Anz Group Holdings Limited · ASX:ANZ
Anz — Australia and New Zealand Banking Group — H1 2004 Earnings Presentation
73 slides from Anz's earnings presentation, Apr 27, 2004
Slide 1: 2004 Interim Results
2004 Interim Results Australia and New Zealand Banking Group Limited 27 April 2004
Slide 2: Table of contents
Table of contents CEO review Page 3 Result review Page 7 Credit Quality Page 15 Other Financial Issues Page 22 Business performance Page 28 Strategy Page 45 Supplementary information Page 56 ~~ DW PF WN
Slide 3: John McFarlane, Chief Executive Officer
ANZ 2004 Inter John McFarlane Chief Executive Officer
Slide 4: ANZ Interim Results Summary
ANZ Interim Results Summary v Mar 03 v Sept 03 NPAT *Headline $1,396m T 22% T 16% *Excluding significant transactions $1,312m T 15% T 9% *Underlying? $1,241m tT 10% T 4% EPS 76.8 cents {ff 11% fT 5% Cash EPS! 78.9 cents {ff 11% fT 5% Dividend fully franked2 47cents ff 11% fT n/a 1. EPS exctuding sig
Slide 5: ANZ now has a strong foundation
ANZ now has a strong foundation « Model now enhanced by clustering around customers; @ Personal - Key driver of future growth # Institutional - A leading business with lower risk Corporate - Strong organic growth ¢ Credit concentrations almost to optimal levels ¢ International risk exposure containe
Slide 6: A low risk approach to NBNZ integration
A low risk approach to NBNZ integration Phase one: quick wins ¢ RBNZ approval expected early May Legal amalgamation into ANZ National, targeted for 30 June 2004 Maintain both brands to enhance customer retention Rapidly integrate activities that are not systems dependent Idea sharing already begun f
Slide 7: Peter Marriott
Peter Marriott Chief Financial Officer
Slide 8: A good underlying result, driven by strong income growth and improved credit quality
A good underlying result, driven by strong income growth and improved credit quality Non-Interest Non- Income ~ interest TrUEPrsS aterest income impact* TrUEPrsS Interest impact* Expenses a Tax & Income 21 (47) Provisions 2H03 42 . NPAT i 4a Growth ] 66 1,207 1,141 NPAT growth excluding NBNZ acquisi
Slide 9: NBNZ acquisition and TrUEPrS-related significant transactions further increased profit
NBNZ acquisition and TrUEPrS-related significant transactions further increased profit Acquisition, NBNZ funding & NPAT integration 4 months costs 1s0s«(779) Significant transactions 84 1,396 Mar -04 Mar -04 Mar -04 NPAT excl. NPAT excl. Reported NBNZ & significant NPAT significant transactions tran
Slide 10: Strong balance sheet growth across most businesses
Strong balance sheet growth across most businesses... « End of period lending assets grew by $41.4b (25%) for the half. Excluding NBNZ, lending grew $8.8b (5%) e Excluding NBNZ, growth was largely in Mortgages $6.8b (10%) and Corporate $1.7b (11%) for the half, reflecting favourable market condition
Slide 11: Partly offset by margin pressure, particularly in quarter
...partly offset by margin pressure, particularly in 24 quarter « Reduction in mortgage margins the key driver of margin decline - this reduction driven primarily by interest rate environment ® Mix impact of Sbp includes 4bp for increased wholesale funding and 1bp for mortgage mix « Mortgage margins
Slide 12: Growth in underlying non-interest income reflects volume growth
Growth in underlying non-interest income reflects volume growth Property TrUEPrS Cashflow + sales hedge impact on abla tid 2HO3 income trading 9 2HO3 securities 1,456 (27) imect income 87 1,467 mm (35) ° me (5) — Underlying growth in non- interest income +t 5% Sep-03 Mar -04 other income excl. NBNZ
Slide 13: Expenses well controlled, providing scope for re-investment
Expenses well controlled, providing scope for re-investment Underlying operating expenses increased by 2.8% over the half. Key drivers were: * Operating costs were up 4% in Personal Banking as a result of increased staff training, the cost of rolling out the new telling platform, and increased depre
Slide 14: Doubtful Debts Provision reflects improved underlying portfolio
Doubtful Debts Provision reflects improved underlying portfolio * Standard ELP charge (as a % of average lending assets) has remained stable at 31bps (32bps September ELP Charge 2003) ¢m bo’ - , . . . ps inclusion of higher quality NBNZ portfolio —_ . reduces ELP rate by ~1bp 350 5 — NEN? Ioan - 80
Slide 15: Credit Quality
|Qualit 15
Slide 16: Quality of Consumer & SME portfolios again better than expected
Quality of Consumer & SME portfolios again better than expected * Mortgage delinquencies (60 days) improved over the half * Delinquency for customers new to SME since September 2002 is in line with delinquency on legacy SME portfolio « Strong economic conditions and prudent credit practices have con
Slide 17: Low exposure to Inner City residential mortgage lending
Low exposure to Inner City residential mortgage lending Inner City * Total Lending for inner city property at 3.7% of Australian Mortgages portfolio, with 2.1% for investment purposes. Tight policies to control emerging risks include: # valuations required on all new properties # rental income allow
Slide 18: US power exposures continue to reduce
1. US power exposures continue to reduce, although lagged credit effects continue to affect the portfolio Total US Limits A$1.8bn AAA to BBB BBB- BB+ to BB- B+ to CCC Non Accrual Sep-02 Sep-03 Mar-04 Other Con _» Uncommitted: $0 « We continue to actively manage our exposure to the US Energy sector.
Slide 19: New Specific Provisions down 16% on 2H03
ratios New Specific Provisions down 16% on 2HO03 Geographic Specific Provisions Mar-02 Sep-02 Mar-03 Sep-03 Mar-04 Aust/NZ | —¥UK/US BAsia | ¢yOther Inter 19 Specific Provisions by Source Sep 03 Mar 04 it Energy # Consumer Finance ™ Domestic Corporate 8 Other Offshore @ Asset Finance vt Other
Slide 20: Non-accrual loans less than half the level of two years ago
Non-accrual loans to Loans & Advances less than half the level of two years ago New Non-Accrual Loans relatively stable, default rate down... $m 900 7 800 4 700 + | 600 | | 824 500 | 400 7 | 300 5 Annualised default rate (RHS) r 1.4% r 1.2% r 1.0% r 0.8% r 0.6% r 0.4% r 0.2% r 0.0% Mar-G2 Sep-02 Mar
Slide 21: RWA to Total Assets not an accurate measure of risk
RWA to Total Assets not an accurate measure of risk % 100 5 RWA to Total Assets « RWA/Total Assets under the existing accord is a 90 5 (ex life investment & intangibles) simplistic measure of risk 80 4 2 RWA/Total Assets is distorted by Life 70 4 company assets not appearing within RWA 60 4 a does n
Slide 22: Other Financial Issues: Hedging
Hedging (00) 22
Slide 23: Revenue hedging undertaken when appropriate
Revenue hedging undertaken when appropriate ¢ Revenue hedging only undertaken when currency is believed to be outside its normal trading range and inconsistent with their value « Revenue from FX hedges are reported as Interest Income within the Group Centre Notional Income’ Unrealised Exchange March
Slide 24: Tax risk substantially lowered
Tax risk substantially lowered * Tax risk is an ongoing business risk « We have established a constructive working relationship with the ATO and the IRD e Some higher risk aspects of the operations of the multi-jurisdictional ANZ Investment Bank have been substantially wound back in recent years e N
Slide 25: Capital position remains strong, and towards the top end of our range
Capital position remains strong, and towards the top end of our range e With the acquisition of NBNZ further reducing the risk in the balance sheet, the Group lowered its ACE target range by 50bpts in the half to 4.75% to 5.25% * Capital position is strong, but will be impacted by new APRA treatment
Slide 26: A record interim dividend
A record interim dividend Interim Dividends ¢ The record interim dividend of $0.50 5 47 cents per ordinary share represents an 11.1% increase on the 2003 interim dividend adjusting for the bonus element $0.40 | of the rights issue* « Policy is to increase dividend in line with cash earnings per shar
Slide 27: Short term outlook
Short term outlook We expect ANZ will continue to perform well in 2004 Margin pressures likely to subside in the second half due to lower gap between 90 day rate and cash rate Lending growth likely to remain robust, but with moderating mortgage growth offset by increased business lending Expenses wi
Slide 28: Dr Bob Edgar, Chief Operating Officer
Dr Bob Edgar Chief Operating Officer 28
Slide 29: Consumer and corporate businesses were the key driver of underlying profit growth
Our consumer and corporate businesses were the key driver of underlying profit growth, offsetting de-risking impact in IFS Key Drivers Personal Banking Australia up 13% due to growth in consumer deposits, lending and sales commissions Consumer Finance up 21%* due to strong customer growth and turnov
Slide 30: We now have a strong position in the domestic consumer market
We now have a strong position in the domestic consumer market We now have a combined retail customer base across Australia & New Zealand of approximately 5.1m customers « We have a scale position * Following the NBNZ integration, all retail customers will be on a Hogan platform « Relative market sha
Slide 31: Our Australian consumer businesses have improved their position
Our Australian consumer businesses have improved their position In 2002, we set out to revitalise our branch network, with the aim of growing our market share and our share of wallet « We have grown market share by more than each of our peers. Specialisation has helped with this. « We have grown our
Slide 32: Personal Banking Australia: strong foundation delivering results
Personal Banking Australia: strong foundation delivering results A continued commitment to The investment in our franchise is delivering results investing in our franchise has seen . . : . strong growth in the half with Staff satisfaction Customer satisfaction NPAT up 8%. The result was built 80% 88
Slide 33: Consumer Finance: interchange impact well managed
Consumer Finance: interchange impact well managed; offset by growth initiatives Strong profit growth, up 9% for the half driven by: NPAT Other « Well managed changes to credit card programs following Interchange Other eat $m Interchange Reform rate Loyalty issuing 104 * Significant reduction in loya
Slide 34: Mortgages: strong volume growth offset by interest rate environment
Mortgages: strong volume growth more than offset by interest rate environment NPAT reduced 7% for the half despite continued Margin impact on NPAT substantial strong volume growth, key drivers included: Margin other * A 10% increase in mortgage volumes during the half $m impact Volume income Expense
Slide 35: IFS: subdued result driven by focus upon de-risking
IFS: subdued result driven by focus upon de-risking The IFS profit was adversely affected by revenue IFS Offshore assets as % of Group constraints imposed by the de-risking strategy, and ‘io, ASSETS substantially reduced the strength of the AUD affecting offshore earnings. tian ae + “ete Positive as
Slide 36: Corporate: continued strong growth and investment in the business
Corporate: continued strong growth and investment in the business Continued growth in Corporate NPAT with the half year result up 5%, key highlights include: Corporate Banking Australia * 4% revenue growth driven by growth in average lending volumes of 10%, coupled with solid growth in average depos
Slide 37: Esanda: operational excellence and improved business economics
Esanda: operational excellence and improved business economics, partly offset by margins pressure Esanda’s profit grew 3% for the half, key drivers and initiatives included; Operational excellence and improved economics ® Esanda has made substantial progress in improving the efficiency of its busine
Slide 38: Pacific & Personal Banking Asia: strong franchise adversely affected
Pacific & Personal Banking Asia: a strong franchise adversely affected by strengthening AUD Solid underlying NPAT performance up 3% (pre exchange rates) reflective of our strength in the region: « ANZ holds either number 1 or 2 market position in all the Pacific markets in which we operate « The Pac
Slide 39: ANZ New Zealand (ex NBNZ): result affected by mortgage business, margin pressure
ANZ New Zealand (ex NBNZ): result affected by inclusion of mortgage business, margin pressure and exchange rates ANZ (NZ) result was adversely affected by ANZ (NZ) NPAT adversely impacted by reduced net interest income from Mortgages mortgages business (mortgage business NzDm included for the first
Slide 40: Integration update
Integration update 1. Integration Planning ¢ Detailed integration planning for 41 workstreams virtually completed, common management structure in place « Integration is on track 2. Systems ¢« ANZ National to adopt common systems largely based around ANZ’s core systems with selected best of breed fro
Slide 41: Net customer acquisition rebounding well
Net customer acquisition rebounding well Net monthly customer NBNZ Personal « acquisition of customers continues to rebound from 2003, and continues to be a net acquirer ANZ Personal « net outflow continues, but at a much lower level in March compared to February 2004 and March 2003 NBNZ Business &
Slide 42: Current integration plans project a positive outcome from 06
Current integration plans project a positive outcome from 2006 Agm Net Integration Position (pre-tax) * Cost synergies in line with business 150 5 113 case, however newly identified synergies offset by increased processing costs in NZ 100 4 « Revenue attrition improved modestly 50 5 on business case
Slide 43: Integration timetable
Integration timetable* Systems milestones 2004 2005 Business milestones June Qtr Sep Qtr Dec Qtr Mar Qtr June Qtr Sep Qtr Dec Qtr IT Systems Comparison phase Development complete - Commence Account completed Account Migration 'gration completed + Managed Funds Product mix & strategy Systems Retail B
Slide 44: Business summary
Business summary « Consumer & Corporate businesses performing well e Institutional Financial Services de-risking strategy progressing well e New Zealand business and integration on track e A strong foundation for growth 44
Slide 45: John McFarlane, Chief Executive Officer
John McFarlane Chief Executive Officer 45 a
Slide 46: ANZ systematically optimises variables to create value
ANZ systematically optimises variables to create value Returns Growth Sustainability 46 Fade
Slide 47: After six years of risk reduction we are now approaching optimal levels
After six years of risk reduction we are now approaching optimal levels r TUE oy _ a _ : 2 oo _ _ - _ _ 4 | / L ic Ce ada st hh oo *excludes significant and abnormal items ce . at Risk* no ic TC - __ . # Average daily Value at Risk at 97.5% confidence interval 47
Slide 48: Our strategy is to grow sustainable earnings at low volatility
Our strategy is to grow sustainable earnings at low volatility 16, Volatility in ANZ 6 monthly NPAT growth 144 over past 10 years* « NZ makes our earnings less volatile 127 « Although NZ alone is more volatile than 10 + group, diversification results in NZ creating 8/ lower overall volatility at a g
Slide 49: We have transformed ANZ into a more sustainable, lower risk business
oh We have transformed ANZ into a more sustainable, lower risk business ez NPAT Volatility* 12% 4 — NPAT Growth 8 SS Last 10 Years Last 5 Years Last 3 Years * Standard deviation in six monthly NPAT growth for ANZ, excluding abnormal/significant items 49
Slide 50: Value of focus and specialisation
| Value of focus and specialisation Specialisation and focus yields better return than generalisation from the perspective of individual challenges and tasks, as this Olympic example demonstrates Javelin The Generalist Mens Decathlon Gold 2) Medal Winner Sydney 2000 — . PPT) 3 65.8m Specialist premi
Slide 51: Businesses established as distinct units
Businesses established as distinct units to unleash energy & innovation In 2002, businesses brought together under Institutional Very high levels of cross sell achieved, with deep engagement with the customer Low reliance on trading income 5i
Slide 52: As it has been in both our Corporate and New Zealand businesses
..as it has been in both our Corporate and New Zealand businesses... Micro __ Business |
Slide 53: Now our focus is on building coherence with personal customers
«.Now our focus is on building coherence with personal customers Retail not a traditional strength for ANZ. Creation of specialist businesses necessary: # brought focus to this area # unleashed energy and innovation =® prevented smailer network constraining growth through third-party and specialist
Slide 54: ANZ has successfully mastered each stage from performance through to specialisation
ANZ has successfully mastered each stage from performance through to specialisation. Focus now on coherence, growth and sustainability THE ANZ JOURNEY ” — CUSTOMER GROWTH COHERENCE ” GROWTH » “ REVENUE ENHANCEMENT SPECIALISATION EFFICIENCY BEST PRACTICE eee as enero eae PERFORMANCE Early 90’s —» Mid
Slide 55: A solid result with good foundation and prospects
A solid result with good foundation and prospects e Solid first half, clean result e Accretive New Zealand acquisition. Market leadership in all segments. Integration and synergies on track We remain confident about our prospects for the year as a whole e Business mix inherently domestic, more susta
Slide 56: Supplementary information
ation 56
Slide 57: Impact of unwinding TrUEPrS and issuing StEPS
Impact of unwinding TrUEPrS and issuing StEPS TrUEPrs StEPS Background « Issued « Sept/Nov 1998 « 27 Sep 2003 « Amount * USDO.775b « AUDib « Cost of dividend © 8% Fixed « BBSW Floating « Called * 1HO4 P&L impact « Income * Swap (difference between 8% « No impact fixed and BBSW plus margin) « Tax / *
Slide 58: Mortgages portfolio remains sound
Mortgages portfolio remains sound « Mortgages Portfolio continues to 80% 4 experience strong growth. 70% « ANZ “Lo Doc” policy requires a 60% maximum LVR of 60%, maximum loan 50% size $450k and is only available for 40% standard residential and minimum credit ° standards. 30% 20% 10% 0% Strong growt
Slide 59: Specific provisions down 27% on 2H03
Specific provisions down 27% on 2HO3 — no large single provisions 250 4 200 4 150 4 100 4 Sep- 98 Mar- 99 Specific Provisions Significant impact fr single customers om ‘ Sep- Mar- Sep- Mar- Sep- Mar- Sep- Mar- Sep- Mar- 99 oo 8600 ol (Ol 02 «02 iim Net specific provisions - $m nmi Yy International S
Slide 60: Offshore power exposure reducing
Offshore power exposure reducing, with markets showing signs of improvement Total Limits Split by Geography KMV Median Expected Default Frequency EDF % (Max KMV ED 20.00 10.00 | CCC la Offshore B BB, 1.00 NA , i Australia / B+ Le hw ‘of New Zealand BBB 0.10 i i nes A —— North America meee Europe ‘ '
Slide 61: The quality of the Telcos book continues to improve
The quality of the Telcos book continues to improve Total Telcos Limits‘) KMV Median Expected Default Frequency 0, on (Max KMV EDF = 20.00) 10.00 {CCC AAA to BBB B B beat 1.00 | BB+ BBB- BB+ to BB- sae, 3% 010 {PPB B+ to CCC ) / 5% . \, Non Accrual wi 4% A wr, J hang —=North America Sep-02 Sep-03 Ma
Slide 62: Group risk grade profile
Group risk grade profile ANZ Group - Outstandings $143bn $149bn $158bn $165bn $207bn AAA to BBB Total investment grade as at Mar 04: BBB- $136.6bn or 65.9% of the portfolio BB+ to BB BB- >BB- Mar-02 Sep-02 Mar-03 Sep-03 Mar-04 B+ to CCC 2.8% 2.5% 2.5% 2.3% 1.9% Non Accrual 0.9% 0.8% 0.7% 0.6% 04% Ee
Slide 63: Geographic risk profiles
Geographic risk profiles Australia & New Zealand International $135 bn $145 bn $155 bn $198 bn $14 bn $13 bn $10 bn $9 bn AAA to BBB AAA to BBB BB+ BB+ to BB to BB BB- BB- >BB- >BB- Sep-02 Sep-03 Mar-04 Sep-02 Mar-03 Sep-03 Mar-04 B+ to CCC 2.8% 2.3% 1.7% 4.3% 4.9% 6.0% 41% Non Accrual 0.7% 04% 0.4%
Slide 64: Existing and future problem loans are well provided for
Existing and future problem loans are well provided for * The period 1998 through March 2004 has seen Group GP trend down to 98bps, consistent with the sustained de-risking of the Group lending book. « As at March 2004, gross non-accrual loans were 45bps of GLAs. Of this, 44% was covered by specific
Slide 65: Proactive reduction in volume of Top 10 client committed exposures
; Proactive reduction in volume of “Top 10” client committed exposures s & P Top 10 Committed Exposures Top 10 Lending Exposures as % of Rating ACE@) i) 200 400 600 800 1000 AUDm AAA mn 2 120% 5 * Implementation of credit management policies to diversify the loan book ; 100% 4 exposure, has resulted
Slide 66: Concentration risk addressed in business and corporate lending book
Concentration risk addressed in business and corporate lending book through management cap on industry exposure oi Management has reduced concentration risk in ANZ’s business/corporate loan 18% book by limiting industry exposure to 10% of ANZ = 16% Group GLAs Increased diversification of *” business
Slide 67: Industry exposures — Australia & NZ (excl. NBNZ)
pala Industry exposures — Australia & NZ (excl. NBNZ) Health & Community Cultural & Recreational Services Services 2.5bn 5.0% 2.5bn 20.0% 1.0bn 2.06) 4.0% 2. n 2.0bn 15.0% 0.8bA 1.5bn 3.0% 1.5bn 0.6bn 10.0% 1.0bn 2.0% 1.0bn 0.4bn oo —o— 5.0% 0.5bn : =} 1.0% 0.5bn ° 0.2bA 0.0bn --— S$ spss + 0.0% 0.0
Slide 68: Industry exposures — Australia & NZ (excl. NBNZ)
pala Industry exposures — Australia & NZ (excl. NBNZ) Finance - Other Transport & Storage Sbn 5.0% 5bn 10.0% 2.5bn 4bn 4.0% 4bn 8.0% 2.0bn 3bn 3.0% 3bn 6.0% 1.5bn 2bn 2.0% 2bn 4.0% 1.0bn ibn 1.0% ibn 2.0% 0.5bn obn +-—< Zim 0.0% Obn+t $y ==<—t 0.0% 0.0bn Sep-01 Sep-02 Sep-03 Mar-04 Sep-O1 Sep-02 Sep
Slide 69: Real Estate
Real Estate Operators & Dev. Retail Trade Mar-04 20bn 10.0% 8bn 10.0% 9 i5ba ~~, + 8.0% ne 8.0% 6.0% 6.0% 10bn 4bn 4.0% 4.0% 5bo 2.0% 25" 2.0% Obn 4 i + 0.0% Obn+ + + + + 0.0% Sep-01 Sep-02 Sep-03 Mar-04 Sep-01 Sep-02 Sep-03 Mar-04 Manufacturing Wholesale Trade [Opn 10.0% shy 10.0% 8bn 8.0% abn 8.0%
Slide 70: ANZ Group Structure 2004
ANZ Group Structure 2004 70
Slide 71: ANZ Specialist Business Structure 2004
ik ANZ Specialist Business Structure 2004 Chief Financial Officer! Chief Operating Officer Personal ! Esanda i --4 1 1 NewZealand ! ' Corporate Gorporte ‘Small Business | “Matrix 71
Slide 72: ING JV benefits from markets upturn
A ING JV benefits from markets upturn *NPAT increased 5% over the half driven by: a Higher fee income arising from growth in funds under management (“FUM”) Higher capital investment earnings, up 7% due to strong equity markets and rising interest rates. These were partially offset by ANZ’s capital h
Slide 73: Disclaimer and investor relations contact
The material in this presentation is general background information about the Bank’s activities current at the date of the presentation. It is information given in summary form and does not purport to be complete. It is not intended to be relied upon as advice to investors or potential investors and
Australia and New Zealand Banking Group — H1 2004 Earnings Presentation on 6ix