Bank Of Queensland Limited · ASX:BOQ
Bank Of Queensland — FY2019 Earnings Presentation
41 slides from Bank Of Queensland's earnings presentation, Oct 17, 2019
Slide 1: FY19 Results Presentation
FY19 RESULTS PRESENTATION 17 OCTOBER 2019 Year ended 31 August 2019
Slide 2: Presenters
Daniel Ryan Head of Investor Relations George Frazis Managing Director & CEO Matt Baxby Chief Financial Officer George Frazis Managing Director & CEO 2
Slide 3: Welcome & Overview of Results
WELCOME & OVERVIEW OF RESULTS MANAGING DIRECTOR & CEO
Slide 4: FY19 results summary
FY19 FY19 v FY18 2H19 2H19 v 1H19 Statutory net profit after tax(1) $298m (11%) $142m (9%) Cash earnings after tax $320m (14%) $153m (8%) Cash return on average equity 8.3% (160bps) 7.8% (100bps) Common Equity Tier 1 ratio 9.04% (27bps) 9.04% (22bps) Cash earnings per share 79.6c (16%) 37.8c (10%) D
Slide 5: Collective Provision expense
Collective Provision expense 5
Slide 6: Solid platform for differentiation
> Solid platform for differentiation > Retail Bank performance > Growth in niche business segments > Lending processes > Virgin Money Australia momentum > Rising cost structure > Sound underlying asset quality > Digital and data platforms > Solid balance sheet > Skills and capability build > People
Slide 7: Return to profitable and sustainable growth
Return to profitable and sustainable growth Embed our purpose-led, customer culture Simplify our business, improve productivity and address costs Close digital and data gap, deliver mobile and VMA Continue to strengthen the Bank 7
Slide 8: Result Analysis
RESULT ANALYSIS CHIEF FINANCIAL OFFICER
Slide 9: Disappointing results reflect challenging operating environment
Disappointing results reflect challenging operating environment Continued momentum in niche segments and VMA, further contraction in BOQ Retail Good progress in foundational investments 9
Slide 10: Slow credit demand and lower interest rates
> Slow credit demand and lower interest rates > Regulatory changes impacting insurance income > Rise in regulatory costs as flagged in 1H19 > Loan impairment expense impacted by new AASB9 collective provision model – underlying asset quality remains sound Insurance income Underlying non-interest inc
Slide 11: BOQ Specialist Commercial and Housing
> BOQ Finance achieved consistently strong growth > BOQ Specialist housing volumes also remain solid > VMA housing loan growth continued > BOQ Retail contracted further BOQ Specialist Commercial BOQ Specialist Housing 11
Slide 12: Modernising infrastructure
Infrastructure modernisation (Cloud, APIs, SaaS) Modernising infrastructure Branch bandwidth & Online platform for FX & global payments telephony upgrade Meeting regulatory Regulatory uplift (BEAR, COBP, AML/CTF, 3LOD, Self assessments, EFS) requirements Internet banking upgrade BOQ Specialist mobil
Slide 13: Financial Detail
FINANCIAL DETAIL CHIEF FINANCIAL OFFICER
Slide 14: Net interest income FY19 $961m
FY19 FY18 FY19 v FY18 Net interest income $961m $965m (0%) Non-interest income $128m $145m (12%) Total income $1,089m $1,110m (2%) Operating expenses ($550m) ($527m) 4% Underlying profit $539m $583m (8%) Loan impairment expense ($74m) ($41m) 80% Cash profit before tax $465m $542m (14%) Income tax ex
Slide 15: Net interest income 2H19 $485m
2H19 1H19 2H19 v 1H19 Net interest income $485m $476m 2% Non-interest income $63m $65m (3%) Total income $548m $541m 1% Operating expenses ($282m) ($268m) 5% Underlying profit $266m $273m (3%) Loan impairment expense ($44m) ($30m) 47% Cash profit before tax $222m $243m (9%) Income tax expense ($69m)
Slide 16: Segment results 2H19
2H19 2H19 v 1H19 2H19 2H19 v 1H19 Net interest income $217m 1% $266m 2% Non-interest income $31m (3%) $24m (8%) Total income $248m - $290m 1% Operating expenses ($146m) 4% ($124m) 5% Underlying profit $102m (4%) $166m (2%) Loan impairment expense ($4m) (60%) ($40m) 100% Cash profit before tax $98m 2
Slide 17: Gross loan growth of 2% in a slowing market
> Gross loan growth of 2% in a slowing market BOQ Finance > BOQ Finance growth of 15% > Housing growth through VMA and BOQ Specialist, Commercial offset by contraction in branch network > Maintained discipline on credit standards Housing & Consumer BOQ Finance Commercial Housing & Consumer 17
Slide 18: Continued growth through Virgin Money Australia
> Continued growth through Virgin Money Australia > BOQ Finance delivered strong growth through > Branch network contraction equipment, dealer and structured finance programs > Risk discipline maintained > BOQ Specialist mortgage growth remains strong > Niche segment growth of $237m > Paydown of lar
Slide 19: $1.1b growth in customer deposits
Long term > $1.1b growth in customer deposits, predominantly wholesale through savings and investment accounts > Deposit to loan ratio of 70% Short term wholesale > Took advantage of favourable conditions for long term wholesale issuance Customer deposits Senior > Fast Track Starter and Fast Track S
Slide 20: Net interest margin drivers
Third party costs Net interest margin > Asset pricing benefits from January & July 2019 Element 2H18 1H19 2H19 > Hedging cost headwind has become a tailwind Asset pricing benefits +2bps +4bps +6bps > Front book vs back book impact ongoing Front book pricing & mix (5bps) (4bps) (4bps) > Funding costs
Slide 21: Ongoing pressure on banking fees
> Ongoing pressure on banking fees Trading income > Step down impact from merchant migration now embedded Other > Better half for trading income generation > Improved contribution from Virgin Money Australia Banking > Reduced contribution in 2H19 > Cessation of Consumer Credit Insurance sales > Cont
Slide 22: Expense growth of 4%; CTI 50.5%
Other > Expense growth of 4%; CTI 50.5% > Underlying expense uplift reflects heightened General regulatory and compliance requirements called out IT in 1H19 > Higher amortisation and ongoing regulatory costs Occupancy into FY20 Employee > Regulatory uplift to continue through FY20 Assets under const
Slide 23: Cash earnings after tax FY19 $320m
FY19 FY18 Cash earnings after tax $320m $372m Amortisation of acquisition fair value adjustments ($6m) ($7m) Hedge ineffectiveness ($8m) ($3m) Integration / transaction costs ($1m) ($1m) Extraordinary regulatory /compliance ($6m) ($9m) Software changes - ($11m) Legacy items ($1m) ($5m) Statutory net
Slide 24: Portfolio metrics remain sound
> Portfolio metrics remain sound BOQ Finance > Application of new Collective Provisioning model under AASB9 and model adjustments were the key Group total drivers of higher impairment expense Retail > Impaired assets increased due to two large exposures Commercial Two large Exposure >$10m impaired e
Slide 25: Collective Provision increased 29% from 2H18
> Collective Provision increased 29% from 2H18, Specific driven by application of new model under AASB 9 Provision > Specific Provision increased 10% from 1H19, driven by a small number of large exposures in 2H19 Collective Provision 199 Actual GRCL Excluding two large exposures Collective Provision
Slide 26: Arrears levels remain low across all portfolios
> Arrears level remain low across all portfolios 30 DPD > Small increase in 90 DPD Housing and BOQ Finance > No areas of concern emerging 90 DPD 30 DPD 30 DPD 90 DPD 90 DPD 26
Slide 27: 9.04% Common Equity Tier 1 ratio
Underlying capital consumption 7bps (1) (2) > 9.04% Common Equity Tier 1 ratio > Remain appropriately capitalised > Underlying capital consumption of 7bps > Well positioned for unquestionably strong > Mix of asset growth tilted to higher risk-weighted > Focus on restoring organic capital generation
Slide 28: Final dividend of 31 cents; full year dividend 65 cents
> Final dividend of 31 cents; full year dividend 65 cents > Prudent approach taken enables adequate capital generation to support RWA growth and investment > DRP supports higher payout ratio and distribution of franking credits 28
Slide 29: Summary & Outlook
SUMMARY & OUTLOOK MANAGING DIRECTOR & CEO
Slide 30: Households and Businesses outlook
Households > Labour market strong, but wages growth remains constrained > Consumer confidence weaker > House price outlook stabilising, although mixed across regions > Recent approvals data suggests housing credit growth is bottoming Businesses > Business conditions weaker – particularly for SMEs, a
Slide 31: Return to profitable and sustainable growth
> Optimise revenue and margin Return to profitable and > Fix lending processes sustainable growth > Lift distribution performance > Profitably grow customer base > Build our peoples’ skills and capability Embed our purpose- > Quality appointments to key executive positions led, customer culture > Im
Slide 32: Building on the strong momentum of VMA
> Building on the strong momentum of VMA > Successful completion of stage 1 digital bank proof of concept; Now planning full build and implementation > Investing in long term value creation; move towards a common cloud based platform > ~$30m capital expenditure required in FY20 to complete phase 1 b
Slide 33: FY19 performance disappointing
FY19 performance disappointing Decisive action being taken to improve our performance We anticipate lower year on year cash earnings in FY20 > FY20 will be another tough year as we transition > Revenue & impairments broadly in line with FY19, subject to market conditions > Costs growing due to regul
Slide 34: Appendices
APPENDICES az
Slide 35: Housing portfolio metrics
Less than 40% > Broker settlements 29% including VMA > Owner occupied P&I loans represent 53% of 40-60% portfolio 61-80% 81-90% Greater than 90% Metrics (%) 2H18 1H19 2H19 Metrics (%) 2H18 1H19 2H19 Owner occupied 59 59 60 Owner occupied 61 61 66 Investment 41 41 40 Investment 39 39 34 Interest only
Slide 36: Commercial Portfolio
COMMERCIAL PORTFOLIO PORTFOLIO BY INDUSTRY PORTFOLIO BY STATE PORTFOLIO BY EXPOSURE SIZE 3% 2% 9 “ # 15%, ; a \an 37% op - 31% Os m Property & construction is Healthcare a<$im = $m-$5m m Professional services is Hospitality & accommodation = Agriculture QLD NSW mVIC WA mSA 2 Other Oars Ost eaa = Man
Slide 37: BOQ Finance Portfolio
BOQ FINANCE PORTFOLIO ASSET BY INDUSTRY ASSET BY STATE ASSET BY TYPE 4% 17% \\ 31% — 4 14% 21% a rm 25% mi Trucks = Construction Transport Cars mw Agriculture Manufacturing w QLD Nsw wVIC WA | Other road vehicles, trailers Mining & construction w Retail trade Rental, Hiring, Real Estate =| Other pla
Slide 38: $110m current exposure to residential construction
> $110m current exposure to residential construction > 14 developments across 3 states, completing 2019 through 2020 Limit - $56m Exposure - > Well diversified intra-state within NSW and VIC $27m # Apts - 138 98 40 148 45 > No material regional housing exposures 118 43 Limit - $75m Exposure - > No s
Slide 39: Key factors affecting outlook
> 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 39
Slide 40: Glossary
1H: First half of financial year DPD: Days past due 2H: Second half of financial year DRP: Dividend Reinvestment Plan 3LOD: Three lines of defence DTA: Deferred tax asset 30DPD: 30 days past due EFS: Economic and Financial Statistics 90DPD: 90 days past due EPS: Earnings per share AASB: Australian A
Slide 41: Important notice
This is a presentation of general background information about Bank of Queensland Limited’s (BOQ’s) activities at the date of this document. It is in summary form and does not purport to be complete. It should be read in conjunction with BOQ’s other periodic and continuous disclosure announcements.