Anz Group Holdings Limited · ASX:ANZ
Anz — Australia and New Zealand Banking Group — FY2003 Earnings Presentation
65 slides from Anz's earnings presentation, Nov 13, 2003
Slide 1: 2003 Roadshow Presentation
2003 Roadshow Presentation Australia and New Zealand Banking Group Limited November 2003
Slide 2: Table of contents
Table of contents ANZ 2003 Result overview Page 3 NBNZ Acquisition page 4 Strategy Page 13 Results Review Page 22 Portfolio Performance page 36 Credit Quality page 46 Economic Forecasts Page 61 Important Notice: USA Nothing in this document constitutes an offer of shares. A Prospectus in respect of
Slide 3: Another Solid Result for ANZ, up 8.3%
, SECTION 1 Ls Another Solid Result for ANZ, up 8.3% v Sep 02 ° NPAT $2,348m tT 1.1% ° EPS 148.3 cents T 0.7% Before Significant Items e¢ NPAT $2,348m T 8.3% ° EPS 148.3 cents T 8.2% e EPS (Excluding goodwill) 152.4 cents T 9.2% e Dividend 95 cents T 11.8% e Net Specific Provisions $527m J (27.6% )
Slide 4: NBNZ Acquisition
NBNZ Acquisitio
Slide 5: NBNZ acquisition creates the leading bank in New Zealand
SECTION 2 “ sais NBNZ acquisition creates the leading bank in New Zealand Purchase price equivalent to A$4.915 billion (at exchange rates on 23 October 2003) ANZ and NBNZ, when combined, will create: ¢ The leading bank in New Zealand * One of New Zealand’s top three companies « Market leadership in
Slide 6: NBNZ acquisition is transforming for ANZ
SECTION 2 “ sais NBNZ acquisition is transforming for ANZ Acquisition an important step in a broader strategy. ANZ is now: « The leading bank in New Zealand * The leading bank in the South Pacific ¢ The leading Australian bank in Asia « Leading positions in Australia: -Institutional -Corporate -Card
Slide 7: Key financial highlights
Key financial highlights Purchase price equivalent to A$4.915 billion (at exchange rates on 23 October 2003) Excludes a NZ$575 million dividend to be paid to Lloyds TSB prior to completion from NBNZ’s retained earnings Total funding by means of: e 2 for 11 renounceable rights issue at A$13 per share
Slide 8: Estimated operating cost synergies and integration costs
Estimated operating cost synergies and integration costs Operating Cost Synergies Estimated at ~A$110m pa (before tax) within 3 years ¢ Expected cost synergies represent around 20% of NBNZ’s cost base a Cost synergies to be fully phased in by end 2006 * Key areas of cost synergies: a Technology # Ba
Slide 9: Managing key integration risks
SECTION 2 Managing key integration risks Consideration Mitigant Minimise Impact on Customers Maintain both brands and both branch networks New Zealand centric retail business model leveraging NBNZ “client-facing” systems for retail, rural and SME Manageable concentration issues in corporate and inst
Slide 10: NBNZ Group strong track record
SECTION 2 4 NBNZ Group strong track record NZ$b Strong growth in loans and advances 50 5 Dec-01 Dec-02 Jun-03 Declining cost-to-income ratio High asset quality — Provisioning charge as % of loans and advances bps 15 12 9 6 | 0 T 1 1 Dec-01 Dec-02 Jun-03 (LTM) Consistent growth in NPAT 400 4 200 7 So
Slide 11: NBNZ purchased at attractive multiple
SECTION 2 Bes J NBNZ purchased at attractive multiple Price* / LTM cash earnings muitiples 20 7 16.1 16 13.3 11.9 12 4 N 84 44 0 r r r r 1 Australian Regional Past Domestic Major Australian ANZ Standalone ANZ / NBNZ Banks Acquisitions* Banks (excl ANZ) Price* / Net tangible assets multiples 3.5 4 3.
Slide 12: Funding the NBNZ acquisition
Funding the NBNZ acquisition Target ACE/RWAs ratio range lowered to 4.75-5.25% The transaction is to be funded via the following sources: ™ Net proceeds of A$3.570 billion from a 2 for 11 deeply discounted rights issue at $13 # A$1.370 billion in Hybrid, subordinated and wholesale funding The size o
Slide 13: Strategy
Strategy 13
Slide 14: Australian banks: A decade of efficiency gains and credit expansion
Australian banks: A decade of efficiency gains and credit expansion The Australian banking sector has enjoyed a decade of efficiency gains which has seen material reductions in Cost to Income ratios. ANZ has outstripped its competitors and has achieved world class efficiency. A study of the world’s
Slide 15: Banking industry profit growth will be more challenging
‘SECTION 3 Banking industry profit growth will be more challenging Future growth within the financial services sector will be more challenging than in the last five years, largely due to the following: * There is greater penetration of the industry by non bank institutions and third party distributo
Slide 16: ANZ has positioned itself to meet market challenges
ANZ has positioned itself to meet market challenges ANZ has developed a strong, balanced platform for sound organic growth which positions us well to meet market challenges. Our model of a portfolio of specialist businesses is distinctively different from our competitors. Its insight is that speed,
Slide 17: Monolines win, but returns more volatile - diversification reduces risk
Monolines win, but returns more volatile -—diversification reduces risk Independent analysis* has found that monoline specialists create greater returns than generalists. ANZ‘s response has been to create a portfolio of specialist businesses. Whilst the returns from individual business units within
Slide 18: We have rebalanced the bank's lending portfolio
We have rebalanced the bank’s lending portfolio ANZ has refocused the loan book towards lower risk retail Corporat e versus Retail Lines of Business lines of business through: Wye Wy 1. Corporate to retail lines of businesses «In 2003, Gross Lending Assets are split approx. 66/34% across retail and
Slide 19: This provides us with a well balanced portfolio for organic growth
This provides us with a well balanced portfolio for organic growth Notwithstanding our relative re-weighting of the asset portfolio towards Retail lines of business and the lowering of the risk profile within the corporate portfolio, ANZ has retained its strong tradition in corporate banking. 40% of
Slide 20: Clear international strategy
Clear international strategy : Modest capital _ reallocation if growth. tions are identifi ANZ’s international focus is twofold and remains clear 1. US and Europe - REDUCE Involving: « Focusing on core products and relationships « Reallocating capital to fund growth options « Returning excess capita
Slide 21: ANZ's forward looking agenda
ANZ’s forward looking agenda To become Australia and New Zealand’s most respected company 21
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Slide 23: Full year result driven by asset and deposit growth
Full year result driven by asset and deposit growth Full year NPAT growth increased 8.3% with growth in net income, tight expense control, and improving Interest credit quality being the highlights. ingomme Net interest income * strong lending growth resulted in a $454m increase in net interest inco
Slide 24: Higher interest income, driven by strong mortgage and deposit growth
Higher interest income, driven by strong mortgage and deposit growth * Average net lending assets grew by $b Average Lending & Deposit Volumes $13.6b (10.0%) in 2003, with growth of 199 , $10.8b (18%) in Mortgages, $1.6b in Corporate and $0.8b in Asset Finance. * Average deposits and other borrowing
Slide 25: Margins down, primarily due to yield curve and mix effect
Margins down, primarily due to yield curve and mix effect Net interest margin contracted by 10bp yoy: « Net interest income in Treasury fell by $45 million as a result of run off of the existing portfolio and flat yield curves. This represented 3bp. * The interest benefit from low interest savings a
Slide 26: Treasury - adversely impacted by a tough interest rate environment
Treasury - adversely impacted by a tough interest rate environment Australian & New Zealand Mismatch $mAUD pts * Over the last three halves Group 80 . r 200 Treasury’s earnings have been in : decline, with further decreases 70 | H expected in 2004. Aus Yield Spread: Rolling 3 * Group Treasury mismat
Slide 27: Non interest income impacted by Cards under-accrual and loyalty costs
Non interest income impacted by Cards under-accrual and loyalty costs, underlying growth strong Underlying * Lending fees increased $57 million WV growth $m due to strong volume growth in $m Impact 146 2808 Corporate, Asset Finance and 2796 (71) Institutional Banking in Australasia 2002 * Non lendin
Slide 28: Expense growth well controlled
Expense growth well controlled Expense growth was relatively flat, with discretionary cost growth minimised due to lower revenue growth. * Personnel costs up 2%, reflecting growth in staff numbers of 3% (increase occurred largely towards the end of the period). * Overall FX impact on expenses immate
Slide 29: Doubtful Debts Provision reflects improved underlying portfolio
Doubtful Debts Provision reflects improved underlying portfolio ¢ “Standard” ELP (as a % of NLAs) has decreased significantly from 46 bps to 32 bps across the period 1998 through 2003. This is consistent with mortgage growth in key lending markets of Australia and NZ and reduced Group risk profile »
Slide 30: The cumulative ELP balance
$m 4000 4 7 700 * The cumulative ELP balance continues to comfortably exceed the specific provision balance. ¢ In 2003 an additional $100 million was provided in ELP as precaution against continued above expected levels of default on the offshore lending portfolio. * The reduced 2003 specific provis
Slide 31: Healthy dividend growth
Healthy dividend growth $1.00 Dividends $0.80 4 fi Interim @ Final « The fuil year dividend of 95 cents per ordinary share represents a 12% increase on 2002. * The final dividend is 100% franked. « For year ending 30 Sep 2004, the directors expect to at least maintain a . : . 2 fully franked dividen
Slide 32: Capital targets reduced, reflecting lower risk
Capital targets reduced, reflecting lower risk Net impact of FX rate movements on ACE capital was approximately -$235 million. FX impact on RWA was approx -$3.2bn down due to FX rate movements, again principally the US$ depreciation (US$ accounted for -$3.3bn of the movement). Net impact on ACE rati
Slide 33: Restructuring our hybrid funding will impact the relationship between PAT & EPS in 2004
Restructuring our hybrid funding will impact the relationship between PAT & EPS in 2004 Background Issued Sept/Nov 1998 Amount USD 0.775 bn Cost of Dividend 8% Fixed To be called 1H 2004 27 Sep 2003 AUD 1bn BBSW Floating Tax on Swap Tax Deduction for dividend Deduction for dividend Preference Divide
Slide 34: Illustrative Impact of TrUEPrS redemption and replacement on 2004
SECTION 4 Illustrative Impact of TTUEPrS redemption and replacement on 2004 $m $m $m TrUEPrS StEPS Change NPAT components 7008 7008 Interest on re-investment (net of tax) 11 33 Interest rate swap (net of tax) 49 Tax credit on dividend 31 18 91 Si -40 Dividend -102 -58 44 Contribution to EPS -1i -7 4
Slide 35: Outlook
‘SECTION 4 Outlook . We expect ANZ will continue to perform well in a tougher industry environment in 2004 * Expected NPAT growth in 2004 for existing businesses on a stand alone, individual basis: * Growth in net profit after tax for ANZ and NBNZ on an individual/stand alone basis expected to be mo
Slide 36: Portfolio Performance
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Slide 37: A specialised portfolio - efficient allocation of resources to deliver results
A specialised portfolio - efficient allocation of resources to deliver results A specialised portfolio allows us to efficiently allocate resources to those businesses experiencing, or with the potential for growth and to reduce resources away from those businesses with lower growth prospects and/or
Slide 38: IFS - a strong domestic franchise, continued risk reduction offshore
IFS — a strong domestic franchise, continued risk reduction offshore * ANZ has a strong tradition and leading position A very strong domestic franchise* in the domestic institutional banking market. « Our core domestic Institutional Banking 80% fiTotal Customers 4 Significant Customers* business onc
Slide 39: We continue to strengthen our position in the Corporate and SME markets
We continue to strengthen our position in the Corporate and SME markets * High levels of customer satisfaction and continued focus on our service proposition enabled Corporate Banking to deliver a 6% increase in NPAT in the half to September. * A solutions based proposition led by our Wall St to Mai
Slide 40: Market leader: Asset Finance continues to prosper
Market leader: Asset Finance continues to prosper growing 23% in 2003 Asset Finance has continued its momentum, with NPAT growth of 23% in 2003. This strong performance is largely attributable to three key factors: A significant cultural transformation Staff Advocacy ¢ Cultural transformation and a
Slide 41: Consumer Finance: profitable market leadership
Consumer Finance: profitable market leadership * ANZ is the Australian market leader in the credit card business, with approximately 20% market share driven by the scale and variety of our product offerings. * The Consumer Finance business enjoyed strong underlying business growth during the year in
Slide 42: Mortgages - strong growth drives performance
Mortgages -strong growth drives performance * The momentum in ANZ’s mortgages business in Australia and New Zealand continued during the year delivering a 9% increase in NPAT, with FUM increasing 19.9% on prior year, The cost of increased staffing required to maintain service levels in light of volu
Slide 43: Personal Banking - underlying health of the business improving
Personal Banking — underlying health of the business improving... The personal banking business has continued to invest in its Restoring Customer Faith (RCF”) program. This program aims to improve the “health” of the business. Significant improvements have been achieved: * Customer satisfaction scor
Slide 44: and we are starting to see improved sales momentum
.. and we are starting to see improved sales momentum... The investments in the branch network are showing promising early results. Particularly in the second half, sales momentum has picked up across all main drivers of revenue: ¢ Total sales activity improved 8% in the second half, assisted by sea
Slide 45: and continued growth in our core transaction products
«. and continued growth in our core transaction products Our core transaction product suite is performing as we expected: . Product leadership was confirmed with ANZ winning the industry award for the best transaction account Account growth continued to be positive during 2003 with net growth of 118
Slide 46: Credit Quality
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Slide 47: Consumer & SME portfolios in good shape
Consumer & SME portfolios in good shape « Arrears profile (60 days) is approaching historical lows reflecting strength of Australia’s retail sector. * The consumer sector is robust with continuing low levels of unemployment and a low interest rate environment. « Mortgage arrears continue to decline.
Slide 48: Mortgages portfolio sound
Mortgages portfolio sound Strong LVR profile « ALoan to Valuation Ratio (LVR) analysis 80% 4 of ANZ’s mortgage portfolio suggests it has sufficient equity margin to sustain a 70% 4 reasonable devaluation in Australian 60% + residential property prices. ° * Emerging risks in apartment investment 50%
Slide 49: APRA's findings from mortgage industry stress test
i ‘SECTION 6 APRA’s findings from mortgage industry stress test APRA Comments « APRA found that 32% of loans with LVR‘s greater than 80% are not mortgage insured ANZ Response * Comparative figure for ANZ was 16%, however APRA analysis included all “retail” type lending including Small Business lendi
Slide 50: Domestic portfolio remains in good shape
Domestic portfolio remains in good shape Asset Quality Sept 2003 v Sept (Australia & New Zealand) "+ Net Non Accruals * Net Specific Provisions _* Economic Loss Provision rate _ ¢ Lending Growth (over 70% due to mortgages) * 8B or lower ratings continue to decrease Australia & New Zealand Risk Grade
Slide 51: US Energy Portfolio - issues remain, but exposure continues to reduce
US Energy Portfolio - issues remain, but exposure continues to reduce e Management has been proactive in addressing Total Limits Group exposure to the (Excl Settlement) global energy sector * Concentration risk associated with exposure to energy lending as a proportion of the aggregate AAA to loan b
Slide 52: Quality of Group Telco lending book has also improved
Quality of Group Telco lending book has also improved 7 Total Limits * ANZ Group has been proactive (Excl Settlement) in addressing the telco concentration risk of its global lending asset portfolio -ANZ continues to manage down its exposure to the industry, particularly offshore. Offshore assets no
Slide 53: Group risk grade profile
Group risk grade profile ANZ Group - Outstandings $142bn $143bn $149bn $158bn AAA to BBB Total investment grade as at Sep 03: $112.7bn or 68.1% of BBB- the portfolio BB+ to BB BB- >BB- Sep-01 Mar-02 Sep-02 Mar-03 Sep-03 B+ to CCC 3.0% 2.8% 2.5% 2.5% 2.3% Non Accrual 0.9% 0.9% 0.8%3 0.7% 0.6% A gees
Slide 54: Specific provisions down 28% on 2002 - no large single provisions
Specific provisions down 28% on 2002- no large single provisions Specific Provisions Full Year Specific Provisions by size $m Significant impact from single customers Grindlays 400 5 SN, r 100% credit 9 indemnity* 350 - + 90% oe r 80% 300 + r 70% 250 <$5m2 iS Oy y 60% 200 4 F 50% 20m - 150 4 f 40% $
Slide 55: New Specific Provisions down 28% on the 2002 year
New Specific Provisions down 28% on the 2002 year Geographic Specific Provisions $m 800 4 700 + 600 4 500 4 400 4 300 4 200 4 -100 4 py Aust/NZ pyUK/US HAsia yg Other Inter Specific Provisions by Source $m 250 9 214 200 4 2002 2003 ti Energy &4 Domestic Corporate @ Asset Finance & Consumer Finance '
Slide 56: Non-accrual loans continue to fall
Non-accrual loans continue to fall $m 1800 1500 1200 900 600 300 Historic Gross Non-Accrual Loans (LHS) Non-Accrual Loans/ Loans & advances (RHS) 1998 1999 2000 2001 2002 Sep-03 56 1.75% 1.50% 1.25% 1.00% 0.75% 0.50% 0.25% 0.00% $m 1000 800 600 400 200 651 Geographic Gross Non-Accrual Loans 4 2000 1
Slide 57: New non-accruals reduced 23% on 2002
New non-accruals reduced 23% on 2002 Geographic New Non-Accrual Loans New Non-Accrual Loans by source gm $m 1600 4 3507 334 1400 4 1285 1200 4 1028 988 1000 4 . 800 4 600 4 400 4 200 4 o+ r T r 2002 2003 & 8 5 8 8 & S 3 3 S it Energy ™ Domestic Corporate @ Asset Finance Consumer Finance fm Aust/NZ f
Slide 58: Existing and future problem loans are well provided for
Existing and future problem loans are well provided for * The period 1998 through 2003 has seen Group GP trend down 16% to 101 bps, consistent with the sustained de-risking of the Group lending book. * As at September 2003, gross non-accrual loans were 61 bps of GLAs (or A$1.0bn). Of this, 48% was c
Slide 59: Proactive reduction in volume of top 10 client committed exposures
Proactive reduction in volume of “top 10” client committed exposures S&P Rati ANZ has aning implemented credit management policies to diversify loan 140% 4 book exposure by reducing the volume — AA- 130% 5 of “top 10” client committed lending. At 120% 4 This has led toa reduction in client 110% 4 co
Slide 60: Basel II will provide some benefits, but adjustments expected for local market
oh Basel II will provide some benefits, but adjustments expected for local market Note: Change in RWA under Basel II QIS 3 results reflect the underlying QIS 3 results quality of ANZ’s assets, and support ANZ’s move to a lower ACE target range % ANZ Advanced IRB Aust Majors Average Gi0 major bank av
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Slide 62: Summary of forecasts by economics@anz - Australia (bank year)
Summary of forecasts by economics@anz — Australia (bank year) GDP* Inflation * Unemployment (Sep) Cash rate (Sep) 10 year bonds (Sep) $A/$US (Sep) System Credit Growth* - Housing - Business - Other * Annual average 2001 1.7 5.1 6.8 4.75 5.6 0.49 9.9 14.5 6.3 10.7 62 2002 4.1 3.0 6.2 4.75 5.3 0.54 9.
Slide 63: Summary of forecasts by economics@anz - New Zealand (bank year)
SECTION 7 _ De | Summary of forecasts by economics@anz - New Zealand (bank year) GDP* Inflation* Unemployment (Sep) Cash rate (Sep) $A/$NZ (Sep) System Credit Growth* - Housing - Business - Other * Annual average 2001 2.3 3.2 5.1 5.25 1.22 7.2 2.1 10.5 63 2002 4.1 2.5 5.3 5.75 1.16 7.6 7.9 8.1 2003
Slide 64: General background information notice and contact
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
Slide 65: Copy of presentation available on www.anz.com
Copy of presentation available on www.anz.com 2 ee ek os cae
Australia and New Zealand Banking Group — FY2003 Earnings Presentation on 6ix