Westpac Banking Corporation · ASX:WBC
Westpac Banking — H1 2004 Earnings Presentation
58 slides from Westpac Banking's earnings presentation, May 6, 2004
Slide 1: 2004 Interim results presentation
2004 Interim results presentation David Morgan Chief Executive Officer 6 May 2004
Slide 2: Maintaining consistent growth and return
Maintaining consistent growth and return • Record result - Net profit of $1,225m up 17% - Cash earnings of $1,233m up 13% - Cash earnings per share of 66.7 cents up 11% • High returns - Cash return on equity 20% - Interim dividend of 42 cents up 11% • Robust growth - Revenue up 10% - Margins down 9
Slide 3: Optimising value for shareholders
Optimising value for shareholders • Approximately $500m off-market buy-back: - Bringing ACE ratio close to mid point of target range - Reducing ordinary shares on issue by approximately 2% - Effective utilisation of excess franking credits • TPS II hybrid equity issued in April 04 enabling redemptio
Slide 4: Consistent dividend growth
Consistent dividend growth • Dividend up 4 cents or 11% on prior corresponding period Dividends (cents per share) 45 42 40 40 38 36 34 35 32 30 30 28 26 25 20 15 10 5 0 1H00 2H00 1H01 2H01 1H02 2H02 1H03 2H03 1H04 Interim Results 2004 Presentation Title & Date 4
Slide 5: Clear and simple strategy
Clear and simple strategy Vision Strategy How? Outcomes Differentiator: Superior Execution “To be a great Medium term Australian and NZ Our high performance Objectives Company” culture: § Best practice employee commitment § A great place to work Customer § Quality people § Service leadership in our
Slide 6: Focused strategy and sound execution
Focused strategy and sound execution • Australia and New Zealand remain highly attractive banking markets - Australian system credit growth 15% to March 2004 - New Zealand private sector credit growth 11% to March 2004 • Balanced approach between disciplined pricing and growth • Businesses focused –
Slide 7: Customer satisfaction improving
Customer satisfaction improving Consumer Satisfaction - % of main financial SME satisfaction - total satisfied institution customers very or fairly satisfied 65% 70% 60% 55% 50% 45% Bank X WBC Bank Z Bank Y 65% 40% Ju 3 Au 3 Fe 03 Se 0 3 Fe 04 M 03 M 04 N 02 M 3 N 03 O 2 D 02 Ja 2 O 3 D 03 Ja 3 Ap 3
Slide 8: Market share enhanced
Market share enhanced • Westpac has consistently increased market share of financial system credit over the last 3 years (year to 30 September): - 2001 - 50 basis point increase - 2002 - 40 basis point increase - 2003 - 90 basis point increase Australian market share – RBA Mar 04 Mar 03 Change finan
Slide 9: Growth in most wealth products remains strong
Growth in most wealth products remains strong Share of new Current Australian market share business Market Market share Product share (%) Rank Rank (%) Retail 9.2 5 7.7 7 Corporate super 6.2 5 14.3 2 Wrap and master trust 11.1 3 15.1 3 Life and risk 6.7 7 10.6 3 Margin lending 14.4 2 9.3 n/a Broking
Slide 10: Sound contribution across all businesses
Sound contribution across all businesses Cash earnings Proportion of Growth1 Group 1H03 - 1H04 Contribution Business & Consumer 58% 19% Banking BT 9% 25% Institutional H1 2003 Bank 20% 11% H2 2003 H1 2004 NZ 17% 11% 0 100 200 300 400 500 600 700 $m 1 NZ % growth in AUD terms Interim Results 2004 Pre
Slide 11: Business unit performance: BCB
Business unit performance: BCB1 • Balance right with 27% growth $m 1H04 1H03 Change % in economic profit • Profitable growth delivered, Operating income 2,313 2,072 12 strong increase in loan and Operating exp (1,210) (1,143) (6) deposits, partially offset by softer margins Core earnings 1,103 929 1
Slide 12: Business unit performance: WIB
Business unit performance: WIB1 • Core performance flat - $m 1H04 1H03 % Change improved revenues across most divisions offset by weaker 561 560 0 Operating income financial markets performance Operating exp (238) (234) (2) • Improved results from Financing and Specialised Capital Group Core earning
Slide 13: Business unit performance: BT Financial Group
Business unit performance: BT Financial Group • Integration on track, on time $m 1H04 1H031 Change % and 04 synergies expected to be higher than planned based Operating income 308 270 14 on current run-rate Operating exp (186) (169) (10) • Investment performance turnaround now achieved, Core earning
Slide 14: Business unit performance: New Zealand
Business unit performance: New Zealand • Strong business momentum $m 1H04 1H03 % Change since September 2003 Operating income 591 523 13 • Lending up 16% (in $NZ) • Mortgage market share Operating exp (289) (248) (17) improving - captured 23% of Core earnings 302 275 10 growth in period Bad debts (2
Slide 15: Sustaining core earnings growth
Sustaining core earnings growth $m 4,000 5 Year CAGR 1 3,500 3,000 Revenue 7% 2,500 Expenses 2 3% 2,000 1,500 Core earnings 12% 1,000 500 1. Underlying basis (excl. significant items but not adjusted for acquisitions and disposals) 99 99 2H 0 00 01 01 02 02 03 03 04 0 1H 2H 1H 1H 2H 1H 2H 1H 2H 1H 2
Slide 16: Consistency over the medium term
Consistency over the medium term • Achieved total shareholder Global Shareholder Performance return of 80% over the last 5 Hall of Fame years Mercer Oliver Wyman1 Rank Name • Shareholder performance hall of fame ranks those 1 UnitedHealth Group companies with a market cap 2 Royal Bank of Canada grea
Slide 17: The Details
The Details Philip Chronican Chief Financial Officer 6 May 2004
Slide 18: Cash earnings – maintaining the growth
Cash earnings – maintaining the growth % Change $m 1H04 1H03 1H03 – 1H04 Net interest income 2,339 2,098 11 Non-interest income 1,539 1,439 7 Operating expenses (1,925) (1,857) (4) Goodwill (84) (78) (8) Bad debts (207) (214) 3 Net profit before tax 1,662 1,388 20 Net profit after tax 1,225 1,051 17
Slide 19: Cash earnings – half on half patterns
Cash earnings – half on half patterns • Movement in 2H03 to 1H04 is %2H- %1H- $m 1H 2H more subdued than annual 1H 2H growth 2001 920 981 2.6 6.6 • This pattern of growth has been 2002 996 1,067 1.5 7.1 consistent given: 2003 1,095 1,176 2.6 7.4 – Dec/Jan are more subdued 2004 1,233 - 4.8 na months
Slide 20: Net interest income analysis
Net interest income analysis • Net interest income up 11% Movement in net interest income $m • Behind these movements has 2,800 been 2,600 327 – Average interest earning assets up 2,400 31 73 106 15% (182) 2,200 – Rising interest rates supporting 98 deposit margins and earnings on 2,000 2,339 free f
Slide 21: Loan growth remaining robust
Loan growth remaining robust % Change $bn 1H04 2H03 1H03 1H04 - 1H03 Business Unit Consumer (Australia) 92.1 85.9 78.5 17 Housing1 85.2 79.3 72.1 18 Personal (loans & cards) 6.9 6.6 6.4 8 Business (incl. equip. finance) 33.3 31.2 28.3 18 Westpac Institutional Bank 22.6 22.2 22.4 1 New Zealand ($NZ)
Slide 22: Business lending continues to improve
Business lending continues to improve • Business lending (SME and Middle Business loans and acceptances ($bn) Market) up 18% against market growth of around 6% 45 • Key drivers of improvement: 40 34 – Leading business customer 35 32 satisfaction 29 30 27 – Roll-out of CRM technology in 23 22* 25 bus
Slide 23: Housing market – beginning to slow
Housing market – beginning to slow • Overall housing lending up 18% Australian housing finance no.'000 $bn against system growth of 24% 38 1st homebuyers 9 8 leading to market share easing by 33 2nd homebuyers Investors - ex constr'n(rhs) 7 110 basis points over past year 28 6 5 23 4 18 • Strategy h
Slide 24: New Zealand – good growth across the business
New Zealand – good growth across the business • Total lending up 16% (in $NZ) Net loans and acceptances (NZ$bn) against private sector credit 40 25 27 growth of 11% 30 22 23 21 22 • Business lending has been robust 20 up 23% 10 • In housing, first time since 1998 0 that Westpac NZ has consistently 2
Slide 25: Deposit growth
Deposit growth % Change $bn 1H04 2H03 1H03 Mar 03 – Mar 04 Business Unit Consumer 49.0 46.8 44.1 11 Business (Australia) 23.8 22.7 21.1 13 Westpac Institutional Bank 12.3 10.9 11.7 5 New Zealand ($NZ) 18.0 17.3 16.6 8 Other 1 35.0 33.6 29.9 17 Group Non-interest bearing 5 4 5 0 Certificates of depos
Slide 26: Group margin dynamics
Group margin dynamics 2.8 Spreads Free funds 2.7 benefit 2.6 3.5bps 2.5bps % (6bps) 0 0 2.5 2.65 (9bps) 2.59 2.56 2.57 2.4 2.3 2.2 03 s 03 03 04 s s s s ad ri d ad ad nd 2H p- - - ar ar re re re fu yb Se M M Sp Sp Sp H ee Fr n er Z li a N th ra O st Au Interim Results 2004 Presentation Title & Date2
Slide 27: Australian margins
Australian margins In di ca t • The decline in Australian margins has been Product 2H03 to ive due to a variety of factors 1H04 • Transitory change in the cash/bills spread Cash /30 Day bills spread (6)bps has impacted spread by around 6 basis Funding & portfolio (5)bps points in 1H04 • Funding port
Slide 28: Non-interest income analysis
Non-interest income analysis $m 1,600 82 1,500 34 18 (23) 1,400 (9) 1,439 1,300 1,200 Mar-03 P'holder Rec. Financial Net card impact BT Adjustment Core Non- Mar-04 Markets interest income Interim Results 2004 Presentation Title & Date28
Slide 29: Credit cards – fee impact of recent changes
Credit cards – fee impact of recent changes • Net impact of interchange $m 1H03 2H03 1H04 reforms and our strategic response will be broadly Interchange earnings neutral by 2005 and income 103 106 76 beyond. Rewards costs (76) (82) (81) • Repricing implemented in 1H03 Fee repricing 30 30 • Interchan
Slide 30: Institutional Bank financial markets income
Institutional Bank financial markets income • Financial markets income 20% lower Financial markets income ($m) than prior corresponding period and 300 6% below previous half. 250 200 • Result consistent with expected 150 volatility, although recent performance 100 has been below average 50 0 • Recen
Slide 31: Expenses – tightly managed
Expenses – tightly managed • On target for 2 - 4% annual expense growth for year % $m 1H04 2H03 1H03 Change Salaries & other staff expenses 948 938 898 6% Equipment & occupancy 305 300 296 3% Other expenses 672 668 663 1% Operating expenses 1,925 1,906 1,857 4% Gross up – 5 months of BT - - 15 Adjus
Slide 32: 2004 expenses – what we have said
2004 expenses – what we have said Comment Outcome in 1H04 Absorb major compliance spending Significant compliance spend in 1H04 compared to 1H03 (FSR, IFRS, Sarbanes Oxley, Basel II) Increase in superannuation costs Additional costs of $10m in 1H04 No further pressure from NZD/AUD Net impact of AUD/
Slide 33: Expense to income – now under 50%
Expense to income – now under 50% Banking – expense to income Group - expense to income % % 60 48.7% 60 53 55 52 50 49 57 49.6% 50 56 45 55 54 52 53 40 51 51 50 50 35 50 30 1H02 2H02 1H03 2H03 1H04 45 Wealth – expense to income % 40 65 63 62 61 59 60 55 35 50 46 45 40 30 35 30 99 00 00 01 01 02 02 0
Slide 34: BT Integration – on track
BT Integration – on track Integration progress Synergies People & $m 140 Expected synergies Location Complete 2003 actual achieved 120 116 Systems In progress 2004 locked-in run rate 100 Customer Contact 85 88 80 Investment Management 60 51 54 Registry consolidation 40 Selected back-office insourcin
Slide 35: Net retail FUM against acquisition model - BT
Net retail FUM against acquisition model - BT $bn Acquisition model 12 Actual 10 8 6 4 2 0 Sep-02 Dec-02 Mar-03 Jun-03 Sep-03 Dec-03 Mar-04 Dec-04 Dec-05 Interim Results 2004 Presentation Title & Date35
Slide 36: Performance turnaround: Australian equities
Performance turnaround: Australian equities BT Core Fund1 vs S&P/ASX300 Accumulation Index 6.0% 1.2% 0.8% 4.0% 0.4% 2.0% 0.0% 0.0% -0.4% -2.0% -0.8% -4.0% -1.2% -1.6% -6.0% -2.0% -8.0% Ju 0 2 D - 02 Ju 3 D - 03 Au l-02 A p 03 Au l-03 4 N -02 N -03 S e - 02 S e - 03 Fe -03 Fe -04 Ju 02 Ju 03 M -03 M
Slide 37: Improved researcher ratings
Improved researcher ratings Large Cap Australian Equities – Flagship Retail Fund Ratings* Researcher Rating Comments Last year April 04 Van Eyk B A Upgraded Feb 04. ASSIRT 1 star 3 star Upgraded in April 04. Lonsec Sell and Investment Hold rating in place since Oct 03, then Hold Grade moved to Inv G
Slide 38: Continued focus on risk management
Continued focus on risk management Credit Risk • Rigorously managed with the most advanced tools of our risk monitoring systems • Further enhancements in pipeline with Basel II implementation Market Risk • Re-assessed position following NAB report • Confident that same issues could not have emerged
Slide 39: Financial Markets risk control environment
Financial Markets risk control environment • Distribution of earnings Distribution of Financial markets daily consistent with risk P&L 1H 2004 expectations 16 • Control environment overall 14 sound Number of trading days 12 – Independent monitoring 10 and reporting 8 – Limit adherence 6 – Constructi
Slide 40: Forward credit indicators in good shape
Forward credit indicators in good shape Housing Portfolio - 90 day delinquencies Aust. Business Banking - 90 day delinquencies % % (3 month moving average) 1.5 2.5 2.0 1.0 1.04 1.47 1.40 1.5 1.27 0.64 1.0 0.90 0.5 0.38 0.26 0.50 0.57 0.25 0.23 0.15 0.15 0.18 0.5 0.0 0.0 1996 1997 1998 1999 2000 2001
Slide 41: Bad debt analysis
Bad debt analysis $m 1H04 2H03 1H03 Write-offs (128) (133) (142) Net transfer (to)/from specific provisions (73) (70) 17 Recovery of debts previously written off 35 27 47 Bad debt charge-off (166) (176) (78) Increase in dynamic provision (41) (95) (136) Net bad debt expense (207) (271) (214) General
Slide 42: Stressed exposures further reduced
Stressed exposures further reduced Categories of stressed exposures as a % of total commitments 1.6% Watchlist & substandard 1.4% 90 days past due well secured 1.2% Impaired 1.0% 0.8% 0.6% 0.4% 0.2% 0.0% Sep 99 Sep 00 Sep 01 Sep 02 Sep 03 1H04 Interim Results 2004 Presentation Title & Date42
Slide 43: Provisioning cover
Provisioning cover Specific provisions / impaired assets General provisions / non-housing performing loans & acceptances % % 60 50 2.0 40 30 1.5 20 1.0 10 0 0.5 FY98 FY99 FY00 FY01 FY02 FY 03 1H04 FY98 FY99 FY00 FY01 FY02 FY 03 1H04 WBC ANZ CBA NAB WBC ANZ CBA NAB • Specific provision for impaired a
Slide 44: Adjusted common equity movement
Adjusted common equity movement • Surplus capital1 grew $429m over the year but only $80m over the last half 83bps 6.00% 83bps 10bps 5.50% 19bps (52bps) 5.1% 5.0% 5.00% (52bps) (20bps) 4.8% (17bps) (18bps) (7bps) 4.50% 4.00% DRP/Options DRP/Options Cash Earnings Cash Earnings Other* Other* 31-Mar-03
Slide 45: Tier 1 and ACE ratios now above target levels
Tier 1 and ACE ratios now above target levels • Tier 1 and ACE ratios above Capital ratios target levels 9.0% 8.5% Ratio Current Target range 8.0% level 7.5% 7.0% Tier 1 7.2% 6.0% – 6.75% 6.5% ACE 5.1% 4.5% – 5.0% 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% ACE Tier 1 3.0% 0 1 2 3 4 0 1 2 3 -0 -0 -0 -0 -0 0 0 0 0
Slide 46: 2004 hybrid issue complicates reporting
2004 hybrid issue complicates reporting Historical practice 2004 Trust Preferred Securities USD issues accounted for as equity, no Issued in USD (525m) and funds used hedge accounting available in NZ (NZD) Typically swapped into NZD Swap put in place for risk management but not given hedge treatment
Slide 47: Buy-back overview
Buy-back overview • Target buy-back size approximately $500m (approximately 2% of ordinary shares) Key Dates 2004 • Also conducting on-market buy-back of an Announcement 6 May 1 equivalent proportion of our NZ Class Shares (approximately 1m) Ex-date for Buy-Back 12 May • Off-market tender buy-back s
Slide 48: Capital position remains sound
Capital position remains sound ACE Tier 1 Ratios as at 31 March 2004 5.1% 7.2% 2004 TPS raising in April 04 - +46bps1 (US$ 525m) May/June 2004 structured off- -34bps -34bps market buyback (~$500m) July 2004 – TOPrS called +3bps -29bps (US$ 322.5m) Pro-forma ratios 31 March 20042 4.8% 6.8% 1. Impact
Slide 49: A strong, broad based, high quality result
A strong, broad based, high quality result • Strong performance from all businesses • Continued tight expense management while growing investment in key capabilities, and absorbing compliance spend • Profitable growth with robust loan growth and modest margin deterioration • Credit quality high and
Slide 50: Outlook and summary
Outlook and summary David Morgan Chief Executive Officer 6 May 2004
Slide 51: Australian and New Zealand economic outlook
Australian and New Zealand economic outlook • Australia and New Zealand Key economic indicators economic fundamentals sound Jun 04 Jun 05 due to: Financial year ended % % - Solid domestic demand World (Calendar year) - Low unemployment GDP 4.4 4.0 • Export recovery to boost Australia economy in 2004
Slide 52: Economy operating with a more sustainable mix
Economy operating with a more sustainable mix Key contributors to GDP 8 8 6 6 2000/01 Percentage point contribution 2001/02 4 4 2002/03 2 2 2003/04f 0 0 2004/05f -2 -2 -4 -4 Domestic demand Net exports GDP Source: ABS, Westpac Interim Results 2004 Presentation Title & Date52
Slide 53: Credit growth returning to longer term average
Credit growth returning to longer term average Australian credit growth Forecasts ( To Sep 2005) 24 24 20 20 16 16 12 12 8 8 4 4 0 0 -4 -4 -8 -8 Sep-90 Sep-92 Sep-94 Sep-96 Sep-98 Sep-00 Sep-02 Sep-04 Sep-05 Housing Business Total Housing average Total (Aust) Total credit average Source: RBA Interim
Slide 54: Financial sector short-term outlook
Financial sector short-term outlook • Credit growth moderating to more sustainable levels • Ongoing competitive intensity • Bad debt environment benign • Wealth management environment remaining favourable • Rising demands around customer experience • Overall sector dynamics are favourable Interim Re
Slide 55: Well positioned to maintain momentum
Well positioned to maintain momentum • Established track record in delivering growth and executing well - Consistent growth / return mix - Disciplined management • Improved sustainability of earnings - Market share improvements - Increased customer satisfaction • Low risk profile, with high credit q
Slide 56: Outlook
Outlook • Operating environment remains accommodating: - Credit growth lower but still above the 15 year average - No immediate signs of asset quality deterioration • Good momentum with first half earnings growth above medium-term guidance • Positive full year outlook for solid earnings growth in 20
Slide 57: 2004 Interim results presentation
2004 Interim results presentation 6 May 2004
Slide 58: Disclaimer
Disclaimer The material contained in this presentation is intended to be general background information on Westpac Banking Corporation and its activities. The information is supplied in summary form and is therefore not necessarily complete. Also, it is not intended that it be relied upon as advice