information: Ron Burke
General Manager
Group Corporate
Relations
Tel: (03) 9641 3876 | Haydn Park
Group Manager
Group Media
Relations
Tel: (03) 9641 3857 | | 
