Westpac Banking Corporation · ASX:WBC
Westpac Banking — 1H04 Earnings Presentation
58 slides from Westpac Banking's earnings presentation, May 6, 2004
Slide 1: 2004 Interim results presentation
Wifestpac Australia’s First Bank 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 bps
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 Il 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) 4) . 4g 2 40-4 30) 26 HI HI 10) |e 1HOO-- 2HOO-- 1HO1-~ 2HO1. = 1HO2-° 2HO2-° 1HO3- ~~ 2HO03 Wlfestpac Interim Results 2004 Australia's First Bank
Slide 5: Clear and simple strategy
Clear and simple strategy Vision Differentiator: . Superior Execution - To be a great io Medium term “Australian and NZ Objectives Company” « Best practice employee Customer comment « A great place to work * Service leadership in our « A superior customer Focus industry experience « Top quartile sha
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 institution customers very or fairly satisfied 70% = ONAN 60% o* Peer average >. “= Westpac. 55% VG SHG OL OSE EOP OOO GS SS SOLE HES EOS IWF S Go HE SME satisfaction - total satisfied 85% 60%. 4 55% 50% 45% —}-BankX -@-WBC
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 f
Slide 9: Growth in most wealth products remains strong
Growth in most wealth products remains strong : Share of new Current Australian market shar . e business Market : Market share Product share (%) Rank (%) Rank Retail 9.2 5 77 7 Corporate super 6.2 5 14.3 2 Wrap and master trust 11.4: 3 15.1 30 Life and risk 6.7 7 10.6 3 Margin lending 14.4 2 9.3.---
Slide 10: Sound contribution across all businesses
Sound contribution across all businesses Cash earnings | Business & _ Consumer Banking BT. | institutional Bank &@ H12003 O H2 2003 @H1 2004 - Proportion of Growth’ Group 1H03 - 1H04 Contribution 58% a 9% ae =. 20% | 17% | 1.NZ % growth in AUD terms Interim Results 2004 Wlfestpac Australia’s First B
Slide 11: Business unit performance: BCB
Business unit performance: BCB! . . ° a, * Balance right with 27% growth $m eet THOS Shanes 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 earning
Slide 12: Business unit performance: WIB
Business unit performance: WIB" * Core performance flat - $m 1HO4 - -1HO3 % improved revenues across most divisions offset by weaker . . Operating income 561 560 0 financial markets performance . . Operating ex (238) > (234) (2) ¢ Improved results from Financing perenne and Specialised Capital Group
Slide 13: Business unit performance: BT Financial Group
Business unit performance: BT Financial Group * Integration on track, on time and 04 synergies expected to be higher than planned based on current run-rate * Investment performance turnaround now achieved, assisting improved future fund flows * Insurance continues to perform well $m 1HO4 -.1HO3" % ‘
Slide 14: Business unit performance: New Zealand
Business unit performance: New Zealand $m 1HO4 1HO3 % ° Strong business momentum Change since September 2003 ° Lending up 16% (in $NZ) Operating income 591 §23 13 * Mortgage market share Operating exp (289). (248) (17) . haa } ; improving captured 23% of Core earnings. 302 275 10) growth in period B
Slide 15: Sustaining core earnings growth
Sustaining core earnings growth 5 Year CAGR ' —@- Revenue 7% lilly Expenses? 3% : ~t&- Core earnings: 12% . Underlying basis (excl. significant items but not adjusted for. acquisitions and disposals) . Excluding goodwill amortisation Interim Results 2004 Wlfestpac Australia’s First Bank 15
Slide 16: Consistency over the medium term
Consistency over the medium term * Achieved total shareholder return of 80% over the last 5 years * Shareholder performance hall of fame ranks those companies with a market cap greater than $US10 billion who have most frequently been placed in the top third in the annual Shareholder Performance Inde
Slide 17: The Details
Wifestpac Australia’s First Bank 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 1HO3 4H03 — 1HO04 Net interest income 2,339 2,098 11 Non-interest income 1,539 1,439 0 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,
Slide 19: Cash earnings — half on half patterns
Cash earnings — half on half patterns ¢ Movement in 2H03 to 1H04 is more subdued than annual growth This pattern of growth has been consistent given: — Dec/Jan are more subdued months ~ June business refinancing cycle 9, = 9, « $m 1H 2H aod a 2001 920-981 26 66 2002 996 1,067... 1.5.7.4 2003 1,095 1
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 5 been 2,600 327 — Average interest earning assets up 2400 34 ee 15% = 182 area a (2.200 + me (162) ~ Rising interest rates supporting / He deposit margins and earnings o
Slide 21: Loan growth remaining robust
Loan growth remaining robust % Change $bn 1H04. 2H03. 1HO3. 1H04 - 1H03 Business Unit ; Consumer (Australia) ~~ 92.1 85.9 78.5 17 Housing!’ 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 226.222. 224 AM New Zeala
Slide 22: Business lending continues to improve
Business lending continues to improve ¢ Business lending (SME and Middle Market) up 18% against market growth of around 6% * Key drivers of improvement: ~ Leading business customer satisfaction ~ Roll-out of CRM technology in business direct ~ Selective return of business banking managers to branch
Slide 23: Housing market — beginning to slow
Housing market — beginning to slow * Overall housing lending up 18% against system growth of 24% leading to market share easing by 110 basis points over past year * Strategy has been to focus on profitable growth: ~ Proportion of third party originated loans constant at 30% ~ Investor housing growin
Slide 24: New Zealand — good growth across the business
New Zealand — good growth across the business Total lending up 16% (in $NZ) against private sector credit growth of 11% Business lending has been robust up 23% In housing, first time since 1998 that Westpac NZ has consistently increased market share (5 out of the last 7 months) Improvement due to: -
Slide 25: Deposit growth
Deposit growth % Change $bn 1H04 2H03- 1H03 Mar.03 — Mar 04 Business Unit ; “ Consumer 49.0 46.8 44.1 11 Business (Australia) 23.8 22.7 21.1 13 Westpac Institutional:Bank : : 12.3 40.9 °° -A1.7 5 New Zealand ($NZ) : 18.0.0-°.017.3 16.6 8 Other." : ve : 35.0 33.6 29.9°- 17 Group. : Non-interest beari
Slide 26: Group margin dynamics
Group margin dynamics Wlfestpac interim Results 2004 Australia's First Bank 26
Slide 27: Australian margins
Australian margins « The decline in Australian margins has been due to a variety of factors « Transitory change in the cash/bills spread has impacted spread by around 6 basis points in 1H04 « Funding portfolio composition impacted by strong lending growth not fully matched by deposit growth + Reduce
Slide 28: Non-interest income analysis
Non-interest income analysis $m 1,600.5 82 1,500; ] (23) 1,400. (9) 1,300 5 1,200 - 1 T T 1 r r Mar-03 P'holder Rec. Financial Net card impact .-BT Adjustment Core Non- Mar-04 Markets interest income Wlfestpac interim Results 2004 Australia's First Bank 28
Slide 29: Credit cards — fee impact of recent changes
Credit cards — fee impact of recent changes * Net impact of interchange reforms and our strategic response will be broadly earnings neutral by 2005 and beyond. * Repricing implemented in 1HO3 * Interchange reforms Oct 03 * Reward point changes to impact in 2HO4 and beyond $m 4HO3-| -2HO3."] -1HO4 In
Slide 30: Institutional Bank financial markets income
Institutional Bank financial markets income * Financial markets income 20% lower than prior corresponding period and 6% below previous half. * Result consistent with expected volatility, although recent performance has been below average * Recent period was accompanied by a small rise in the average
Slide 31: Expenses — tightly managed
Expenses — tightly managed * On target for 2 - 4% annual expense growth for year % $m 1H04.- 2H03 1HO3 Change Salaries & other staff expenses 948 938 898 . 6% Equipment & occupancy 305 300 296 3% Other expenses _ 672 668 ~—s«GB 1% Operating expenses 1,925 1,906 4,857 AN Gross up —5 months of BT - -
Slide 32: 2004 expenses — what we have said
2004 expenses — what we have said Comment Qutcome 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 $40m in 1H04 No further pressure from NZD/AUD exchange rate | Ne
Slide 33: Expense to income — now under 50%
Expense to income — now under 50% anking — expense to income 60 55 50 45 40 35 30 41HO2 °° 2HO2 ~~ 1HO3 ~ 2HO3 ~~ 1HO4 48.7% ealth ~.expense to.income wo : 65 60 55 “50 45 40 35 | 30 — 7 4HO2 °° 2HO2 °°1HO3 °° 2HO3 ~~ '1HO4 Group:-.expense to income a) % 60, o7 se 49.6% Interim Results 2004 Wlfestpa
Slide 34: BT Integration — on track
BT Integration — on track Synergies Pood $m 140.5 Expected synergies 2003 actual achieved 120.5 ™2004 locked-in run rate | Integration progress People & oN Location | Complete a i ce po 116 Systems i In progress Customer Contact Investment Management Registry consolidation ted back-office insourcing
Slide 35: Net retail FUM against acquisition model - BT
Net retail FUM against acquisition model - BT sen B Acauisition model “ Actual ook No j = oO 1 Sep-02 Dec-02 Mar-03.°Jun-03 “Sep-03 Dec-03 “Mar-04 Dec-04 Dec-05 Wlfestpac Interim Results 2004 Australia’s First Bank 35
Slide 36: Performance turnaround: Australian equities
Performance turnaround: Australian equities BT Core Fund!-vs S&P/ASX300 Accumulation Index 1.2% 0.8% 0.4% 0.0% -0.4% -0.8% -1.2% -1.6% ~2.0% SM sh ot Shh Sh “oe & aS SSP PSs & & PP SS SP > et a wv y Sy EP oe & e Fe ee »y Ss LEP Gigs Ca x ce we Mll— Monthly portfolio excess return (LHS) —@ One-Year E
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. I
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 1] implementation Market Risk ». Re-assessed position following NAB report Confident that same issues could not have emerged I
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 fo oag . * Control environment overall | 144 sound @ i 3) E — Independent monitoring Bol E and reporting 3 ; — Limit adherence a ; 2 64 | — Con
Slide 40: Forward credit indicators in good shape
Forward credit indicators in good shape Housing Portfolio --90 day delinquencies % 15 1.0 05 : 01g 0-18. 0.18 1996 1997-1998 -1999 2000 2001 2002 2003 -1HO04 Aust. Business Banking - 90 day. delinquencies % (3 month moving average) 25 2.0 4.49 °° 1.47 1.5. 1.0 0.5 0.0 + r <4 <4 T T 1 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 at 47 Bad debt charge-off (166) (176) (78) increase in dynamic provision (41) (95) (136) Net bad debt expense (207) (271) (214) Genera
Slide 42: Stressed exposures further reduced
Stressed exposures further reduced | Categories of stressed exposures as a % of total commitments | 1.6% poa2-so-n ane noncnsc cen can sans nnnsce ss sacsccann ee saogcasatsnenncecasecsocsssssseteesssace ‘ . : ae Ci Watchlist & substandard ~~ (AY pon nf OO erences ipcrccserperpst) 0 pepancesconer :
Slide 43: Provisioning cover
Provisioning cover _ Specific provisions / impaired assets _ General provisions / non-housing i _ performing loans & acceptances me oh 605 80 20. 405 304 (184 20 | / (104 105 | 0 (05 — — FY98 -FY99 FY00 FY01..FY02 FY03 -4HO4 WBC -@- ANZ *is< CBA | == NAB FY98 ..FY99.”. FY00.” FYO1.. FY02 -FY.03...1H
Slide 44: Adjusted common equity movement
Adjusted common equity movement _* Surplus capital’ grew $429m over the year but only $80m over the last half - : 6.00% + S3bps 83bps. of | 10bps 5.50% 19bps Za 9 | ee 5.0% (52bps) (2obps) 5.1% 5.00% 5 9 (52bps) | 4.8% (17bps) (7bps) (18bps) 4.50% + 4.00% + 1 r ree! T T T r yo T r wn * 72) * $. —B 2
Slide 45: Tier and ACE ratios now above target levels
Tier 1 and ACE ratios now above target levels * Tier 1 and ACE ratios above target levels Ratio Current Target range level Tier 1 7.2% 6.0% — 6.75% ACE 5.1% 4.5% — 5.0% Capital ratios 9.0% 8.5% 5 8.0% + 7.5% 4 7.0% 4 6.5% 6.0% 5.5% 4 5.0% 45% Interim Results 2004 Wlfestpac Australia’s First Bank 45
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 hedge accounting available Issued in USD (525m) and-funds used in-NZ (NZD) Typically swapped into NZD Swap put in place forrisk ~~ management but not given hedge treatme
Slide 47: Buy-back overview
Buy-back overview « Target buy-back size approximately $500m (approximately 2% of ordinary shares) + Also conducting on-market buy-back of an equivalent proportion of our NZ Class Shares (approximately 1m) « Off-market tender buy-back structure + Buy-back price includes a $4.00 capital component, wi
Slide 48: Capital position remains sound
Capital position remains sound ACE Tier.1 Ratios as at 31 March 2004 5.1% 7.2% uss 525 aia in April 04 : +46bps' Mayiuune Zoos crated: | eatps | Stops Use see called +3bps -29bps Pro-forma ratios 31.March 20042 4.8% 6.8% 1. Impact (46bps) — a portion of this is exceeds the APRA 25% hybrid limit 2. D
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
Wifestpac Australia’s First Bank 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 economic fundamentals sound due to: Key economic indicators Financial year ended — 2U" 04 Jun 05 % % - Solid domestic demand World (Calendar year) - Low unemployment GDP 44 4.0 ¢ Export recovery to boost economy i : Australia _-
Slide 52: Economy operating with a more sustainable mix
Economy operating with a more sustainable mix Key.contributors to. GDP 8 , 8 6 @ 2000/01 L 3 1 2001/02 #45 8 2002/03 8°24 A @ 2003/04f 5 0 W 2004/05f & 2-4 44 Domestic demand Net exports GDP. Source: ABS, Westpac Wlfestpac Interim Results 2004 Australia's First Bank 52
Slide 53: Credit growth returning to longer term average
Credit growth returning to longer term average | Australian credit growth (245 ; 20-4 16 Forecasts (To Sep 2005) 24 + 20 +16 i a Fe at -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:
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 Wlfestpac
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 May 2004
Wifestpac Australia’s First Bank 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