1999/2000 First Quarter Results - 27 January 2000

National Begins Year with Strong First Quarter Result

National Australia Bank began its financial year with a strong profit of $771 million for the three months to 31 December 1999, up 6.5 per cent on the previous corresponding period. The latest result compares with $724 million for the December 1998 quarter and $734 million for the three months to September 1999.

Earnings attributable to ordinary shareholders (operating profit after tax and deducting distributions to other equity holders) increased by 3.1 per cent from $704 million for the September 1999 quarter to $726 million for the latest quarter.

The return on average ordinary shareholders' funds remained steady at 17.8% for the quarter.

The National's Managing Director, Mr Frank Cicutto said that the National's strong capital position provides strategic flexibility.

"However, as foreshadowed previously, if a realistic acquisition opportunity has not crystallised by the middle of the year, a share buyback will be initiated," Mr Cicutto said.

Underlying profit (before tax and charge for doubtful debts) for the latest period was $1,313 million, 20 per cent higher than the September 1999 quarter and 8.2 per cent higher than December 1998.

The result for the current quarter was impacted by a tax charge of $28 million to reflect the effect of the change in Australian corporate tax rates on the opening balance of future income tax benefits (FITB) at 1 October 1999 and a further $6 million being the impact of a lower effective tax rate on current quarter FITB movements. This was partly offset by an $11 million reduction in deferred tax liabilities in HomeSide due to a lower effective tax rate.

The adoption of the new Australian accounting standard for life insurance businesses impacted revenue and expense disclosures and also resulted in a gain of $11 million associated with the Group's investment in life insurance businesses.

Mr Cicutto said the latest result represented a strengthening of the organisation's performance.

"During this period we have seen strong growth in business activity, tight containment of costs and sound underlying asset quality.

"Our costs are down, in line with the commitments we made to the market last year," Mr Cicutto said.

The cost to income ratio for the current quarter was 51.1 per cent compared with 57.3 per cent in the previous quarter and 53 per cent for the December 1998 quarter.

For the December 1999 quarter the cost to total asset ratio was 2.09 per cent, a significant improvement on the 2.43 per cent for the previous quarter and 2.22 per cent for the December 1998 quarter.

"We have continued to focus on the development of traditional banking products as well as investing in newly emerging financial services and e-commerce activities.

"Our priority is to vigorously grow the business whilst at the same time ensuring that costs are tightly controlled and resources used efficiently," Mr Cicutto said.

Net interest income for the December 1999 quarter was $1,567 million, up 3.1 per cent on December 1998 and 1.9 per cent on September 1999, reflecting lending growth of 3.1 per cent (in local currency terms) partly offset by an easing in Group net interest margin from 3.00 per cent in the September 1999 quarter to 2.92 per cent.

Other operating income for the December 1999 quarter was $1,223 million. This was 4.8 per cent higher than December 1998 and 6.1 per cent higher than the September 1999 quarter.

"The much improved performance of Australian Financial Services is satisfying, demonstrating the success of a number of initiatives to enhance distribution, streamline activities and strengthen financial services capability during the past eighteen months," Mr Cicutto said.

The strong recovery in the Australian Group was reflected in a 15.8 per cent increase in profit from $329 million in the September 1999 quarter to $381 million in the latest period. Underlying profit increased 33.4 per cent in the latest quarter.

Profit after tax for the European Group was $197 million for the current quarter, up 10.1 per cent from the September 1999 quarter, with higher net interest income driven by volume growth, a lower charge for doubtful debts and reduced operating costs.

For the December 1999 quarter, New Zealand's profit after tax was $53 million compared with $73 million for the September 1999 quarter, reflecting higher doubtful debt provisions and an increase in the tax charge compared with the previous quarter.

Michigan National had a strong quarter with a profit of $83 million in the latest December quarter compared with $61 million in September 1999.

Looking ahead, Mr Cicutto said there would be a continued focus on gaining the maximum value from the Group's investments in Europe and New Zealand.

"We intend to ensure that we are deriving the maximum value from our spread of local and international investments.

"We believe that the pleasing results of the most recent quarter will be sustained throughout the year.

"We will continue to deliver growth in profits and earnings per share, whilst maintaining tight management of our costs," Mr Cicutto said.

For more information visit the Shareholders Centre.