Anz Group Holdings Limited · ASX:ANZ
Anz — Australia and New Zealand Banking Group — FY2003 Earnings Presentation
71 slides from Anz's earnings presentation, Oct 24, 2003
Slide 1: 2003 Annual Results
2003 Annual Results Australia and New Zealand Banking Group Limited 24 October 2003
Slide 2: Table of contents
Table of contents wi ON ANZ 2003 Result, NBNZ Acquisition Highlight Page 3 NBNZ Acquisition Page 7 Results Review Page 14 Credit Quality Page 23 Other Financial Issues Page 35 Portfolio Performance Page 40 CEO Review Page 51 Supplementary Information Page 62 Important Notice: Nothing in this documen
Slide 3: Section 1 - John McFarlane
“SECTION 1 John McFarlane 3 Zan iy i cc i si
Slide 4: Another Solid Result for ANZ, up 8.3%
SECTION 1 Another Solid Result for ANZ, up 8.3% v Sep 02 ¢ NPAT $2,348m fT 1.1% 2 EPS 148.3 cents ff 0.7% Before Significant Items ¢ NPAT $2,348m fT 8.3% « EPS 148.3 cents fT 8.2% e EPS (Excluding goodwill) 152.4 cents T 9.2% e Dividend 95 cents T 11.8% e Net Specific Provisions $527m § (27.6% ) 4 Z
Slide 5: NBNZ acquisition creates the leading bank in New Zealand
NBNZ acquisition creates the leading bank in New Zealand Purchase price equivalent to A$4.915 billion at current exchange rates ANZ and NBNZ, when combined, will create: « The leading bank in New Zealand e One of New Zealand’s top three companies « Market leadership in all major market segments Aver
Slide 6: NBNZ acquisition is transforming for ANZ
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 -Cards -Esanda With renewed fo
Slide 7: Peter Hawkins
Peter Hawkins 7 Zan iy i cc i si
Slide 8: Key financial highlights
Key financial highlights Purchase price equivalent to A$4.915 billion at current exchange rates * 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: * 2 for 11 renounceable rights issue at A$13 per share raising A
Slide 9: Estimated operating cost synergies and integration costs
Estimated operating cost synergies and integration costs Integration Costs Operating Cost Synergies Estimated at ~A$230m (before tax) over 3 years Estimated at ~AS110m pa (before tax) within 3 years »* Expected cost synergies represent * Key integration cost components: around 20% of NBNZ’s cost bas
Slide 10: Managing key integration risks
Managing key integration risks Consideration Mitigant e Maintain both brands and both branch networks ¢ New Zealand centric retail business model leveraging NBNZ ‘client-facing” systems for retail, rural and SME e Manageable concentration issues in corporate and institutional Minimise Impact on Cust
Slide 11: NBNZ Group strong track record
NBNZ Group strong track record Strong growth in loans and High asset quality — Provisioning advances charge as % of loans and NZ$bn bps advances 40 15 12 35 9 30 6 ‘ | 20 4 1 07 Dec-01 Dec-02 Jun-03 DecO1 — Dec-02 Jun-03 (LTM) % Declining cost-to-income ratio Consistent growth in NPAT NZ$m 50 45 600
Slide 12: NBNZ purchased at attractive multiple
NBNZ purchased at attractive multiple Price* / LTM cash earnings multiples 20 16.1 16 13.3 11.9 12 ’ 8 4 o4 : : : : 1 Australian Regional Past Domestic Major Australian ANZ Standalone ANZ / NBNZ Banks Acquisitions* Banks (excl ANZ) Price* / Net tangible assets multiples 3.5 3.0 3.0 3.0 2.9 2.5 2.0 1
Slide 13: 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 # A$1.370 billion in Hybrid, subordinated and wholesale funding The size of the
Slide 14: Section 3 - Peter Marriott, Chief Financial Officer
“SECTIONS Peter Marriott Chief Financial Officer 14 ay oe Fatt
Slide 15: Full year result driven by asset and deposit growth
: y SECTION 3. Full year result driven by asset and deposit growth Full year NPAT growth increased 8.3% with growth in net income, tight expense Non Interest control, and improving credit quality Interest Income Expenses being the highlights. Income P 303 12 (75) Net interest income * strong lending
Slide 16: Higher interest income, driven by strong mortgage and deposit growth
SECTION 3 Higher interest income, driven by strong mortgage and deposit growth * Average net lending assets grew by $13.6b (40.0%) in 2003, with growth of $10.8b (18%) in Mortgages, $1.6b in Corporate and $0.8b in Asset Finance. $b 100 4 + Average deposits and other borrowings 80 4 grew $13.5b, prin
Slide 17: Margins down, primarily due to yield curve and mix effect
SECTION 3 | Margins down, primarily due to yield curve and mix effect Net interest margin contracted by LObp yoy: Interest Margins « Net interest income in Treasury fell by $45 (half on half) million as a result of run off of the existing 5.00 74.79 portfolio and flat yield curves. This represented
Slide 18: Treasury — adversely impacted by a tough interest rate environment
SECTION 3 | UA Treasury — adversely impacted by a tough interest rate environment Australian & New Zealand Mismatch $mAUD pts * Over the last three halves Group 80 4 p 200 Treasury’s earnings have been in decline, 1 with further decreases expected in 2004. 70 . H - . . Aus Yield Spread} Rolling 3 *
Slide 19: Non interest income impacted by Cards under-accrual and loyalty costs
SECTION 3 | Non interest income impacted by Cards under-accrual and loyalty costs, underlying growth strong * Lending fees increased $57 million due to strong volume growth in Corporate, Asset Finance and Institutional Banking in Australasia «Non lending fees reduced by $81 million principally from
Slide 20: Expense growth well controlled
SECTION 3 | Expense growth well controlled Expense growth was relatively flat, with Underlying discretionary cost growth minimised due to lower growth revenue growth. 74 * Personnel costs up 2%, reflecting growth in staff numbers of 3% (increase occurred largely towards the end of the period). * Ove
Slide 21: 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 ELP Charge growth in key lending markets of Australia and NZ and $m , reduced Grou
Slide 22: Cumulative ELP balance is well above the specific provision balance
SECTION 3 } Cumulative ELP balance is well above the specific provision balance $m p 706 * The cumulative ELP balance p 600 continues to comfortably exceed the specific provision balance. r 500 * In 2003 an additional $100 million was provided in ELP as precaution against continued above expected le
Slide 23: “SECTION Zan iy i cc
“SECTION 4 23 Zan iy i cc i si
Slide 24: Consumer & SME portfolios in good shape
SECTION 4A 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
Slide 25: Mortgages portfolio sound
SECTION 4 Mortgages portfolio sound « An LVR analysis of ANZ’s mortgage portfolio suggests it has sufficient equity margin to sustain a reasonable devaluation in Australian residential property prices. « Stress testing conducted by ANZ showed that even under the most extreme scenario of; + Unemploym
Slide 26: Domestic portfolio remains in good shape
SECTION 4 Domestic portfolio remains in good shape Australia & New Zealand Risk Grade Profile Asset Quality Sept 2003 v Sept 2001 7 $126bn $136bn $155bn (Australia & New Zealand) AAA to * Net Non Accruals. down 19% « Net Specific Provisions down 32% . 2 * Economic Loss Provision rate down 5bps ee Le
Slide 27: US Energy Portfolio — issues remain, but exposure continues to reduce
SECTION a US Energy Portfolio — issues remain, but exposure continues to reduce * Management has been proactive in addressing Group Total Limits exposure to the global energy {Excl Settlement) sector $1.8bn * Concentration risk associated with exposure to energy lending as a proportion of the aggreg
Slide 28: Quality of Group Telco lending book has also improved
SECTION a Quality of Group Telco lending book has also improved a Total Limits + ANZ Group has been proactive in (Exel Settlement) addressing the telco concentration risk of its global lending asset portfolio ~ANZ continues to manage down its exposure to the industry, particularly offshore. Offshore
Slide 29: Specific provisions down 28% on 2002 - no large single provisions
SECTION 4 : —~—rt— 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 credit indemnity* <$5m 5 S1om $10m - $20m Sep- Mar- Sep- Mar Sep- Mar- Sep- Mar- Sep- Mar- Sep- * No maj
Slide 30: New Specific Provisions down 28% on the 2002 year
SECTION 4 ne New Specific Provisions down 28% on the 2002 year Geographic Specific Provisions $m 800 4 700 4 600 4 500 4 400 + 300 4 200 4 -100 - fg Aust/NZ [aUK/US HAsia yy Other Inter Specific Provisions by Source $m 2507 214 2002 2003 1 Energy && Domestic Corporate @ Asset Finance & Consumer Fina
Slide 31: Non-accrual loans continue to fall
SECTION 4 Non-accrual loans continue to fall Historic $m Gross Non-Accrual Loans (LHS) 1800 Non-Accrual Loans/ Loans & advances {RHS) 15006 1391 1200 900 600 300 1998 1999 2000 2001 2002 = Sep-03 31 1.75% 1.50% 1.25% 1.00% 0.75% 0.50% 0.25% 0.00% Geographic Gross Non-Accrual Loans $m 1000 = 2000 ##2
Slide 32: New non-accruals reduced 23% on 2002
: ey SECTION 4 | New non-accruals reduced 23% on 2002 Geographic New Non-Accrual Loans New Non-Accrual Loans by source sm $m 1600 4 3507 331 1400 J 1285 1200 4 1028 988 1000 4 930 . 800 4 600 J 400 4 200 J o4 7 7 2002 2003 g 8 3 8 3 a Ss 3 g Ss iEnergy & Domestic Corporate @ Asset Finance & Consumer
Slide 33: Existing and future problem loans are well provided for
SECTION 4 ae Existing and future problem loans are well provided for Specific Provision/Non-Accrual Loans 60% 7 * The period 1998 through 2003 has seen Group GP trend down 16% to 101 bps, consistent with the 50% 4 48% sustained de-risking of the Group lending book. 43% * As at September 2003, gross
Slide 34: Basel II will provide some benefits, but adjustments expected for local market
SECTION 4 oS Basel II will provide some benefits, but adjustments expected for local market Change in RWA under Basel II* * QIS 3 results reflect the underlying quality of QIS 3 results ANZ's assets, and support ANZ‘s move to a lower ACE target range % ANZ Advanced IRB Aust Majors Average G10 major
Slide 35: “SECTIONS Zan iy i cc
“SECTIONS 35 Zan iy i cc i si
Slide 36: Healthy dividend growth
SECTION 5 | os Healthy dividend growth $1.00 4 Dividends $0.90 4 $0.80 4 fa Interim @ Final $0.70 4 $0.60 4 $0.50 4 * The full year dividend of 95 cents per $0.40 4 ordinary share represents a 12% increase on 2002. $0.30 4 + The final dividend is 100% franked. $0.20 } « For year ending 30 Sep 2004,
Slide 37: Capital targets reduced, reflecting lower risk
SECTION 5 | os Capital targets reduced, reflecting lower risk Drivers of ACE ratio « US$ depreciated 24% (from 0.5441c to % 0.6795c) which was principally responsible Earnings Dividend for the FCTR declining by $356m for the year 7.50 4 (US$ accounted for $400m of the decline) 1.59 {1.02) 7.25 4 + T
Slide 38: 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 TUR | Steps Issued Sept/Nov 1998 27 Sep 2003 Amount USD 0.75 bn AUD 1bn Cost of Dividend 8% Fixed BBSW Floating To be called 1H 200400 | wren Pp Tax Deduction for dividend dividend Preference Dividend
Slide 39: Outlook
: ey SECTIONS / Outlook « We expect ANZ will continue to perform well in a tougher industry environment in 2004 « Growth in net profit after tax for existing ANZ and NBNZ will be moderately below ANZ’s growth in 2003 (excluding significant items) based on current economic conditions « Negative impac
Slide 40: Dr Bob Edgar, Chief Operating Officer
sec TION 6 40 on Dr Bob Edgar Chief Operating Officer
Slide 41: A specialised portfolio - efficient allocation of resources to deliver results
SECTION 6 ————ssE 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
Slide 42: IFS — a strong domestic franchise, continued risk reduction offshore
SECTION 6 cr IFS — a strong domestic franchise, continued risk reduction offshore Avery strong domestic franchise* « ANZ has a strong tradition and leading position in the domestic institutional banking market. Total Customers a Significant Custorrers* fiLead Customers* ; eat, : 80% 7 * Our core dom
Slide 43: We continue to strengthen our position in the Corporate and SME markets
SECTION 6 We continue to strengthen our position in the Corporate and SME markets * High levels of customer satisfaction and continued focus 8.54 ANZ leads Corporate Banking customer on our service proposition enabled Corporate Banking to satisfaction* deliver a 6% increase in NPAT in the half to Se
Slide 44: Market leader: Asset Finance continues to prosper growing 23% in 2003
SECTION 6 | 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 « Cultural transformation and a con
Slide 45: Consumer Finance: profitable market leadership
SECTION 6 . 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
Slide 46: Mortgages - strong growth drives performance
SECTION 6 Mortgages ~strong growth drives performance * The momentum in ANZ’s mortgages business in Australia and Renewed momentum in the New Zealand continued during the year delivering a 9% branch network increase in NPAT, with FUM increasing 19.9% on prior year. The . cost of increased staffing r
Slide 47: Personal Banking — underlying health of the business improving
SECTION 6 : Personal Banking — underlying health of the business improving... The personal banking business has continued Staff advocacy ~ Customer satisfaction to invest in its Restoring Customer Faith substantial improvement with branch increasing (RCF”) program. 100% This program aims to improve
Slide 48: ... and we are starting to see improved sales momentum
SECTION 6 ————ssE .. 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,
Slide 49: ... and continued growth in our core transaction products
SECTION 6 ————ssE .. and continued growth in our core transaction products Our core transaction product suite is performing as we expected: e Product leadership was confirmed with ANZ winning the industry award for the best transaction account Account growth continued to be positive during 2003 with
Slide 50: New Zealand — reinvesting in the franchise
SECTION 6 oe New Zealand — reinvesting in the franchise ANZ holds a market leading position in the institutional and corporate sectors whilst we lag in the consumer market. The new management team is focused upon consolidating our leadership position in the corporate market and improving our market
Slide 51: “SECTION? Zan iy i cc
“SECTION? 51 Zan iy i cc i si
Slide 52: Australian banks: A decade of efficiency gains and credit expansion
a“ SECTION 7 Australian banks: A decade of efficiency gains and credit expansion Cost to Income* 65% * The Australian banking sector has enjoyed a oy decade of efficiency gains which has seen material 60% reductions in Cost to Income ratios. oY * ANZ has outstripped its competitors and has 55% achie
Slide 53: Banking industry profit growth will be more challenging
SECTION 7 L Banking industry profit growth will be more challenging % change Future growth within the financial services sector will be more 40 Housing credit growth likely challenging than in the last five years, largely due to the following: to be lower « There is greater penetration of the indust
Slide 54: ANZ has positioned itself to meet market challenges
SECTION 7 | 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. Gur model of a portfolio of specialist businesses is distinctively different from our competitors. Its insight is
Slide 55: Monolines win, but returns more volatile — diversification reduces risk
SECTION 7 Monolines win, but returns more volatile —diversification reduces risk Average ROE % Average Volatility Independent analysis* has found that % 1998-2002 (standard deviation in TSR) monoline specialists create greater returns 30 1998-2002 than generalists. 25 20.8 25 20 159 20 ANZ’s respons
Slide 56: We have rebalanced the bank's lending portfolio
SECTION 7 me We have rebalanced the bank’s lending portfolio ANZ has refocused the loan book towards lower risk retail lines of Corporate versus Retail Lines of Business business through: 1. Corporate to retail lines of businesses «In 2003, Gross Lending Assets are split approx. 65/35% across retail
Slide 57: This provides us with a well balanced portfolio for organic growth
SECTION a | 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 ban
Slide 58: Clear international strategy
SECTION 7 —~—rt— Clear international strategy . ; 7 . Modest capital ANZ’s international focus is twofold and remains clear __ reallocation if growth ptions are identified 1. US and Europe - REDUCE Involving: = Focusing on core products and relationships = Reallocating capital to fund growth options
Slide 59: ANZ's forward looking agenda
SECTION 7 _ ANZ’s forward looking agenda To become Australia and New Zealand’s most respected company the bank wit man face, ea with, building enduring customer felationships at people, great values, 0 st efficient, bee anaged, nd banks in the world Tru ted. Making a sustainable cont dur Community s
Slide 60: NBNZ Acquisition creates the leading bank in New Zealand
SECTION 7 | NBNZ Acquisition creates the leading bank in New Zealand ¢ Creates the leading bank in New Zealand ¢ Avery different acquisition: ¢ Based on customer and growth « Sir John Anderson invited to head the combined company ¢ Both brands and branch networks maintained « Built on the foundation
Slide 61: Another Solid Result for ANZ, up 8.3%
: Ay SECTION 7 | Another Solid Result for ANZ, up 8.3% v Sep 02 ¢ NPAT $2,348m fT 1.1% 2 EPS 148.3 cents ff 0.7% Before Significant Items « NPAT $2,348m ff 8.3% « EPS 148.3 cents fT 8.2% ° Cash EPS 152.4 cents T 9.2% e §6Dividend 95 cents T 11.8% e Net Specific Provisions $527m § (27.6% ) 61 i sca J
Slide 62: Supplementary Information
“SECTION 8 62 Zan iy i cc i si
Slide 63: Second half result driven by non interest income
SECTION 8 | ————ssE Second half result driven by non interest income Second half non interest income was impacted by: * increase in lending fees based on strong volumes in Corporate, Asset Finance and Institutional Banking in Australasia. * non fee other income impacted by increased equity income in
Slide 64: Impact of TrUEPrS redemption and replacement on 2004
SECTIONS ae Impact of TrUEPrS redemption and replacement on 2004 $m TrUEPrs NPAT components Interest on re-investment (net of tax) ll Interest rate swap (net of tax) 49 Tax credit on dividend 31 91 Dividend -102 Contribution to EPS -1li Subject to final timing of redemption of TrUEPrS 64 StEPS $m $m
Slide 65: Proactive reduction in volume of top 10 client committed exposures
Proactive reduction in volume of “top 10” client committed exposures . ANZ has implemented credit management policies to diversify loan book exposure by reducing the volume of “top 10” client committed lending. This has led to a reduction in client concentration risk Sustained management of client e
Slide 66: Group risk grade profile
SECTION 8 | ————ssE Group risk grade profile ANZ Group - Outstandings $158bn AAA to BBB Total investment grade as at Sep 03: BBB- $112.7bn or 68.1% of the portfolio BB+ to BB BB- >BB- Sep-01 Mar-02 Sep-02 Mar-03 Sep-03 B+ to CCC 3.0% 28% 2.5% 2.5% 23% Non Accrual 0.9% 0.9% 08% 6 0.7% 0.6% Es 4
Slide 67: Geographic risk profiles
SECTION 8 | ————ssE Geographic risk profiles Australia & New Zealand International AAA to BBB AAA to BBB BBB- BBB- BB+ BB+ to BB to BB BB- BB- >BB- >BB- Sep-01 Sep-02 Mar-03 Sep-03 Sep-01 Sep-02 Sep-03 B+ te ccc 28% 2.3% 2.3% 2.0% 43% 49% 6.1% Non Accrual 0.7% 0.4% 04% 0.4% 2A 48% 4A% 67 ae Wy AN a
Slide 68: Concentration risk addressed in business and corporate lending book
SECTION 8 Concentration risk addressed in business and corporate lending book through management cap on industry exposure % of ANZ Group Lending Assets * Management has reduced (Australia and New Zealand) concentration risk in ANZ’s business/corporate loan book 18% by limiting industry exposure 9199
Slide 69: Industry exposures — Australia & NZ
SECTIONS Industry exposures ~— Australia & NZ Lending Assets (AUD) % of Portfolio (RHS scale) % in CCR 7D-8G (RHS scale) % in CCR 9-10 (RHS scale) Cultural & Recreational Health & Community Services Forestry & Fishing Services 2.0bn 4.0% — 2.0bn 14.0% 1.0bn 10.0% 12.0% 0.85 8.0% 1.56n 3.0% — 1,5bn 1
Slide 70: Industry exposures — Australia & NZ
SECTIONS Sbn abn 3bn 2bn tbr Obn 5bn 4bn 3bn 2bn tbr Obn Industry exposures ~— Australia & NZ Finance « Other Z, Sep-01 Sep-02 Sep-03 Finance — Banks, Building Soc etc. Mar-03 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Transport & Storage 4bn 6.0% 5.0% 3bn 4.0% 2bn 3.0% 2.
Slide 71: Industry exposures — Australia & NZ
Industry exposures — Australia & NZ Lending Assets (AUD) % of Portfolio (RHS scale) % in CCR 7D-8G (RHS scale) Real Estate % in CCR 9-10 (RHS scale) Operators & Dev. Retail Trade Agriculture 14bn 12.0% gbn7 7 6.0% 6bn 6.0% 12bn : 10.0% 45.9% 5bn 5.0% 10bn 8.0% Sn 7 dao 49 4.0% nk 6.0% 4bn + tsq% 3bn
Australia and New Zealand Banking Group — FY2003 Earnings Presentation on 6ix