NAB increases half yearly infrastructure spend by $80m

The National Australia Bank Group (NAB) today reported AU$3.15 billion in cash earnings for the six-months ending 31 March 2014, an increase of AU$247 million, or 3.15 percent up from the same period last year.

Australia's fourth-largest bank also reported a net statutory profit after tax of AU$2.86 billion, an increase of AU$390 million, or 15.8 percent up from the six months ending March 2013.

NAB delivered a AU$0.99 interim dividend to shareholders, slightly ahead of its expected AU$0.98 dividend prediction and an increase of AU$0.06 from its previous interim dividend offering.

"The Group achieved a good result for the six months ended 31 March 2014, with progress on a number of fronts," National Australia Bank Group CEO, Cameron Clyne, said today.

The company also revealed it had increased its investment in infrastructure projects for the six-month period by AU$80 million to AU$387 million, up by 26.1 percent compared to the same period last year.

However, the company’s investment in efficiency and sustainable revenue projects decreased against the March 2013 half year by AU$24 million, or 22.9 percent.

According to the company, this infrastructure spending increase was primarily due to the continued delivery of transformational programs, including its NextGen banking platform — of which its private-cloud infrastructure plays a core part.

Among the products based on NAB’s NextGen transformation platform is the fully automated online application, UBank Usaver Ultra and NABTrade, the online trading platform targeted at self-managed super funds.

Compared to the previous six-month period ending September last year, NAB increased its infrastructure spend by AU$6 million, or 1.6 percent, driven by the continued delivery of its transformational programs, including the NextGen platform and investment in Asia.

According to NAB, this was partially offset by the completion of a new payments gateway and lower expenditure on the Retail Branch network combined with the completion of an information technology upgrade in its UK Banking division.

NAB announced in November last year that it had deployed its SWIFT payments gateway in a bid to better position itself for growth and sector-wide transformation in the payments space.

For Clyne, the infrastructure spending has already paid off, with the company launching major upgrades in March and April this year.

"The transformation across our technology environment continues to make the experience easier for customers and employees," said Clyne. "In March, we installed the Direct Banking Release, a major milestone in progress towards the future deployment of NextGen into the core NAB franchise for origination and servicing of personal banking products.

"In April, we launched a major upgrade and simplification of our online business banking portal, nabConnect, now hosted on NAB's private cloud, providing significant speed and usability benefits," he said.

Clyne, who is set to be replaced in August by NAB's New Zealand boss, Andrew Thorburn, told shareholders that the company was on track with its technology transformation and that it would be a source of "future competitive advantage".

According to Clyne, this half-yearly result is the first to be reported under the company's new operating structure for its Australian businesses, with the new model aimed at aligning the organisation to the external environment and evolving customer behaviours.

"It is based around the key themes of simplification and digitisation," said Clyne.

Clyne told shareholders that the economic environment continued to improve during the six-month period.

"This is evident in the UK where confidence and economic growth have risen again and become more broad-based," he said. "In Australia, the housing sector has strengthened further and improved business confidence, along with corporate gearing at near 20-year lows, makes us optimistic about the business sector and potential for a recovery in business credit growth. However, against this backdrop competition remains elevated in our main markets and regulatory costs."

The company's Australian Banking revenue was down by 1 percent with weaker margins, partly offset by growth in mortgage lending. However, its Australian Banking cash earnings were AU$2.47 billion, an increase of 1 percent on the same period in 2013, with a lower charge for B&DDs (bad and doubtful debts) as the main driver.

The bank saw an improvement in the performance of its UK businesses, which were restructured in 2012. NAB's UK Banking cash earnings rose by 121 percent in the half-year compared to the previous year's result for the same period, to UK£73 million.

However, the total UK conduct-related costs for the period came to UK£128 million, including UK£115 million reported in the Group Corporate Centre, reflecting increased provisions relating to interest rate hedging products and certain tailored business loans.

NAB’s Great Western Bank cash earnings rose by 14 percent, or US$8 million, over last year's March half year to US$63 million. The company said the increase was driven by lower operating expenses and a reduction in charges for B&DDs.

Meanwhile, NAB's New Zealand Banking local currency cash earnings rose by 3 percent over the 2013 March half year to NZ$400 million. The company said that good growth in business lending, along with tight management of costs and lower loan losses were the main contributors.