Anz Group Holdings Limited · ASX:ANZ
Anz — Investor Presentation (March 2004)
76 slides from Anz's investor presentation, Mar 11, 2004
Slide 1: i ya
i ya oa : ee a aa Lo sige! nile NN ae a a al i il cae Ca
Slide 2: Agenda
Agenda Welcome New Zealand Economic Review Introduction Strategic Overview Operational Overview NBNZ Branch Banking Business Banking Rural Banking Integration NBNZ GDS, Conclusion and Q&A Simon Fraser John McDermott Peter Marriott Sir John Anderson Steven Fyfe Henry Ford Craig Sims Charlie Graham Gr
Slide 3: John McDermott, Chief Economist, NBNZ
ai / John McDermott Chief Economist, NBNZ
Slide 4: The NZ economy: a quiet success over the last decade
The NZ economy: a quiet success over the last decade But this economic strength is not just a new phenomenon. Apart from 97/98 drought and the fallout from the ‘Asian’ crisis, New Zealand’s economic cycle has been close to that of Australia’s over the past decade. % Annual average GDP growth of New
Slide 5: NZ has been one of the leading economies over the past years
NZ has been one of the leading economies over the past 10 years When compared other advanced countries over the past decade, New Zealand has been in the top half, in terms of economic growth. % Average growth rate of selected advanced countries since 1994 | £ 2 a o fea) United Kingdom —ieme Australi
Slide 6: The rural sector is a key driver of the New Zealand economy
The rural sector is a key driver of the New Zealand economy The direct contribution of New Zealand’s rural sector to the rest of the economy is approximately 13%. However, the indirect and induced contribution is about this much again, illustrating the significance of the rural sector to New Zealand
Slide 7: Australian primary sector is of comparable size
Australian primary sector is of comparable size The size of the primary sectors in Australia and New Zealand are similar in contribution to total output. But the mix of commodities within the two are very different. Contribution of the Australian economy Government Z— | Primary, agriculture Secondar
Slide 8: Therefore, commodity prices are a prime driver of the economy
Therefore, commodity prices are a prime driver of the economy From late-1999 the value of New Zealand’s commodity basket rose strongly in world price terms. Higher commodity prices benefited rural incomes, which in turn initiated a strong economic expansion. A low exchange rate over 1999 to 2003 acc
Slide 9: Employment growth has been supported by the commodity boom
Employment growth has been supported by the commodity boom With rising incomes and a low currency (making labour relatively cheap when compared to imported capital), the prospering rural and business communities fed through into the remainder of New Zealand. This contributed to rising employment lev
Slide 10: Strong job prospects made NZ an attractive destination as well
Strong job prospects made NZ an attractive destination as well as a good place to stay Strong economic growth has made finding new employees increasingly difficult for employers, despite a surge in the number migrants adding to the size of the labour force. Labour market indicators fgrcent of respon
Slide 11: ..which has fuelled strong housing demand
..which has fuelled strong housing demand The surge in the number of net migrants to historical highs has pushed up the demand for housing. Consequently, the price of houses has risen steeply. Annual house price growth nual % growth An 25 4 20 4 154 ~5 4 ~ 10 4 1994 1995 1996 1997 1998 1999 2000 200
Slide 12: .. and thus contributed to an expansion in credit growth
.. and thus contributed to an expansion in credit growth Higher demand for housing and upgrading requires furnishings. Thus, householders’ credit has also grown strongly over the past 18 months. Annual % growth New Zealand credit growth 185 16 4 0 T T T T T T T T T 1994 1995 1996 1997 1998 1999 2000
Slide 13: The outlook is that the strength of the NZ dollar will slow the economy
The outlook is that eventually the strength of the NZ dollar relative to the US dollar will slow the economy The exchange rate acts as a buffer on the economy. As economic growth has risen above trend, so the exchange has risen above it’s estimate of ‘trend’ (fair value). This appreciation will act
Slide 14: .. and a more normal, but still robust, growth rate will return
.. and a more normal, but still robust, growth rate will return The reversion to trend is also anticipated in specific, but high profile, indicators. Dairy Company payouts gain significant local media attention as the rural sector is such a large component of the New Zealand economy. Although dairy
Slide 15: .. The Government has money to spend on infrastructure
.. The Government has money to spend on infrastructure The strong economic growth of the previous years has built up a strong tax take for the Government. As the economy slows, the Government has the ability to ease fiscal policy in order to offset the economic slowdown. Government Operating Balance
Slide 16: Key macroeconomic forecasts
Key macroeconomic forecasts Calendar years 2003 2004 2005 2006 Real GDP (aapc) 3.5 2.8 2.1 3.1 Unemployment Rate (Dec qtr) 4.6 4.8 5.2 4.9 CPI inflation 1.6 1.9 2.4 2.0 TWI 63.9 65.2 57.3 58.8 90 day bank bill rate 5.3 5.6 5.8 6.1 Current Account Balance [i] -4.8 ~5.7 -5.5 ~4.8 Govt. Operating Balan
Slide 17: New Zealand's terms of trade have improved in the last decade
New Zealand’s terms of trade have improved in the last decade It is well known that New Zealand’s relative economic growth per capita has declined over the post-war era. In part, this can be attributed to the observed secular decline in New Zealand’s terms of trade. However, the terms of trade decli
Slide 18: Summary
Summary « The NZ economy has been one of the world’s leading economies over the last decade e NZ is a low risk economy e Strong commodity prices have been a prime driver of economic growth e A strong employment market has fuelled increased housing demand driving recent credit growth e Government spe
Slide 19: Peter Marriott, Chief Financial Officer
AH ei idl BI Peter Marriott Chief Financial Officer
Slide 20: ANZ's strong earnings momentum
ANZ’s strong earnings momentum e FY04 earnings is in line with expectations of around 9% cash EPS growth* e Strong performance across our portfolio of specialist businesses e Credit quality continues to improve assisted by low specific provisions in our offshore portfolio e Cost to income ratio at o
Slide 21: ANZ - Specialist capabilities; Leading market positions
ANZ - Specialist capabilities; Leading market positions ANZ has a strong platform for the future: , This platform is building a leading franchise: # Unique specialisation strategy ¢ The leading bank in New Zealand ® Sustainable business portfolio ¢ The leading bank in the South Pacific # World leadi
Slide 22: National Bank of New Zealand: A very different acquisition
National Bank of New Zealand: A very different acquisition Average Real GDP Growth (1993-2003)* e New Zealand - a high return, low risk market 3.2% Transforming for ANZ at a modest price 3.5% 3;,8% ¢ Creates the leading bank in New Zealand 2.7% 2.0% ¢ Approx. 28% of ANZ NPAT now derived from NZ 1.2%
Slide 23: Sir John Anderson, CEO NBNZ
ae al HH Hi TA ana BI Sir John Anderson Chief Executive Officer, The National Bank of New Zealand Limited & Managing Director, ANZ Banking Group (New Zealand) Limited A,
Slide 24: The National Bank of New Zealand: Strategic Overview
The National Bank of New Zealand: Strategic Overview 1. Introduction 2. The NBNZ story 3. Current Status 4. Future Outlook 5. Management Team 24
Slide 25: Steven Fyfe, Chief Operating Officer (designate)
idl BI iain i i all Vi Wie Steven Fyfe Chief Operating Officer (designate)
Slide 26: NBNZ maintains a clear strategic focus
NBNZ maintains a clear strategic focus Vv Vv Vv Vv Vv Core Banking Excelling in Customer Service Relationship Banking Consistent Brand Values Leveraging NZ scale to drive efficient infrastructure 26 Leading customer satisfaction Customer Satisfaction - Main Bank* {Excelient and Very Good Ratings) 80
Slide 27: NBNZ has undergone a significant transformation consistent with our focus
NBNZ has undergone a significant transformation consistent with our focus NBNZ market share has grown from ..driven by a combination of acquisition 9% in 1990 to 21% in 2003... and market share growth % NBNZ share of lending NBNZ Market Share Drivers 1990 - 2003 1990 - 2003 257 20 4 157 Bi 107 54 |
Slide 28: We have a proven track record of successful integrations
We have a proven track record of successful integrations # We have successfully integrated both Rural Bank and Countrywide # Since 1998, following the integration of Countrywide we have grown Market Share # We have driven substantial income growth (CAGR 8.3% 1998-2003) whilst significantly reducing
Slide 29: Quality loan portfolio, with low provisioning
Quality loan portfolio, with low provisioning % More than 80% of the portfolio is secured by real estate % Loan losses have averaged 0.10% since 1990 NBNZ Lending Portfolio and Market Share December NZ$b 2003 % 25 7 T 40% 20 7 T+ 30% 157 + 20% 10 + 5+ 7+ 10% 0 ~—e 0% Mortgage Rural Business Consumer
Slide 30: NBNZ continued its business momentum in 2003, and ANZ growth rebounded
NBNZ continued its business momentum in 2003, and ANZ growth rebounded ¢ NBNZ’s total lending increased 10.5% in 2003, ahead of the market average (10%) « ANZ’s total lending grew 6.0% after two years of flat growth reflecting new market and management initiatives in 2003 Total Lending $NZb $NZb 25
Slide 31: ... and we are seeing a positive trend in net customer acquisition
... and we are seeing a positive trend in terms of net customer acquisition 14,000 5 12,000 + 10,000 + 8,000 + 6,000 4 4,000 + 2,000 4 a ’ 0 i ; ; : = oa ms il -2,000 - Jan- Feb- Mar- J Nov- Dec- Jan- Feb-_ 03. 03 = 03 3 ) { @ OS) Ok Oe @ Net Acquisition _ -2,000 4 Jan- Feb- Mar- 03 03 03 Uncertaint
Slide 32: Our people are engaged, and satisfaction levels are strong
Our people are engaged, and satisfaction levels are strong % 90 - ANZ NZ Staff Satisfaction’ ¢ Satisfaction levels measured in February 85 2004 remain strong after a period of 80 5 uncertainty 754 ¢ Our people are enthusiastic about the 70 4 dual branding structure 65 - ¢ Appointment of Sir John And
Slide 33: Summary
Summary e We have a clear strategic focus e NBNZ has a strong financial track record A history of . ; ; success, and well e We have a history of successful integrations placed to deliver into the future « Customer and growth trends are encouraging e Our people are engaged 33
Slide 34: Henry Ford, Branch Network NBNZ
AH ei s General Manager, i Cu ai Henry Ford Branch Network NBNZ
Slide 35: ANZ and NBNZ are well positioned in the retail banking market
ANZ and NBNZ are well positioned in the retail banking market ANZ and NBNZ Retail Banking Total Number of Branches 303 — comprising approx 40% of total ¢ Provides services to all customers of the Bank bank branches in NZ e Delivers full suite of retail banking products including Credit Cards and Ins
Slide 36: NBNZ branches - a distinctive proposition
NBNZ branches - a distinctive proposition TG Ve ay
Slide 37: NBNZ Retail Banking has experienced strong growth
NBNZ Retail Banking has experienced strong growth NZ$b Increasing Home Loan FUM 20 7 ¢ We have consistently grown Home Loan FUM a ¢ Growth in last 12 months slightly below market 10 4 5 1 2000 2001 2002 2003 NZ$b Increase in Deposit FUM 20 4 « Slowdown in deposit growth in line 15 | with market ¢ Re
Slide 38: We have a track record in growing market share
We have a track record in growing market share A strong track record of .. and we continue to grow building market share... customer numbers 40% 4 Customer Share - Main Bank* ti Acquired & Defected 30% 7 2001 &2002 #82003 20% 7 10% 7 0% 4 Apr02- Oct02- Apr O3 - Sep 02 Mar 03 Sep 03 *Source ~ ACNiels
Slide 39: Strong staff satisfaction has significantly influenced customer satisfaction
Strong staff satisfaction has significantly influenced customer satisfaction NBNZ Staff Satisfaction 100% 2002 90% m2004 ¢ Staff satisfaction in the retail bank 80% continues to reach record levels 70% « All components of the business 60% delivering increased satisfaction levels 50% + 1 Branch Conta
Slide 40: A simple but effective strategy
A simple but effective strategy A combined focus on staff, customer and processes ensures a successful strategy Recruit the “right” staff to deliver NBNZ service proposition Identify and nurture effective leaders Investment in staff skills development Remuneration tied to skills level, team and indi
Slide 41: Well positioned to overcome our integration challenges
Well positioned to overcome our integration challenges Our focus is to minimise disruption to maximise retention Customers Staff Processes Key Focus Opportunities * Two brand strategy will ensure minimal disruption to customer service ¢ Current strategy not impacted by integration Minimal impact of
Slide 42: Summary
Summary e A distinctive and market leading franchise e A simple, well executed strategy delivering results A distinctive retail franchise, well placed to continue growing e A track record in growing market share e We focus on our people, who in turn deliver the highest level of customer satisfaction
Slide 43: Craig Sims, General Manager, Business Banking
Au H) idl BI LAN i ii i i ii i — ii iii, on Craig Sims General Manager, Business Banking
Slide 44: The SME sector is increasing in size and ANZ & NBNZ are well positioned
The SME sector is increasing in size and ANZ & NBNZ are well positioned New Zealand SME Market 780 + Business Enterprises < 10 Employees ¢ 270,000+ Small-Medium enterprises 260 + ¢ Small businesses account for 30% of 240 + New Zealand’s economic activity 8 220 7 . . Oo * 92% of firms employ <10 peop
Slide 45: Our customers are satisfied, and this has helped grow our market share
Our customers are satisfied, and this has helped grow our market share Customer Satisfaction - Main Customer Share - Main Bank* Bank*# 30% - 80% 7 (Excellent + Very Good) 25% 7 60% 7 20% 4 op, | 40% 4 15% 10% 7 20% 7 5% 4 of 4 0% + 0% NBNZ ANZ wBc BNZ ASB 42001 42002 2003 BNZ @ 2002 2003 *Source ~ A
Slide 46: Growth in share is helping drive strong financial momentum
Growth in share is helping drive strong financial momentum ¢ Strong book growth has contributed to 9 - 10% revenue growth across both business units in 2003 « Lending primarily secured by residential mortgages FUM Growth - NBNZ FUM Growth ~ ANZ Loans & Advances Deposits Loans & Advances Deposits ti
Slide 47: Our strategy is built around customer relationships
Our strategy is built around customer relationships A i y j Ll ME igen J ME b a V, LE [Haul eh ela LEE | d Meat a cal AAA I e Recruit the right staff ) « Providing customers with a choice * Invest in business skills of 3 levels of relationship (offers) development ¢ Dedicated relationship manager ¢
Slide 48: We are well positioned to deal with integration challenges
We are well positioned to deal with integration challenges and take advantage of the opportunities that arise Risks Customers Staff Processes Key focus Retain two brand strategy Separate integration from business as usual and continue focus on growth Minimise change at frontline and retain relations
Slide 49: Summary
Summary e The Business/SME market is a growing, highly attractive market ¢ NBNZ has a leading position in this market, ANZ has seen improvement from a low base The outlook for the sector is positive and we are well placed to benefit e Our success driven by a superior customer service proposition and
Slide 50: Charlie Graham, General Manager, Rural Banking
AH ei (Mala BI Charlie Graham General Manager, Rural Banking
Slide 51: The rural sector is a large component of the NZ economy
The rural sector is a large component of the NZ economy ANZ & NBNZ Representation The rural sector directly and indirectly ¢ Combined, ANZ & NBNZ consists contributes over 25% to the NZ economy* > 19,500 customers in all major geographic segments Services > 28 points of representation 8% Gov't & Oth
Slide 52: NBNZ has strong financial momentum; ANZ performing well from low base
NBNZ has strong financial momentum; ANZ performing well from low base Revenue Growth - NBNZ 15% 13% 2001 2002 2003 FUM Growth - NBNZ 20% 21% Loans & Advances Deposits "2001 2002 @ 2003 52 Revenue Growth - ANZ* 15% 2002 2003 FUM Growth - ANZ* 15% Loans & Advances Deposits @ 2002 i 2003 *ANZ Rural bus
Slide 53: NBNZ's strong market presence justifies a single brand model
NBNZ’s strong market presence justifies a single brand model % Customer Share - Main Bank* e NBNZ is a clear market eT ed . ' _ _— leader with strong sector momentum ae reer cea , e ANZ market share lags e Single brand franchise most feasible option Aug-95 Aug-96 Aug-97 Aug-98 Aug-99 Aug-00 Aug-01 A
Slide 54: ANZ customers will benefit from NBNZ's proven successful strategy
ANZ customers will benefit from NBNZ’s proven successful strategy e Recruit people with empathy for the rural sector e Highly trained sales and support staff e Specialisation of staff roles where required Staff who understand the sector e Strong, personalised customer relationships, e Delivering hig
Slide 55: We are well positioned to deal with integration challenges
We are well positioned to deal with integration challenges and take advantage of the opportunities that arise Risks Customers Key focus Clearly defined single brand model (NBNZ) ensures rapid integration, minimising customer impact Relationship staff continue to look after ‘their’ customers Consiste
Slide 56: Summary
Summary e The rural sector is a large component of the NZ economy e¢ NBNZ is the market leader in this segment with 38% market share; combined market share will be 45%* Continued business momentum e NBNZ success driven by strong customer relationships and developing highly skilled staff ¢ Through th
Slide 57: Grahame Miller, Head of Integration
AH ei idl BI * Grahame Miller Head of Integration
Slide 58: Integration is focused on creating the leading bank in New Zealand
Integration is focused on creating the leading bank in New Zealand Integrations can be difficult, and many do not add shareholder value Three key reasons for mergers not succeeding Failu: find the rig rtner | This is our key focus Hee Source: A.T. Kearney Global PMI Survey (1998) 58 We have found th
Slide 59: The customer is at the heart of our integration objectives
The customer is at the heart of our integration objectives s Integration Objectives _ Customers ¢ Retain the combined customer base and market share, by leveraging the strengths of both organisations « Achieve market leading customer satisfaction ratings across all brands In decision trade-offs rega
Slide 60: A number of key milestones have been achieved
A number of key milestones have been achieved Program Management — process and infrastructure established Organisational Structure -— key management for the merged entity has been designated Business Model — agreement and buy-in from new management on new business model Technology - choice of system
Slide 61: Full integration on track for second half 2005
Full integration on track for second half 2005 « Acquisition « announced « Workstreams « mobilised Acquisition completed « Workstream planning Targeted Timeline . completed Transitional management structure announced Integration principles agreed with regulator Integrated with group financial accoun
Slide 62: Dialogue with the RBNZ continues
Dialogue with the RBNZ continues RBNZ powers ¢ The RBNZ gained new regulatory powers in late 2003 * These powers apply to the banking industry broadly, not just ANZ/NBNZ. For ANZ, the primary issue is the RBNZ concern about “hollowing out” Amalgamation the next step * The next step to progressing in
Slide 63: Technology represents the core component of integration costs
Technology represents the core component of integration costs . . Majority of expenditure will be incurred in 2005, Integration Spending* with integration completed by end of 2005* 1HO4 2H04 1HO5 2HO5 Other Business Units 13% 14% Personnel Costs 17% Premises " Technolo: 12% oy 44% * Indicative, and
Slide 64: Decisions on technology reflect trade-offs between cost synergies and capabilities
Decisions on technology reflect trade-offs between potential cost synergies and capabilities needed to build franchise Systems to be ANZ core suite * eg Hogan New Zealand version of ANZ core suite will accommodate product and customer features of NBNZ systems to minimise customer disruption We will
Slide 65: Summary
Summary e Integration is focused on the customer, and we have been successful to date e Focus is growing revenue i. . . This integration is e We are well advanced in planning different e Next milestone is legal amalgamation e We have a team that has demonstrated success in managing integrations, whi
Slide 66: Peter Marriott, Chief Financial Officer
aia sf) aa Peter Marriott Chief Financial Officer
Slide 67: Strong performance by NBNZ, up 12.3%
Strong performance by NBNZ, up 12.3% Excluding Acquisition Related Adjustments v Dec 02 and Excluding One off Items ¢ NPAT NZ$565m T 12.3% * Net Interest Income Nz$1,049m = TT 7.4% ¢ Operating Expenses NZ$593m T 1.2% ¢ Specific Provisions NZ$28m J large Including A isition Adi men ° NPAT Nz$296m 4 l
Slide 68: Adjustments to results to reflect underlying performance
Adjustments to results to reflect underlying performance NBNZ’s December 2003 GDS results are impacted by the following: 1. Completion Accounts ° A number of adjustments were agreed as part of the Share Sale Agreement. These adjustments impact NBNZ’s profit and loss in the period to 31 December 2003
Slide 69: Strong underlying performance impacted by fair value adjustments
Strong underlying performance impacted by fair value adjustments Completion i Account Underlying pre Nz$m One off ; tax movement $ Items (net) Adjustments ; NZ$m 97 806 i (104) Fair Value Adjustments ce NZ$m 439 315t Dec 02 31st Dec 03 31st Dec 03 NPBT Underlying Reported NPBT NPBT 2 mim 69 aid ie
Slide 70: NBNZ accounting adjustments
NBNZ accounting adjustments NZ$m Completion Account Adjustments* (pre tax) ¢ Superannuation contribution to cover shortfall in defined benefit (64) scheme (28) ¢ Additional provision for future staff retirement allowance (12) (104) e Market valuation of land and buildings Fair Value Adjustments ¢ De
Slide 71: NBNZ accounting adjustments
NBNZ accounting adjustments One Off Items ¢ Non-recurring provision releases ¢ Adoption of ANZ accounting policies for ELP ¢ Acquisition expenditure incurred by Lloyds TSB ¢ Statistical provisioning recognised by NBNZ in the first half *booked to NBNZ’s profit and loss prior to completion 71 NZ$m (p
Slide 72: NBNZ accounting policy changes
NBNZ accounting policy changes NBNZ have made the following significant accounting policy changes to align with ANZ policies: Economic Loss Provisioning ¢ The adoption of ELP methodology for recognition of loan losses. The ELP charge for NBNZ for December 2003 is 25 basis points. Mortgage Broker Com
Slide 73: Goodwill on acquisition
Goodwill on acquisition Prospectus Actual Comments A$m A$m « Movements from exchange rate Purchase Price 4,940 4,848 movements and hedging « acquisition costs currently $9m less than estimated in prospectus LESS NTA Purchased (1,790) (1,913) ¢ Additional retained earnings, less amounts charged to P&
Slide 74: 2H03 underlying performance impacted by margin compression
2HO3 underlying performance impacted by margin compression, timing of specific provisions and unusually high 1° half institutional fees Net Interest Income Other Income Total Income Operating Expenses Operating Profit Provisions NPBT Income Tax NPAT NZ$m (underlying performance) * FYO2 1HO3 977 525
Slide 75: Peter Marriott, Chief Financial Officer
AH ei idl BI Peter Marriott Chief Financial Officer
Slide 76: Conclusion
Conclusion NBNZ acquisition is transforming for ANZ creating New Zealand’s leading bank A different type of acquisition — focus is on customers Customer attrition has been negligible Staff satisfaction at both banks is high Key foundation for a successful acquisition: the right partner at a fair pri
ANZ Group Holdings — Investor Presentation (March 2004) on 6ix