Trans-Tasman Business Circle - 15 September 2003

The National Story – Growth Through Excellent Relationships

Address by Mr Frank Cicutto
Managing Director
and Chief Executive Officer
National Australia Bank

Good afternoon,

It is a pleasure to be here in Sydney today.

As many of you would be aware I have a strong personal attachment to Sydney.

My family migrated from Italy to Australia in 1952 and we lived in Punchbowl for many years.

Part of the attachment for Sydney flows from my involvement in cricket through the Bankstown Cricket Club.

I started with the National in 1967 at the age of 17 at the branch at the corner of Pitt and Hunter Streets, I was charged with a range of branch duties, including the mail.

The total assets of the group in those days were about $1.4 billion and the bank's profit was $4.6 million.

Now, more than 30 years later I am proud to be chief executive of Australia's leading financial services company.

Today our total assets are more than $377 billion and our profit last year was $3.4 billion.

Looking around the room I am sure many of you understand the challenges of running a major company.

Perhaps the biggest challenge we face is to develop and implement corporate strategy.

Developing good strategy is tough.

But good strategy, clearly communicated, unites everyone throughout the organisation from senior management through to front line staff.

During the last eighteen months, the leadership team at the National undertook a comprehensive review of our business plans.

We wanted to develop:

• a strategy that gives clarity about what we stand for
• a strategy that is based on deep customer insight
• a strategy that has a strong economic engine
• a strategy that differentiates the National from our competitors; and
• a strategy that allows every-one the opportunity to make a contribution day in, day out.

The strategy that came out of this work will guide our future growth plans and actions at the National.

Our strategy is based on a clear purpose statement.

"Growth through excellent relationships".

It is a simple yet powerful proposition.

It encapsulates all stakeholders – customers, employees, shareholders, suppliers, communities and regulators.

It transcends national boundaries.

It is a platform for creating real change.

In many ways, it returns us to what brought us success in the past.

For many people, growth is measured by profits or return on assets.

These are important measures.

However, to be a truly great business, growth is much more than that.

• It means personal growth for our employees
• It means providing leading service and products to our customers; and
• It means making our communities a better place to live.

Excellent stakeholder relationships must generate growth for all stakeholders in our business.

An important question we asked during the review was:

"What do we truly want to be known for wherever we choose to do business?"

We have agreed that our future vision is:

"To be a leading international financial services company which is trusted by you and renowned for getting it right."

This vision maintains our focus on integrated financial services and a strong international presence.

It also emphasises the twin challenges of building trust with all of our stakeholders and getting the basics right.

This is a lofty aspiration and I acknowledge that the National has some way to go to achieve it – but we are focused on doing so.

I now want to talk about the five key pillars of our strategic framework.

The first is to:

"Deliver solutions that meet customers complete financial needs."

Aligning our understanding of customer needs with our capabilities is the glue that links all parts of our strategy.

Getting the basics right, both in terms of customer service and compliance, is the foundation.

We have made a commitment to lift the bar in this area.

Our businesses and the range of products we sell are increasingly complex and we have to observe the highest standards of compliance.

This does not mean we will be error free but when we find problems we will deal with them openly and quickly.

We have already taken firm steps to adopt best practice compliance across the National.

We have invested an additional $30 million in systems and processes across the National to achieve this aim so far this year.

We will invest more to achieve our aim in future years.

Failing to get the basics right undermines our ability to build long term relationships.

If we can't deliver the essentials, then customers won't trust us to meet more complex needs.

We should be under no illusion – the winners in financial services will be those that win at the customer end.

What does it take to win at the customer end?

It takes:

The right products and services…
Delivered simply and efficiently…
At the right time for the customer...
By people with confidence and enthusiasm.

This is not something we are just talking about. This is a journey that we started more than two years ago.

The key to our approach is integrated financial services.

Integrated financial services is the delivery of products and services to customers where the actual delivery may be done by different parts of the organization over an extended period of time.

Many of MLC's 1200 aligned financial planners have leveraged the National's lending experience to offer Debt Management advice as part of their financial planning offering.

We have sold over $1 billion of personal banking products through our wealth management advisory channels in the last 12 months.

Integrated financial services allows the National to add significantly more value to our business customers, providing advice and solutions around key business risks, and employee superannuation and remuneration programs.

We have also become the first large financial institution in Australia to help our salaried financial planners grow from being investment and insurance providers to providers of lifestyle based financial planning.

Our branch network now has 43 Financial Services Centres that co-locate some or all of our business and personal banking operations with wealth management and private banking.

We have plans to open approximately 20 more over the next one to two years.

This is a significant investment in a new age branch network.

Customer satisfaction will be one of the most important success measures of our strategy.

We are actively freeing our people from processes, to allow them to spend more time with customers, so that they have the desire and the confidence to make the right decision.

As a result, we have embarked on a major cultural change program to free the business from unproductive bureaucracy.

In line with this focus on people, the second key pillar of our strategy is:

"To build and maintain a high performance culture."

The right people are critical for business success.

We all know that relationships start with people and we are investing a range of cultural change programs.

Combining a better environment that fosters team-based and customer-centric behaviour with our investment in enhanced systems is a crucial part of our strategy.

A range of internal programs has challenged all levels of the organisation to rethink the way we do business.

This has led to extensive breakthroughs that have directly benefited our bottom line.

For example, we have developed an executive coaching program to improve leadership across the National.

This has been recognised as a world class program and has featured in international professional journals alongside organisations such as Shell and Pfizer.

Our cultural change programs have run hand-in-hand with the introduction of EVA, or economic value added, to ensure we are rewarding managers for using capital efficiently.

I now want to talk about the third key pillar of our strategy which is:

"Building trusted relationships with all stakeholders."

The quality of our relationships with stakeholders is critical to our business success.

The increasing re-regulation of financial services is a direct result of diminishing trust in the industry.

Our reputation directly affects customer satisfaction.

Stakeholder management is therefore a hard-nosed business strategy.

We are developing a group-wide framework that will help us understand how we are building trust with all stakeholders.

This year, the National stepped up its commitment to corporate social responsibility.

I am pleased to report that the National has been included in the Dow Jones Sustainability Index for the first time this year and ranks alongside leading international banks such as Barclays, Lloyds and Royal Bank of Scotland.

Our Community Forum, chaired by the Reverend Tim Costello, has helped the National to develop initiatives to support low income and disadvantaged Australians.

For example, the National now has a concession card account that gives access to a full range of transactional services without having to pay monthly account service or transaction fees.

The fourth pillar of our strategy is to:

"Create and leverage strategic assets and capabilities for competitive advantage."

Transporting our capabilities across the Group is at the heart of our international strategy.

We have world class capabilities that can be taken from one business unit or region to drive profit growth in another area.

A good example of this is our customer relationship management technology now in use in Australia, the UK and NZ.

The last, and perhaps most important pillar of our strategy for our shareholders, is:

"Building and managing our portfolio of businesses for strong and sustainable Total Shareholder Return."

Our strategy is biased towards revenue growth because companies with strong revenue growth create the most shareholder value.

The National has already been through several strong growth phases over the last twenty years.

In the 1980s, the National acquired the Commercial Banking Company of Sydney.

This was the acquisition that commenced the transformation of the National.

However, in a small domestic market with restrictions on bank mergers, we also need to look offshore to sensibly grow our business.

We purchased Clydesdale Bank, Northern Bank, National Irish Bank and Yorkshire Bank in the UK in the late 80s and early 90s.

We subsequently purchased the Bank of New Zealand in 1992, and Michigan National and HomeSide in the US in the late 90s.

Our aim was to diversify our revenue base across geographic regions and leverage best practices and capabilities to create value for shareholders.

I know this audience takes particular interest in success on both sides of the Tasman and our Bank of New Zealand has been an excellent contributor to shareholder value.

At the half-year cash earnings were up more than 20 per cent compared with the previous corresponding period.

Our New Zealand operations excel in the business lending sector with approximately 33 per cent market share and we have continued to improve our home loan market share.

Our international expansion clearly differentiates us from our Australian peers.

Some people are surprised to learn that the National ranks in the top 30 global banks by market capitalisation.

The National is similar in size to many well known  international banks such as ABN Amro and Societe Generale.

Following our international expansion in banking, the National turned its attention to wealth management.

Our major investment in this sector was the acquisition of MLC in June 2000.

Our analysis shows that from about the age of 45, people's needs reduce in the areas of traditional banking, such as home loans, and increase in the areas of wealth creation for retirement.

As the baby boom generation gets older, the National is now well placed to tap into this long term savings pool.

With the acquisition of MLC, we are increasingly turning to a business model based on distribution of advice, services and products.

In our view, distribution, and the right combination of advice and services, is the key to long term growth.

We will continue to actively pursue all of these opportunities to generate improved returns.

In summary, the National is confident about its future.

We have strong core businesses in Australia and New Zealand that provide the platform and flexibility to consider a wide range of options to grow in our home markets as well as in the United Kingdom.

Our purpose and strategies are clear and focussed.

And I believe that Growth Through Excellent Relationships is the right way of achieving this.

Thank-you