Westpac Banking Corporation · ASX:WBC
Westpac Banking — FY2004 Earnings Presentation
50 slides from Westpac Banking's earnings presentation, Nov 8, 2004
Slide 1: 2004 Full Year Results
Wifestpac Australia’s First Bank 2004 Full Year Results David Morgan Chief Executive Officer Philip Chronican Chief Financial Officer 8 November 2004
Slide 2: A strong, high quality result
A strong, high quality result * Strong top line * Strong bottom line * Balance across the business ¢ Balancing growth and return * Providing for known risks * Investing in the future * Consistency and momentum All comparatives on prior corresponding period revenue growth up 9% cash earnings up 13% a
Slide 3: Strong momentum across the group
3 Strong momentum across the group 1,600 5 1,400 1,200 5 | 1,000 -| | 800 + 600 + 400 + 200 5 05 | Cash earnings by business unit ($m) Revenue.and expense performance ($m) 8,500 7 | 7,500 4 | 6,500.4 | 5,500.7 | 4,500 4 | 3,500.5 | 2,500 5 Growth 5yr Avg ©2004 =@= Revenue 7% 9% —H-— Expenses. 3% 8%
Slide 4: Consistently delivering strong growth and returns
4 Consistently delivering strong growth and returns | Economic profit ($m) 1,800 7 1,600 + 1,400 + 1,200 + 1,000 + B00 - LO o:..8 6.:6 4 1 T T 1999 2000.2001.2002* 2003 2004 : * Assumes 2H99 dividend was fully franked 4 Underlying EP excludes significant items in 2002 | Company Westpac “ANZ Commonwe
Slide 5: Disciplines maintained — no distractions
Disciplines maintained — no distractions Strategic discipline - Maintained focus on areas generating the greatest value - Demonstrated track record in M&A ¢ Operating discipline - Strong spread performance in face of competitive environment ¢ Using expense capacity to drive revenues * Bad debts outc
Slide 6: Service / profit chain dynamics are delivering
Service / profit chain dynamics are delivering | Leadership (%) Consumer satisfaction (%) | Westpac senior leadership provides a clear % of main financial institution customers. very or fairly | sense of direction - % favourable satisfied quarterly moving average 80 J 75 5 : —=WBC onan Peer Avg (70.
Slide 7: Sustainability — creating real value
Sustainability — creating real value * Improved brand equity and GovernanceMetrics employee commitment International — one of 22 ploy (out of 2,100) companies globally to achieve a top 10.0 score for corporate governance * Attracting new shareholders to the register * Sustainability position helping
Slide 8: BCB — profitable growth momentum
BCB — profitable growth momentum ¢ Substantial improvement in returns — cash earnings up 16% * Continued success in business lending - up 15% * Substantially enhanced customer satisfaction - Business banker roles - Extended opening hours - Additional Ask Once co-ordinators * Retail deposit share up
Slide 9: New Zealand — repositioning delivers growth
New Zealand — repositioning delivers growth * Cash earnings up 10% (NZ$) * Benefits from repositioning the business - Improved lending growth, particularly housing - Increased brand awareness * Momentum in all key segments ¢ Effectively managing margins in a competitive market | NZ Housing market sh
Slide 10: Institutional Bank — reclaiming lead bank status
Institutional Bank — reclaiming lead bank status ¢ Transformation program on bank relationship* (%) delivering 1 36 | @ 2003. -m 2004 * | 2 a * New income streams 304 2" established (Specialised 25 Capital Group) | 20 | ¢ Enhanced risk profile | 15.) 10.4 SE. § 38 of 8 mm Oo a. wz So iz @ £2 2 acme
Slide 11: BT Financial Group — sustained improvement
BT Financial Group — sustained improvement * Integration virtually complete (Gore fund flows ($m) - Ontime | 500 0 - Ahead on synergies | $00 * Sustained fund performance ee improvement and ratings | 2000 Source: BT Internal data upg rades i Dec-02 Mar-03. Jun-03 Sep-03 Dec-03 Mar-04 Jun-04 Sep-04.
Slide 12: Consistently returning value to shareholders
Consistently returning value to shareholders * Consistent dividend growth - No franking constraints - High, sustainable pay-out * Track record of actively managing capital base * Over 5 years, on average $630m per annum of shares repurchased via buy-backs Dividends per share (cents) 36 | 26. 1HOO 2H
Slide 13: The Details
Wifestpac Australia’s First Bank The Details Philip Chronican Chief Financial Officer 8 November 2004
Slide 14: A revenue driven result
A revenue driven result _Movement.in cash earnings ($m)* 2,800.5 | 2,700 - | 2,600 - | 2,500 - | 2,400 | | 2,300 - | 2,200 - — 2,100.- 2,000 - 2,271 2003 412 53 ee (133) (44) Revenue Expenses Bad Debts Tax 2004 * Tax-effected and excluding outside equity interest 14 2004 Full Year Results Aifestpac
Slide 15: Loan growth robust
Loan growth robust % Change’ $bn 2H04 1H04 2H03 _. . 2HO3-.... 1H04 ¥ 2H04 2H04 Business Unit Consumer (Australia) 99 92 89 11 7 Housing 92 88 82 12 5 Personal (loans & cards) 7 7 7 5 0 Business (incl. equip. finance) 36 33 32 15 9 Westpac institutional Bank 26 23 22 15 13 New Zealand ($NZ) 28 27 25
Slide 16: Analysis of margin movements
Analysis of margin movements Group margins FY03 — FY04 (%) 27-5 Spread decline — 12 basis points | (bps) ys shoe 3bps 2.53% ‘os (bps) | ——as | (1bps) (6bps) 244 23 Ty T T T T T. T T T 2003 Asset. Asset mix : Liability. Funding. Hybrids --.. Other. Free funds -.2004 spread spread/mix .-:mix Aifestpac
Slide 17: Second half margin analysis
Second half margin analysis | Group margins 1H04 — 2H04 (%) 274 Spread increase 1 basis point i bps 2.56... Obps dbps Obps -... Obps i bps los | (pes) 2.50% | (7bps) (24+ 23 T T T T T T T T T 1HO4 Asset . Asset mix . Liability. Funding Hybrids.>. Other..-Free funds . 2H04 spread spread/mix.: mix Aif
Slide 18: Non-interest income analysis — year on year
18 Non-interest income analysis — year on year | Non- interest income ($m) 2004 Full Year Results (3,300.5 nea aT 8288 (3,250 - a = | 3,200 a 130 3,176 | 3,150 | 3,100.5 4 Ea 3,050 © 3004 (15) a 3,000 a HH r- 2,950. = 2 3 x © @ re ee. Neer ds s iS s © s& SF < s&s é e & & w x Ce © AS NS S R Ss S$ SS
Slide 19: Non-interest income — second half
Non-interest income — second half Non- interest income ($m) 1,800.- 18 (14) 27 4,746 1,700.- —_—= = he 1,600. - 1,500 - 1,400 7 T T T Nee be No é e & eS < “ & oR Aifestpac 19 2004 Full Year Results Australia’s First Bank
Slide 20: Expense to income — comfortably under 50%
20 Expense to income — comfortably under 50% 60 55, ‘Banking — expense to income % 2H02 1HO3 2HO03 s2 50 49 49 50 45 40 35, 30 = T T T 1HO4 2HO04 Total Wealth — expense to Income % HO2 4HO3 2403 Lili 1HO4 2HO4 _ Group - expense to income % 60.5 55.5 a 48.8% 53 51 - 50 | 50 45 40 4 35.4 30. 2H02 1HO3
Slide 21: Expenses — continued tight management
Expenses — continued tight management %| *« Strong revenue growth Change) —_ enabled an increase in 2004 investment spend leading cost growth to top of target range $m 2004. -.2003 Operating expenses .. -. 3,940 3,763 4.7% « What we absorbed: EPIC (22) - Compliance spend $12m Unit Trusts (3) - Proje
Slide 22: Deferred expenditure trends
Deferred expenditure trends Deferred expenditure — ($m) 400 - 350 - 300 | (250. (200 | 150 - “100 - 60 0 2HO03 1H04 2H04 @ Deferred acquistion costs @ Other deferred expenditure Deferred expenditure increased 15% over year - Higher mortgage broker fees from increased volumes ~ Capitalisation of 3rd
Slide 23: Movements in capitalised software
Movements in capitalised software ior j ‘ Amort- * Major investments in Capitalised software - | isation| —Sep| — Sep Reach, Pinnacle and the major projects $m eriod | 2003 | ~ 2004 ank Platt th = One Bank Pp at orm are e Loan process re- 3 45 76 major contributors to the engineering (Pinnacle) incr
Slide 24: Bad debt trend analysis
Bad debt trend analysis Total bad & doubtful debt charge to average loans and acceptances (basis points) §0.5 : . : 455 40 35 y= 30 25 20 5 15 10 2003 2004 1995 Westpac 24 2004 Full Year Results Australia’s First Bank
Slide 25: Bad debt component analysis
25 Bad debt component analysis Group, bad 2003] — 2004 Dynamic zai] 82 Net specific 53 131 Write-offs 275 274 Recoveries (74) (73) Total 485 414 Conversion of DP charge to new specific in WIB $37m $335m reduction in watch list and sub- standard loans Factor change reduced DP charge in 2004 by $27m N
Slide 26: Stressed loans lower
26 Stressed loans lower Categories of stressed exposures as.a-% of total commitments (%) 1.6.5 . $3,601* (Cl Watchlist & substandard 44.1 $2,727" ™@ 90 days past due well secured . ig Impaired 42- $2,598 : f $2,623* $2,667* 1.05 2,401* 08 - 2240 0.6.4 0.44 0.2 4 0.0 — eed T en *, . Sep 99 Sep.00 Sep
Slide 27: BCB — strong top-line growth
BCB — strong top-line growth $m 2003-2004 %| * Strong asset growth Change ¢ Solid margin performance Ne eres! 3,043 3,423 12 * Non-interest income Non-interest 4 993 4 307 1 suppressed by change in Income interchange fees in 1H04 Operating exp. (2,361).-(2,471) (5) ° Expenses incor porate continued
Slide 28: Household credit — delivering profitable growth
28 Household credit — delivering profitable growth * Mortgage portfolio grew 12% * Other personal lending up 5%, strong credit card growth partially offset by lower personal lending * Strong spread performance particularly in the second half * Mortgage growth below system partly due to: - Holding th
Slide 29: Institutional Bank — improved performance
29 Institutional Bank — improved performance $m 2003-2004. Change Operating 1,121 1,236 10 income Operating exp. (472) (553) (17) Core earnings 649 683 5. Bad debts (107) 5 105 Tax & OEl (158) (207) (31) Cash earnings 384 481 25 Solid revenue growth 10% Financial markets softer Higher expenses from
Slide 30: Financial markets - enhancements underway
Financial markets - enhancements underway ¢ Financial markets result consistent with expected volatility, although recent performance has been below average « Measures to improve performance implemented: - Changes to coverage of interbank markets - Operational changes ¢ Higher return for risk taken
Slide 31: BTFG - good momentum
31 BTFG - good momentum $m 2003 2004 % Change Operating 571 628 10 income Operating exp. (354) (378) (7) Core earnings 217 250 15 Tax & OEl (48) (54) (13) Cash earnings 169 196 16 ° Improved momentum from stronger funds flows - Funds under management boosted by market performance - Strong Wrap and c
Slide 32: Growth in wealth products remains strong
Growth in wealth products remains strong ; Share of new Current Australian market share ; business Market Market share Product share (%) Rank (%) Rank Retail 8.0 5 4.0 9 Corporate super 6.5 5 15.4 4 Wrap and master trust 10.7 3 17:5 2 Life and risk 6.7 7 10.3 4 Margin lending 13.6 2 4.8 n/a Broking
Slide 33: BTFG integration largely complete
33 BTFG integration largely complete ¢ Project delivered on time and | Synergies (expense and revenue) ($m) ahead on synergies | | 140 5 O Synergies estimated at acquisition * $96m in synergies achieved in | Updated estimated synergies 2004 - $48m more than originally 120.) A*talsynergiesachioved 11
Slide 34: BTFG synergies reconciliation
BTFG synergies reconciliation * $42m in incremental 2004 BTFG Expenses ($m) synergies in 2003-04 2003 expenses’ 369 * $39m expense synergies During 2004 e Organic growth includes: Integration synergies realised (39) Investments in integration 9 - Wage increases Increase in share.of group ~ Cost incr
Slide 35: New Zealand — earnings back on growth path
35 New Zealand — earnings back on growth path NZ$m 2003 2004 % Change Net interest 838 893 7 income Non-interest 422 462 9 income Operating exp. (620) (653) (5) Core earnings 640 702 10 Bad debts (54) (41) 24 Tax & OE! (177) (210) (19) Cash earnings 409 451 10 Strong loan growth up 15% Non-interest
Slide 36: Pacific Banking — continued solid contribution
36 Pacific Banking — continued solid contribution $m 2003 2004 % Change Net interest 74 72 4 income Non-interest 61 67 40 income Operating exp. (51) (51) ~ Core earnings 81 88 9 Bad debts 2 (2) Na Tax & OEI (25) (30) (20) Cash earnings 58 56 (3) Presence in 7 Pacific Island Nations Remains a valuabl
Slide 37: Group business unit — managing the risks
37 Group business unit — managing the risks $m 2003 2004 % Change Operating 111 58. (48) income Operating exp. (6) 101°. Large Core earnings 105 159 51 Bad debts (14) (40) . (Large) Tax 137 95 (31) Other equity (75) (154) ~ (Large) dist 2004 TPS. na 10 na Cash earnings 153 70 (54) No change to compo
Slide 38: Strong capital position maintained
38 Strong capital position maintained | Movements in ACE" ratio (%) Target ranges (7.00.5 462 bps ACE: 4.50 — 5.00% 6.50 ; Tier.1: 6.00.— 6.50% 6.00 4 23 bps | (100 bps) Lad 5.05% [5-80 : (36 bps) i ‘6.00 iy (50 bps) 4.82% 450 | (22 bps) 400 1 Sep-03 Cash. Dividends «-.. DRP/.... Buy backs - RWA Oth
Slide 39: Higher dividend — sustainable payout ratio
Higher dividend — sustainable payout ratio ¢ Fully franked dividend increased 10% over the year * Sustainable 62% pay-out in line with illustrative analysis and 11% RWA growth scenario ¢ Capital utilised and dividend payable sees ACE ratio in middle of target range * Resolution of IFRS impact requir
Slide 40: New Zealand — status on regulatory issues
New Zealand — status on regulatory issues 1--| Corporate Status Buttressed branch proposal before RBNZ 2.| IBM Outsourcing Migration of mainframe on hold while RBNZ considers conformance with emerging outsourcing policy 3.-| Tax in dispute over past transactions Forward position resolved 4 | NZ Clas
Slide 41: Known influences on 2005 earnings
41 Known influences on 2005 earnings Medium term Specific influences in 2005 ranges (%) * -Lower.credit growth Interest 5-8 *Income loss from NZ structured finance. Impact expected to be Income $20m to $40 in 2005 depending on alternative transactions * Continuing competition — particularly in depos
Slide 42: A balanced, high quality result
A balanced, high quality result Result has both quality and balance Business risk profile improved over recent years -~ AGC sale in 2002 -~ Abandoned embedded value accounting — Reduced offshore institutional credit exposures — Consistent and rigorous approach to credit provisioning Result confirms
Slide 43: Outlook
Wifestpac Australia’s First Bank Outlook David Morgan Chief Executive Officer 8 November 2004
Slide 44: Economic outlook remains supportive
44 Economic outlook remains supportive ¢ Australia and New Zealand economic fundamentals sound: - Solid domestic demand - Low unemployment Key economic indicators Financial year ended Sep .04-°Sep 05 % Q, %, World (Calendar year) ¢ Business surveys continue to GDP 4.5 4.0 paint a positive outlook *
Slide 45: Credit growth returning to long term trends
Credit growth returning to long term trends Australian credit growth (%) Forecasts (To Sep. 2008) 24.5 24 | Sep-90 . Sep-92 Sep-94. Sep-96 Sep-98 Sep-00. Sep-02- Sep-04 ——— Housing = Business «««« Total credit average °° ----- Total Housing average Total (Aust) Source: RBA, Westpac | Westpac 45 2004
Slide 46: Upside potential remains across the business
46 Upside potential remains across the business ¢ Fully tap cross sell opportunities within our strong customer franchise ¢ Enhance sales effectiveness to rebuild mortgage share ¢ Deliver stronger fund flows in BT given the sustained improvement in investment performance post integration distraction
Slide 47: Experienced and energised executive team
47 Experienced and energised executive team David Morgan Chief Executive Officer Mike Pratt Group Executive Business & Consumer Banking David Clarke’ Chief Executive Officer BT Financial Group Philip Chronican Chief Financial Officer Phil Coffey Group Executive Institutional Bank Michael Coomer Grou
Slide 48: Westpac's in great shape
Westpac’s in great shape * Delivering strong top-line and bottom-line returns * Robust financial position - Business portfolio de-risked - Capital position optimised - Well provisioned * Growing track record of delivering upper end earnings performance Aifestpac ustratia’s First Bank 48 2004 Full Ye
Slide 49: Positive outlook
Positive outlook * More challenging environment * Asset quality remaining first class * Good earnings momentum across all businesses * Continue to deliver strong results at the upper end of the sector Aifestpac 49 2004 Full Year Results Australia’s First Bank
Slide 50: 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