Perform Grow and Breakout Presentation to JB Were Financial Services Conference Singapore, 6 June 2001 John Mc. Farlane Chief Executive Officer Australia and New Zealand Banking Group Limited
ANZ - who we are • • • One of the ‘Big Four” Australian banks. Provider of full range of financial services in Australia (since 1835) and New Zealand (since 1840) Leadership in Corporate Banking, Credit Cards and Mortgage origination, a strong e. Commerce position and an offshore network in Asia and Pacific. • Assets A$181 b (US$ 95 b) • Market Cap A$20. 5 b (US$ 11 b) • Profit (half year) A$895 m (US$ 470 m) • Staff 22, 815 • Credit Ratings AA-/Aa 3 ANZ Headquarters 100 Queen Street Melbourne Page 2 Note: figures as at 31/3/01
We are on track to deliver on our 3 year commitments Measure 3 Year Commitment EPS growth > 10% 13% ROE > 20% 19. 1% 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 3
Building for the future - a distinctive strategy Proposition Strategy Specialise • Entrepreneurial specialists create more value • Reconfigure ANZ as a portfolio of 16 specialist businesses • Specialist approach to customer and product businesses e-Transform • Corporations must embrace new technologies • An e-Bank with a human face • Transform the way we do business with IP technology Perform Grow & Break out • Value depends on performance, growth and breaking out • Drive results, invest in growth businesses and create new paradigms • Meet expectations, fund growth by cost reduction, transform Page 4 Implications
Transforming ANZ through Perform, Grow and Breakout • • • Break out Focus: long term ‘destiny’ Benchmark: global industry/players Looking for: transforming moves Horizon: 5 -10 years Success: dramatic market cap increase • Focus: • Benchmark: • Looking for: Page 5 3 -4 years • • • Perform competitors in each business • Horizon: • Success: Grow specialisation and out-growing the market Focus: performance Benchmark: market expectations Looking for: six monthly delivery Horizon: 1 -2 years Success: meet/exceed expectations consistently breakout moves in key businesses (eg QTV, Origin) 4 -5 moves taking share and worth ~AUD 1 bn+ market cap each
We are performing well - interim results • NPAT from continuing operations $907 m - up 18% • EPS up 13% to 55. 8 cents • ROE of 19. 1%, 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 6
. . . and building a strong track record NPAT/ROE NPAT $m Cost to Income ROE % Internet banking users as % of main relationships Non-accrual loans Page 7 Source: JP Morgan & Roy Morgan Research
$m Good profit growth across a diversified portfolio 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 %*
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 10
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 11 NZ Inter
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 12 * includes acceptances
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 13 96 97 98 99 m Personal customers - Australia 00 01
Most businesses’ targeting revenue growth well in excess of expense growth Plan Revenue Growth 01 -03 cagr Personal Cards Corporate High Int. & Subsidiaries GFX Asia Asset Fin Nominal GDP Growth GCM Small Bus Cost: Income falling Inst. Bank Metro & Reg Banking GSF GTS Pacific Corporate Low Mortgages ILLUSTRATIVE Low Note: Bubble size in proportion to 2001 Npat Wealth ANZ Investments High Plan Operating Expense Growth 01 -03 cagr Page 14
Substantial growth opportunities in Personal System Growth Customer #’s (m) Total potential revenue growth - $1. 5 b • Underlying credit growth ~ 8 -10% pa Market Share • Product businesses growing customer numbers and mkt share Peer Average 10 7. 3 Increased wallet on higher share $160 m Potential revenue $650 m • Customer #’s increasing by 1. 0 m - translates to $650 m in additional revenue pa Increase Wallet • Customer businesses deepening wallet share 5 4 Potential revenue $650 m Existing revenue $2. 6 b 0 40% 50%* Share of Customer Wallet * Average share of wallet for CBA, NAB, SGB, WBC - source: Roy Morgan Research Page 15 • $650 m revenue gain by matching our peers – Created customer businesses - Sales programs - CRM
Our breakout approach is differentiating us Strategy • Specialised businesses • First class execution (no surprises) Staff • 91% 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 16
Developing a breakout performance culture Mission /aspiration where we are where we want to be Distinctive (Top 10%) Targets/goals Superior (Top 25%) Organisational approach Average BU Performance feedback Consequence management People Financial Operational Coordination and control Average + Rewards & recognition Superior Distinctive *Benchmark - 33 Australasian companies surveyed over 1999 -2000 Page 17 Opportunities Motivation Values
Creating a more dynamic working environment % • 91% of managers have signed individual contracts • pc’s@home • tertiary qualifications for managers • 130 staff have commenced e. MBA • comprehensive level of share ownership amongst staff Page 18
Economic outlook - cautiously optimistic % Real GDP Growth incl. and excl. housing and Olympics (est) Financial conditions in Australia more expansionary than US Contractionary Year ended, excluding dwellings and Olympics Expansionary • Retail sales continue to rebound • Housing recovery continues • But unemployment is still rising • Forecast GDP growth for 2001 calendar year - 2%, rising to 3¾% in 2002 Page 19 • Unlike the US, Australia did not experience contractionary financial conditions • With domestic growth indicators strengthening, and early signs of rising inflation, interest rate cycle has likely bottomed
ANZ’s aspiration A high performing company, exceeding expectations • Revenue growth • Cost leadership • Risk mitigation • EPS • ROE Perform Grow AND Breakout More dynamic than competitors • High P/E rating • Performance culture • Lean and agile • The e-bank with a human face • A breakout mentality Page 20 Positioned in growth markets • Actively managed portfolio • Annual investment in growth ideas • Higher than peer revenue growth
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 21 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 22 e-mail: gentryp@anz. com
Supplementary Information 2001 Interim Results and credit quality information
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 24 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 25 $ 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 26
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 27
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 28
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 29
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 30
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 31
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 32
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 33
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 34
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 >B = B, B-, CCC & non-accrual 43 3. 8% 38 35 • Risk grade profiles by division and geography in appendix Page 35
Current provisioning in line with expectations $m Actual SP v ELP charge Personal Corporate ELP charge SP charge Int & Sub. • ELP is a function of volume (on and off balance sheet), risk grade profile, and level of security • Specific Provisions tend to be less volatile in Personal businesses and track more closely to ELP Page 36
ANZ is different…. . A$b Lending assets by asset type A$b Total assets by geography We were Today • Reliant on market trading earnings • Developing specialist businesses from distinctive capabilities • Higher risk asset base, particularly emerging markets • Australasian, with regional interests • Strong consumer growth engine balancing leading position in Corporate • Prone to adverse surprises * as at 31 March 2001 Page 37
Economic Loss Provisioning GP % net lending assets Actual Losses are funded from the General Provision ELP Charge = Loan Amount x Probability loss x Loss Given default General Provision balance Plus Actual SP’s P&L Charge An adjustment to ensure the GP balance is sufficient to cover: • ELP charge will vary from year to year based on: • changes in lending volumes • change in risk grade profile • security levels • product and geographic mix Page 38 • • Volatility around expected loss (using statistically quantified variance) Remaining term of loan portfolio Balance sheet growth
Summary of forecasts - Australia Calendar years 1999 2000 2001 2002 Real GDP growth 4. 7 3. 7 1¾ 3¾ Inflation 1. 5 4. 0 1½ Unemployment (Dec) 6. 7 6. 2 7. 0 6¾ Current account deficit (%GDP) -5. 8 -4. 0 -2. 3 -3. 3 Housing starts (‘ 000) 157 147 123 135 90 -day bill yield (% pa, Dec) 5. 48 6. 20 4. 75 5. 1 10 -year bond yield (% pa, Dec) 6. 64 5. 50 5. 9 6. 2 A$ (US cents, Dec) 65. 8 55. 0 62. 0 Sources: ABS; RBA; Economics@ANZ. Page 39
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 40
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