Chief Executive Officer's Message

A pivotal year "Looking ahead, building on the strengths of banking and wealth management provides us with unique growth opportunities in Australia, New Zealand, Europe and Asia." Frank Cicutto, Managing Director and CEO

We have revitalised our organisation and completed the integration of our Wealth Management business. We have sold HomeSide in the US and are carefully managing through a period of economic and financial market uncertainty. Now we are focused on growing our core capabilities of banking and wealth management in Australia, New Zealand, Europe (Great Britain and Ireland) and Asia.

There have been many defining moments in recent times - the devastating bombs in Bali, the War on Terrorism and collapses of high-profile corporations. These events fundamentally changed the business environment in many of the regions in which we operate.

Solid growth in cash earnings per share was achieved despite the financial impact of the recapitalisation of HomeSide in the US and volatile world equity markets.

The impact of weak equity markets had an unavoidable impact on our Wealth Management operation.

The market impact on our Wealth Management operations was offset by the growth in our banking profits.

The results of our retail financial services businesses were impressive. Net profit (before significant items) rose 29% in Financial Services Australia, 13% in Financial Services Europe, and 31% in Financial Services New Zealand.

Click here for Wholesale Financial Services results.

Despite many high-profile corporate failures, our risk management processes are proving sound during this testing period, with the ratio of non-accruing loans to total loans declining to the lowest level since 1986.

This reflects our strong credit framework, including the use of sophisticated early warning indicator software, ongoing review of the loan portfolio (including industry and country risk analysis), and a renewed focus on enhancing core client relationships.

Looking ahead, building on the strengths of banking and wealth management provides us with unique growth opportunities in Australia, New Zealand, Europe and Asia.

The Positioning for Growth program that was announced in October 2001 has been instrumental in creating savings that allow for investment in growth areas of our business.

The program is delivering efficiency gains, and those gains will be reinvested in a range of growth opportunities including the extension of Wealth Management in the United Kingdom, creating a market-leading financial adviser platform in Australia, and upgrading IT systems for customer-facing staff in Clydesdale and Yorkshire Banks.

Other investments that will provide future growth include continued rollout of our market-leading Customer Relationship Management software to our Australian branches, with plans to go Group-wide. This provides the platform to become more efficient but with a greater capability to deliver improved customer service.

We are deploying a Group-wide enterprise solution for financial control, balancesheet management, human resources and procurement.

The system will provide a common global infrastructure for our human resources, e-procurement, finance and management information processes. The first release of the program is planned to commence in New Zealand in 2002.

The creation of a new senior management structure in January 2002 was another important aspect of the Positioning for Growth program.

A key priority of the new Group leadership team was to provide a framework to empower people within the organisation. Leadership teams across the organisation have been reviewed to achieve this change.

The reorganisation of retail financial services reporting lines on a regional basis allows greater flexibility to grow our businesses through excellent relationships with our customers.

Our balance sheet risk was reduced by the withdrawal from retail financial services in the US following the staged exit from HomeSide.

A staged sale process was undertaken, reflecting the sophisticated approach required to achieve fair value for this volatile asset in a challenging environment.

Having resolved HomeSide, we are focusing on the future and growing our core businesses, which are of a high quality, as demonstrated in this year's result.

The challenge for the future is to build an organisation that is in step with consumers, governments, communities and employees, as well as shareholders. The Group contributed $1 million to the appeal for the victims of the Bali bombings and continued to support a range of other community projects in all our areas of operation.

For example, our lawyers in Victoria actively support the Public Interest Law Clearing House, including its project for the Homeless Persons' Legal Clinic, and received the 2002 Prime Minister's Award for Excellence in Community Business Partnerships for their outstanding efforts.

In Australia, the Australia Post initiative provided increased access to transactional banking services, especially in rural areas. The National has almost 800 branches, 152 banking centres and 2,970 Australia Post giroPost outlets across Australia, many in areas where no service previously existed.

In the United Kingdom, Northern Bank improved its environmental performance through programs to improve energy conservation and reduce greenhouse emissions and water consumption.

Our work to improve our relationships with stakeholders is an ongoing and evolving process linked to cultural change across the organisation.

I would also like to thank our staff and management who contributed so much to the overall success of the organisation during this pivotal year.