Westpac Banking Corporation · ASX:WBC
Westpac Banking — Investor Presentation (September 2005)
22 slides from Westpac Banking's investor presentation, Sep 22, 2005
Slide 1: Investor Workshop: Australian equivalents to IFRS (A-IFRS)
AMfestpac Australia’s First Bank Investor Workshop Australian equivalents to International Financial Reporting Standards (A-IFRS) Philip Chronican Chief Financial Officer Margaret Payn General Manager Group Finance Bill Starr Group Controller, Group Financial Control 22 September 2005 Important noti
Slide 2: Outline and Objectives / Key messages
Outline and Objectives « Provide greater clarity on what the market can expect from A-IFRS and from Westpac under A-IFRS * Develop an understanding of the key A-IFRS changes and how these will impact Westpac * Articulate Westpac’s current position on areas where industry practice is not yet settled
Slide 3: Project overview / Impact on financial reporting
Project overview « A-IFRS project has been running since early 2003 ona business unit led approach * General ledger and key financial reports on an A-IFRS and AGAAP basis since March 2005 « Internal business processes changed, including Treasury deal externalisation and restructuring * Business unit
Slide 4: Primary performance measure - current and proposed
Primary performance measure - current * AGAAP net profit after tax (NPAT) is not an effective measure of value generated for ordinary shareholders * Currently there is strong industry consensus on adjustments to NPAT to produce an appropriate measure, known as cash earnings. Adjustments are: - Goodw
Slide 5: Cash earnings comparison
Cash earnings comparison Six months ended 31 March 2005 AGAAP_ | Full A-IFRS A$ millions Statutory net profit after tax 1,325 1,313 Goodwill amortisation/impairment 83 NZ Class share distributions - 22 Hybrid equity distributions (68) - 2004 TPS FX swap revaluation 40 - 2003 TPS IR swap revaluation
Slide 6: Cash earnings - A-IFRS impact
Cash earnings - A-IFRS impact Six months ended 31 March 2005 A$ millions AGAAP cash earnings 1,380 Fee revenue (15) Deferred acquisition costs (15) Share based payments (30) Full A-IFRS earnings excluding volatile items 1,320 Volatile items — fair value/hedging 75 Full A-IFRS earnings including vola
Slide 7: Key performance measures (continued)
43 Key performance measures (continued) * Cost to income ratio to increase due to lower revenues and inclusion of share based payments in expenses * Average adjusted equity measure to be simplified, though will still require adjustment for treasury shares and cash flow hedging reserve « Number of sh
Slide 8: Credit provisioning (continued)
Credit provisioning (continued) * Interpretation differences exist on how A-IFRS should be applied — currently working on achieving global and local consistency * USGAAP requires use of an incurred loss approach, however practical implementation differences result in a very wide range of results, wh
Slide 9: Regulatory capital impact
Regulatory capital impact * APRA is finalising A-IFRS proposals, with discussion paper due in late September * New innovative hybrid equity limit of 15% - ‘innovative’ definition required. Non-innovative more expensive « Increased earnings, and therefore regulatory capital volatility, will require a
Slide 10: A-IFRS financial results
AMfestpac Australia’s First Bank Investor Workshop Australian equivalents to International Financial Reporting Standards (A-IFRS) Philip Chronican Chief Financial Officer Margaret Payn General Manager Group Finance Bill Starr Group Controller, Group Financial Control 22 September 2005 20 A-IFRS fina
Slide 11: Comparison of AGAAP and A-IFRS earnings
Comparison of AGAAP and A-IFRS earnings Six months ended Reported | Hy! forid Fee Deferred Goodwit} Seourit- Share Treasury ie 7 Futt 31 March 2005 {$m} | AGAAP | equity revenue costs isation payments shares dging | AJFRS Net-interest income 2545 {40} 30 - - 2.620 Non-interest income 1,659 - {440} {
Slide 12: Hybrid equity instruments
23 Hybrid equity instruments Current Approach + Westpac has three hybrid equity instruments, 2003 TPS, 2004 TPS and FIRsTS, all treated as equity + Hybrid equity distributions classified as distributions of retained earnings + Add back distributions to arrive at cash earnings + Westpac NZ Class shar
Slide 13: Fee revenue
25 Fee revenue Current Approach + Front end fees are segregated between cost recovery and risk margin, with the risk margin being taken to income over the period of the loan or other risk + Fees are reported as part of fee income in the non-interest income line + More fees will be deferred and recog
Slide 14: Deferred acquisition costs
Deferred acquisition costs . Wealth related entry fees booked to profit and loss on receipt . Excess costs of acquiring Wealth business are deferred over the life of the product Current Approach . Entry fees are deferred over expected life . Only directly incremental acquisition costs can be deferre
Slide 15: Goodwill
Goodwill Current Approach + Goodwill is amortised on a straight-line basis over 20 years, consistent with the minimum period of expected benefits * Carrying value of goodwill is reviewed every six months for impairment by comparing the carrying value with value of expected future benefits + Regular
Slide 16: Consolidation/securitisation
Consolidation/securitisation * Control is key factor in determining whether legal entities are consolidated + Corporate securitisation vehicle (Waratah) not consolidated * Own mortgage securitisation vehicles not consolidated Current Approach + A-IFRS introduces stricter tests for recognition of fin
Slide 17: Share based payments
33 Share based payments Current Approach + Share based payments include share and performance options, performance share rights and employee share plan + Share based payments are not currently expensed through the profit and loss account + Value of share based payments are disclosed as a note to the
Slide 18: Treasury shares
Treasury shares cc |* Westpac has a number of Wealth vehicles which invest, inter alia, in 9 Westpac shares on behalf of policy holders 8 a. |* These shares are called Treasury shares and are currently treated x similarly to other equity investments e o c 3 oO + Earnings on shares held in consolidat
Slide 19: Defined benefit plans
37 Defined benefit plans Current Approach + Westpac already follows the principles of International Accounting Standards for recognising pension costs * Cost recognised in profit and loss comprises current service cost, an interest cost and an expected return on plan assets. In addition, actuarial g
Slide 20: Fair Value/Hedging
39 Fair Value/Hedging Current Approach + Flexibility in designating financial instruments at cost less impairment or fair value — mid point price generally used for fair values + Hedge accounting achievable where derivative is effective in reducing a risk arising from an existing asset, liability or
Slide 21: Capital impacts / Expected timetable
41 Capital impacts A$ million Book ACE Tier 1 Tier 2 Equity Fee revenue (150) (200) (200) - Deferred acquisition costs (150) - - - Treasury shares (100) - - - Defined benefit plans (150) (300)' (300) - Credit provisioning’ 200 to 200 to 200 to} (200) to (tax effected) 700 700 700 (700) Total (350) t
Slide 22: Appendix - Capital calculations
AMfestpac Australia’s First Bank Investor Workshop Australian equivalents to International Financial Reporting Standards (A-IFRS) Philip Chronican Chief Financial Officer Margaret Payn General Manager Group Finance Bill Starr Group Controller Group Financial Control 22 September 2005 44 Appendix - C
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