Bank Of Queensland Limited · ASX:BOQ
Bank Of Queensland — FY2019 Earnings Presentation
44 slides from Bank Of Queensland's earnings presentation, Oct 17, 2019
Slide 1: Results Presentation
Pe RESUS PRESENTATION
Slide 2: Agenda
AGENDA coe INTRODUCTION Daniel Ryan Head of Investor Relations WELCOME & OVERVIEW OF RESULTS George Frazis Managing Director & CEO RESULT ANALYSIS & FINANCIAL DETAIL Matt Baxby Chief Financial Officer SUMMARY & QUTLOOK George Frazis Managing Director & CEO Q&A Bonk of Queensland Limited 2079 Results
Slide 3: Welcome and introductions
Thanks Dan and good morning everyone. I’m delighted to be here with you today as Managing Director and CEO of Bank of Queensland. I am joined by Matt Baxby, as mentioned our CFO, to present BOQ’s FY19 results. I would like to take this opportunity to thank Matt greatly for his contribution over the
Slide 4: CEO opening remarks on results
I’m happy to say today that while only six weeks into the CEO role, I’m excited by the potential across the company, confirming my earlier observations. The growth we have achieved in recent years, for example in Virgin Money Australia and niche business segments demonstrates that we can differentia
Slide 5: FY19 results summary
Turning now to the results themselves - statutory net profit after tax decreased 11% from FY18 to 298 million dollars, and cash earnings after tax decreased 14% to 320 million dollars. Cash return on equity reduced to 8.3%, with common equity tier one also lower at 9.04%. I would note that we remain
Slide 6: Drivers of the result
In terms of the drivers of the results on slide 5, total lending grew by 937 million dollars, or 2% during the year, with the first half slightly stronger. This was primarily driven by the Business Bank, with mortgages underperforming. Net interest margin reduced by five basis points from FY18, with
Slide 7: Early observations and areas requiring attention
To summarise, my early observations on the business, I would start by reiterating that BOQ is fundamentally a good business. It has a solid platform for differentiation, through the niche business segments and Virgin Money Australia. Underlying asset quality is sound, and our balance sheet is solid.
Slide 8: Five high level priorities
Based on these early assessments and together with the Board, I have therefore identified five high level priorities. The first is to return to profitable and sustainable growth. The second is to embed our purpose-led, customer culture, building on our people’s skills and capabilities. Our next prio
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Slide 10: Key themes in the results
Thanks George. I’ll start by taking you through some of the key themes that are evident through the results. There’s no doubt we are operating in a challenging environment with slow credit growth and historically low interest rates, together with rising regulatory and customer expectations. BOQ has
Slide 11: Challenging operating environment impacts income and expenses
On slide 10 we’ve highlighted how a challenging operating environment has impacted our income and increased expenses. Low credit growth and lower interest rates have hampered net interest income growth. Regulatory changes have impacted insurance income through St Andrew’s. In addition, changing cust
Slide 12: Momentum in niche segments
Despite these challenges, slide 11 demonstrates the continuing strong momentum in our niche segments. BOQ Finance achieved consistently strong growth across both halves, with the portfolio growing by 15 per cent over the year to 5.3 billion dollars. This was achieved primarily through a focused prop
Slide 13: Foundational investments
We called out in the first half that a fundamental step in BOQ’s path to restoring returns is delivering a number of ‘must do’ foundational investments. During the second half, significant progress has been made to deliver a large number of projects, which will better set BOQ up for the future. Thes
Slide 14: Financial Detail
FINANCIAL DETAIL
Slide 15: Group financial performance FY19 vs FY18
The Group’s financial performance for FY19 compared to FY18 is outlined on slide 14. Total income reduced 21 million dollars or two per cent from FY18. Within this, net interest income was largely flat, with loan growth of two per cent offset by a five basis point decline in net interest margin. Non
Slide 16: Half on half comparison
We’ve provided a half on half comparison on slide 15. Income grew in the second half, assisted by increased day-count, but this was more than offset by higher operating expenses, emanating from the regulatory and compliance uplift that we flagged in the first half. Loan impairment expense was also h
Slide 17: Second half result by business segment
We’ve broken the second half result down by business segment on slide 16. You can see that cash earnings improved in the Retail Bank, with flat income offset by higher expenses, but with an improved loan impairment result. BOQ Business had a larger impact from the provision increases in its commerci
Slide 18: Group loan portfolio growth
Moving to the group loan portfolio on slide 17, total loan growth of 937 million dollars was achieved over the year. This was driven primarily by growth of 15 per cent in BOQ Finance, with housing loan balances flat and commercial loans growing by one per cent. Strong levels of growth were achieved
Slide 19: Loan growth by business segment
Growth has been split out by business segment on slide 18. This shows the continued strong growth in Virgin Money Australia, which was offset by a further contraction in the BOQ housing loan book. A key driver of this has been our fulfilment processes. We have implemented a number of changes to simp
Slide 20: Funding and liquidity
We are well positioned on funding, which is outlined on slide 19. During the year we have lengthened the tenor of our wholesale funding, increased our deposit to loan ratio and improved our mix of deposit funding. The launch of our Fast Track Saver and Fast Track Starter accounts resulted in improve
Slide 21: Net interest margin movements
Net interest margin reduced by five basis points over the year, and two basis points in the second half. These movements are summarised on slide 20. Asset pricing actions in January and July contributed a six basis point positive benefit to NIM during the half. This benefit was partially offset by c
Slide 22: Net interest margin outlook
As long term interest rates have continued to decrease, this represents a headwind of 3-4 basis points in the first half, through lower returns on capital and low cost deposits. The impact of funding costs is uncertain and can move quickly, but given where rates are today, our current estimate would
Slide 23: Non-interest income
Non-interest income is on slide 21, and I’ve already touched on some of the drivers here. Outside of insurance income, we saw a slight uptick in non-interest income in the second half. Banking income was impacted by a step down related to the migration of our merchant service arrangements to a new p
Slide 24: Operating expenses
Moving to operating expenses on slide 22, and the second half increase was in line with the guidance we provided at the first half result. The regulatory uplift of seven million dollars was felt on top of an underlying increase of a little over two point five per cent. IT costs increased due to data
Slide 25: Non-cash earnings items
Slide 23 provides a summary of the non-cash earnings items for the year. Overall, non cash items represent a smaller proportion relative to the prior year. 23
Slide 26: Asset quality
Turning to asset quality now on slide 24 and the underlying metrics in our lending portfolio remain sound. As I mentioned earlier, the key drivers of the increase in loan impairment expense were higher collective provisions. In the second half, this was amplified by model adjustments designed to bui
Slide 27: Provision balances
The increase in provision balances are evident on slide 25. There is some noise in the provisioning coverage ratios due to our largest impaired exposure, which is well secured and therefore has a low specific provision against it. Collective provisions increased by 33 million dollars or 29 per cent
Slide 28: Arrears trends
The arrears trends on slide 26 demonstrate the sound underlying performance of our three main portfolios. Overall, arrears remain at low levels, with only small increases evident in 90 day housing and BOQ Finance arrears over recent quarters. This reflects the low interest rate environment, a resili
Slide 29: Capital
Moving to capital now, on slide 27. CET1 was 9.04 per cent, a reduction of 22 basis points during the half. Underlying capital generation was impacted by growth in profitable but higher risk- weighted business segments, lower DRP participation and lower earnings. This was fully offset by a one billi
Slide 30: Dividend
We have today announced a final dividend of 31 cents per share, which brings the full year dividend to 65 cents per share. This is a reduction of 14 per cent from 2018 and is reflective of the challenging operating environment and outlook. The Board has taken a prudent approach which keeps the payou
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Slide 32: Outlook for 2020 and macroeconomic environment
Thank you Matt. When thinking about the outlook for 2020, it’s important to consider the macroeconomic environment. In this regard, conditions remain challenging and economic growth is likely to be subdued. Although the labour market is strong and house prices appear to be stabilising, wage growth a
Slide 33: CEO focus areas
Despite this uncertain backdrop, I still believe there are good opportunities for BOQ to return to profitable growth, with a differentiated and focused strategy. I touched on my high level priorities earlier, but wanted to give you a bit more detail on what I’m focused on. We will return to profitab
Slide 34: Digital experience and strategy update
experience for our customers. We will also ensure that our Virgin Money Australia digital bank milestones are met. I will talk more about the investment we are making shortly. While doing all of this, we are committed to continue strengthening the bank, through robust risk and compliance standards a
Slide 35: Virgin Money Australia digital bank
An exciting development is the decision we have made to continue building on the strong momentum in Virgin Money Australia. Following successful completion of the stage 1 digital bank proof of concept, we are now planning the full build and implementation. There will be a phased delivery, with trans
Slide 36: Conclusion and FY20 outlook
In conclusion, the FY19 results are clearly disappointing. We are already taking decisive action to improve financial performance on both revenue and costs. That being said, FY20 will also be a difficult year. We expect lower year-on-year cash earnings in FY20, with revenue and impairment outcomes i
Slide 37: Appendices
APPENDICES
Slide 38: Housing Portfolio
HOUSING PORTFOLIO SUMMARY > Broker settlements 29% including VMA > Owner occupied P&I loans represent 53% of Bonk of Queensland Limited 2019 Results Presentation portfolio PORTFOLIO METRICS Metrics(%) amis 1H19 ‘Owner occupied 59 Es) Investment 41 a Interest only i] 3 Broker originated iy T Weighted
Slide 39: Commercial Portfolio
COMMERCIAL PORTFOLIO PORTFOLIO BY INDUSTRY PORTFOLIO BY STATE PORTFOLIO BY EXPOSURE SIZE y 7%, pe 15%) 42% ‘12 37% 9% 8%! 31% 30% 27% ‘8 Property & construction Mcp a<sim $im-$5m 1 Professional services » Hospitality & accommodation = Agriculture SQKD) (ONS; oe: OWA: {eSA, cote = $5m-$10m = $10m-$25
Slide 40: BOQ Finance Portfolio
BOQ FINANCE PORTFOLIO ASSET BY INDUSTRY ASSET BY STATE ASSET BY TYPE 4% 17%. 19% % 2 24% 3%, x 31% = : ™% hai) 6 21% N2% 696" é. ‘9% ‘0% 25% ree = Construction Transport place eAprcatare ie Mena tecture QLD =NSW aVIC «WA = Other road vehicles, trailers Goreeemients = Retail trade «= Rental, Hiring,
Slide 41: Limited Exposure to High Risk Sectors
LIMITED EXPOSURE TO HIGH RISK SECTORS APARTMENT CONSTRUCTION EXPOSURES > $110m current exposure to residential construction > 14 developments across 3 states, completing 2019 through 2020 > Well diversified intra~state within NSW and VIC OTHER HIGH RISK SECTORS > No material regional housing exposur
Slide 42: Outlook Dependent On
OUTLOOK DEPENDENT ON: > Changes in cash rate and bank bill swap rate > Competitive actions > Unemployment rate > Consumer and business confidence > House prices > Pace of change of technology and customer preferences > Potential regulatory changes > Economic growth Bonk of Queensland Limited 2079 Re
Slide 43: Abbreviations
ABBREVIATIONS 11H: First half of financial year 2H: Second half of financial year 3LOD: Three lines of defence 30DPD: 30 days past due 90DPD: 90 days past due AASB: Australian Accounting Standards Board ADI: Authorised Deposit-taking Institution AML/CTF: Anti-Money Laundering/Counter-Terrorism Finan
Slide 44: Disclaimer
DISCLAIMER This is a presentation of general background information about Bank of Queensland Limited's (BOQ's) activities at the date of this document. Itis in summary form and does not purport to be complete. It should be read in conjunction with BOQ's other periodic and continuous disclosure annou