CEO's Message

Frank Cicutto Managing Director & Chief Executive Officer

We start from a strong base. This year net profit after significant items rose 16.8% to $3,947 million.

Before significant items, cash earnings per share increased 8.2% to 268.5 cents and return on equity increased from 17.0% to 18.3%. Economic Value Added (EVA^®), which measures capital efficiency, increased 29.9% (after significant items).

Our new strategy builds on these strengths, our core capabilities and the competitive advantages across the Group.

Because the strategy was developed with a strong link to what made the Group successful, it has been called the National Story. During the course of the year, we have communicated the National Story to our people and to shareholders through various presentations. Many of the presentations are available on our website, www.nabgroup.com

After several years of change, the Group has been re-focused around its core capabilities in banking and wealth management in Australia, New Zealand, the United Kingdom and Ireland.

The acquisition of MLC in 2000, the sale of Michigan National Bank and HomeSide in the United States, and considerable investment over recent years in our businesses in Australia and now the United Kingdom represent a series of steps toward integrated financial services and a seamless customer experience.

The Positioning for Growth initiative that was announced in October 2001 provided a platform to deliver productivity gains and rejuvenate our management throughout the top four levels of the Group.

It was therefore the right time to review our overall strategy and provide a new purpose and vision for the National.

Our purpose is: "Growth through excellent relationships".

This simple, yet powerful, statement encapsulates all stakeholders - customers, employees, shareholders, suppliers, communities and regulators.

It is not limited by national boundaries and is a platform for creating real change.

Growth through excellent relationships helps focus us on the relationship values that brought us success in the past and must always be paramount despite the challenges of product complexity, technological change and more complex business models.

For shareholders, earnings per share and return on equity are important measures of growth.

These measures are central to our corporate strategy.

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

It means personal growth for our employees, providing quality service and products to our customers, and making a contribution to the communities in which we operate.

Our vision is: "We will 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 an international presence.

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

I acknowledge that we have some way to go to achieve our vision, but we are focused on doing so.

Operating performance
This year's result was driven by good performances by our retail operations in Australia and New Zealand, where loan growth has been strong, especially in the mortgage market.

In retail banking in Australia, our credit quality improved with gross non-accrual loans as a percentage of gross loans and acceptances improving from 0.52% to 0.35%. Our cost to income ratio also improved by 250 basis points to 45.7%.

New Zealand's retail banking performance also included a substantial cost to income ratio improvement from 53.3% to 50.3% and stable interest margins and credit quality.

Our businesses in the United Kingdom and Ireland provide diversification of our income streams. Profit from retail banking in these regions was steady in local currency terms due to growth in lending offset by increased pension and compliance costs.

Organic growth and broad-based transformation is a key part of our strategic agenda in the United Kingdom and Ireland.

We are moving to the next phase in completing the legal entity merger of Clydesdale Bank PLC and Yorkshire Bank PLC during 2004, subject to regulatory approval.

As the Group moves towards an integrated model in Europe, we will also be considering legal structures for Northern Bank and National Irish Bank in due course.

Operating as one bank will free resources, simplify processes and systems and reduce bureaucracy.

During 2003, four new integrated financial services centres were opened in Liverpool, Bristol, Reading and Southampton. A further eight are scheduled to open in 2004.

It will take time to achieve stronger growth in Europe but we have the right management team in place. The team is making good progress towards building our presence in new areas.

Wealth Management showed an improvement on the prior year, driven by a strong performance from insurance and improved investment income due to the recovery in equity markets in the second half of the year.

We continue to invest in our Wealth Management business with the objective of providing integrated financial services to customers and to attract the long-term savings of the baby-boomer generation.

Corporate & Institutional Banking recorded a solid result while maintaining sound asset quality. The increased focus on client-based income offset softer income from risk and trading operations.

The combination of this strong portfolio of businesses offers diversification benefits and growth opportunities. We also have clarity of purpose and vision, and alignment around a strategic agenda.

I am confident that the Group is well placed to continue to grow shareholder value.

I would like to thank all employees and management this year who have worked hard to make this year one of progress for all our stakeholders.