Review of Operations
| A third quarter profit of $697 million lifted the National's operating profit after tax to $2,087 million for the nine months to June 1999. This was $518 million or 33.0% higher than the $1,569 million earned in the nine months to June 1998. The June 1998 result included abnormal costs of $159 million after tax. There are no abnormal items included in the June 1999 result. Excluding the effect of the abnormal items, the result for the nine months is $359 million or 20.7% higher than the previous corresponding period. During the quarter, higher loan fees from banking and structured finance transactions and a strong performance from treasury activities more than offset the impact of a stronger Australian dollar and lower margins. Expenses showed a small increase over the quarter reflecting salary increases, effective 1 April 1999, flowing from the Australian enterprise bargaining agreement. The Group's return (before abnormal items) on average ordinary shareholders' funds increased to 17.3% for the nine months to June 1999 from 16.7% for the nine months to June 1998. Cash earnings (earnings before goodwill and abnormal items) for the June 1999 quarter are $748 million, an increase of 4.6% on the March quarter (6.6% higher excluding the effect of movements in exchange rates). Cash earnings per share (earnings attributable to ordinary shareholders' before goodwill and abnormal items) were 149.5 cents for the nine months to June 1999, an increase of 19.4 cents or 14.9%. Return on tangible shareholders' funds on a cash earnings basis was steady for the nine months to June 1999 compared with 1998 but increased from 22.4% for the March 1999 quarter to 23.6% for June 1999 quarter. Shareholder Value A key measure of success for the National is the generation of shareholder value as measured by economic profit, which is based on cash earnings in excess of the cost of capital for the period plus the value of franking benefits generated. Economic profit for the nine months to June 1999 was $1,284 million, an increase of 34.5% from the economic profit of $955 million generated during the previous corresponding period. This increase was due to growth in cash earnings partially offset by a higher level of capital employed for growth in business volumes. Economic profit for the June 1999 quarter was $432 million, an increase of 9.1% over the March 1999 quarter of $396 million and an improvement of 15.2% over the June 1998 quarter. Net Interest Income Net interest income rose by $235 million or 5.5% from $4,293 million for the nine months to June 1998 to $4,528 million for the nine months to June 1999 (6.5% higher excluding the effect of exchange rate movements). Loans and advances grew, in local currency terms, by 2.8% during the quarter. Since September 1998, loans and advances for the Group have increased by 8.5% in local currency terms. Key growth areas in Australia were housing loans and overdraft facilities. In Europe growth was achieved in housing, lease finance and credit cards. Net interest income for the June quarter declined marginally from the March quarter, however, when exchange rate movements are excluded, income was steady. The net interest margin for the June 1999 quarter was 2.97% compared with 3.09% for the March 1999 quarter. Margins were relatively steady in Australia, increased marginally in the United States and declined in New Zealand and the United Kingdom. The net interest margin has declined from 3.18% for the nine months to June 1998 to 3.02% for the current nine month period. Other Operating Income The National continues to record strong quarterly growth in other operating income increasing to 43.7% of total income in the June quarter. Other operating income grew by $67 million to $1,155 million, 6.2% higher than the March quarter. Excluding the impact of exchange rate movements the increase was $85 million or 7.8%. For the nine months to June 1999, other operating income rose $605 million or 21.6% from $2,805 million to $3,410 million which represents 43% of total income, up from 39.5% in the prior year. The key changes in other operating income during the quarter include:
Other Operating Expenses The cost to income ratio remained steady in the June quarter. For the nine months to June 1999, the ratio improved to 52.9% from 54.5% (excluding abnormals) for the previous corresponding period. Other operating expenses (excluding amortisation of goodwill) for the nine months to June 1999 were $4,200 million or 8.6% higher than the nine months to June 1998. Excluding the impact of HomeSide and exchange rate movements, other operating expenses increased by 5.3% or $196 million. Personnel costs for the nine months to June 1999 are 8.0% higher than the nine months to June 1998 of which 4.1% is attributable to the inclusion of HomeSide for the full period. The balance reflects market based increases in remuneration including the impact of a 4.9% enterprise bargaining agreement increase effective from 1 April 1999 and increased long service leave charges and superannuation contributions. Occupancy costs for the June quarter decreased 5.6% compared to the previous quarter due to lower maintenance expenditure. For the nine months to June 1999, occupancy costs increased 5.7% reflecting higher rental expense resulting from the sale and leaseback activities in Australia and Europe partly offset by reduced depreciation. General expenses for the nine months to June 1999 have increased by $133 million or 10.5% compared with the nine months to June 1998. When HomeSide is excluded, the increase in general expenses is $74 million or 5.1%, which is largely attributable to higher teleprocessing and communication costs and non-lending losses. These increases were partially offset by the impact of software capitalisation. Capital During the quarter the National concluded one of the world's largest hybrid equity issues in the form of National Income Securities. The issue was significantly oversubscribed with total bids from brokers and institutions totalling $4.8 billion. The issue raised $2 billion of cost effective Tier 1 capital. The National Income Securities (NABHA) were listed on the Australian Stock Exchange on 8 July 1999 and have consistently traded above the issue price of A$100. The issue of National Income Securities has lifted Tier 1 capital at June 1999 to 7.6% up from 6.5% at March 1999. The total capital ratio at June 1999 was 10.3% compared with 9.2% at March. Asset Quality For the June 1999 quarter, the charge for doubtful debts was $143 million, $19 million lower than the previous quarter. The charge for the nine months to June 1999 was $433 million, $37 million lower than 1998. The Group's total provisioning coverage of impaired assets at June 1999 was 166.0% compared with 173.3% at March 1999 and 171.2% at September 1998. Gross non-accrual loans remained steady at $1,476 million compared with September 1998. Total impaired assets of $1,489 million also remained steady compared with September 1998 and represent 0.8% of risk weighted assets at June 1999. The Group continued to actively manage its Asian portfolio, reducing its total exposure to $9,649 million, down 7.5% from March 1999. | Results Highlights Review of Operations Download Results Announcement |