Nat.Australia Bank (40HT) - NAB 2012 Full Year Results
RNS Number : 9079P
National Australia Bank Ld
30 October 2012
Wednesday, 31 October 2012
NAB 2012 Full Year Results
Result reflects strong core business performance and challenges in the UK
Results for the 30 September 2012 full year are compared with 30 September
2011 full year unless otherwise stated.
· On a statutory basis, net profit attributable to the owners of the
Company decreased by $1.1 billion or 21.8% to $4.1 billion against the
September 2011 full year.
· Cash earnings^1fell by $27 million or 0.5% on the September 2011
year to $5.4 billion. This reflects an increased charge for bad and doubtful
debts (B&DDs) mainly in the UK, and a pre-tax $250 million increase in the
economic cycle adjustment on collective provisions (ECA), partially offset by
cash earnings growth in the Australian and NZ Banking franchises. The
difference between statutory and cash earnings was primarily due to charges
relating to the outcomes of the UK Banking strategic review, provisions for
customer redress in the UK, fair value and hedge ineffectiveness and the
effects of adjusting for treasury shares.
· On a cash earnings basis:
o Revenue rose by 3.6% reflecting solid growth in Personal Banking, Wholesale
Banking and NZ Banking;
o The charge for B&DDs for the September 2012 full year was $2.6 billion, an
increase of $793 million on the September 2011 full year. This reflects
increased charges in UK Banking, particularly in the commercial real estate
sector, and an increase in the ECA as a prudent response to current economic
conditions. Excluding these two items, the charge for B&DDs for the year was
broadly flat on September 2011; and
o Expenses were lower, reflecting strong cost management while the Group
continued to invest in key strategic projects. Positive jaws were maintained
with growth in revenue exceeding growth in expenses.
· Balance sheet strength remains a priority for the Group. Sound
capital, funding and liquidity positions have been maintained. During the
year, the Group raised approximately $31.3 billion of term wholesale funding
(including approximately $11.5 billion of secured funding). The weighted
average term to maturity of the funds raised was 5.1 years. The Stable
Funding Index (SFI) increased to 86%, with deposit growth fully funding core
asset growth and contributing to balance sheet strength through reduced
reliance on short term funding.
· The estimated Basel III Common Equity Tier 1 ratio (on an APRA basis)
was 7.9% compared to 7.1% at 30 September 2011. The Group has introduced a
Basel III Common Equity Tier 1 ratio target of above 7.5% on an APRA basis to
apply from 1 January 2013, and will look to operate at an appropriate buffer
to this target.
· The final dividend was 90 cents per share fully franked, consistent
with the interim dividend. The total dividend for 2012 was 180 cents, an
increase of 8 cents per share fully franked. In response to the strong
capital growth in the last year and the forthcoming hybrid conversion, the
Group will not offer a discount on the dividend reinvestment plan in respect
of the 2012 final dividend.
"The Group result reflects both the strength of the core Australian and New
Zealand banking businesses and ongoing challenges in the UK", National
Australia Bank Group CEO, Cameron Clyne said today.
"The Australian economy has performed well relative to other advanced
economies, although business conditions across sectors remain mixed reflecting
the prolonged global uncertainty and weak confidence.
"The core Australian franchise performed well with Group cash earnings
excluding UK Banking up 9.2% over the year. Personal Banking had a
particularly strong year delivering increased returns, higher market share in
mortgages and household deposits, and the highest bank customer satisfaction
score of the four major Australian banks ever recorded in the Roy Morgan
survey^2. Business Banking maintained its leading market share position in
business lending, Wholesale Banking performed strongly, achieving higher
revenue across the Customer and Risk businesses, and NAB Wealth made
significant investments in innovative capabilities.
"The Group has taken action on several key issues during the year. While the
Australian and New Zealand businesses performed well, ongoing weak economic
conditions in the UK led to our decision in April to restructure and re-focus
UK Banking. On 5 October 2012, the vast majority of the UK commercial real
estate portfolio was transferred from Clydesdale Bank PLC to National
Australia Bank Limited, improving the Clydesdale Bank balance sheet structure
and simplifying the business.
"Expenses were tightly managed while the Group continued to invest in areas of
strategic priority. Several key milestones were achieved against the
technology transformation program including the launch of our new online
trading platform, nabtrade, the migration of more than 300,000 UBank customers
to the new NextGen banking platform, and the introduction of everyday
settlements for the majority of merchants, meaning businesses can now access
funds processed on the weekend. These initiatives will improve cost
efficiency and allow more flexibility to respond to customer needs.
"Balance sheet strength remains a priority and the Group made good progress
against this objective, strengthening its capital, funding and liquidity
positions over the year.
"At the heart of our business lie our beliefs - doing the right thing, helping
others and realising potential. In 2012 the Group invested $55.7 million in
the community and demonstrated leadership on financial inclusion, hosting
Australia's inaugural Financial Exclusion Summit," he said.
Cash earnings in Business Banking decreased by $36 million or 1.5% against the
September 2011 year to $2.4 billion, with small growth in revenue and tightly
managed expenses offset by a higher charge for B&DDs, including additional
provisions on previously impaired exposures. Through continued strong focus
on customer relationships, Business Banking maintained a leading market share
in business lending of 24.8%^3and a strong position in business deposits of
21.2%^4 during 2012. The ratio of 90+ days past due and gross impaired assets
to gross loans and acceptances at September 2012 was 2.19% compared to 2.23%
at March 2012, and watch loans were up around 2.7% in the September half.
Personal Banking cash earnings increased by $113 million or 12.1% to $1.0
billion and its return on risk weighted assets grew by 30 basis points. Solid
revenue growth and a lower charge for B&DDs were key drivers for the full
year, as they were over the second half of the year, with September 2012 cash
earnings up 25.2% on March 2012.
Personal Banking's differentiated customer proposition continued to deliver
market share gains in both housing lending^5 and household deposits^6 in a
highly competitive market.
Net interest margin decreased by 16 basis points compared to September 2011
due to funding and deposit cost pressures and changes in product mix, but it
increased by two basis points on the March half, reflecting mortgage
Cash earnings increased by $431 million or 65.2% to $1.1 billion during the
September 2012 year as a result of higher revenue across the customer and risk
businesses. Revenue increased by $645 million or 34.8%, reflecting an
increase in both Risk income as trading conditions improved, and Customer
income. Customer income increased through the successful execution of the
franchise focus strategy which included higher sales of risk management
products to Group customers, the development of innovative direct-to-market
funding solutions for clients, a variety of deposit products delivered to
customers through the Financial Institution Group franchise and the ongoing
success of the Infrastructure and Natural resources business.
Customer income was lower in the second half, reflecting a more normalised
level of client hedging activity. The Financial Institutions Group,
Specialised Finance and Asset Servicing also performed well during the year.
Cash earnings before IoRE^7 and non-controlling interest of $519 million
increased by $15 million or 3.0% compared to September 2011, reflecting higher
average funds under management (FUM) and increased revenue from both the
annuities portfolio and direct asset management. This was partially offset by
a deterioration in lapse experience.
Adviser numbers in the aligned channel increased by 82 and the business
continued to undertake significant investment. This included the relaunch of
key products in both the investments and insurance businesses, the launch of
NAB's online trading platform, nabtrade, and the ongoing development of a
range of innovative retirement products for Australia's retirees and
Cash earnings in NZ Banking increased by NZ$129 million or 21.1% to NZ$741
million compared to September 2011. Net interest margin increased, driven by
continued demand for variable rate mortgages, repricing of the business
lending portfolio and strong deposit growth which provided margin support
relative to more expensive wholesale funding sources. Cash earnings for the
September half year decreased by 7.5% compared to March 2012, reflecting an
increased charge for B&DDs from low levels in the first half, slightly lower
other operating income and higher expenses due to investment in business
Customer deposits grew strongly over the year, with average volumes increasing
by NZ$3.4 billion or 10.9% as the business continued to focus on growing
deposits to support asset growth, reducing reliance on offshore funding
markets, and further strengthening liquidity and capital positions.
UK Banking delivered a cash earnings loss of £139 million in the September
2012 full year due to higher funding costs and an increased charge for B&DDs.
The charge for B&DDs increased by £335 million, predominantly from business
lending losses as a result of the prolonged economic weakness in Europe which
has particularly affected the UK commercial real estate (CRE) market.
Progress has been made on implementing the outcomes of the UK Banking
Strategic Review, announced on 30 April 2012, including simplifying the
business model to focus on retail operations and SME business lending. The
balance sheet has since been strengthened with the transfer on 5 October 2012
of the vast majority of the UK Banking CRE business (comprising assets with
balances before provisions of approximately £5.6 billion) from Clydesdale Bank
PLC to National Australia Bank Limited. As previously advised, some residual
UK CRE assets have been retained by Clydesdale Bank.
Great Western Bank
Great Western Bank delivered growth in its core Agribusiness and SME segments
during the year. Cash earnings were US$100 million, US$10 million higher than
in September 2011, with a US$34 million reduction in the B&DD charge.
Specialised Group Assets
SGA delivered a cash earnings loss of $9 million loss for the September 2012
full year. Over the September half year, both income and the charge for B&DDs
were lower than at March 2012 due to continued run-off in the business.
Over the year, risk weighted assets were reduced by $7.8 billion or 52% to
$7.2 billion, reflecting the continued run-off of the portfolio and the
removal of the economic risk related to the SCDO assets.
Balance sheet commentary
The Group Basel II Tier 1 capital ratio of 10.27% at 30 September 2012 is
consistent with its objective of maintaining a strong capital position. The
estimated Basel III Common Equity Tier 1 ratio on an APRA basis was 7.9% and
includes the impact of APRA's draft counterparty credit risk capital reforms.
This compares with our Board approved target of above 7.5% and the APRA's
regulatory minimum of 4.5% applicable from 1 January 2013 (with APRA applying
a further capital conservation buffer of 2.5% applicable from 1 January 2016,
increasing APRA's effective regulatory minimum to 7.0%).
Funding and liquidity
The Group continued to explore opportunities to enhance and diversify its
funding sources in the 2012 financial year, sustaining strong deposit growth
and raising $31.3 billion of term wholesale funding (including secured
funding). Deposit growth fully funded core asset growth and contributed to
balance sheet strength with the Customer Funding Index increasing to 66%.
The Group maintains well diversified and high quality liquid asset portfolios,
with total liquid assets held at 30 September 2012 of $91 billion (excluding
contingent liquidity), broadly in line with 31 March 2012.
Group asset quality
Group asset quality metrics remained broadly stable during the year, despite
ongoing economic challenges in the UK. The ratio of 90+ days past due and
gross impaired assets to gross loans and acceptances was 1.78% at September
2012 compared to 1.73% at March 2012. Excluding UK Banking, this ratio was
1.43% compared to 1.50% at March 2012.
For further information:
Brian Walsh Meaghan Telford
M: +61 (0) 411 227 585 M: +61 (0) 457 551 211
Investor Relations Craig Horlin
Ross Brown M: +61 (0) 417 372 474
M: +61 (0) 477 302 010
This announcement contains certain forward-looking statements. The words
"anticipate", "believe", "expect", "project", "estimate", "likely", "intend",
"should", "could", "may", "target", "plan" and other similar expressions are
intended to identify forward-looking statements. Indications of, and guidance
on, future earnings and financial position and performance are also
forward-looking statements. Such forward-looking statements are not
guarantees of future performance and involve known and unknown risks,
uncertainties and other factors, many of which are beyond the control of the
Group, which may cause actual results to differ materially from those
expressed or implied in such statements. There can be no assurance that
actual outcomes will not differ materially from these statements. Further
information on important factors that could cause actual results to differ
materially from those projected in such statements is contained in the Group's
Annual Financial Report.
Note on Cash Earnings
The Group's Results and Review of Divisional Operations and Results are
presented on a cash earnings basis, unless otherwise stated. Cash earnings is
a key financial performance measure used by NAB, the investment community and
NAB's Australian peers with similar business portfolios. NAB also uses cash
earnings for its internal management reporting as it better reflects what NAB
considers to be the underlying performance of the Group. It is not a statutory
financial measure and is not presented in accordance with Australian
Accounting Standards nor audited or reviewed in accordance with Australian
Auditing Standards. 'Cash earnings' is calculated by excluding some items
which are included within the statutory net profit attributable to owners of
the Company. A definition of cash earnings is set out on page 146 of the 2012
Full Year Results Announcement. A discussion of non-cash earnings items is
included on page 22 and a full reconciliation of the cash earnings to
statutory net profit attributable to owners of the Company for the September
2012 full year is included on page 137 of the 2012 Full Year Results
Announcement. Section 5 of the 2012 Full Year Results includes the
Consolidated Income Statement of the Group, including net profit. The Group's
audited financial statements, prepared in accordance with the Corporations Act
2001 (Cth) and Australian Accounting Standards, will be published in its 2012
Annual Financial Report on 19 November 2012.
^1 Refer to note on cash earnings on page 5 of this document.
^2 August 2012, Roy Morgan Research Customer Satisfaction
Report. NAB compared with ANZ, CBA and WBC.
^3 August 2012, APRA Banking System
^4 August 2012, APRA Banking System
^5 RBA Financial System / NAB
^6 APRA Banking System / NAB
^7 Investment earnings on shareholders' retained profits and
capital in the life business.
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