Westpac Banking Corporation · ASX:WBC
Westpac Banking — FY2003 Earnings Presentation
56 slides from Westpac Banking's earnings presentation, Oct 30, 2003
Slide 1: Westpac Full Year Results 2003
AIfestpac Australia’s First Bank Westpac Full Year Results 2003 David Morgan Chief Executive Officer Philip Chronican Chief Financial Officer — 30 October 2003
Slide 2: Delivering on our focused strategy
Delivering on our focused strategy High quality result ~ Underlying cash earnings $2,271m up 10% - Cash return on equity maintained at 21% - Dividend of 78 cents per share fully franked up 11% Key drivers of growth - Robust growth in loans and acceptances up 17% - Normal sector margin decline down 7
Slide 3: Driving the gap between revenue and expenses
Driving the gap between revenue and expenses 4 Year CAGR' o- Revenue 7.5% lil Expenses? 3.5% —#- Core earnings 12.5% T wea * Underlying basis (excl. significant items) DS ? Excluding goodwill Full year results - 2003
Slide 4: All businesses contributing
All businesses contributing 7 4 Proportion _Cash earnings “party i . .... Contribution Business & | Sanking Wee _ Banking 5A% | Wealth Senn Mgmi om 8% "Institutional cork 1” NZ Banking ae 44% $m T T , 0 500 1000 1500 ‘ Excluding significant items 2003.00 2002 0 _ Growth 2002 — 2003 is. 1 % 60 Full y
Slide 5: A high quality result — getting the balance right
A high quality result — getting the balance right Outcome Balance EPS growth 9% ROE maintained at 21% Strong loan-growth -Margin decline inline with sector trend ~ 90 basis point improvement - down 7 bps in market share in Australia e Fee income stronger e Asset quality further improved Expense to i
Slide 6: Dividends up 11% on 2002 - fully franked
Dividends up 11% on 2002 - fully franked | Cents per share 90 4 80 + 70 60 - 50.4 40 4 30 5 20 5 10.4 0 4997 1998 1999 2000 2001 2002. ~=2003 estpac Aust Full year vesults - 2003
Slide 7: Delivering on our strategy
Delivering on our strategy Vision “To be.a great Australian and NZ Company” ™ A great place to work ™ A superior customer experience * ist quartile shareholder returns *™ A good corporate citizen Strategy Customer Focus How? Outcomes Differentiator: Superior Medium term Execution Obiectives " Best p
Slide 8: Strategy reflected in earnings
Strategy reflected in earnings * Focus on core markets * Delivering on the service-profit chain - Employee commitment - Customer experience * Superior execution estpac Full year results - 2003
Slide 9: Focus on core markets delivers
Focus on core markets delivers * Australia and New Zealand remain highly attractive banking markets - Australia credit growth 14% - New Zealand credit growth 7% * Customer focused strategy delivering market share improvement ¢ Businesses focused on core markets — no diversion ¢ Wealth integration pr
Slide 10: Well advanced in improving employee commitment
Well advanced in improving employee commitment -% of employees reporting a positive score 100 80 60 02000 40 @ 2001 | 2002 20 m 2003 0 Employee Commitment Leadership Employee.engagement and effort* * New measure introduced in 2002 estpac Aw 5 First Bank, Full year results - 2003
Slide 11: Customer satisfaction improving
Customer satisfaction improving Consumer Satisfaction. -.% of main financial institution customers very or fairly satisfied 70% 68% 66% 64% x } - a ALK om LL om SME satisfaction - total satisfied 65% 60% 85% 50% WBC. ow Bank X 45% + — oti Bank Z —® Bank Y 40% ~ Dec-01 Jun-02 Dec-02 Jun-03 so Z YZ. 5
Slide 12: Improved customer experience leading to increased market share
Improved customer experience leading to increased market share Australian market share — Aug 03. Sep02 .. Change RBA financial system % % (bps) aggregates Credit : Housing . 17.8 18.1 (30) Personal 12.3 ..10.9 140 Other (mainly business) 11.8. 10.4 140 Total credit 14.7. 138 90 Total deposits 13.5 1
Slide 13: Growth in our wealth products has also been solid
Growth in our wealth products has also been solid New business Product Market... Rank | Market Rank share share Retail a 9.7% — 5 ~ Outflow Corporate super) 5.4% 8 12.5% 3 Wrap & master trust 10.5% 5 11.8% 2 Life and risk 63% = 7 | 10.2% 4 Margin lending 15.3% 2 8.4% NA Sources: ASSIRT, Dexx&r and R
Slide 14: Execution — delivering on our commitments
Execution — delivering on our commitments Commitment Status Group —| Cash EPS guidance 7% to 9% Delivered 9.3% - October: 2002 Disciplined acquisition approach || Withdrew from NBNZ sale BT Deliver on. budgeted synergies Synergies upgraded and delivered Enhance investment performance. | Performance
Slide 15: Reputation/sustainability - enhancing returns
Reputation/sustainability - enhancing returns Sustainability - supporting the value chain Employees as 7 7 --A-company where people want to work An institution customers want to do business with Enhance sustainability of returns * Improved employees retention * Enhanced ability to attract quality st
Slide 16: The Details
AIfestpac Australia’s First Bank The Details. Philip Chronican Chief Financial Officer _ 30 October 2003
Slide 17: Earnings terminology — cash earnings
Earnings terminology — cash earnings Cash earnings - strips out hybrid distributions, adds back goodwill amortisation Reported - includes everything Underlying - removes individually significant items in 2002 Ongoing - adjusted for acquisitions and AGC divestment Focus on cash underlying, given: * S
Slide 18: Underlying cash earnings — full year
Underlying cash earnings — full year $m 2003 2002) chan ae Net operating income 7,330 - 6,664 10 Operating expenses (3,763). (3,452) (9) Goodwill (163) (100) (63) Bad debts (485) (461) (5) Net profit before tax : 2,919. 2,651 10 Tax ~~ (728) (635) (15) Outside equity interests : (8) (5) (60) Net pro
Slide 19: Underlying cash earnings — half on half
Underlying cash earnings — half on half $m 2H03.—_1H03 Change Net operating income 3,793 3,537 7 Operating expenses (1,906) - (1,857) (3) Goodwill ~ (85) (78) (9) Bad debts (271) (214) (27) Net profit before tax ; ~ 4,531 1,388 ~410 Tax (395) (333) (19) Outside equity interests (4) (4) - Net profit
Slide 20: Cash earnings up 10%
Cash earnings up 10% estpac Aust Cash earnings net of tax $m increase due 2,800 5 principally to growth in 56 | risk adjusted assets 2,600. 445 8" \ Le 106 \ 84 2,400 + aa 28 as 2,200 + 2,000.5 “Ongoing Expenses _ 5% Higher a Cash return 1,600.- / on ordinary Strong revenue | equity 21% 1,400 5 grow
Slide 21: Loan growth
Loan growth % Change $bn 2H03 1HO3.. 2H02 Sep 02 - Sep 03 Business Unit Consumer 87.3 “79.9 73.3 19 Housing! 79.9728. 66.4 20 Personal (loans. & cards) 7.4 TA 6.9 7 Business (excl. equip. finance) 27.2 25.5 24.5 11 Equipment Finance re-build 49 3.6 2.2 420 WIB 22.2 22.4 21.5 3 New Zealand Banking 21
Slide 22: Margin dynamics
Margin dynamics 2.90 9 bps 2.80.4 % 2.70 5 2.60 3 2.71 2.50 7 T T qt v T T T 2002 AGC 2002 Product Overseas Hybrids Free 2003 Adjusted margin funds decline estpac 22 Full year results 2003 ‘Austreila’s Pitst Bank:
Slide 23: Non-interest income analysis
Non-interest income analysis $m 3,000 2,800. 2,600 + 2,400 + 2,200 4 2,000 1,800 1,600 4 1,400 + 1,200. 1,000 = estpac ‘Austreila’s Pitst Bank: Sep-02 7 204 15 352 11 month contribution from BT Pick-up in fees and et stronger financial markets income 2HO3 AGC T T P'holder -. Ongoing ... BT/RAAM © Ha
Slide 24: Expense analysis
Expense analysis $m 2003 Change Salaries & other staff expenses 1,836 1,688 9 Equipment & occupancy 596 589 1 Other expenses 1,331 1,255 6 Operating expenses 3,763 3,452 9 Net impact of change in ~ (1s) s composition of business - Adjusted operating expenses | 3,615 3,452 5 estpac Full year results
Slide 25: Composition of expense growth
Composition of expense growth e estpac 2003 expenses were impacted by the change in Westpac’s business mix. Adjusting for this change, expenses rose 4.7% Other specific expenses are items previously identified as having a significant impact on 2003 cost growth. Adjusted expense growth includes the f
Slide 26: Expense to income
Expense to income _Group - expense to income? % 60 5 anking' — expense to. income % - : ~ 60 55 50 45 40 35 30 55. 50 4HO2 ~~ 2HO2-~1HO3 > 2HO3 - 45, | I) MI) ealth — expense.to income % 65 83 62 60 Ih 55 mT 50 45 40 35 30 40 1HO2 2HO2 1HO3 2HO3 1. Excludes AGC 2. Underlying earnings basis estpac Fu
Slide 27: Expense outlook 2004
Expense outlook 2004 * Expense growth in 2004 Cost efficiency pipeline expected to be lower than $m FYO4E FYO5F. FYO6E underlying expense growth for 2003 given: Outsourcing 8 17 17 ~ No further pressure from ; NZD/AUD exchange rate Wealth: 21 42. 42 integration . ; ~ Decrease in temporary staff | Le
Slide 28: Business and Consumer Banking
Business and Consumer Banking * Cash earnings up 15% * Expense to income down 270bps * Bad debt increase primarily due to dynamic provisioning for rebuild of equipment finance book * Additional FTE to support business growth estpac Aw $m 2003. 2002. -% Change Operating income 4,447 4,026 19 Operatin
Slide 29: Reacquisition AGC equipment finance portfolio
Reacquisition AGC equipment finance portfolio * Original reacquisition targets met — one year ahead of schedule * Cash earnings from the re- build of the equipment finance portfolio 2002 — 2003 $49.3m * Not a contributor to risk weighted asset growth * Remarketing agreement expires May 2004 estpac A
Slide 30: Mortgage portfolio characteristics
Mortgage portfolio characteristics * Market share of housing eased Australian Mortgage Portfolio marginally on strong volumes se : Proportion 90.5 of total - Owner occupied up 10% ey So 80 | 12% - Investment up 22% 70 5 * Funding for alterations and additions has resulted in equity access loans grow
Slide 31: Mortgages - broker introduced loans
Mortgages - broker introduced loans | Broker introduced loans (Proportion of total by value) 35 * 23% of outstanding mortgage portfolio is broker originated * Brokers introduced 31% of new loans in 2003 * Average size of loan is up to 15% higher than branch originated loan 30 25 20 * Same underwriti
Slide 32: Housing portfolio quality
Housing portfolio quality * Total bad debts less than 3 Mortgage insurance structure basis points portion of portfolio with initial LVR > 80% * Delinquencies at low levels 100% | Westpac Lenders | . Mortgage Insurance : | {Capital base $45m) | * 100% mortgage insurance where loan to value (LVR) rati
Slide 33: Housing portfolio quality
Housing portfolio quality * APRA stress testing confirmed overall industry strength * Westpac’s updated stress testing provides further validation * Increase in maximum losses previously estimated due to a lower base in key model variables - interest rates and unemployment rate * Capacity to absorb
Slide 34: Institutional Bank
Institutional Bank * Cash earnings up 40% | Cash earnings - * Net interest income up 19% + 250-4 driven by higher financial : markets income and high [2 203 margin structured finance deals 200 + 181 * Financial markets income | 450 up 29% 150.7 ae * Other operating income up 14% | with improved stru
Slide 35: Institutional Bank
Institutional Bank * Financial markets income | Financial markets income ithi Ah $m within expected volatility _ 300 bands i 200 + a 1504 * Impaired assets stable, bad (1005 = a = debts rose in 2H03 — 0 : . . woe i 4HO2 2H02 4HO3 2H03 increased provisions for a _ (0 Foreign exchange. i interest rate
Slide 36: New Zealand Banking
New Zealand Banking * Cash earnings up 11%" Cash earnings (up 14% in A$) | “200 eal 193 4188 * Performance improvement a 160) 138 program delivering: jae - Increased focus on Auckland | 40 market including relocation of =~ o4 i, = head office oN HO2 BHO THOS PHOS | - Boosting specialist sales force
Slide 37: NZ dollar impact
NZ dollar impact * Rolling 12-month focus — timing main impact * 2004 AUD/NZD hedge rate to be 1.11 compared to current market rate of 1.15 * Hedge gain/loss recognised in non-interest income impact on group financials (A$) spatharoid moet Operating revenue : +95m (42m) Operating expenses +42m Cash
Slide 38: BT Financial Group
BT Financial Group $m 2H03 1H03 2HO2 Operating income 322 290 166 Operating expenses — (196) (179) (104) Tax & outside equity interests — (22) (25) (12) Cash earnings 104 86 50 Goodwill — (35) (28) (2) Net prof after tax 69 58 48 estpac Full year vesults - 2003
Slide 39: Net retail FUM against acquisition model - BT
Net retail FUM against acquisition model - BT $bn @ Acquisition model ® Actual Oo 1 Sep.02..:Dec.02.°Mar-03.. Jun-03..Sep-03...Dec 03. Dec.04..Dec-05 Full year results - 2003 "s First Bank
Slide 40: Performance turnaround: Australian equities
Performance turnaround: Australian equities 1.2%. 0.8% 0.4% 0.0% -0.4% -0.8% -1.2% -1.6% -2.0% BM De SSP PP we ys y we of oo Ro & XS & we ee & ss Ml— Vionthly portfolio excess return (LHS) x Rothschild-Australian Equity Sector Trust vs S&P/ASX300 Accumulation Index S PoP S SoS Se? of —@ One-Year Exc
Slide 41: Continuing to over-achieve on synergies
Continuing to over-achieve on synergies BT Synergies - estimated and achieved 85 _ $m 140.5 Estimated synergies | 420 + @ 2003 actual achieved 116 Hf 2004 locked-in run rate 100 4 a 2003 2004 2005 estpac Full year results - 2003
Slide 42: Asset quality - forward indicators in good shape
Asset quality - forward indicators in good shape Housing Portfolio - 90 day delinquencies % ~ 1.6 0.38 O28 025 0.23 nas 0.5 0.0 + T T T T T T , 1 1996 .°°1997....1998..°1999.°.2000.°.2001.-: 2002 2003 Business Banking -.90 day delinquencies ye ; ane 2.5 2.0 91 15 1.0 0.51 0.5 0.0 1998 1999... 2000..
Slide 43: Bad debt analysis
Bad debt analysis $m 2H03°- 1HO3---- 2HO2 4HO2 Write-offs (133) -.(142)—-(171) (208) Net-transfer to/from specific (70) 47 (70) ee (102) provisions Recovery of debts previously W/O 27 47 35 49 Bad debt charge-off (176) (78) (206) (261) increase in general provision (95) (136) 16" (10) Net bad debt e
Slide 44: Stressed exposures remain near historic lows
Stressed exposures remain near historic lows | Categories of stressed exposures as a % of total commitments AGC stressed loans ; (1 Watchlist & substandard 18% SR PS samme — ji 90 days past due well secured ro M8 Impaired 1.2% : Poccostssrnp 0 Peacacgeacresqnocnacaterracuasvansccoopetsct 1 B% p---on
Slide 45: Provisioning cover
Provisioning cover | Specific provisions / impaired assets General provisions / non-housing i performing loans & acceptances —% % 60 ; 2.45 | 224 50 2.0 + 40 1.8.5 1.6 | | 30 ; 1.44 20 = T T T T T 1 1.25 1998 2000 2002 1.0 aa 1998 1999 - 2000. 2001...2002 -2003 “e-WBC 8" ANZ CBA -¢—NAB “WBC -@-ANZ a
Slide 46: Tax breakdown
Tax breakdown $m 2003 2002" Tax expense : 728 AT Tax expense as a % NPBT 24.9% 17.7% Adjustments : Policy holder tax recoveries = (7) 46 Normalised tax expense ~ 721 517 Normalised tax rate 24.7% 19.4% Effective tax rate inc gross up 31:7% 21.7% Sianiicant items inc gross up.and excl 31.7% 29.0% 1.—
Slide 47: New target capital ranges — ACE & Tier 1
New target capital ranges — ACE & Tier 1 New target ranges: Tier 4 6.00 — 6.75% ACE 4.50 - 5.00% * Maintain AA rating * Tier 1 further strengthened via hybrids: ~ FIRSTS Dec 2002 ~ TPS August 2003 * Average share count expected to rise in 2004 estpac Austral Capital ratios (quarterly) 9.0% 8.5% J 8.
Slide 48: Payout ratio has been rising through time
Payout ratio has been rising through time * Dividend growing at or above | Pevout ratio! ‘Go earnings: 657 - Cash EPS 9% - Dividends 11% * Payout ratio likely toincrease _— gg | near term * Medium term drivers of payout ratio: 55 ~ Cash earnings ~ Franking capacity ~ Organic capital requirements 504
Slide 49: Earnings guidance
Earnings guidance * Medium term earnings drivers, revised at July 2003 market update, are still appropriate * No additional earnings guidance or EPS forecast to be provided for 2004 or beyond * Westpac believes it is generally unwise to focus management on narrow range of outcomes * The regulatory e
Slide 50: A strong, broad based, high quality result
A strong, broad based, high quality result * Strong organic performance driven by revenue growth in all banking businesses and no one-offs * Continued tight expense management while growing investment * Robust loan growth with minimal margin deterioration * Credit quality high and provisioning cover
Slide 51: Outlook and summary
AIfestpac Australia’s First Bank Outlook and summary David Morgan Chief Executive Officer 30 October 2003
Slide 52: Economic environment
Economic environment ¢ Australia and New Zealand economic fundamentals sound momentum due to: ~ Solid domestic demand ~ Buoyant housing ~ Strong business sentiment * In year ahead activity will be boosted by an export recovery driven by the rural sector and a stronger global economy ¢ Interest rates
Slide 53: Credit growth
Credit growth * Credit growth expected to ease: Australian Credit Growth - Housing credit growth expected #2 Forecasts” to moderate from historic highs, but remain above the long-term = 29 average ~ Business credit growth to return + 20 to more normal levels as , ® economic activity recovers 84 3 44
Slide 54: Well positioned to maintain momentum
Well positioned to maintain momentum Established track record - Consistent growth / return mix - Disciplined financial management / low risk profile - Superior execution Well advanced in improving customer experience Clear sustainability in earnings Quality management team estpac Full year vesults -
Slide 55: Outlook
Outlook ¢ All businesses are in excellent shape ¢ Entering the 2004 year with good earnings momentum * Operating environment expected to be tougher but still accommodating ¢ Medium term earnings drivers previously provided * Outlook for 2004 remains positive estpac Full year 7esults - 2003
Slide 56: Westpac Full Year Results 2003
AIfestpac Australia’s First Bank Westpac Full Year Results 2003 David Morgan Chief Executive Officer Philip Chronican Chief Financial Officer — 30 October 2003