GROWTH: THE FUTURE OF THE NATIONAL

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GROWTH THE FUTURE OF THE NATIONAL
Frank Cicutto Managing Director 27 January 2000
www.national.com.au
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TRANSFORMING THE NATIONAL
Objective Transform the National
Performance Management
Stakeholder Relationships Strategy
Corporate Strategy
Enhanced Shareholder Value
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THE NATIONALS HISTORY OF WINNING AT EACH TURNING
POINT
The challenges
The winning strategies
Early 80s

• Deregulation and need for scale

• Merger with CBC

• Focus on risk management
• Expansion into UK and Ireland

Late 80s

• Lending boom
• Australian market saturated

1990s

• Increasing domestic competition, further
  globalisation

• Focus on performance and cost control
• Revitalised branding and marketing
• Acquisitions of BNZ and Michigan National and
  Homeside

Today Future

• Declining industry margins
• Rapid technology evolution and e-commerce
• Global consolidation
• Financial services convergence

Focus of todays discussion
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THE NATIONALS SOLID TRACK RECORD OF GROWING
VALUEFOR SHAREHOLDERS
We will continue to deliver superior returns to
shareholders
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A LEGACY TO BUILD ON
Our strategy
Grow our profitable lines of business and attack
in areas that will shape the evolution of the
financial services industry in selected markets
The strengths on which our strategy is built

• Diversified businesses, income streams,
  geographies and customer segments
• Relationship banking capabilities
• Process and cost efficiency
• Cross-border management skills and presence in
  Australia, New Zealand, US and the UK and Ireland
• Large customer base9 million current customers
  and ready access to 45 million customers globally
  across all segments
• Risk management capabilities
• Demonstrated skills in acquisition and investment

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THE NATIONALS STRATEGY
Grow our profitable lines of business and attack
in areas that will shape the evolution of the
financial services industry in selected markets
What the National is doing
How the National is doing it
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THE NATIONALS STRATEGY
Grow our profitable lines of business and attack
in areas that will shape the evolution of the
financial services industry in selected markets
What the National is doing
How the National is doing it

• Driving performance and growth in businesses that
  rely on relationship management and tailoring of
  financial services, to meet customer expectations
  at every point of contact
• Accelerating the growth of selected global
  businesses where our capability, efficiency and
  service give us competitive advantage
• Staking out positions in areas key to the
  evolution of financial services
• Managing our other businesses for value
• Building diversified income streams

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THE NATIONALS STRATEGY
Grow our profitable lines of business and attack
in areas that will shape the evolution of the
financial services industry in selected markets
What the National is doing
How the National is doing it

• Actively managing portfolio of businesses for
  earnings growth
• Expanding in early adopter markets
• Sharpening performance management and talent
  development
• Ensuring the National Business Model supports our
  strategies and maximises value from our global
  organisation
• Actively embracing emerging technologies to
  reshape our businesses
• Building improved relationships with stakeholders

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BUILDING OUR RELATIONSHIP BUSINESSES
The National has built a strategic capability in
customer relationship management and is committed
to extending that capability to underpin all our
businesses.
1988
Adopted Relationship Banking as a core strategy
for the National
1989
Developed world leading relationship management
profitability system linking all customers and
banking products
1990
Implemented a unique relationship banking system
platform for business banking
1994
Extended relationship management profitability
systems to cover investment products
1998
Implemented a unique relationship banking system
and platform for premium customers
1999
Implemented in Australia, New Zealand US,
customer relationship data warehouse linking all
customer information including relationships,
products (inc. investment insurance), channel
usage and profitability. Implemented world class
sales leads system using relationship data
2000
Commenced global implementation of leading edge
Siebel customer relationship management system
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BUILDING OUR RELATIONSHIP BANKING BUSINESSES
We will take our competitive advantage in
relationship management and build our lines of
business that rely on strong relationships. We
can build on our distinctiveness in relationship
banking and tailoring of financial services to
win at the customer interface in businesses that
are not as vulnerable to disintermediation and
commoditisation.

• Business Financial Services
• Premium and Private Services

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BUILDING BUSINESS BANKING AN EXAMPLE

• Add senior business banking managers in NSW
• Implement new operating model based on
  centralised relationship management for package
  business segment
• Add financial planners to Business Financial
  Services platform
• In the UK, increase volume by hiring additional
  product specialists and business banking
  managers improve product offering
• Implement global ROE / RAROC customer
  relationship profitability model
• Development of global sales and service standards
• Centralise manual processing globally

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ACCELERATING THE GROWTH OF GLOBAL BUSINESSES
WHERE WE CAN BE COMPETITIVE
We will accelerate the growth of high potential
businesses in which our capability, efficiency
and service give us competitive advantage. The
opportunities in these businesses demand scale in
consolidating markets.
Examples

• Global Wholesale Financial Services
• HomeSide
• Global Securities Services

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STAKING OUT POSITIONS IN AREAS KEY TO EVOLUTION
OFFINANCIAL SERVICES
We will drive the growth of selected segments at
the intersection of our capabilities and
e-commerce. Maintaining the trajectory of our
growth demands that we enter high-growth
businesses at the leading edge of the evolution
of financial services. We will establish a
separate venture to incubate these high growth
opportunities.
Examples

• SME e-business services
• Consumer information trusteeship
• Transaction systems for e-commerce

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E-BUSINESS SERVICES FOR SMEs AN EXAMPLE

• We will offer a range of business services to
  SMEs beyond just financial products.
• These may include
• on-line transactional business banking
• e-Procurement
• development hosting of SME web-sites
• data warehousing mining

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MANAGING OTHER BUSINESSES FOR VALUE
We will continue to lower cost-to-serve and
improve sales performance across all channels and
continually review the contribution of each
business

• Operation First Choice
• Increasing capability and availability of ATM and
  EFTPOS networks
• Increasing usage of locked box and other deposit
  services
• Increasing usage of debit cards in US
• Migration to telephone and Internet banking
• Redefine outlets
• Vivid

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BUILD DIVERSIFIED INCOME STREAMS
As competition intensifies, both domestically and
globally, traditional income sources will come
under increasing pressure. We will continue to
build new, non-interest income streams to reduce
our reliance on traditional income.
Other operating income as a percentage of total
income

• Mortgage Servicing
• Financial Planning
• Investments
• Insurance
• Securities Services
• Treasury
• Banking Fees

94
95
96
97
98
99
03
To grow Other Operating Income to 50 of Total
Income by 2003
Our goal
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THE NATIONALS STRATEGY
Grow our profitable lines of business and attack
in areas that will shape the evolution of the
financial services industry in selected markets
What the National is doing
How the National is doing it

• Actively managing portfolio of businesses for
  earnings growth
• Expanding in early adopter markets
• Sharpening performance management and talent
  development
• Ensuring the National Business Model supports our
  strategies and maximises value from our global
  organisation
• Actively embracing emerging technologies to
  reshape our businesses
• Building improved relationships with stakeholders

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HOW WE WILL RUN THE COMPANY PORTFOLIO
MANAGEMENTOF BUSINESSES
We will actively manage a continuous flow of
business focused on sustainable earnings growth

• Applying shareholder value principles to our
  portfolio of businesses
• Employing active capital management disciplines
• Managing core low-growth businesses for
  performance and incremental growth
• Accelerating pace of high-growth opportunity
  businesses
• Investing in future growth arenas
• Divesting businesses when that will create most
  value

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HOW WE WILL RUN THE COMPANY GEOGRAPHIC DIVERSITY
We will focus our investment, geographically, on
early adopter markets Australia, New Zealand,
UK, North America

• Why
• Similar banking environments, language and
  culture
• Need to establish scale in the markets where we
  operate
• After the US, these markets adopt banking
  innovations most quickly, and are the most
  e-enabled
• How
• Examples
• Dual listing structures
• Joint venture
• Acquisition

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HOW WE WILL RUN THE COMPANY PERFORMANCE
MANAGEMENT

• Demand top global quartile productivity and
  efficiency in each core line of business, with
  appropriate performance metrics for each
• Give each business separate targets and goals
  appropriate to their growth prospects
• Transparent accountability for business unit
  performance individual business PLs, executive
  performance contracts
• Comprehensive senior management performance
  review,semi-annually
• Link executive rewards and consequences more
  tightly to business unit performance
• Create an environment to attract and retain top
  talent at all levels

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HOW WE WILL RUN THE COMPANY BUSINESS MODEL
The National Business Model is supporting our
strategies by delivering a better connected, more
efficient, flexible and responsive organisation
globally

• The Business Model facilitates
• Rapid transfer of best practice
• Standardisation of products and processes
  globally
• Global consistency with local execution
• Leveraging global scale
• Effective use of global talent pool

• We will continue to refine the global structure
• Organisation structure to reflect differing
  management styles and objectives appropriate for
  individual business growth potential
• Changed processes to reduce bureaucracy
• Smaller Executive Office and Corporate Centre
  focused on group strategy, performance management
  and external relations

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HOW WE WILL RUN THE COMPANY EMBRACE EMERGING
TECHNOLOGIES TO RESHAPE OUR BUSINESSES

• The technology we are deploying will deliver
• A ubiquitous, web infrastructure across the
  organisation
• Close to perfect information, available
  anytime/anywhere
• Applications enabling faster and more effective
  interaction between customers, suppliers,
  business units and employees across the
  organisation

Information Technology
Business Environment
Changes
How we do things
New digital world
Inspires
Imposes
What we should be doing
Organisational Strategy
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HOW WE WILL RUN THE COMPANY IMPROVE STAKEHOLDER
RELATIONSHIPS
Examples
Improve Quality and Value of Stakeholder
Relationships
Customers
Communities
Shareholders

• Corporate SocialResponsibility Charter
• Community Link
• Community Consultation
• Community Investment
• Community GroupAlliances-IssuesManagement

• Service SatisfactionSurveys
• Improved customer choice
• CRM Technology
• Customer ComplaintsManagement / Process

• Improved transparency
• Greater use of Web
• Shareholders Package
• Investor Briefings
• Dividend Re-investment Plan
• Share Purchase Plan

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HOW YOULL KNOW WE ARE WINNING
Strategic, organisational financial milestones

• By September, 2000
• Disclosure of key lines of business performance
• Differentiated performance metrics for key lines
  of business established
• Refined organisation structure in place
• Executive performance review complete
• Cost / Income Ratio of less than 52
• EPS Growth of 8

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THE NATIONALS SOLID TRACK RECORD OF GROWING
VALUEFOR SHAREHOLDERS
We will continue to deliver superior returns to
shareholders