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Perform Grow and Breakout. Presentation to JB Were Financial Services Conference Singapore, 6 June 2001 John McFarlane Chief Executive Officer Australia and New Zealand Banking Group Limited. ANZ - who we are. One of the ‘Big Four” Australian banks. - PowerPoint PPT Presentation
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Perform Grow and BreakoutBreakout
Presentation toJB Were Financial Services Conference
Singapore, 6 June 2001
John McFarlaneChief Executive Officer
Australia and New Zealand Banking Group Limited
Page 2
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 eCommerce position and an offshore network in Asia and Pacific.
• Assets A$181b (US$ 95b)
• Market Cap A$20.5b (US$ 11b)
• Profit (half year) A$895m (US$ 470m)
• Staff 22,815
• Credit Ratings AA-/Aa3
ANZ Headquarters100 Queen StreetMelbourne Note: figures as at 31/3/01
Page 3
We are on track to deliver on our 3 year commitments
Measure
EPS growth
ROE
Cost-income ratio
Inner Tier 1
Credit rating
3 Year Commitment
> 10%
> 20%
mid 40’s
6%
maintain AA category
Achievement
13%
19.1%
49.4%
6.2%
maintained
• We have also committed to improving customer satisfaction, and will publicly report our progress
Page 4
Building for the future - a distinctive strategy
Proposition
• Entrepreneurial specialists create more value
• Corporations must embrace new technologies
• Value depends on performance, growth and breaking out
Strategy
• Reconfigure ANZ as a portfolio of 16 specialist businesses
• An e-Bank with a human face
• Drive results, invest in growth businesses and create new paradigms
Perform Grow& Break out
e-Transform
Specialise
Implications
• Specialist approach to customer and product businesses
• Transform the way we do business with IP technology
• Meet expectations, fund growth by cost reduction, transform
Page 5
Transforming ANZ through Perform, Grow and Breakout
Breakout
Grow
Perform
• Focus: long term ‘destiny’
• Benchmark: global industry/players
• Looking for: transforming moves
• Horizon: 5-10 years
• Success: dramatic market cap increase
• Focus: specialisation and out-growing the market
• Benchmark: competitors in each business
• Looking for: breakout moves in key businesses (eg QTV, Origin)
• Horizon: 3-4 years
• Success: 4-5 moves taking share andworth ~AUD1bn+ market
cap each
• Focus: performance
• Benchmark: market expectations
• Looking for: six monthly delivery
• Horizon: 1-2 years
• Success: meet/exceed expectations
consistently
Page 6
We are performing well - interim results
• NPAT from continuing operations $907m - 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 $99m ($65m after tax), offset by write downs in investments ($84m)
• Improved disclosure - financial information provided for each business unit
Note: Comparisons are against half year ended March 2000 (including Grindlays)
Page 7
...and building a strong track record
625 717 817 895
930481 763
0200400600800
100012001400160018002000
1998 1999 2000 200112
13
14
15
16
17
18
19
20NPAT $m
NPAT/ROE
ROE %
1000
1500
2000
2500
3000
3500
Sep-98 Mar-99 Sep-99 Mar-00 Sep-00 Mar-0146
48
50
52
54
56
58
60
62
64Expenses
Income
CTI
39.1
32.0
23.5
13.7
05
1015202530354045
ANZ WBC NAB CBA
Internet banking users as % of main relationships
Source: JP Morgan & Roy Morgan Research
0
300
600
900
1200
1500
1800
1998 1999 2000 2001 1H0.0%
0.5%
1.0%
1.5%
2.0%
Gross Non AccrualsNet Non AccrualsNon Accruals/Loans
Non-accrual loans
Cost to Income
Page 8
0
20
40
60
80
100
120
140
Wealth
Pacific
Cap
ital Markets
Asia
Investm
ent M
gm
t
Foreig
n E
xchan
ge
Asset Fin
ance
Sm
all Busin
ess
Tran
saction S
ervices
Card
s
Corp
orate B
ankin
g
Reg
ional B
ankin
g
Stru
ctured
Finan
ce
Institu
tional
Mortg
ages
Metro
Ban
king
Good profit growth across a diversified portfolio Mar 00 v Mar 01
Personal
Corporate
International and subsidiaries
$m
Page 9
80% of businesses delivered revenue growth greater than expense growth
10
15
20
25
30
35
40
45
50
-10
-15
5
-5
-10-15-20-25 -5 10 15 20 25 30
5General Banking
Pacific
Small Business Wealth
GCM
Corporate
Mortgages
Cards
GSF
GFX
Asia
Asset Finance
Investment Management
expense growth
%*
revenue growth
%*top third
middle third
bottom third
ROE
Institutional
GTS
*based on pcp
Page 10
We continue to actively manage and reduce risk
0%
20%
40%
60%
80%
100%
ANZ1991
ANZ1996
ANZ2001
CBA NAB WBC
Lending Profile by Asset Type*
business
consumer
• 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
* CBA as at 31/12/00, NAB & WBC as at 30/9/00
Page 11
Total non-accrual loans continue to fall, but increase in Australia
1662
1543
13911295
872
727699657
900
428
0
300
600
900
1200
1500
1800
1997 1998 1999 2000 2001 1H0.0%
0.5%
1.0%
1.5%
2.0%Gross Non-Accrual Loans (LHS)
Net Non-Accrual Loans (LHS)
$mNon-Accrual Loans/Loans & advances (RHS)
Historic
858
59
749
8972
495
651681
457
0
200
400
600
800
1000 Mar-00
Sep-00
Mar-01
Aust InterNZ
Geographic
Gross Non-Accrual Loans$m
Page 12
Provisioning levels remain strong
500
700
900
1100
1300
1500
1700
1373
241
(181)
27 1460
1012
2000 1H 2001 APRA Guideline
s
ELP charge
Net SP transfer
FX impact
ELP - Economic Loss Provision
SP - Specific Provision
$m
Surplus448
1.06
0.97
1.02
0.98
0.70
0.75
0.80
0.85
0.90
0.95
1.00
1.05
1.10
ANZMar-01
CBADec-00
NABJun-00
WBCJun-00
GP/Lending Assets*%
* includes acceptances
represents 3 years
expected losses
Page 13
We are developing a track record for building growth businesses
-100
0
100
200
300
400
500
600
700
Mar-00 Jun-00 Sep-00 Dec-00 Mar-018
10
12
14
16
10
11
12
13
14
15Mortgage market
share
FM inflows (LHS)
Deposit
market share (RHS)
15
20
25
30 Share of credit card spend
3.4
3.6
3.8
4.0
4.2
Mar-98 Sep-98 Mar-99 Sep-99 Mar-00 Sep-00
Personal customers - Australia
%%
%m
$m
95 0096 97 9998 01 95 0096 97 9998 01
Page 14
Most businesses’ targeting revenue growth well in excess of expense growth
Plan Operating Expense Growth 01-03 cagr
Pla
n R
evenue G
row
th 0
1-0
3 c
agr
Note: Bubble size in proportion to 2001 Npat
Mortgages
GCM
Metro & Reg Banking
Inst. Bank
WealthANZ Investments
GSF
GFX
GTS
Asia
Pacific
Corporate
Small Bus
Asset Fin
NominalGDPGrowth
Low
High
Low High
Cost:Income falling
CardsCorporate
Personal
Int. & Subsidiaries
ILLUSTRATIVE
Page 15
Substantial growth opportunities in Personal
Existing revenue $2.6b
10
0
Customer #’s (m)
40% 50%*
Peer Average
Share of Customer Wallet
Potential revenue $650m
* Average share of wallet for CBA, NAB, SGB, WBC - source: Roy Morgan Research
System Growth
• Underlying credit growth ~ 8-10% pa
Market Share
• Product businesses growing customer numbers and mkt share
• Customer #’s increasing by 1.0m - translates to $650m in additional revenue pa
Increase Wallet
• Customer businesses deepening wallet share
• $650m revenue gain by matching our peers
– Created customer businesses
- Sales programs- CRM
4
5
Potential revenue $650m
Total potential revenue growth - $1.5b
7.3
Increased wallet on higher share
$160m
Page 16
Our breakout approach is differentiating us
Strategy
Staff
Customers
eTransformation
Risk
• Specialised businesses• First class execution (no surprises)
• 91% of managers on individual contracts• 12% rise in staff satisfaction
• Establishment of Customer Charter, Customer Advocate and distinctive customer and community initiatives
• Leading cost income ratio• Highest internet banking penetration
• Leading financial disclosure & transparency• EVA embedded in culture
Page 17
Developing a breakout performance culture
Average
SuperiorDistinctive
* Benchmark - 33 Australasian companies surveyed over 1999-2000
Coordination and control
Financial OperationalPeople
Distinctive (Top 10%)
Superior (Top 25%)
Average
Motivation
Rewards &recognition
Opport-unities
Values
+
where we are where we want to be
Targets/goals
Consequencemanagement
Mission/aspiration
Organisationalapproach
BU Performance feedback
Page 18
Creating a more dynamic working environment
0
10
20
30
40
50
60
70
80
Satisfied working at ANZ Would recommend ANZ asa place to work
ANZ has a genuine concernfor staff
199920002001
• 91% of managers have signed individual contracts
• pc’s@home
• tertiary qualifications for managers
• 130 staff have commenced eMBA
• comprehensive level of share ownership amongst staff
%
Page 19
Economic outlook - cautiously optimistic
0
1
2
3
4
5
6
7
Year ended, excluding dwellings and Olympics
Real GDP Growth incl. and excl. housing and Olympics (est)
%
-1.4-1.2-1.0-0.8-0.6-0.4-0.20.00.20.40.60.81.01.21.4
90 91 92 93 94 95 96 97 98 99 00
Index
Australia
US
Financial conditions in Australia more expansionary than US
Contractionary
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
• 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
Page 20
ANZ’s aspiration
A high performing company, exceeding expectations• Revenue growth• Cost leadership • Risk mitigation• EPS• ROE
Positioned in growth markets• Actively managed portfolio• Annual investment in growth ideas• Higher than peer revenue growth
More dynamic than competitors• High P/E rating• Performance culture• Lean and agile• The e-bank with a human face• A breakout mentality
Grow
Breakout
AND
Perform
Page 21
Summary
• We are performing well
• Cost management momentum – eTransformation 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
We are on track
to achieve
our goals
Page 22
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 GentryHead of Investor Relations
ph: (613) 9273 4185 fax: (613) 9273 4091 e-mail: [email protected]
Supplementary Information
2001 Interim Results and credit quality information
Page 24
Strong income growth, with good progress across the board
700
800
900
1,000
1,100
930
2H 2000 2001 1H
2H 2000 Continuing
Abnormal/ Discontinued
Items 104
826
Interest Income
84
Non-Interest Income
76
Profit on sale of St George
65
Provisioning (14)
Write downs(84)
Expenses(34)
Tax(12)
895907
Discontinued(12)
2001 1H Continuing
Eftpos NZ acquisition and GST ($26m)
$m
Page 25
“Unusual” items – St George profit offset by write downs in investments
• St George - $99m profit ($65m after tax)– regulatory issues- not critical to strategy– attractive price
80
130
180
230
280
Oct-00 Dec-00 Feb-01 Apr-01
• Panin - $43m writedown#
– long term growth prospects remain positive
• E*Trade - $21m writedown#
– online broking service provides core customer offering
• Other - $20m writedown#
– a number of small eCommerce related investments
Panin Share Price
0.30
0.80
1.30
1.80
2.30
Oct-00 Dec-00 Feb-01 Apr-01
E*Trade Share Price
# - no tax relief on these writedowns
$
IDR
Page 26
Income drivers*
%
3.22
3.683.56
3.35 3.23
2.622.81
3.12
3.48 3.45
1.911.901.901.731.64
1
2
3
4
Mar-99 Mar-00 Mar-01
PFS
International
CFS
351 372
496560
14017344
32126
143
1H 2000 1H 2001
Lending Fees
Other Fees
FX
Trading
Other
Margins stabilised in first half
Non-interest income continues to grow
• Benefit from differential between 90d BBSY and cash rate
• Greater focus on improving margins
• Driven by higher non-lending fee income
• FX profits higher, reflecting AUD volatility
* For continuing businesses
Page 27
1000
1500
2000
2500
3000
3500
Sep-97
Mar-98
Sep-98
Mar-99
Sep-99
Mar-00
Sep-00
Mar-01
45
50
55
60
65
70ExpensesIncomeCTI
Cost-income ratio on track to meet target of mid 40’s
• Reduction in Cost Income ratio driven by revenue growth and cost control
• Approximately $65m of restructuring provision used
– two year program, with benefits principally 2002 and beyond
• eTransformation will continue to drive costs down
$m CTISale of Grindlays
Page 28
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
– creation of Metrobanking and Regionalbanking
– a 1% increase in market share for customer businesses worth $100m+ revenue
Profit Breakdown
Mort27%
Cards14%
Wealth3%
Region18%
Metro27%
Small Bus11%
250
450
650
850
1050
1250
Sep-99 Mar-00 Sep-00 Mar-01
Interest Income
Other Income
Expenses
$m
Page 29
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
Profit Breakdown
GTS15%
GCM7%
Corp18%
GSF24%
GFX11%
Inst25%
250
300
350
400
450
500
550
600
Sep-99 Mar-00 Sep-00 Mar-01
Interest Income
Other Income
Expenses
$m
Page 30
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
• Asia showing positive signs, on track to record significant profit growth for the full year
Profit Breakdown
Asset Finance
35%Asia23%
Pacific16%
Inv Mgmt26%
11.1
20.4
12.7
10.0
14.1
24.4
26.0
28.843.8
52.0
13.75.0
15.5
3.03.0
7.4
4.05.1
Sep- 99 Sep- 00 'March- 01
AAA to BBB+
BB+ to BB
BB-
B to CCC
Non-accrual
BBB to BBB-
Asian Credit Quality
Page 31
Capital management will continue
5.0
5.5
6.0
6.5
7.0
7.5
8.0
8.5
Mar-99 Mar-00 Mar-01100
110
120
130
140
Tier 1
Inner Tier 1
RWA's
% $b
7.77.9
7.5
7.4
6.7 6.96.5
6.4Progress• $413m in share buybacks in the
half year• New framework for allocating
capital for operating risk implemented
• Capping of DRP/BOP
Capital ManagementPhilosophy:• Maintain capital consistent with
ANZ’s AA status and peer group ratings
– Tier 1 (6.5 - 7.0%)– Inner Tier 1 (6.0%)7.3
6.2
Page 32
Arrears analysis indicates no systemic deterioration
% personal lending assets over 60 days in arrears
0.00
0.50
1.00
1.50
2.00
2.50
Mar-00 Sep-00 Dec-00 J an-01 Feb-01 Mar-013.00
3.50
4.00
4.50
5.00
5.50
6.00
6.50
7.00
7.50
Mar-00 Sep-00 Dec-00 J an-01 Feb-01 Mar-01
Business FDAs
Housing Loans
RILs*
Overdrafts
Credit Cards
Personal Loans
%%
• Small upturn in arrears in Jan-Feb
largely reversed during March
• Arrears broadly in line with same period last year
• Increase in credit card arrears reflects seasonal influences
• Personal loan arrears continue to increase in % terms due to reducing book
* Residential Investment Loans
Page 33
Corporate book holding up well, despite a few one off “issues”
Risk actively managed
• Quarterly strategy reports prepared for all high risk accounts
• June to October 2000 - all BB rated accounts within Corporate reviewed in expectation of downturn
• New accounts > $3m to be referred “one level higher”
11.7% 12.3% 11.7%
18.2% 19.1% 19.4% 20.3%
26.7% 26.9% 27.4%
37.9%
5.3% 4.1%4.0% 3.6%
9.3%
26.4%
38.4% 38.9%38.4%
Sep-99 Mar-00 Sep-00 Mar-01
AAA to BBB+
BBB to BBB-
BB + to BB
BB-
> B
Corporate risk grade profile
>B = B, B-, CCC& non-accrual
Page 34
Credit quality is sound in some of our larger industry exposures - Australia
Lending Assets (AUDm)% of Portfolio (RHS scale)% in CCR 7D-8G (RHS scale)
0bn
2bn
4bn
6bn
8bn
10bn
Sep- 98 Mar- 01
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
0bn
2bn
4bn
6bn
8bn
10bn
Sep- 98 Mar- 01
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
0bn
2bn
4bn
6bn
8bn
10bn
Sep- 98 Mar- 01
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
0bn
2bn
4bn
6bn
8bn
10bn
Sep- 98 Mar- 010.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
0bn
2bn
4bn
6bn
8bn
10bn
Sep- 98 Mar- 01
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
0bn
2bn
4bn
6bn
8bn
10bn
Sep- 98 Mar- 01
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Real Estate Operators & Dev.
Manufacturing Retail Trade
Agriculture Accomm. Cafes & Restaurants
Construction
% in CCR 9-10 (RHS scale)x
Page 35
Group risk grade profile continues to improve
17.3% 17.3% 15.6%
19.2%15.8%
14.6%
41.5%45.3% 49.7%
16.2%
14.1%
14.7%
50.5%
16.9%16.2%14.8%
Sep 1998 Sep 1999 Sep-2000 Mar-01
$114.6bn $141.0bn$134.9bn$126.5bn
AAA to BBB+
BBB to BBB-
BB + to BB
BB-
> B
ELP (bp’s)
• Risk grade profiles by division and geography in appendix
45 43 38 35
7.2%
5.4%3.9%
3.8%
>B = B, B-, CCC& non-accrual
Page 36
Current provisioning in line with expectations
-40
-20
0
20
40
60
80
100
120
140
Mar-00
Sep-00 Mar-01 Mar-00 Sep-00 Mar-01 Mar-00 Sep-00 Mar-01
Personal Corporate Int & Sub.
Actual SP v ELP charge
ELP chargeSP charge
$m
• ELP is a function of volume (on and off balance sheet), risk grade profile, and level of security
• Specific Provisions tend to be less volatile in Personal businesses and track more closely to ELP
Page 37
ANZ is different…..
0
20
40
60
80
100
120
140
1991 1996 2001*
BusinessConsumer
020406080
100120140160180
1991 1996 2001*
InternationalNZAustralia
Lending assets by asset type
Total assets by geography
We were
• Reliant on market trading earnings
• Higher risk asset base, particularly emerging markets
• Prone to adverse surprises
Today
• Developing specialist businesses from distinctive capabilities
• Australasian, with regional interests
• Strong consumer growth engine balancing leading position in Corporate
A$b A$b
* as at 31 March 2001
Page 38
ELP Charge = Loan Amount x
Probability loss x Loss Given default
Plus
ELP charge will vary from year to year based on:• changes in lending volumes• change in risk grade profile• security levels• product and geographic mix
Economic Loss Provisioning
An adjustment to ensure the GP balance is sufficient to cover:
• Volatility around expected loss (using statistically quantified variance)
• Remaining term of loan portfolio
• Balance sheet growth
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
GP % net lending assets
General Provision balance
P&L Charge Actual SP’s
Actual Losses are funded from the General Provision
Page 39
Summary of forecasts - Australia
Real GDP growth 4.7 3.7 1¾ 3¾
Inflation 1.5 4.5 4.0 1½
Unemployment (Dec) 6.7 6.2 7.0 6 ¾
Current account deficit (%GDP) -5.8 -4.0 -2.3 -3.3
Housing starts (‘000) 157 147 123 135
90-day bill yield (% pa, Dec) 5.48 6.20 4.75 5.1
10-year bond yield (% pa, Dec) 6.64 5.50 5.9 6.2
1999 2000 2001 2002
Calendar years
Sources: ABS; RBA; Economics@ANZ.
A$ (US cents, Dec) 65.8 55.8 55.0 62.0
Page 40
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