National Australia Bank Limited · ASX:NAB
National Australia Bank — H1 2005 Earnings Presentation
71 slides from National Australia Bank's earnings presentation, May 12, 2005
Slide 1: National Australia Bank Half Year Results
National John Stewart, Michael Ullmer, Managing Director Director, Finance and and CEO Risk May 11, 2005
Slide 2: Agenda
Agenda Introduction John Stewart Financial Overview Actions and Outlook Questions and Answers Michael Ullmer John Stewart National
Slide 3: Cash earnings $1,618m
Cash earnings $1,618m Cash earnings before significant items ag m 1,900 Earnings have bottomed 1,800 Dividend maintained 1,700 at 83cps (80% 1,850 franked) 1,600 1,611 1,618 Mar 04 Sep 04 Mar 05 HY HY HY National
Slide 4: Group overview
Group overview Key actions during the half: — Stabilising the business and protecting the franchise — Addressing expense growth — Progress on risk and regulatory agenda Work in progress: — Business efficiency — Reshaping the business — Shedding low-yielding assets and funding mix — Capital managemen
Slide 5: Agenda
Agenda Introduction John Stewart Financial Overview Michael Ullmer Actions and Outlook Questions and Answers John Stewart National
Slide 6: Drivers of the Group result
Drivers of the Group result Stronger volumes largely offset by margin decline Markets and Structured products income restored Wealth Management steady Expense growth arrested Loan loss provision maintained National
Slide 7: Group results
HALF YEAR TQnEy) |) YNational Group results
Slide 8: Group performance
Group performance Mar05 — Sepo4 Change on Sep 04 HY HY HY % % Banking $m $m Group Ongoing* Net interest income 3,549 3,603 (1.5) 05 Other operating incorne* 2110 2,042 33 56 Banking Net Income 5,659 5,645 02 23 Banking operating expenses* (3,246) (3,222) (07) (4.0) Underlying profit 2.413 2,423 (0.4
Slide 9: March 2005 cash earnings by division
March 2005 cash earnings by division Australian Banking Wealth Management Australia" Total Australia Total UK Total New Zealand Institutional Markets & Services* Other (incl Group Funding & Corporate Centre) Distributions Cash earnings before significant items Significant items after tax Mar 05 HY s
Slide 10: Banking net interest income reflects strong volume growth partly offset by margin decline
Banking net interest income reflects strong volume growth partly offset by margin decline $m = = 6) | 40 2 13 (19) a 85 63) en 3,549 Mar 04 $ep04 porttaio Parttolo |] Portola Porttalo ||Portaio Pertfoio} IMS UK Exch Mar 05 HY HY | Volume? Mersin |] Volume? Margin |] Volume? Marain Disposed Rate. HY
Slide 11: Quarterly volume growth for the last halves
Quarterly volume growth for the last 2 halves Group Lending Growth** Retail Deposit Growth* (quarterly average) % (quarterly average) (2)] Housing* Business Corporate Personal Australian UK Banking’ NZ Banking @Y Banking Gun 04 Msepo4 [Dec 04 Wimar a5 " * Acwrnt echigerte "Eccer neh Bane snd UK Nara
Slide 12: Net interest margin March 2005 down 7bps
Net interest margin* March 2005 down 7bps on the September 2004 half SepOsHY NIM. MarOSHY" AEA % of Group Group NIM Nm Contraction MI Mar OSH aE sure coiracton Australian Banking 2.56% Gbps) 247% «160.4% = 8% (bps) UK Banking* 4.10% — @Obps) 3.90% a1 18% 13% bps) New Zealand Banking 262% Gbps) 2.67%
Slide 13: Banking other operating income up $121m
Banking other operating income* up $121m in the March 2005 half $m a 12 26 (46) — 9) “Gay 2,123] | 2,042] 2,163 2,110 Mar04 Sep 04 Markets Structured Other Retail other UK exch Mar 05 HY HY Products IMS. Banking Diepgsed, Rate HY erations 19 | * Before signioa tens, disposed operons and exchanger te
Slide 14: Banking expenses increased $113m in the March 2005 half
Banking expenses” increased $113m in the March 2005 half $m Cd g (64) 79 (38) 3,222 3,335 3,246 2,897 MarQ4 Sen04 Personnel Regulatory Professional Other NB Thef UK Exch ‘Maras HY HY Projects Fees Korean Disposed Rate HY Fraud Onerationst 14 | * before inion tae, epocd opens and exchange rate ets
Slide 15: Divisional contributions
HALF YEAR SsGuES) J) National Divisional contributions ¥%National
Slide 16: Australia cash earnings up 1.4% on the September 2004 half
Australia cash earnings* up 1.4%" on the September 2004 half Mar 05 Sepo4 Change on Change on HY HY Adj Sep 04 HY Adj Mar 04 HY $m $m % % Australian Banking Net interest income 1,888 1,834 ae 14 Other operating income 1,081 1,073 oF 34 Total income 2,969 2,907 24 18 Other operating expenses (1,479)
Slide 17: Australian Banking net interest income up 2.9%
Australian Banking net interest income up 2.9% during the half Volume Growth Net Interest Margin % (quarterly average) % 255 245 235 228 Maro4 Juno Sep04 = Deco4. Mar 05 (1 Housing Business Personal _Retail Deposits Bwuno4 Dec 04 Sep 04 Mi Maro5 1 Growth including Bills w ¥%National
Slide 18: Australian Banking: state of the franchise
Australian Banking: state of the franchise Rank at Market share Mar05 Deco4 Sepo4 Juno4 Maro Rank Business Lending (incl Bills')* 22.9% += 22.1% += 21.6% 22.0% 22.0% ta Housing (incl Securitisation) 16.8% 16.7% 16.7% 170% 17.2% #2 Credit Cards 16.3% 166% 16.7% 17.0% 17.8% #4 Business Deposits 26.7%
Slide 19: Wealth Management Australia underlying cash earnings up 2.6%
Wealth Management Australia* underlying cash earnings* up 2.6% in the March 2005 half Mar05 Sep 04 Change on HY HY SepO4HY Mar 04 HY $m $m % % Investments 115 106 88 27 Insurance 4 a es) (108) Other (incl. regulatory programs) 2) 26) 615) (13.8) Profit from operations (after tax) 147 162 63) 58 Inve
Slide 20: UK ongoing operations cash earnings up 12.8%
UK ongoing operations’ cash earnings* up 12.8% on the September 2004 half Half yearto Change on Volume Growth Mar05 Sep04 Sep04 Mar 04 ec doeSep gt ‘Sept: Marts (quarterly average) Net interest income 340 33303 BD) Other operating income 183188 10.240 Total income 817 49936 (0.8) Total expenses G30)
Slide 21: UK ongoing operations underlying net interest margin
UK ongoing operations* underlying net interest margin down 20bps in the March 2005 half 0.04% (0.09%) 4.1004 (0.05%) (0.03%) 4.00% Cl 2.21%) o.05%) pe 002% @.03%) 0.05% = oO Sep 04] Basis Change in Change in || Basis Change in Change in] Core free IRM. Capital Sale of Mar 05 iy" | Ree Pedel” ede |]
Slide 22: Irish assets sold and operations simplified
Irish assets sold and operations simplified Sale of Irish banks announced December 2004 + Completed 28 February 2005 * Sold for $2.5bn + Profit on sale of $1.1bn UK Custody business and Life business sold Legal entity merger of Clydesdale and Yorkshire completed December 2004 2 National
Slide 23: Progress on UK strategy
Progress on UK strategy + Efficiency programme commenced + New distribution channels developing + Customer attrition slowing Net Personal Customer Number Movernent in UK 0.40% 0.60% 4% Net Movement 0.20% Quarterly Change - 4.00% separ arcs Sepes Manoa Sepa Mar 05 2 National
Slide 24: New Zealand cash earnings up 9.3%
New Zealand cash earnings* up 9.3% on the September 2004 half Maro5 Sepot Change on Volume Growth HY HY Sep04 Mar 04 nzim nem iva! Maven (quarterly average) Netinteestincome 420.415 12 63 other operating income 2192281) 4 Total income 639641 (0.3) 27 Total expenses: (366) (380) 37 (10.9) 2 Unuertyin
Slide 25: Underlying New Zealand net interest margin down 5bps
Underlying New Zealand net interest margin down 5bps in the March 2005 half 2.62%] 0.00% — (a.n4%) (0.05%) 0.06% (0.05%) came Bere . (0.07%) ooo% = | oe = ef 2.50% Sep 04] Basis Change in Change in|) Basis Change in Change in|Core free IRM Capital Mar 0s Hy | Risk Product Product | Risk Praduct Prod
Slide 26: New Zealand Banking: state of the franchise
New Zealand Banking: state of the franchise Satisfaction with branch service Based on main bank customers who haveviited a branch (Margin of ror for BNZ= #7, 5%) Market share~ Mar 05 Sep 04 Mar04 Rank at Mar 05 Housing 16.2% 159% 15.7% a Cards (outstandings) 30.8% 30.5% 31.2% #1 Agribusiness 17.8% 1
Slide 27: Institutional Markets & Services cash earnings up 29.1%
Institutional Markets & Services cash earnings* up 29.1%" on the September 2004 half Total Income up 17.4%* Mar 05 Sepogagj __% Change on HY HY Sep 04 Adj Mar 044Y $m $m HY ex FX ex FX Markets Sales Net interest income 281312 (60) (18.9) Markets Risk & Trading ther operating income 486 354 ws 67) St
Slide 28: IMS moving to improve returns
IMS moving to improve returns % contribution to IMS: IMS Income contribution and capital usage As at 30 Sep 2004 60 50: = Regional Contribution 40 ™ Capital Usage 30 20 10 lL ll of CH, Australia UK — _New Asia Zealand Improve returns on non-core low yield assets Focus on key segments across core mar
Slide 29: IMS - Franchise performance and operating environment
IMS - Franchise performance and operating environment Franchise position mixed Declining share / league table position in + FX markets, bond origination, securitisation and lead relationships position down from 21% in'03 to 18% '04 Stable or improving position in + Loan syndications position #1 to 3
Slide 30: Credit Quality & Provisioning
HALF YEAR TQnEy) |) YNational Credit Quality & Provisioning
Slide 31: Provisioning coverage levels have increased
Provisioning coverage levels have increased 260%) 200% 15055 10055 50%: 0% Provision Coverage Ratios Total Provisions / Total Impaited Assets Specific Provisions /Total Impaired Assets, 1.8% 1.4%: 1.2%: 1.0%: Mar 00 ‘Mar 01 Mar 02 Mar 03 Mar 04 General Provisions to Risk-Weighted Assets (Excluding H
Slide 32: Portfolio remains sound with write-off levels down
Portfolio remains sound with write-off levels down and key quality indicators improving Total Net Write-offs to Risk-Weighted Assets (excl Housing) 0.40 — NAB 0.30 — CBA — ANZ 20. — wee o40 « Sep 97 Sep 98 Sep 99 Sep 00 Sep 01 Sep 02 Sep 03 Sep 04 Fully Secured lending % of Total Balance* CRS 1.6* t
Slide 33: Non-accrual levels stable
Non-accrual levels stable 4,000 Gross Non- Accrual Loans 3,000 2,000 1,000 Sep 85 Sep 67 Sepeo Sep 51 Sep 53 Sep 55 Sep 57 Sep 93 Sep Gi Sep09 Sep 04 “= Group mmm Trish Banks (data since 1995) — Goes NALE to Gross Loans & Acceptances 90+ Delinquency and Gross 12 Month Rolling Write Off Rates Total P
Slide 34: Capital, Dividends and Restructuring
HALF YEAR SsGuES) J) National Capital, Dividends and Restructuring ¥%National
Slide 35: Capital above target ranges
Capital above target ranges 58 53 Surplus capital position reflects: + Sale of Irish Banks + Newtier 1 hybrid Surplus provides flexibility to cater tor + Uncertainty of AIFRS + Revised APRA rules on hybrid capital Mar 04 Sep 04 Mar 05 Targets | Target Ranges| 31 Mar 05 a) Actual ACEIRWA, 475-525 | 5
Slide 36: A full capital management agenda
A full capital management agenda + Reduction in capital ratios cannot be considered until a range of uncertainties are dealt with + APRA discussion paper on tier 1 hybrids imminent, and impact of AIFRS to be finalised + Based on APRA AIFRS discussion paper, the pro forma ACE and total capital impact
Slide 37: Core capital generation supports asset growth and dividend
Core capital generation supports asset growth and dividend ‘Movernent in ACE Ratio Core items (-3 bps) Hon-core items +57 bps 068 os 48) os i f i ' ' ' ' ' ' — ss ' om (48) ! oy 008! a5 —! ' i ' ' 418 ACE “Profit hefore Dividend WM praft Growth in FX impact Other Sale of ish Other Sep04 Sig. tems an
Slide 38: Dividend consistent with guidance
Dividend of 83 cents consistent with guidance Dividend Growth Cents per share 180 103 “8% eo 447 138 Current halt + Payout ratio of 80% 120 + Franking of 80% 100 80 140 2001 2002 2003 2004 2008 Mm Interim dividend = Final dividend 8
Slide 39: Restructuring charges for March 2005 half
Restructuring charges for March 2005 half Total Charge FTE Direct Related Booked Reduction Savings Savings $m # $m $m Australia* 126 1,000 80 UK 266 1,700 174 412: New Zealand 41 - a Institutional Markets & Services 10 a 8 Total 403 2,700 263 112 29 National
Slide 40: Restructuring in September 2005 half
Restructuring in September 2005 half + Australia and Institutional Markets & Services restructuring plans being finalised - Arestructuring charge up to circa $400M (pre tax) to be booked in September 2005 half « Further redundancies of up to 1,500 to be announced in September 2005 half + Ongoing cas
Slide 41: Drivers of the Group result
Drivers of the Group result Stronger volumes largely offset by margin decline Markets and Structured products income restored Wealth Management steady Expense growth arrested Loan loss provision maintained at National
Slide 42: Agenda
Agenda Introduction Financial Overview John Stewart Michael Ullmer Actions and Outlook John Stewart Questions and Answers Ey National
Slide 43: Issues identified in November result briefing
Issues identified in November result briefing 1. People and Culture 2. Regulatory & Compliance 3.Business Inefficiency 4. Stalled Revenue + Complexity + Inward looking + Bureaucratic + Business processes not customer focused National
Slide 44: Cultural change
Cultural change Creating the conditions for transformation — Clear view of where we are and want to be — Talented new leadership — Corporate principles Effective feedback and monitoring National
Slide 45: Risk and Compliance
Risk and Compliance Good progress on APRA remedial actions Other regulatory issues also progressing — Investor compensation complete — Good progress on enforceable undertakings But issues still emerging 2 to 3 year program to strengthen Finance and Risk functions commenced National
Slide 46: United Kingdom
United Kingdom Reconfiguring distribution — Expanding IFS sites and creating 50 flagship branches — Closing 60 Clydesdale and 40 Yorkshire branches Efficiency program targeting £117m in annualised savings Third party distribution on track to write £800m in new mortgages Back book repricing and expen
Slide 47: New Zealand
New Zealand Growing share in housing and youth markets NZ market remains competitive Focus on improving the customer proposition to continue Efficiency gains to support reinvestment in business ar National
Slide 48: Australia
Australia New leadership team and operating model — Distribution and product focus — Greater P&L accountability Expense growth contained with FTEs down by 350 in the first half On the spot loans — Improving approval times — Writing more business — Efficiency gains National
Slide 49: Tightening risk settings (November 2004)
Tightening risk settings (November 2004) Annual Growth Rates (%) 26 24 22 20 18 16 14 Housing Lending - Australia Annual Growth Rates (%) —# National —Financial System Aug-03 Oct-03 Dec-03 Feb-04 Apr-04 Jun-04 Aug-04 National
Slide 50: Roll forward six months
Roll forward six months. Annual Growth Rates (%) 25 20 15 10 Housing Lending - Australia Annual Growth Rates (%) —e National —Financial System Sep-03 Dec-03 Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 oo National
Slide 51: Regaining share over last quarter
Regaining share over last quarter Multiple of Financial System Growth Housing Lending - Australia National's Multiple of Financial System Growth Sep-03 Dec-03 Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 —@ 3 month National —e—Annual National = = « = Financial System a National
Slide 52: Australia — Wealth Management
Australia — Wealth Management Integration progressing well Very competitive marketplace Focus on improving cross sell 2 National
Slide 53: Australian region
Australian region Still a long way to go to achieve; + Robust risk and compliance framework + Containing margin reduction + Sustainable cost saves + Sustainable revenue growth Strategy presentation later in the year cy National
Slide 54: Institutional Markets and Services
Institutional Markets and Services Shifting focus to rebasing and rebuilding FX desk reopened Focusing on improving ROE Consolidating Asian footprint Releasing capital will impact interest income Medium term outlook subdued 64 National
Slide 55: Streamlining and efficiency
Streamlining and efficiency Streamline the Corporate Centre + 1000 FTEs to approx. 200 FTEs Restructuring announcements « First half provisioning charge booked * Reduction of up to 4,200 FTE’s group wide + Consolidating IMS business in Asia 55 National
Slide 56: Rebuilding the National
Rebuilding the National UK & New IMS Australia Zealand inDecline — Stabilising Truly Competitive Challenges as we enter the rebuilding phase + Maintaining business momentum and morale while restr + Fixing risk and control weaknesses while reducing costs + IMS rebasing + Increasingly competitive envi
Slide 57: Summary and outlook
Summary and outlook Earnings have bottomed by remain well down on peak levels Turnaround timeframe remains 2 to 3 years Expect acceptable earnings growth — consistent with recovery process Expect to maintain 83c dividend in second half franked between 80 and 100% ov National
Slide 58: Questions and Answers
HALF YEAR TQnEy) |) YNational Questions and Answers
Slide 59: HALF YEAR
HALF YEAR TQnEy) |) YNational
Slide 60: Appendix
HALF YEAR TQnEy) |) YNational Appendix
Slide 61: Australian Banking net interest margin down 4bps
Australian Banking net interest margin down 4bps from September 2004 0.08% 0.04%) 0.05% (0.08%) 2.56% 0.01%) |} (o.03%) 10a: Cy Gat) 01%) | a 252% Sep 04 |Basis Change in Change in|| Basis Change in Change in|Coreftee Capital IRM Mar 05 Hy |Risk Product “Product || Risk Product Product | “funds Bene
Slide 62: Wealth revaluation profit reflects changes in economic assumptions
Wealth revaluation profit reflects changes in economic assumptions Revaluation Profit before tax 54m owas. [Shareholder's Revaluation Pratt pre tax net assets cconsaln hefare tax $86m 27m = Rai Changein changein | Tacconsot foward discountrate business | "Transfer of funn andexchange assumptions [ra
Slide 63: Wealth Management Australia — market share
Wealth Management Australia — market share Master Fund Market Share plus Flows 25% 20% 1 FUM matet share 18% LJ mal Aiton ate 10% — Annualintows matet share 5% ow: MarO3. Jun SepG3_Deo0S Mar04 Jun04 —Sep04_Deco4 Insurance - Retail Risk Market Share 18% 18% —— 7. = = Inforce premium matt share 12% 9%
Slide 64: Wealth Management Australia — inflows and attrition
Wealth Management Australia — inflows and attrition Share of annual inflows. Attrition rate MarO3_ Jun 03 Sep 03 Dec 03 Mar 04 Jun 04 Sep 04 Dec 04 3X National Australia ‘MLC Group —4— Commonmeati / Colonial Group | AMP Group Mar 03 Jun 03 Sep 03 Dec 03 Mar 04 Jun 04 Sep 04 Dec 04 ING Austala Group
Slide 65: Taxation
Taxation Received Potential Assessments Assessments NZ Structured Finance deals NzZ$68M* NZ$369M" ExCaps capital raising $552M $2M" TrUEPrs capital raising $150M $20M* + Further ExCaps Assessments received (as announced 5 May 2005) + No provisions have been raised — no change to Group’s position + M
Slide 66: Project / investment spend - IFRS and Basel II
Project / investment spend - IFRS and Basel Il Global’ Wealth IFRS Project ($m) Aust__Management Europe NZ __Total Enabling Infrastructure 36 2 7 ; 44 Process Automation p : 4 2 18 Compliance Delivery 34 12 20 4 70 Total Cash Budget at 14 a 6 132 Operational Expense 102 Capital Budget 30 Cash spend
Slide 67: Major impacts upon transition to AIFRS
Major impacts upon transition to AIFRS + Recognition of net defined benefit pension deficit + Replacement of EMVONA with acquired goodwill + Additional volatility in income and equity reserves from fair value measurement + Recognition of share based payments expense + Expected decrease in general lo
Slide 68: Current status: AIFRS program on-target
Current status: AIFRS program on-target to meet 1 October 2005 compliance timeline Achievements as at April 2005 + Identification of of impacts and requirements completed + AIFRS Accounting Policies relating to the 2004/05, transitional year formulated and approved, well advanced with AASB 132/139 p
Slide 69: UK Restructuring will deliver £117m run rate benefits by September 2007
UK Restructuring will deliver £117m run rate benefits by September 2007 Distribution Products Production Central Support Total Restructure FTE Costs Reductions (Em) 35 c. 400 12 c. 200 16 c. 500 46 c. 600 109 ¢. 1,700 Total run rate Savings 2006/07 m) 29 15 14 59 17 Benefits are against planned 2005
Slide 70: Summary of UK restructuring plans
Summary of UK restructuring plans Implementation of a UK efficiency program has commenced + Benefits begin in September 2005 half year with full run rate benefits of £117m by September 2007 + Program is key part of “doing what we do better” and consistent with overall UK strategy + Implementation of
Slide 71: Searchable text section of graphics shown above
Searchable text section of graphics shown above HAL F YEAR RESULTS [LOGO] John Stewart, Michael Ullmer, Managing Director Director, Finance and and CEO Risk May 11, 2005 Age nda Introduction John Stewart Financial Overview Michael Ullmer Actions and Outlook John Stewart Questions and Answers [LOGO]
National Australia Bank — H1 2005 Earnings Presentation on 6ix