2001 Interim Results Australia and New Zealand Banking Group Limited 26 April 2001
Results highlights • NPAT from continuing operations $907 m - up 18% • EPS up 13% to 55. 8 cents • ROE of 19. 6%, up from 17. 8% • Costs flat - cost income ratio down to 49. 4% • Credit quality sound: – ELP charge down to 35 bp’s – Total non-accruals down – Specific provisions flat • Profit on sale of holding in St George $99 m ($65 m after tax), offset by write downs in investments ($84 m) • Improved disclosure - financial information provided for each business unit Note: Comparisons are against half year ended March 2000 (including Grindlays) Page 2
2001 Interim Results Australia and New Zealand Banking Group Limited 26 April 2001 Peter Marriott Chief Financial Officer
Strong income growth, with good progress across the board $m Abnormal/ Discontinued Items 930 104 Profit on sale of St George 65 Non. Interest Income 76 Expenses (34) Provisioning Tax (14) (12) Interest Income 84 826 2 H 2000 Write downs (84) Discontinued (12) 907 895 Eftpos NZ acquisition and GST ($26 m) 2 H 2000 Continuing 2001 1 H Continuing Page 4 2001 1 H
“Unusual” items – St George profit offset by write downs in investments • St George - $99 m profit ($65 m after tax) – regulatory issues - not critical to strategy – attractive price IDR Panin Share Price • Panin - $43 m writedown# – long term growth prospects remain positive • E*Trade - $21 m writedown# – online broking service provides core customer offering • Other - $20 m writedown# – a number of small e. Commerce related investments # - no tax relief on these writedowns Page 5 $ E*Trade Share Price
Income drivers* % Margins stabilised in first half • Benefit from differential between 90 d BBSY and cash rate • Greater focus on improving margins Other Non-interest income continues to grow Trading FX • Driven by higher non-lending fee income Other Fees • FX profits higher, reflecting AUD volatility Lending Fees * For continuing businesses Page 6
Cost-income ratio on track to meet target of mid 40’s $m Sale of Grindlays CTI • Reduction in Cost Income ratio driven by revenue growth and cost control • Approximately $65 m of restructuring provision used – two year program, with benefits principally 2002 and beyond • e. Transformation will continue to drive costs down Page 7
Good profit growth across most businesses $m Mar 00 v Mar 01 Personal Corporate International and subsidiaries Page 8
80% of businesses delivered revenue growth greater than expense growth revenue growth %* ROE top third middle third Mortgages 50 45 40 35 bottom third Cards 30 Institutional 25 GCM 20 GSF 15 General Banking Small Business -25 -20 -15 -10 Pacific Corporate 5 Wealth 5 10 15 20 25 30 -5 -10 -15 *based on pcp GFX GTS 10 -5 Asset Finance Asia Page 9 Investment Management expense growth %*
Personal portfolio • Mortgages and Cards reinforce value of our specialisation strategy • Clear opportunities for customer businesses to replicate success of product businesses • Significant market share growth opportunities remain $m – creation of Metrobanking and Regionalbanking – a 1% increase in market share for customer businesses worth $100 m+ revenue Page 10
Corporate portfolio – fee income driving profit growth • Five of six businesses delivered profit growth greater than 10% • “Non-traditional” income for Corporate Banking grew 40%+ on annualised basis, largely by executing Wall St to Main St strategy $m Page 11
International & Subsidiaries – risk reducing, profits up • Asset Finance reconfiguring back office platform to deliver substantial efficiencies • Negative profit growth for Investment Management due to tax changes and increased growth spend Asian Credit Quality AAA to BBB+ BBB to BBB- • Asia showing positive signs, on track to record significant profit growth for the full year BBBB+ to BB B to CCC Non-accrual Page 12
Total non-accrual loans continue to fall, but increase in Australia Historic $m Gross Non-Accrual Loans (LHS) Geographic $m Non-Accrual Loans/ Loans & advances (RHS) Gross Non-Accrual Loans Net Non-Accrual Loans (LHS) Aust Page 13 NZ Inter
Current provisioning in line with expectations $m Actual SP v ELP charge Personal Corporate ELP charge SP charge Int & Sub. • ELP is a function of volume (on and off balance sheet), risk grade profile, and level of security • Specific Provisions tend to be less volatile in Personal businesses and track more closely to ELP Page 14
Arrears analysis indicates no systemic deterioration % % personal lending assets over 60 days in arrears % Personal Loans Business FDAs Credit Cards Housing Loans RILs* Overdrafts • Small upturn in arrears in Jan-Feb largely reversed during March • Increase in credit card arrears reflects seasonal influences • Arrears broadly in line with same period last year • Personal loan arrears continue to increase in % terms due to reducing book * Residential Investment Loans Page 15
Corporate book holding up well, despite a few one off “issues” Corporate risk grade profile Risk actively managed AAA to BBB+ • Quarterly strategy reports prepared for all high risk accounts • June to October 2000 - all BB rated accounts within Corporate reviewed in expectation of downturn BBB to BBB- • New accounts > $3 m to be referred “one level higher” BB + to BB BB>B >B = B, B-, CCC & non-accrual Page 16
Group risk grade profile continues to improve $114. 6 bn $126. 5 bn $134. 9 bn $141. 0 bn AAA to BBB+ BBB to BBB- BB + to BB BB>B ELP (bp’s) 5. 4% 3. 9% 7. 2% 45 43 >B = B, B-, CCC & non-accrual 3. 8% 38 • Page 17 35 Risk grade profiles by division and geography in appendix
Credit quality is sound in some of our larger industry exposures - Australia x Real Estate Operators & Dev. Agriculture Lending Assets (AUDm) % of Portfolio (RHS scale) % in CCR 7 D-8 G (RHS scale) % in CCR 9 -10 (RHS scale) Manufacturing Retail Trade Accomm. Cafes & Restaurants Construction Page 18
Provisioning levels remain strong $m represents 3 years expected losses ELP charge 241 FX impact 27 % GP/Lending Assets* 1460 1373 (181) Net SP transfer Surplus 448 1012 1 H 2001 2000 APRA Guidelines ELP - Economic Loss Provision SP - Specific Provision Page 19 * includes acceptances
Capital management will continue $b % 7. 7 • Maintain capital consistent with ANZ’s AA status and peer group ratings – Tier 1 (6. 5 - 7. 0%) – Inner Tier 1 (6. 0%) 7. 9 7. 5 7. 4 7. 3 6. 7 6. 9 6. 5 6. 4 Capital Management Philosophy: Progress • $413 m in share buybacks in the half year • New framework for allocating capital for operating risk implemented • Capping of DRP/BOP 6. 2 Page 20
2001 Interim Results Australia and New Zealand Banking Group Limited 26 April 2001 John Mc. Farlane Chief Executive Officer
We are performing well and on track to deliver on our 3 year commitments Measure 3 Year Commitment EPS growth > 10% 13% ROE > 20% 19. 6% Cost-income ratio mid 40’s 49. 4% Inner Tier 1 6% Credit rating maintain AA category • Achievement 6. 2% maintained We have also committed to improving customer satisfaction, and will publicly report our progress Page 22
Implementation of our strategy is progressing well • Specialisation – 16 Business Units within 3 portfolios, plus corporate centre – Separate financial reporting for each Business Unit • e. Transformation - the e. Bank with a human face – Leading internet banking penetration – Highest profit per employee • Perform Grow and Breakout – Active resource allocation - Expenses, Capital, Balance Sheet, Talent – Investment focused on lower risk, higher growth activities Page 23
New strategy delivering value majority of businesses with double digit earnings growth Business Unit Mortgages Cards Institutional Asia Structured Finance General Banking Capital Markets Foreign Exchange Transaction Services Corporate Banking Small Business Asset Finance Pacific Wealth Management Investment Management 1 H 2001 $m 1 H 2000 $m 112 58 88 31 85 191 24 40 54 65 48 47 21 11 34 58 34 67 11 69 181 16 32 46 61 45 46 22 15 43 Page 24 Change $m % 54 24 21 20 16 10 8 8 8 4 3 1 -1 -4 -9 93 71 31 181 23 6 50 25 17 7 7 2 -5 -27 -21
We are developing a track record for building growth businesses % % Share of credit card spend Mortgage market share 95 96 97 98 $m 99 00 95 01 % FM inflows (LHS) Deposit market share (RHS) Page 25 96 97 98 99 m Personal customers - Australia 00 01
Most businesses expected to grow above market over next 2 -3 years Market Growth High Wealth Management Personal Corporate Investment Management Cards Int. & Subsidiaries GTS Asia Mortgages GCM Medium GSF GFX Institutional Metro Banking Small Business Corporate Low Pacific Regional Banking Asset Finance Note: Size of bubble approximates relative profit contribution Below Market At Market Page 26 Above BU Growth Market
Cost management delivers competitive advantage and funds to invest in growth businesses Clear leadership on Cost Income ratio lower costs/AVA higher productivity e. Transformation • • Target Mid 40’s Page 27 competitive advantage capacity to invest in growth
e. Transformation - enhancing the customer experience % Internet banking users as % of main relationships Transaction activity Cheques Phone/Internet Banking Direct Entry Credit Card EFTPOS ATM Branch Deposits Branch Withdrawals Source: JP Morgan & Roy Morgan Research Page 28
e. Transformation – examples of real, tangible benefits internally Project Benefits “Manage my leave” 95% reduction in processing costs Web enablement - rollout of IP network to all points of representation Cost neutral, but 100 times capability increase Common Administration System Estimated benefits ~$40 m Provides staff with online access to training courses, including an e. MBA e. Train - online training Page 29
We continue to actively manage and reduce risk Lending Profile by Asset Type* • Exiting higher risk businesses • More emphasis on lower risk businesses • Corporate balance sheet deliberately constrained – focus on fee income • Risk based approach embedded through EVA business consumer * CBA as at 31/12/00, NAB & WBC as at 30/9/00 Page 30
Being the e. Bank with a human face • Put our customers first with an experience that delights • Focus on creating value for our shareholders • Lead and inspire our people • Breakout, be bold and have the courage to be different • Earn the trust of our people and the community Page 31
Our breakout approach is differentiating us Strategy • Specialised businesses • First class execution (no surprises) Staff • 86% of managers on individual contracts • 12% rise in staff satisfaction Customers • Establishment of Customer Charter, Customer Advocate and distinctive customer and community initiatives e. Transformation • Leading cost income ratio • Highest internet banking penetration Risk • Leading financial disclosure & transparency • EVA embedded in culture Page 32
New customer and community initiatives • Fee free, over-the-counter services for older customers (aged 60+) • A new Customer Charter setting out clear service standards effective from 1 October 2001. A key feature of the Charter will be a financial donation payable by ANZ to a charity of the customer’s choice if ANZ does not meet its complaint resolution standards • Appointment of a senior Customer Advocate to ensure the satisfactory resolution of customer issues and complaints. • Improvements and greater funding for ANZ’s community relations program • Paid leave for staff who volunteer for community service Page 33
The economy - signals are mixed…. % Real GDP Growth incl. and excl. housing and Olympics (est) House approvals Year ended, excluding dwellings and Olympics We are starting to see a rebound in housing approvals Retail Sales ANZ job ads series suggests unemployment levels approaching 7. 5% Mthly % ch. 000’s per week Newspaper Job Ads Page 34 Starting to show signs of life
…. but we are cautiously optimistic • Sharp slowdown in H 2 2000 – overstates weakness of underlying economic activity - we continue to expect a solid cyclical rebound in 2001 -02 • Fundamentals remain healthy – usual preconditions for recession in Australia (rising inflation and interest rates) notably absent • Risks remain – weakened global growth, rising inventory levels, subdued business sentiment and falling job advertisements • But monetary and fiscal conditions remain supportive – after slowing to only 2% in 2000 -01, growth forecast to rebound to 3. 2% in 2001 -02 Page 35
Outlook • System credit growth forecasts* – housing 12. 4% – personal 11. 1% – business 6. 5% • Personal to exceed system credit growth • Corporate credit growth - continuing higher quality focus • Margin compression will continue • Costs flat • Challenges ahead, however we are well placed to continue to perform well, and achieve our targets over the medium term * forecast for year ending 30 September Page 36
Summary • We are performing well • Cost management momentum – e. Transformation has just begun… • Risk reduction continues • Our new strategy is creating value and better positioning us for growth • We are differentiating ourselves through our Breakout program Page 37 We are on track to achieve our goals
The material in this presentation is general background information about the Bank’s activities current at the date of the presentation. It is information given in summary form and does not purport to be complete. It is not intended to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any particular investor. These should be considered, with or without professional advice when deciding if an investment is appropriate. For further information visit www. anz. com or contact Philip Gentry Head of Investor Relations ph: (613) 9273 4185 fax: (613) 9273 4091 Page 38 e-mail: gentryp@anz. com
Copy of presentation available on www. anz. com Page 39
Risk grade profile by division Corporate Personal AAA to BBB+ 38. 4% 38. 9% 26. 4% 26. 7% 26. 9% 27. 4% BB + to BB 18. 2% 19. 1% 19. 4% 20. 3% 11. 7% 5. 3% 12. 3% 4. 0% 11. 7% Sep-99 BB + to BB BB>B 37. 9% BBB to BBB- 38. 4% Mar-00 Sep-00 BB>B International & Subsidiaries AAA to BBB+ BBB to BBBBB + to BB BB- >B = B, B-, CCC & non-accrual > B 11. 2% 8. 8% 8. 3% Page 40 6. 7% 3. 6% 9. 3% 4. Mar-01
Risk grade profile by geography* Australia New Zealand AAA to BBB+ BBB to BBB- BB + to BB BB- BB>B >B International AAA to BBB+ BBB to BBBBB + to BB >B = B, B-, CCC & non-accrual BB>B * Excludes housing Page 41
Economic Loss Provisioning GP % net lending assets Actual Losses are funded from the General Provision ELP Charge = Loan Amount x Probability loss x Loss Given default General Provision balance Plus Actual SP’s P&L Charge An adjustment to ensure the GP balance is sufficient to cover: • ELP charge will vary from year to year based on: • changes in lending volumes • change in risk grade profile • security levels • product and geographic mix Page 42 • • Volatility around expected loss (using statistically quantified variance) Remaining term of loan portfolio Balance sheet growth
System credit growth forecasts Page 43
Summary of forecasts - Australia Calendar years 1999 2000 2001 2002 Real GDP growth 4. 7 3. 7 2 3¾ Inflation 1. 5 4. 5 3¾ 1½ Unemployment (Dec) 7. 0 6. 6 7½ 6½ Current account deficit (%GDP) -5. 8 -4. 0 -2. 3 -3. 3 Housing starts (‘ 000) 157 148 116 136 90 -day bill yield (% pa, Dec) 5. 48 6. 20 4. 75 5. 1 10 -year bond yield (% pa, Dec) 6. 64 5. 50 5. 4 6. 1 A$ (US cents, Dec) 65. 8 52. 0 60. 0 Sources: ABS; RBA; Economics@ANZ. Page 44
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