Managing Director's Comments

Frank Cicutto Comments

I am pleased to announce a record profit for the National...the eighth record profit in succession.

I believe there are a number of reasons for the National to be proud of what we have achieved...

• We earned 50 per cent of our income overseas...that means an Australian company has achieved success in one of the world's most competitive industries...in some of the toughest markets such as Europe and the United States
• We are one of Australia's major exporters...around $1,500 million a year in banking and financial services
• We are one of Australia's largest employers...we employ around 24,000 people here
• We purchase an estimated $1.4 billion in supplies and services each year in Australia
• We pay and collect on behalf of Federal and State Governments...around $1,500 million a year in taxes
• And we pay over $1.2 billion in dividends...around 70 per cent of which goes to Australian shareholders

Now I believe that is an extraordinary contribution to this country and its people...a contribution that is not matched by any other public company as far as I know.

I wanted to note those points at the outset of my comments today because I am fully aware the outstanding performance of the National will still not satisfy many in the community.

I understand that...and am fully aware that a major challenge for us is to manage community understanding and expectations about the value of our activities.

I understand...and am fully aware that concern about issues such as community obligations...transaction account fees...branch access...can overtake appreciation of what our bank and others have achieved for Australia.

That is a challenge that is as daunting and real as any other we face in building our business here and internationally.

However...I believe it is only fair that the reality of the benefits we provide all Australians from our activities be taken into account when evaluating our overall performance.

And I look forward to seeing how balanced that assessment is today and tomorrow.

The fact is that the operations of the National Australia Bank are currently putting over $4000 million a year back into the Australian economy.

Now that is something to be proud of...and we are.

At a time when our currency is languishing...and the attractiveness of Australian dollar denominated earnings are diminishing...Australia has to seriously address the importance of encouraging rather than discouraging corporate profitability.

If we do not...then the incentives for future investment in this country by our own companies will disappear.

As part of this process...it is equally clear we have to gain agreement on how we balance the needs to modernise industries such as banking and finance...and the expectations of low income groups and others in the community about service levels.

If we are to openly disparage profit and criticise attempts to modernise industries then I wonder what scope there is for Australia to progress in a manner that meets the needs of all of its citizens.

Now I have said...and I say again that I have listened to calls for a "social charter"...for "consultation on social obligations"...for enforcement of a "minimum level of banking service".

I am prepared to consult with any political...community...or customer group on those matters.

But I also say this...I believe the starting point for consultation surely has to be an acknowledgement that we want to improve a banking system that is already benefiting the majority of Australians.

The starting point has to be that any company that can lead to over $4000 million being put into Australia's economy and government coffers has done well.

And the starting point has to be that we want to encourage those positive aspects...and work to address the matters such as fees and branch closures that are obviously causing considerable public concern.

If we can do that...and I believe we can...then we will have the best of both worlds.

I raise these points because I believe it is essential we have a rational rather than an emotional or politically opportunistic discussion about the value of corporate profits for Australia...and the obvious value of its major banks...including the National.

The Result

• Turning now to the result...as I have said...it is a very good result - the headline number ($3,377 million) is up nearly 20 per cent before abnormals
• Eighth successive record - proud of our consistency and ability to produce quality results without any loss of momentum despite major change and consistently increasing competition
• As I have noted...I am proud of the size of the profit - it is what I would call a "gold medal" performance - if Australia is to ever recover from its "dollar doldrums" it will need more companies to produce results like this

A Gold Medal Performance....

• Profit up 20 per cent
• Gross loans and advances up 18 per cent
• Earnings per share growth of 13.2 per cent
• Total shareholder return of 19.1 per cent
• Total non interest income breaks 50 per cent of total income for the first time
• Cost growth contained to 2.6 per cent...with our cost to income ratio (excluding MLC) falling to 51.2 per cent

Profit Highlights

• We increased revenue...and managed margins...went against the industry trend
• Very strong performance in Australia...headline profit up nearly 27 per cent...lending up and margin increased to 3.03 per cent
• Solid boost in non interest income...up 43 per cent with early contribution from MLC...non interest income in the most recent quarter was over 60 per cent of our total income...demonstrates the way or organisation has changed
• Smooth integration of MLC and rapid building of Global Wealth Management business
• Solid contribution from international operations...continue to provide around 50 per cent of earnings...now one of Australia's major services exporters!
• Matched revenue increases with continued control of costs...cost to income ratio down to 51.2 per cent (53.6 per cent in 1999)

Year 2000 Achievements

• MLC acquisition...latest results already indicate value of that acquisition
• Used MLC acquisition to "accelerate" Global Wealth Management business...have achieved rapid "critical mass"
• Reviewed corporate and business strategies...now have a sharper strategic focus...clear emphasis on extracting value from businesses in "Northern" and "Southern Hemispheres"
• Achieving success with businesses operating across different geographies...examples are Global Wholesale Financial Services...Global Security Services...Global Business and Financial Services
• Also pleased with the progress of O2-e - our "purpose built" company designed to fast track our involvement in e-commerce businesses and services

Looking Ahead...

Priorities

• Our vision is to: Build a leading international financial services Group...our strategies and programs will be directed to achieving this Vision
• We will concentrate on gaining the full value from our Group assets...will involve attention to all operating areas...will also involve taking advantage of the opportunities that emerge from the global restructuring of our industry
• Will continue with our five core strategies

5 Core Strategies

• Drive performance and growth in relationship management businesses
• Accelerate growth in selected "global" businesses
• Stake out positions in areas key to the evolution of financial services
• Manage Group businesses to create maximum shareholder value
• Build diversified income streams

Outlook

• Remain very confident about prospects
• Have unique spread of assets... balance between local/international revenue streams... interest/non interest income streams
• Have demonstrated "inherent toughness"... ability to manage very difficult issues... yet remain focussed on our strategies and operational goals