RNS Number:4624T
National Australia Bank Ld
19 December 2003
Address by the Chairman
Mr DCK Allen
&
Address by the Managing Director &
Chief Executive Officer
Mr FJ Cicutto
to the
Annual General Meeting of
National Australia Bank Limited
19 December, 2003
(Growth through excellent relationships slide)
Good morning ladies and gentlemen.
My name is Charles Allen and I have the honour to be the Chairman of The
National.
It is now 10 o'clock, this is a properly constituted meeting and a quorum is
present.
I therefore declare the 2003 Annual General Meeting of National Australia Bank
Limited open.
I welcome you here today.
Your interest in the affairs of the National is greatly appreciated.
I also welcome those shareholders viewing the Chairman's Address and the
Managing Director & Chief Executive Officer's address to the Annual General
Meeting on the internet.
The National was the first financial institution in Australia to broadcast its
AGM over the Internet four years ago.
The Internet enables us to communicate directly with shareholders who cannot get
to the AGM, including those shareholders who live in other parts of Australia
and in broader global locations.
The National has over 336,000 shareholders who have invested directly in the
Company.
In addition, there are many thousands who have invested indirectly through the
Group's funds management products and through the funds management products of a
large number of other organisations.
The number of shareholders present here today and the many who are not able to
join us in person but have returned their completed proxy forms, demonstrates a
gratifying interest in the Company's affairs.
I will now focus on three priorities of the Board this year - strengthening our
financial performance, improving our corporate governance, and enhancing our
approach to corporate social responsibility.
Strengthening our financial performance
This was a year of considerable financial success for your company.
The National produced record cash earnings of just over $4 billion and the
biggest profit by an Australian-based business this year.
We continued our program of active capital management - we bought back 48.9
million shares and consequently returned $1.6 billion to our shareholders.
(Dividend slide)
Importantly for you, our shareholders, we delivered a fully franked dividend of
163 cents per share - up 10.9 per cent on last year.
The slide on the screen shows we have delivered 11 consecutive years of dividend
growth.
There are few companies in Australia today that can boast that track record.
(Growth through excellent relationships slide)
Other financial highlights of the last year include:
- Achieving our group earnings forecast of just over 8 per cent cash earnings
growth per share.
- Improved cash earnings in all lines of business except Financial
Services Europe that was
- affected by higher pension costs and adverse currency movements.
Before the impact of higher pension costs and adverse currency movements on UK
earnings, our Group result would have been 11 per cent cash earnings growth.
We also achieved our earnings forecast whilst continuing to invest for future
growth.
We commenced a major IT systems upgrade in the UK that will be the best customer
service platform in the company when it is completed.
We plan to eventually roll out this new IT system for customer facing staff in
Australia and New Zealand.
We also improved support systems for our Wealth Management advisers in both
Australia and the UK last year.
Improving our corporate governance
The National continued to build on its record of high standards of corporate
governance.
- The National was nominated for the second year running as one of the best
Australian companies for corporate governance in an independent survey conducted
by the University of Newcastle
- The Board adopted a formal charter that details functions and
responsibilities of Directors
- During the year, an independent expert was appointed to
review key aspects of the Board's activities and assist the Board in continuous
improvement
- A new Risk Committee was established to ensure sufficient
attention is being paid to the Group's risk profile
- And the Audit Committee established procedures to manage
complaints about accounting or audit matters.
Full details of these initiatives are in the concise annual report and on the
Group's new web site.
Enhancing corporate social responsibility
The National broadened its focus on corporate social responsibility this year.
Building trusted relationships with all stakeholders is a central part of our
strategy.
We are committed to considering the impact of our decisions on our stakeholders
to ensure a balanced approach.
We published a stakeholder scorecard in the concise annual report this year.
I hope that you have taken the opportunity to read about our progress in this
area.
We reported on 28 key performance indicators that showed we are at the forefront
of corporate social responsibility in Australia.
For instance, we were in the Dow Jones Sustainability Index based on a range of
economic, social and environmental criteria including: - A better banking
network for our customers.
This year, we opened 20 new Financial Service Centres in key metropolitan and
regional areas throughout Australia
- Improved access to customers with disabilities.
We installed 60 Audio Enabled Automatic Teller Machines for the visually
impaired after a successful pilot program and will extend it to half our
Australian network next year
- Greater awareness about the environment.
We televised a discussion by a panel of experts on expected weather conditions
during the drought in Australia for over 1,600 farming customers.
We even sold our first rain options in 2003!
Our stakeholder scorecard lists similar achievements in each of our businesses
around the world.
This is an area that will continue to receive management focus and attention.
We intend to increase our investments in these areas in future years and will
continue to report our progress to you as we go forward.
I will now hand over to our Managing Director and Chief Executive Officer, Frank
Cicutto to provide you with his overview of the year and our strategies for
future growth.
(Frank Cicutto)
Good morning,
I would like to start by thanking all employees for their contribution to a
great result this year and thank you, our shareholders, for your ongoing
support.
(Cash earnings slide)
As the Chairman mentioned, we announced record cash earnings this year.
The slide on the screen shows this was not a one-off event.
It represents five consecutive years of strong cash earnings growth before
significant items.
It is important to focus on our cash earnings performance because this is the
measure that generates your dividend payments.
It is also important to recognise that we achieved a record result despite the
unexpected impacts of higher UK pension costs and adverse currency movements.
UK pension costs and currency movements were factors beyond our control, so we
focused on what we could control.
(Regional performance slide)
For me, the feature of this result was the strong performances of our banking
and wealth management businesses in Australia.
The slide on the screen shows cash earnings before significant items for
Financial Services Australia increased by 6.5 per cent.
Financial Services New Zealand also had a good year with a 12.7 per cent rise in
cash earnings in local currency, which was a 21 per cent rise in Australian
dollar terms.
And Financial Services Europe increased underlying cash earnings by 6 per cent
in local currency before the impact of higher pension charges.
Corporate & Institutional Banking cash earnings were up 6.2 per cent before the
impact of currency movements and Wealth Management operating profit rose 24.3
per cent.
(Growth through excellent Relationships slide)
There has been a lot of "noise" and debate in the media and market about our UK
operations.
The truth is that we have a 15-year track record of success in that country.
Our UK businesses generate good profits and strong returns.
Although we only have two per cent of the UK banking market, our businesses
there generate approximately A$1 billion in after tax earnings.
This is substantially more than many well-known Australian companies such as
Coles Myer, Fosters, or St George produce in Australia each year.
In fact, in Australia, only 9 listed companies generate bigger profits than our
UK banks.
In addition, our businesses there produced a return on equity of just over 20
per cent.
This is an outstanding return in anyone's book.
However, they can become even better businesses.
Australia and New Zealand are home markets for the National.
Our vision is to make the UK a second home market.
John Stewart joined the National because he shares our vision.
We have started the journey of modernising and expanding our businesses there.
I have complete confidence in John's ability to lead the transformation because
he has done it before.
He transformed Woolwich from a staid building society into a nimble competitor.
We have already started to expand from our heartland in the North of England,
Scotland and Ireland into the South.
And we have just announced plans to integrate our UK banks into one bank with
standardised products and processes.
We will also increase investment to provide our UK banks with the same
capabilities we have in Australia and New Zealand.
We are prepared to ride out the present adverse currency fluctuations and build
our presence in the United Kingdom and Ireland for the longer term.
International expansion differentiates the National from our domestic banking
and wealth management competitors.
It diversifies our income base and provides growth opportunities that other
domestic players do not have.
This remains a key plank in our strategy to build long-term shareholder value.
During the recent downturn in equity markets, some people also started to
question our wealth management strategy.
Our acquisition of MLC for $4.6 billion in June 2000 gave the National a
strategic capability and presence that is unique in this market and critical to
long term growth.
Our entire wealth management business is worth $2 billion more today than when
we purchased MLC.
And this business has generated about a billion in cash earnings for the
National in the last three years.
This is a major success story of which I am proud.
I would now like to outline what will drive our future actions.
Over the last two years we completed a substantial review of our strategies.
This work has been supported by extensive research on the future landscape of
the Australian financial system that highlights the challenges and opportunities
for future growth.
Today, I would like to mention the fundamental principles and strategic pillars
that come out of this work and will guide our future growth plans and actions at
the National.
Our clear purpose is:
"Growth through excellent relationships".
It encapsulates all stakeholders - customers, employees, shareholders,
suppliers, communities and regulators.
For many people, growth is measured by profits or return on assets.
These are important measures, especially for many of you in the audience today.
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.
(Vision slide)
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 stakeholders
and getting the basics right.
(Strategy on a page slide)
I now want to talk about the five pillars of our strategy.
(slide build)
The first pillar is to:
"Deliver solutions that help meet customers complete financial needs."
Matching 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 are on a journey to best practice in this area.
We have not always got it right however we are committed to deliver higher
quality customer service.
Over the past four years we have invested many hundreds of millions of dollars
to improve the ability of our front line bankers to better serve the customer.
In Customer Relationship Management we were recognised in 2003 as the gold
winner of an internationally judged Database Marketing Award.
We will continue to sensibly invest in all of our distribution and customer
service platforms, be they in banking or wealth management.
The key to our approach towards the customer is integrated financial services.
This is the delivery of products and services to customers where the actual
delivery may be done by different parts of the organization.
For example, we have sold over $1 billion of banking products through our
wealth management advisory channels in the last 12 months.
Another example is our branch network in Australia that now includes more than
80 Financial Services Centres that co-locate some or all of our business and
personal banking operations with wealth management.
We have plans to open 20 more over the next financial year.
The second key pillar of our strategy is focussed on our people:
The right people are critical for business success.
(Slide build)
This means we must
"Build and sustain a high performance culture."
Over the past two years, new talent and leadership has been added to the top
four levels of management.
Many of these have come from outside the National.
Internal programs have commenced to revitalise and challenge all levels of the
organisation to rethink the way we do business.
Over ten thousand employees have participated in programs that enable people to
identify initiatives at the work place and take control of those changes.
Our new building at Docklands in Melbourne is a tangible sign of the cultural
change that is underway at the National.
The open plan layout, the environmentally friendly design, and the colourful
exterior are evidence that the culture of the National is changing rapidly.
We are creating an environment that values diversity and encourages people to
perform to their full potential.
We believe these initiatives have, and will continue to improve employee
satisfaction.
This will result in better customer experience and ultimately improved returns
to shareholders.
I now want to talk about the third key pillar of our strategy which is:
(Slide build)
"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
diminished trust in the industry.
Our reputation directly affects employee morale, customer satisfaction and
shareholder returns.
Stakeholder management is therefore a hard-nosed business strategy.
As the Chairman has said, we have enhanced our approach to corporate social
responsibility this year.
We donated $17.5 million to a range of community activities and partnerships
that promote skills for life and foster better environmental outcomes.
We have developed several low or no fee products for customers that rely on
government benefits or are considered financially vulnerable.
In Australia, the National has a concession card for people on government
benefits.
Our Wealth Management business also offers socially responsible investment
products.
And our people make a direct contribution to the community through volunteering
schemes.
In Australia, the National provides two days paid leave each year for employees
to undertake community service initiatives.
More than 2,000 employees have spent more than 10,000 hours rolling up their
sleeves for the communities in which they live.
Our first stakeholder scorecard in this year's concise annual report provides
more detail on these initiatives.
(Slide build)
The fourth pillar of our strategy is to:
"Build and manage 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.
This recognises that cost efficiency is finite.
Increasingly, the choice we have to make will be to exit certain activities
rather than screw down costs across the board.
(Slide build)
The last 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 to
drive profit growth in another area.
(Growth through excellent relationships slide)
Before I conclude, I would like to briefly touch on the outlook for the current
year.
In Australia and New Zealand, economic activity remains healthy and there are
signs that global economic activity is strengthening.
This improving outlook means that interest rates are likely to rise in all of
the major economies in which we operate.
Against this backdrop, the Australian dollar is likely to remain relatively
strong.
We are only two months into the new financial year but I'm pleased to report
that all of our businesses are tracking in line with expectations.
Our businesses in Australia and New Zealand are performing well and we expect
them to continue to perform well.
As we have previously flagged, UK earnings will be impacted by the strengthening
Australian dollar.
However, our UK growth strategies will continue to create value for
shareholders.
I am sure it will be a challenging year but we will continue to manage the
things that we can control.
We will focus on positioning the business for the longer term, and not be
distracted by short-term issues such as currency impacts.
We have a great portfolio of businesses; we have the right opportunities, the
right people and the right strategy.
I would now like to hand back to the Chairman.
(Charles Allen)
Thank you Frank.
I will now move to the formal part of the meeting.
I remind those present today that this is a shareholders meeting.
Accordingly, only shareholders, attorneys and authorised representatives of
shareholders, and proxy holders may raise questions and vote on the business
before the meeting.
When you registered you were given a card.
Shareholders, proxy holders, attorneys and corporate representatives have white
cards.
In relation to joint shareholdings, only one shareholder may vote and the second
and subsequent joint shareholders received non-voting green cards.
Shareholders with a green card may, if you wish, raise questions.
Visitors have yellow cards and are not entitled to raise questions or to vote.
This will leave more time for the shareholders.
I am grateful for the advice we have received from Mr John Curry, the Chairman
of the Australian Shareholders' Association.
John has pointed out that questions and comments raised at Annual General
Meetings often continue for a lengthy period of time.
As a result, a number of shareholders are forced to leave meetings before the
votes are taken on the items of business before the meetings.
Accordingly, shareholders who have taken the time and effort to attend meetings
are disenfranchised because they cannot vote.
In order to ensure that the length of the meeting does not result in any
shareholder here today being disenfranchised in relation to your ability to
vote, I hereby declare a poll on all items of business before the meeting where
a vote is required and I declare all such polls to be now open.
I appoint Mr Roger Randle of Computershare Investor Services as the independent
Returning Officer.
If you are not able to remain until the conclusion of the meeting, the Returning
Officer's team will accept your voting paper as you leave the meeting.
The team will be happy to assist you if you have any queries.
It will be necessary for you to complete the voting paper on the reverse of your
white admission card, so that your votes can be counted in the polls.
The results of the Polls will be announced later today to the stock exchanges on
which National shares are listed, and will be displayed on the National's
website.
I now turn to the Financial Report.
The Australian Corporations Act requires the Financial Report, the Report of
Directors and the Audit Report to be received and considered at the Meeting.
Although the Corporations Act does not require a vote of shareholders on this
matter, shareholders will be given ample opportunity to raise questions and to
comment on the Reports.
Shareholders may also address questions through the Chairman to the Auditor on
the conduct of the audit and the preparation and contents of the Audit Report.
Mr Peter Matthey of KPMG will be available in this regard.
Shareholders holding white or green cards and wishing to raise a question or
make a comment are asked to move to the seats immediately adjacent to one of the
microphones. Please give your name to the attendant who will introduce you to
the meeting.
If you have a question on a specific resolution to be considered today, you may
wish to hold your question until that item of business is being considered.
There will be an opportunity for you to raise your question at that time.
The meeting today will cover 9 separate items of business, with item number 3
covering the re-election or election of 5 Directors.
This will, by necessity mean that a meeting today will be reasonably lengthy.
Accordingly, each shareholder is asked to be reasonably brief in asking your
question.
Some companies limit each shareholder to one question at a time and it is then
necessary to join the end of the line.
I do not wish to adopt such a practice.
However, I would ask each shareholder who is asking a question to respect the
position of all of the other shareholders here today and accordingly I would ask
you to be succinct in your questions.
This will allow as many shareholders as possible an opportunity to raise
questions, should they wish to do so.
In previous years, a number of shareholders have expressed concern that some
shareholders raise matters at the Annual General Meeting which are of valid
personal interest to the individuals concerned, but of little interest to the
meeting as a whole.
If any shareholder has a question relating to their personal interests, I urge
you to take advantage of the Customer Service Desk or the Shareholders Services
Desk which have been established in the foyer.
Experienced staff will be available at these desks after the meeting to assist
shareholders with specific or personal customer or shareholder enquiries and to
follow up matters for you.
You will understand that they will be able to deal with such issues in a more
timely, detailed and satisfactory way than could either Mr Cicutto or myself.
In my covering letter that accompanied the Notice of Annual General Meeting, I
invited shareholders who were unable to attend the meeting to write in if they
had a question they would like to raise.
Each shareholder who has written to us will receive a written response.
However, whilst shareholders here today are moving to the microphones, I will
address some of the questions raised by shareholders who are unable to be
present at the meeting.
The four most frequently asked questions that we received were -
1. Why is the share price falling following our record profit?
2. Why did we purchase AMP shares?
3. Why are we increasing executive salaries?
4. Why are Director fees rising?
1. Our share price (Share price performance slide)
Before I comment on the factors that have affected our share price performance
this year, it is important to remember that most investors, including many
shareholders in the audience today, make investments for long term share price
performance and dividend growth.
The slide on the screen now shows that our share price has consistently been
above the average of companies comprising the All Ordinaries Index over the last
few years.
As I said earlier, we have also increased our dividend for the last 11 years
straight.
It is also important to remember that share prices can be affected by a wide
range of factors in the short term, some of which are outside our control.
There are factors that have affected banks in general, and factors that have
specifically affected the National.
I will comment on both of these.
The major reasons why share prices of banks in general have not performed as
well in the last 12 months are:
First, professional investors shifted funds from defensive stocks such as banks
to cyclical stocks such as resource companies in Australia and overseas as
global economic growth prospects improved in the first half of this year.
This outflow of funds affected the share price performance of the National and
other banks.
This cycle will turn, as it has in the past.
Second, the recent rise in interest rates has raised concerns about a slow down
in mortgage and commercial lending by banks.
We believe there will be a soft landing for the property market but these
concerns have adversely affected the share price performance of the National and
other banks towards the end of this year.
The factors that have specifically affected the National's share price
performance are:
First, we expect the National's earnings growth will be lower in 2004 as a
result of increased investment, higher pension costs in the UK and adverse
currency movements
And Second, our move to acquire a shareholding in AMP which raised concerns
about possible acquisition risks.
I will comment more on our shareholding in AMP shortly, but we firmly believe
that these are short term factors and that we will continue good growth in
earnings and shareholder returns.
Your Board will not be constrained by a fixed dividend pay-out ratio and intends
to maintain dividend growth for shareholders.
However, we would only significantly alter dividend pay-out ratios where short
term performance our own investments would affect earnings growth.
2. Acquisition strategy (Growth through excellent relationships slide)
I will now address our shareholding in AMP.
Acquisitions are consistent with our long term strategy of sustained revenue
growth in selected markets.
As a result, we have looked at acquisition opportunities in both the UK and
Australia in the last two years.
We held friendly discussions with Abbey National, a significant mortgage bank in
the UK.
We also initiated discussions with AMP here in Australia.
As we could not undertake satisfactory due diligence of AMP we were not prepared
to proceed.
However, we did acquire and have retained a modest shareholding in AMP.
As there has been some comment on this, let me elaborate on the book build we
undertook in AMP in late August.
We could have sought a much bigger shareholding in AMP but we simply were not
prepared to pay more than $6 a share without having undertaken a thorough due
diligence investigation. Subsequent events, including the ongoing links between
AMP and HHG, with associated risks and uncertainties, have justified that
decision.
We have shown with St George that we are prepared to make and hold a strategic
stake for some time if it produces benefits for our shareholders.
In line with our long term growth strategy, we will continue to look at
acquisition opportunities in each of our markets as they arise.
But we will remain cautious and disciplined.
We will only pursue opportunities that we believe will deliver long term value
for you, our shareholders.
That is the cornerstone of our acquisition strategy and it will remain so.
3. Executive salaries
I would now like to clarify our policy on executive salaries and put to rest any
notion that we are paying excessive cash salaries without any regard to
shareholder interests.
(Key remuneration principles slide)
The slide on the screen shows the key principles of our remuneration policy.
The National, like many other organisations around the world, has moved away
from totally fixed salaries and subjective bonuses towards one with less
immediate cash reward and a greater proportion of remuneration at risk.
We have also capped the fixed cash salary that our Chief Executive receives and
have offered him more remuneration 'at risk'.
You should note that less than half of the Chief Executive's remuneration shown
in the Annual Report is paid as cash and that the majority of his potential
remuneration is at risk as part of his short and long term incentive.
In other words, shareholders must benefit before the Chief Executive can claim
the major part of his contracted remuneration.
(At risk slide)
This next slide on the screen illustrates the 'at risk' profile of salaries for
other senior executives and employees at the National.
I would like to point out that the total remuneration shown in the annual report
is a theoretical value that places a current value on options and rights that
are not currently exercisable.
Executives will benefit fully from these options and rights only if the National
performs in the top twelve of the fifty companies we are measured against.
Even then, in the case of options, the current share price must be above the
strike price.
4. Director fees (Growth through excellent relationships slide)
Finally, I would like to address the issue of fees for Non-Executive Directors.
Shareholders last approved an increase in fees for Non-Executive Directors three
years ago and subsequent events have confirmed that a higher level of fees is
required.
The major reasons are:
First, we have recently moved to increase the number of non-executive directors
on the Board, with John Thorn joining the Board this year - bringing extensive
international accounting and auditing experience with him.
We will require additional capacity to pay fees to John and any other Directors
that we may appoint over the next few years as we seek to expand our experience
base.
Second, there has been a substantial increase in the amount of committee work
undertaken by Directors and this will increase with the new Risk Committee
Last year alone, most Directors participated in a dozen additional Committee
meetings and a couple of Directors attended more than 30 additional committee
meetings on top of their normal Board responsibilities.
Third, independent experts have advised the Board that a 30 per cent increase in
fees is required to offset the loss of contractual retirement benefits....if
shareholders approve the cessation of these benefits for Non-Executive
Directors.
Fourth, the amount of regulatory compliance required in Australia and
internationally is at an unprecedented level and substantially adds to
directors' workload.
We believe that these factors justify an increase in fees for Directors and hope
you will support this resolution when we come to the formal business of the
meeting.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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