Anz Group Holdings Limited · ASX:ANZ
Anz — Australia and New Zealand Banking Group — H1 2008 Earnings Presentation
68 slides from Anz's earnings presentation, Apr 23, 2008
Slide 1: 2008 Half Year Results
For personal use only 2008 Half Year Results Australia and New Zealand Banking Group Limited 23 April 2008 Mike Smith Chief Executive Officer 1
Slide 2: Result Overview
Result Overview March 08 v March 07 For personal use only Cash* Profit Before Provisions (PBP) 11% Revenue 12% (13% FX adjusted) Credit costs - $980m $740m Headline profit - $1,963m 7% Cash* profit - $1,674m 14% Cash* EPS 16% Dividend Flat DRP Underwrite ensures we operate from position of strength
Slide 3: Very good underlying performance across divisions, offset by provisions
Very good underlying performance across divisions, Institutional offset by significant increase in provisions For personal use only Division Mar-08 v PBP ($m) Cash NPAT ($m) Mar-07 Personal 9% 1,218 11% 719 Institutional 18% 1,271 47% 405 NZ Businesses* 12% 692 NZD 6% 417 NZD Asia-Pacific^ 52% 271 4
Slide 4: Domestic credit cycle is turning, but impact likely mild
Domestic credit cycle is turning, but impact likely to be relatively mild compared to US and Europe Consumer arrears holding up well, Our higher credits costs are minimal For personal use only but higher interest rates and petrol relative to US and European banks prices likely to impact (estimated l
Slide 5: Strong funding and liquidity position, at a higher cost
We are maintaining a strong funding and liquidity position, but at a higher cost We have significantly increased Cost of funding the Mortgage For personal use only our liquidity portfolio portfolio has increased significantly $bn Cash and other Liquid Assets 90 day rolling 3mth BBSW to 3mth Internal
Slide 6: We are making good progress with our strategy
We are making good progress with our strategy For personal use only Despite legacy * issues in Institutional, we are making good progress with our strategy Institutional • PBP growth 18% OOururjourney journeytotobecoming becomingaaSuper SuperRegional Regionalbank bank Restore Jaws TRANSFORM TRANSFOR
Slide 7: 2008 Half Year Results - Peter Marriott, CFO
For personal use only 2008 Half Year Results Australia and New Zealand Banking Group Limited 23 April 2008 Peter Marriott Chief Financial Officer 7
Slide 8: Strong revenue and PBP growth, offset by increase in credit charges
Strong revenue and PBP growth, offset by significant increase in credit charges For personal use only Profit Before Provisions Scorecard 1H08 11% 452 (281) Volume Growth (740) - Lending 99 169 1936 - Deposits 99 12% 26% 138 1674 5% Interest Margin X 308% 17% Non Int. Income 99 -14% Expenses X Cash E
Slide 9: Very good volume growth on both sides of balance sheet
Very good volume growth on both sides of balance sheet For personal use only Lending and deposit growth Balance $bn Personal Division 6.3% 5.6% 12.3% 155.5 Lending Deposits 6.7% 6.7% 13.9% 69.8 Institutional 12.7% 20.0% 35.2% 98.9 Lending Deposits 14.2% 9.9% 25.5% 75.5 New Zealand (NZD) 7.5% 6.3% 14
Slide 10: Margins – more than meets the eye
Margins – more than meets the eye For personal use only “Mix” key driver of margin decline, Higher funding costs impacted which is why revenue growth remained margins, but stabilising strong bps 223.8 Includes 2.2% 2.0% 217.7 impacts of Re-pricing for (6.1) higher cost of higher cost of funds funds
Slide 11: Very strong growth in Other Operating Income
Very strong growth in ‘Other Operating Income’ For personal use only Good contribution across all Markets delivered strong results categories ($m) Contribution by ($m) # 26% / 20% markets business Trading 2%* 21% 11% 2,222 493 1,995 29 Sales 31% 1,770 1,583 406 398 1,309 15% ^ 19 265 359 11 1,237 1,
Slide 12: Most businesses delivering positive jaws and double digit revenue growth
Most businesses delivering positive jaws and double digit revenue growth Revenue For personal use only growth Insto. Asia: Revenue 69%, Expenses 33% (PCP) Retail Asia: Revenue 64%, Expenses 37% 30% Positive Jaws Small Bus Bank Investment & 25% Insurance Markets Revenue 55% Banking Products Corp Fina
Slide 13: Expense growth reflects significant investment in 2H07
Expense growth reflects significant investment in 2H07 Expense increases primarily from Asia Pacific FTE growth For personal use only increase in personnel costs reflects strategic focus PCP 12% HOH 4% 3776 32% 15 (9) (3) 2,667 24 Computers FX adjustments / Other Premises 181 2,567 73 Personnel 2856
Slide 14: We have further strengthened our Collective Provision
We have further strengthened our Collective Provision For personal use only Collective Provision charge $m Scenario Impact Reflects allowance for secondary 376 impacts of the market turmoil 125 Risk profile Driven by small number of downgrades in commercial property and broking segments 172 Lending
Slide 15: Overall portfolio in good shape, impacted by small number of problem accounts
Overall portfolio in good shape, impacted by small number of problem accounts Commercial IPs impacted by Lower Consumer IPs reflect For personal use only monoline exposure, but quality of consumer portfolio trending upwards Individual ($m) 415 Provision Charge 193 189 By Size Impact from 166 Monolin
Slide 16: Consumer credit quality still strong, but we remain alert
Consumer credit quality still strong, but we remain alert Cards portfolio mostly trending in For personal use only line with prior years Credit Cards >60 Days Arrears March increase exacerbated by timing of Easter 1.60% Total Intra-month Delinquency 1.40% (as a percentage of outstandings) 1.20% lost
Slide 17: Basel II impacts – reduction in RWA offset by APRA Tier 1 changes
Basel II impacts – significant reduction in RWA offset by APRA changes to Tier 1 capital Significant reductions to Tier 1 capital For personal use only 20,232 (716) (978) (359) 129 18,308 transitional relief Loss of AIFRS changes Capital” ded’n 50% of “Total Basel EL tax and CP deferred Other Tier 1
Slide 18: Strong liquidity and funding position maintained
Strong liquidity and funding position maintained during more difficult conditions Continuing to maintain a stable For personal use only Term Funding for 2008 and diversified funding base • Total term funding target - $25b* Group Funding profile – • Issuance to date - $16.7b (~$22bn with 1 Yr) March
Slide 19: Key Takeaways
Key Takeaways For personal use only Strong revenue and PBP growth, offset by significant increase in credit charges Strong revenue and PBP growth, offset by significant ¾ Record revenue growth, very good underlying increase inProvisions Profit Before credit charges Scorecard 1H08 11% Profit 452Befor
Slide 20: Additional Information
For personal use only 2008 Half Year Results Australia and New Zealand Banking Group Limited 23 April 2008 Additional Information 20
Slide 21: ANZ League tables
ANZ League tables Good PBP growth across businesses Impact of For personal use only (1H08 PCP growth) provisions 1H08 Sept-07 Revenue Expense % of group NPAT NPAT rank rank Business Growth Growth PBP Growth PBP ranking growth 1 - Institutional Asia 70% 33% 102% 2.6% 2 45% 2 - Retail Asia 64% 37% 85%
Slide 22: Personal: a very strong franchise
Personal: a very strong franchise A leader in customer satisfaction Number 2 in customer numbers For personal use only (Main Financial Institution: 6 months rolling*) (Traditional Banking customer share**) % 22% 85 Peer 1: 38.0% in Feb 08 18% 80 14% 75 10% Jun-04 Jun-05 Jun-06 Jun-07 Dec-04 Dec-05 D
Slide 23: Personal: Double digit revenue growth despite tougher environment
Personal: Double digit revenue growth despite tougher environment Continued strong revenue growth, higher For personal use only Strong income and PBP growth cost run rate from 2007 investments • Third year in a row with double digit revenue growth in the first half 14% 13% • Benefiting from high inv
Slide 24: Personal: good performance metrics across businesses
Personal: good performance metrics across businesses Small Business Banking (NPAT +23%) For personal use only Revenue growth • Lending up 58%, deposits up 13% (PCP) Revenue 55% • Market share gain 2.3% Positive Jaws Expenses 63% 30% Banking Products (NPAT +32%) • Strong deposit growth, growing 1.3x
Slide 25: Mortgages: FUM growth above system
Mortgages: FUM growth above system Loan to value ratios remain strong For personal use only Consistent channel mix 80% Mortgages Australia (Retail) (% flows by distribution channel) LVR at origination Mar-07 60% LVR at origination Mar-08 40% Current LVR Mar-07 Sales FUM Current LVR Mar-08 22% 19% 16
Slide 26: Consumer Finance: Solid FUM & acquisition growth, sound credit quality
Consumer Finance: Solid FUM & acquisition growth, sound credit quality Solid FUM growth for cards and … despite tighter scorecards, which is For personal use only personal loans… also leading to lower arrears Consumer cards 30 day arrears: Index as of FY05 10.4% Index Lower arrears since 100 07 refl
Slide 27: Current financial environment benefiting Banking Products
Current financial environment benefiting Banking Products, impacting Investments and Insurance Products Banking Products Markets turmoil impacted financial For personal use only growing FUM across all products… planner volumes in recent months +13.1% (Managed investment gross flows Dec-06 index = 10
Slide 28: Institutional: Record revenue and PBP growth
Institutional: Record revenue and PBP growth Revenue growth (PCP) Expense growth (PCP) For personal use only 16% 12% 12% 12% 9% 7% 6% 5% 5% 5% -1% -0.2% 0.4% -1.0% 1H02 1H03 1H04 1H05 1H06 1H07 1H08 1H02 1H03 1H04 1H05 1H06 1H07 1H08 PBP growth (PCP) Cost to Income 18% 36.9% 38.7% 11% 35.9% 10% 9% 3
Slide 29: Institutional: Very good PBP momentum offset by higher provisions
Institutional: Very good PBP momentum offset by significantly higher provisions Business Unit performance Performance by region For personal use only PBP growth PBP growth (1H08 vs 1H07) (1H08 vs 1H07) 28.1% % of 20.5% 22.0% 72% 13% 4% 11% 18.0% total PBP 15.7% 73.0% -112.0% 22.1% 12.4% 4.8% Working
Slide 30: Institutional: Strong lending growth and income from specialist businesses
Institutional: Delivering strong lending growth and income from specialist businesses For personal use only Markets strong revenue … with growing Opportunities in current economic growth… offshore contribution environment supporting solid lending ($m) growth Institutional, Corporate and Financial $4
Slide 31: Institutional: Global downturn impacting provisions
Institutional: Global downturn impacting provisions although overall portfolio quality still sound Significant increase in Collective Provisioning And significant increase in Individual For personal use only resulting from volume growth and global Provisions primarily from 2 single name financial an
Slide 32: Business Banking: Good quality lending growth
Business Banking: Good quality lending growth and well managed business expansion Good FUM growth on both sides … with well managed credit For personal use only of the balance sheet… quality… (Average probability of default) Lending+15% Lending 1.86% 6% 1.85% 1.84% 16.8 17.8 14.8 15.4 11.8 12.5 13.0
Slide 33: Institutional Relationship Businesses: Strong relationships driving revenue growth
Institutional Relationship Businesses: Strong relationships driving revenue growth Leading customer ...commitment to growing For personal use only relationships... customer relationships… (Institutional Relationship Business FTE) Institutional No. 1 Relationship bank¹ 682 70 68 582 593 597 64 60 54
Slide 34: Asia Pacific – higher investment delivering returns
Asia Pacific – higher investment delivering returns Investments driving strong We have been investing in The business is For personal use only revenue & PBP growth the organic business as well becoming more balanced as partnerships geographically $m Exp $m Invt $m 500 2000 North North 600 21% Asia +
Slide 35: Institutional Asia: recent investments have paid off
Institutional Asia: recent investments have paid off in both organic & inorganic growth Revenue has increased, … with growth across all …achieved through investment For personal use only resulting in higher PBP… product lines… in front office staff to boost product capability & sales $m strength 200
Slide 36: Retail Asia: strong returns from investments in last half
Retail Asia: strong returns from investments in last half Strong overall results with jaws Full half contributions Moving towards a deeper For personal use only of 27% from AMMB & SRCB have customer targeted business driven NPAT growth $m $m 200 100 • We will focus on the target +64% customer segmen
Slide 37: Pacific: investments in distribution and transformation
Pacific: investments in distribution and transformation driving solid revenue growth 18% PBP growth with increased Notwithstanding good gains NPAT growth in the key For personal use only investment in additional in the Institutional business geographies of PNG & Fiji distribution and centralisation
Slide 38: New Zealand Businesses: good performance in a challenging environment
New Zealand Businesses: good performance in a challenging environment Robust profit before For personal use only …driven by strong balance provisions growth… sheet growth NZD m PBP 12% NZD b Lending 14% NPAT 6% Deposits 11% 692 85.5 618 74.8 395 417 47.0 42.4 1H07 1H08 1H07 1H08 PBP NPAT NLA Custome
Slide 39: New Zealand Businesses: double digit PBP growth
New Zealand Businesses: double digit PBP growth New Zealand Banking (14% PBP growth pcp) For personal use only New Zealand Businesses (12% PBP growth pcp) % Growth pcp 9% NZD m 224 PBP 1H08 24% NPAT 1H08 194 14% 11% 163 (2%) 11% 150 128 12% 129 7% 17% 95 90 85 16% 56 50% 31% 30 17 ANZ Retail Nationa
Slide 40: All businesses delivering positive jaws
All businesses delivering positive jaws • Overall Cost to Income ratio has fallen For personal use only 240 basis points (pcp) to 46.0% (for Revenue NZ Geography down 200 basis points growth (pcp) to 44.1%) with the portfolio of (pcp) businesses being managed to meet Positive Jaws changing market co
Slide 41: Good balance sheet growth across all businesses
Good balance sheet growth across all businesses Retail: Strong volume growth Rural: Growth reflects UDC: Excellent For personal use only relative to market* premium franchise performance in a NZD b tough environment 6m growth annualised 23% 35% NZD b 20% ANZN Market 16 18% 13 2.3 2.0 15% 1.7 1.7 10%
Slide 42: INGA: solid performance during volatile market conditions
INGA: solid performance during volatile market conditions Operating profit growth from life income Tough market conditions For personal use only ($m) contributing to 1H08 FUM decline* 22 11 ($b) 23 133 (3) 141 110 Expenses & Funds Mgt 2H07 op Life Risk 43.8 46.0 43.9 income income 38.8 profit tax 1H
Slide 43: Margin Analysis
For personal use only Margin Analysis 43
Slide 44: Group HOH margins down 15.4bps on headline basis
Group HOH margins down 15.4bps on headline basis Funding and asset mix Funding Portfolio Mix bps For personal use only negatively impacting reported margin -0.3 -0.8 bps customer (2H07 - 1H08) deposits funding w/sale -3.5 214.6 (1.4) 213.7 (4.6) funds Free (4.3) Accounting noise (6.6) Asset wholesal
Slide 45: Personal: margins impacted by mortgage competition
Personal: margins impacted by mortgage competition Mortgages key driver of For personal use only Negative net wholesale rate and increased competition driving PCP decline competition (1H07 – 1H08) (competition impact on Personal Division Margin 1H07-1H08 bps) bps 0.9 0.3 -0.2 -0.3 Cards -1.3 Other b
Slide 46: Institutional: margins impacted by accounting noise
Institutional: margins impacted by accounting noise Fees were the major driver of For personal use only Excluding accounting noise, PCP margin competition decline represents 12.4bps (competition impact on Institutional Division (1H07 – 1H08) bps Margin 1H07-1H08 bps) bps -0.3 -0.3 -0.2 -1.0 R’Ship L
Slide 47: New Zealand: competitive pressures driving product mix
New Zealand: competitive pressures driving product mix Components of competition impact For personal use only Competition more than offsetting (competition impact on New Zealand Margin wholesale funding benefits 1H07-1H08 bps) (1H07 – 1H08) 2.2 0.3 bps -0.3 -0.4 offset NZ Funding cost Cards -1.9 -1.
Slide 48: Basel II and Capital
For personal use only Basel II and Capital 48
Slide 49: Capital levels at top end of our range
Capital levels at top end of our range For personal use only 2007 DRP underwrite supported Basel II and 1H08 DRP underwrite high RWA growth will further strengthen Tier 1 Ratio (Tier 1 ratio – Basel I) (Tier 1 Ratio - Basel II) Interest rate risk in “banking book” will reduce capital 0.60 (0.26) (to
Slide 50: Under Basel II, capital ratios will be pro-cyclical
Under Basel II, capital ratios will be pro-cyclical Drivers of Capital For personal use only Economy Earnings Strong v Weak Profit before provisions - Individual provision - Collective provision function of Volume, PD, LGD etc = NPAT Deductions Basel EL (Volume, PD with floors, Stressed LGD, Term) v
Slide 51: Basel I vs. Basel II Comparison
Basel I vs. Basel II Comparison March 08 For personal use only BI RWA BII RWA BII RWA/ Basel II Asset Class BI RWA BII RWA BI $M $M Exposure Other Retail 10,147 8,649 100% 73% 85% Retail Mortgages 86,300 37,861 53% 21% 23% Retail Cards 6,732 6,753 100% 39% 100% SME Retail 15,798 7,848 100% 41% 50% S
Slide 52: RWA highly sensitive to risk grade changes under Basel II
RWA highly sensitive to risk grade changes under Basel II Impact of one notch downgrade For personal use only on RWA for $100 loan $ 100 RWA 91 80 66 38% 60 40 20 0 BBB- / D BB / D Credit Security indicator Rating A B C D E F G PD Very Low High AA 0.02% 3% 7% 11% 14% 17% 21% 22% A 0.06% 5% 10% 16% 2
Slide 53: Expected Loss numbers under APRA version of Basel II
Expected Loss numbers under APRA version of Basel II very different to ELP methodology For personal use only $m 3,000 Impacted by range of different assumptions, including assumed probability 2,500 of default on mortgages of 1.25% 2,000 Principally due to use of “downturn” LGD’s, assumption of 100%
Slide 54: Credit Quality
For personal use only Credit Quality 54
Slide 55: Breakdown of collective provision charge
Breakdown of collective provision charge 1H08 Collective Provision charge For personal use only Asset Growth Risk / Mix Business Unit (A$m) Eco-cycle Other* Total impact impact# Group 131 151 125 (31) 376 Institutional (excl. BB) 74 142 105 (12) 309 Business Banking 5 (4) 20 (2) 19 Personal (excl Co
Slide 56: Non Performing Loans and Days Past Due Loans
Non Performing Loans and 90 Days Past Due Loans Impaired Assets New & Increased Impaired Assets For personal use only Non Performing Commitments, Number of New Impaired Assets >$1m # of loans Contingencies and Derivatives New Impaired Assets (RHS) $m $m 353 50 1400 40 1200 76 1000 109 126 30 37 800
Slide 57: Risk grade profiles
Risk grade profiles Group – Gross Lending Assets Institutional Banking & Financial For personal use only Institutions Risk Grade Migration Summary BASEL I by Customer Groups (1H08) # BASEL II* Upgrade $286bn $308bn $339bn Downgrade 12 12 8 AAA to 10.2% 11.2% 5 2 BBB 4 6 7 4 12 52.4% Finance & Manuf
Slide 58: Consumer credit quality remains strong
Consumer credit quality remains strong, benefiting from current economic environment Consumer arrears holding up well, but Bankruptcies stabilising For personal use only higher interest rate and petrol prices (Bankruptcy numbers by state) likely to impact 4,000 1.6% NSW/ACT VIC/TAS QLD SA/NT WA 3,00
Slide 59: However preemptive credit tightening has already begun
However preemptive credit tightening has already begun Historically, 18mth lagged DSR has been a For personal use only Initiatives implemented to maintain strong indicator of loss rate performance credit quality in tougher conditions (Loss Rates (RHS) index Oct 92 = 100) • Selective acquisition tigh
Slide 60: New Zealand: day arrears up but well secured
New Zealand: 90 day arrears up but well secured NZD m 90 days past due is largely in • A significant increase in arrears, off For personal use only 200 the secured portfolio very low levels, reflects increased 160 pressures on household cash flows. • The rise in arrears is largely in the 120 secured
Slide 61: Commercial Industry exposures – Group
Commercial Industry exposures – Group Commercial Property Agriculture, Forestry & Finance & Insurance For personal use only 35bn 12.0% Fishing 35bn 12.0% 35bn 12.0% 30bn 10.0% 30bn 30bn 10.0% 10.0% 25bn 25bn 25bn 8.0% 8.0% 8.0% 20bn 20bn 20bn 6.0% 6.0% 6.0% 15bn 15bn 15bn 4.0% 4.0% 4.0% 10bn 10bn 10
Slide 62: Commercial Industry exposures – Group
Commercial Industry exposures – Group Mining Accommodation, Cafes Electricity, Gas & For personal use only & Restaurants Water Supply 35bn 12.0% 35bn 12.0% 35bn 12.0% 30bn 10.0% 30bn 30bn 10.0% 10.0% 25bn 25bn 25bn 8.0% 8.0% 8.0% 20bn 20bn 20bn 6.0% 6.0% 6.0% 15bn 15bn 15bn 4.0% 4.0% 4.0% 10bn 10bn
Slide 63: Corporate Responsibility
For personal use only Corporate Responsibility 63
Slide 64: Taking a responsible business approach
Taking a responsible business approach to the challenges and opportunities we face For personal use only Creating a culture Improving Enhancing Reducing our of out-performance financial literacy, customer service environment & inclusion inclusion and and responsible footprint amongst savings lending
Slide 65: Creating an Outperformance Culture
Creating an Outperformance Culture March 2008 census shows solid Organisation direction is developing a For personal use only employee engagement level at 62% culture of performance Global Financial Services 2007 (60%) Re-energising our people New growth ANZ Overall 2008 (62%) through an out perform
Slide 66: Diversity @ ANZ
Diversity @ ANZ For personal use only key focus Key outcomes to date Chairing ANZ’s Diversity Council: •Develop and track ANZ’s global 2008 - 2010 diversity • Members of Diversity Council appointed with first meeting held Mar strategy ‘08 •Increase the cultural, ethnic and gender diversity of • Disc
Slide 67: Summary of forecasts: Australia and New Zealand
Summary of forecasts: Australia and New Zealand New Zealand For personal use only Australia 2007 2008 2009 2010 2007 2008 2009 2010 GDP 3.6 2.9 2.5 2.6 2.7 2.1 0.7 2.0 Inflation 2.4 3.5 2.9 3.1 1.8 3.7 2.7 2.4 Unemployment 4.4 4.2 4.6 4.8 3.5 3.9 4.5 4.9 Current A/C -5.8 -4.7 -4.3 -5.9 -8.4 -6.5 -6.
Slide 68: For personal use only
For personal use only 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 p
Australia and New Zealand Banking Group — H1 2008 Earnings Presentation on 6ix