Slide 1: Westpac 2008 Interim Results
Westpac 2008 Interim Results For personal use only 1 May 2008 Westpac 2008 Interim Results Gail Kelly Chief Executive Officer
Slide 2: Agenda; A changed environment
Agenda • Overview of current market conditions • Summary of performance For personal use only • Result details • First impressions and strategic priorities 3 Westpac 2008 interim results A changed environment • Higher funding costs • Decline in equity markets • Increased market volatility • Moderati
Slide 3: Westpac is well placed; Funding and liquidity
Westpac is well placed • Strongly positioned leading into changed environment • Timely and coordinated response For personal use only • Robust risk management with a depth of management experience • Actively supporting customers 5 Westpac 2008 interim results Funding and liquidity • Proactively mana
Slide 4: Credit risk remains a key focus; Robust performance
Credit risk remains a key focus • Additional economic overlay provision in FY07 and 1H08 • Extensive reviews of certain sectors including: For personal use only - Property - Infrastructure - Securitisation - Margin lending - Highly leveraged companies • Supporting existing customers a priority 7 Wes
Slide 5: All business units positioned well; Dividend path
All business units positioned well Cash earnings % growth Consumer Financial Services i 10% For personal use only Growth restrained by higher funding costs and RAMS acquisition Business Financial Services Prior investment delivering i 13% Westpac Institutional Bank Strong earnings offset by higher i
Slide 6: Result discussion and analysis
Westpac 2008 Interim Results For personal use only Phil Coffey Chief Financial Officer Result discussion and analysis • 1H08 performance • Analysis of key earnings components • Credit quality and impairment charges • Funding • Basel II and implications for capital • Forward considerations 12 Westpac
Slide 7: Robust result in current conditions
Robust result in current conditions • Reported NPAT up 34%, including Cash earnings movement 1H07 – 1H08 ($m) 2,500 significant asset sales 570 (180) 2,250 • Cash earnings up 10% For personal use only (201) 2,000 • Strong revenue growth, up 12% (28) 1,839 • Higher impairment charges 1,750 1,678 • Op
Slide 8: Revenue growth mix reflects market conditions
Revenue growth mix reflects market conditions Revenue (cash basis $m) • Strong revenue growth - different mix Net interest • Net interest income up 12% 6,000 income $377 - Average interest earning assets up For personal use only 696 (319) 8 5,430 23% 5,500 61 (4) 128 - Margin decline (-20bps) impact
Slide 9: Group business unit; Factors impacting 1H08 margins
Group business unit • Benefiting from a number of GBU cash earnings ($m) 1H07 – 1H08 180 13 (22) management initiatives: 32 5 160 151 - Hedging NZ retail earnings For personal use only 140 20 - Resolution of certain tax issues 120 4 17 100 82 - Sale of Bedford Park operations 80 centre in Adelaide 6
Slide 10: Expenses up 8%; Credit cycle continues to turn
Expenses up 8% • Employee expenses up 13% reflecting: Expense ($m) 3,000 Other - More people +4% Equipment and occupancy For personal use only 2,500 Employee expenses - Salary increases +7% - RAMS franchise acquisition +$8m 2,000 • Equipment and occupancy costs higher 1,500 - Increased branches and
Slide 11: Impairment charge increase consistent with environment
Impairment charge increase consistent with environment Category $m Comments March 2007 232 Individually assessed For personal use only Two corporate exposures. One impaired margin loan. Additional New individually assessed 184 impaired loans in Business banking and New Zealand consistent with credit
Slide 12: Healthy funding and liquidity position
Healthy funding and liquidity position • Well ahead on FY08 term funding plan – Funding composition1 (%) Securitisation $25bn completed to date 2% Customer deposits Maturing >12mths 52% • Strong funding profile: For personal use only 14% - Lengthened short term duration from Maturing 6-12mths 71 day
Slide 13: Strong Tier 1 capital and hybrid capacity
Strong Tier 1 capital and additional hybrid capacity • Strong earnings growth and net Tier 1 Capital 2H07 to 1H08 (Basel II) (%) divestments / acquisitions adding over 9.5 99bps (69bps) 100bps to Tier 1 ratio over the half 9.0 For personal use only • Offset by: 8.5 (87bps) 8.02% - Dividends, 69bps 8
Slide 14: 2H08 considerations; Summing up
2H08 considerations • Tougher operating conditions to continue in 2H08: - Funding costs to trend higher as term funding matures and is replaced For personal use only - Pipeline of new business beginning to slow - Impairment charges likely to remain higher - Not expecting another major equity market
Slide 15: Early observations
Westpac 2008 Interim Results For personal use only Gail Kelly Chief Executive Officer Early observations • Exceptional customer base • Limited segmentation • Strong but underleveraged brand Customer • No.1 in Institutional Banking • “Middle of the pack” customer service in retail and business bankin
Slide 16: Early observations continued; Strategic priority areas
Early observations … continued • Undervalued Distribution • Sub-par systems / tools / support, particularly in retail For personal use only • Growing strength in business banking Products • Exceptional strength in wrap, super and payments Operations • Designed to support products rather than custome
Slide 17: Strategic priority areas continued; Next steps
Strategic priority areas … continued • Establish and drive locally empowered businesses Distribution • Continue to invest in Business Banking and Wealth For personal use only • Focus on being easier to deal with • Transform service delivery, redesigning processes end-to-end Operations & Investment •
Slide 18: 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