Bank Of Queensland Limited · ASX:BOQ
Bank Of Queensland — FY2004 Earnings Presentation
47 slides from Bank Of Queensland's earnings presentation, Oct 14, 2004
Slide 1: LGU
ee . LGU ey ee Ri oy i CAR a. Lo Te ee LD gee Ls 7 Ei Vipts Be We Sey Le 7 LE ey SSSI SIU SARTRE ET ENS ITH ELIYA DUIS RUE RU SR DL We Vee - LIES Ts iB ye Le ee Fe Te . Yo, ban Pe ye 7 oh Le ae Fes Le Ney Te) y Ly Eo, Ly DOU ey ye Bie ey Le Ley ee Ly ] : | fe 7 a 7 y Lg La TES VL Le G Ve Lae ee ee -
Slide 2: YL ee s
YL ee s Wee ye ee Ey ey, 7, Vos Ae Le Le ae eye LESAGE KE ee ey De Gy Te ee oe ay Ly a 1 Be Ley Lo _ LD _ | Le ee ay i: a ee Lo oo oO 7 oo = ES BG Ly, qe a LG Lee i 7 Ne _ 7 Lo yy . ML es oe Ce ie BET 7 Ree oe De ee Lee ee EEE LILLE IIS: ue Lay ee ay Wee aa y Le y Le LIAISE LSS Sy III.
Slide 3: Result Highlights
Result Highlights A record full year net profit $64.5m $44.7m Mm44% Net profit excl. significant items $61.7m $44.7m W&38% Loan Approvals $7.8b $5.7b Ax 38% Assets Under Management $12.5b $8.7b Ar 43% Retail Deposits $4.9b $3.86 27% Full-year dividend 43¢ 37¢ = 16% Operationally, a year of significa
Slide 4: Report Card for the Year...
Report Card for the Year... growth > Double digit EPS Growth , > Cost to income ratio of 64% > ROE of 14% y > Continued distribution U footprint expansion 4 Assets under management up 43% deposits up 27% - double system growth 17% cash EPS growth 63.4% cost to income ratio ROE of 14.5% 142 Branches
Slide 5: Summary of Results
Summary of Results Aug 03 Aug 04 $m $m % Change Net Interest Income 132.7 183.3 38% Non Interest Income 81.6 108.6 33% Total Income 214.3 291.9 36% Total Operating Expenses 139.0 185.0 33% Underlying Profit 75.3 106.9 42% Bad Debts 11.7 11.9 2% Profit Before Tax 63.6 95.0 49% Goodwill - 1.7 - Income
Slide 6: Profit Performance
Profit Performance Growth in profit driven by acquisitions and our core business. Non-Interest Income Expenses $27m ($46m) $120m — Net Interest Income *$100m — $51m L £ Tax = ($10m) € $80m Goodwill a ($2m) & $60m — Aug 03 Aug 04
Slide 7: Cash EPS Growth
Cash EPS Growth EPS growth of 17% 70c (12% excl significant items) 65c 60c 55c 50c 45c 40c 35c 30c Cash Diluted EPS 2000 2001 2002 2003 2004
Slide 8: Return on Equity/Assets
Return on Equity/Assets > There is short term pressure on ROE during our period of strong growth. » Continuing to improve our ROA. 16.0% 15.0% ~ 14.0% ~ ° 13.0% 12.0% 11.0% Return on Equity 10.0% 0.75% ~ 0.70% ~ 0.65% ~ 0.60% 0.55% 0.50% 8 2000 2001 2002 2003 2004 Return on Assets 2000 2001 2002 200
Slide 9: Growth in Loans Under Management
Growth in Loans Under Management Housing Growth Business Growth _ 40% 35% (excluding impact of UFJ acquisition) 35% * 6 o/, 30% ~ Of wi 30% 25% 25% ~ 20% « 20% oe eer} , 15% - ae 19% 15% ° 9, 10% + 10% 4 5% 4 5% - wr ad 9% 0% i & ¢ ' 0% . ¥ i] 2001 2002 2003 2004 2001 2002 2003 2004 —— BOQ - @- Syst
Slide 10: Assets Under Management Growing Strongly
Assets Under Management Growing Strongly $13b ee 50% $11b - 40% $9b ~ 30% $7b 20% $5b + 10% $3b i = | 0% 2000 2001 2002 2003 2004 “= Value (LHS) -i Percentage Increase (RHS) Housing loans under management $7.1b up 36% over last year. Business loans under management $3.5b up 89% over last year (up 32
Slide 11: Low Risk Housing Dominates Loans Under Management
Low Risk Housing Dominates Loans Under Management $4.5b $5.8b $7.3b $10.9b 100% 80% “I 60% 40% 20% 2001 2002 2003 2004 7 Leasing
Slide 12: Balance Sheet Lending Mix
Balance Sheet Lending Mix Leasing acquisition diversifying our lending 2001 2002 2003 2004 @ Housing M@ Consumer “ Leasing © Business 12
Slide 13: Credit Quality
Credit Quality Significant growth has not been at the expense of credit quality. Continuing low levels of impaired assets. $1.4m attributable to BOQEF. 0.20% 0.15% 0.10% 0.05% - Impaired Assets to Average Assets 0.00% ~~-™ $8m $6m $4m $2m 2001 2002 2003 2004 Impaired Assets $0m 2001 13 2002 2003 200
Slide 14: Provision for Bad Debts
Provision for Bad Debts Total Provisions increased by $16.3m, largely due to maintaining the General Provision at 0.5% of RWA with significant asset growth, and the acquisition of provisions through the UFJ Finance acquisition. » Specific Provision $1.5m, General Provision 1$14.8m » 8 times total pr
Slide 15: Retail Deposits
Retail Deposits Retail deposits $4.9b, up 27% over last year. $6b +r Double system growth 7 35% $5b + 7 30% ~~ 25% $4b “+ 20% $3b + 15% 2b ~~ $ “ 10% $1b ~- 5% $0b 0% 2001 2002 2003 2004 =o<@ Retail Deposits = = System Growth —#— BOQ Growth 15
Slide 16: Total Funding Mix
Total Funding Mix 100% 75% 50% 25% 0% - $5.2b $6.6b $8.7b $12.5b 2001 2002 2003 2004 @ Retail 16 13% 20% 27% 39%
Slide 17: Strong Growth in Income
Strong Growth in Income eee tek > Strong growth off the back of » Grown strongly off customer strong asset and deposit and product growth. growth, and UFJ acquisition. > 37% of total income. Net Interest Income Non-Interest Income $200m $160m $120m $80m ~~ $40m $0m 2000 2001 2002 2003 2004 2000 2001
Slide 18: Margin Impacts - Overview
Margin Impacts - Overview » Net margin declined from 2.31% to 2.02%. Margin pressure from timing issues : > Strong asset growth in low margin products and a lag in deposit growth. > Negative cash/bill spread. What have we done about it? » Product improvements, mortgage broking exit. > Deposit raisin
Slide 19: Spread Reduction
Spread Reduction > Spread has reduced from 2.34% to 2.00% (1H 24bps, 2H 10bps). » 1H impact greater than 2H because of greater impact of cash/bills spread, acquisition funding of UFJ and greater impact of Broker introduced mortgages. > Cashibills spread 0.09%. 2.40% Cashibill » Asset mix changes 0.1
Slide 20: Mix of Operating Expenses
Mix of Operating Expenses 33% increase in costs. | Admin 2004 $185m Acquisitions contributed | . 3% Humor Clicitimes Operating cose expenses | 30% Staff 37% 2003 $139m Admin Occupancy Operating : Com puter 8% 33%, 5 22% Computer Occupancy 22% 8% 20
Slide 21: Cost to Income Ratio
Cost to Income Ratio 76% 74% 72% 70% 68% 66% 64% 62% 60% Cost to Income Ratio Growth in Income & Expenses 2000 2001 2002 2003 2004 mag Expense Growth (RHS) 2°) Income Growth (RHS) -@ Cost to Income (LHS) oy
Slide 22: Solid Capital Position
Solid Capital Position 14% Regulatory Capital to Risk Weighted Assets 12% 40.4% | 11.3% 11.9% 11.6% 10% a ' _— : 8% 6% 4% 2% * 0% - 2001 2002 2003 2004 m@ Core T1 © Hybrid T1 © Tier 2 Target Tier 1 of 7% - 8%, Overall 10% - 11% 22
Slide 23: Capital Management
Capital Management > Active capital management through: » Securitisation - housing and leasing » DRP > Share Purchase Plan, and » Private and public placements. > APRA changes required that from 1 Jul 04 deferred expenditure must be deducted from Tier 1 capital. This now totals approx $25m. 23
Slide 24: Share Price Performance
Share Price Performance BOQ v ASX 200 Financials Index - BOQ Financial Year Sm hk: bok PP PP KH KF KF KF KF KF HF HF F ers Kr F CF ¥ Ce ST Ty YF SK S — BOQ — % Increase —BOQ ASX 200 Financials ——% Increase ASX 200 Financials Year End Close $9.72 Opening price $9.01 24
Slide 25: LE ae
is, _ 7 Le oe LE ae ee oe y Gey Gey sf Ye: Lh WO Gy ee Le ay . Le uy _ ye fe is y Le Lo eye ee . ie pe a ye aes oc SER Ly Geos wh, ey i y Z ae Wie Ly Ly a ye Ui a Lg LL Ce y Me Lt Gee Le A 7 eee wy yy ee ay ee eye Le a SSE RASS SOs ae ee iy y iy ye G y is oy yy Se) y y iy He ee aS ye Bie ey Ye i Lo
Slide 26: Interstate Expansion
Interstate Expansion > Targeting 100 branches interstate by 31 August 2006. > Strong interest from potential owner managers. > Targeting consumer and SME market segments. > Business banking presence also in place. > Early days, but interstate branches have exceeded planned performance. > Interstate
Slide 27: Our Branch Distribution
Our Branch Distribution 240 200 160 - 120 Branches Aug 01 Aug 02 Aug 03 Aug 04 Aug 05 Aug 06 @ Corporate Branches Owner Managed - Qid Owner Managed - Interstate 27
Slide 28: Owner Managed Branch Model
Owner Managed Branch Model » Commercially focused retail franchise banking model. » Provides a low cost basis to expand our network » Attracts the best bankers, and » Aligns the manager’s interest with our customers, shareholders and community. » Variable Cost Model » Share in net revenues generated
Slide 29: Mortgage Broking
Mortgage Broking > In May 2004 the Bank decided to exit the mortgage broking market. > At the time of exiting brokers contributed 18% of the Bank’s new lending volumes (peaked at 22% during the year). » Key reason was to focus our resources, both financial and our people on the task of our aggressiv
Slide 30: Continuing Strong Lending Sales
Continuing Strong Lending Sales Total approvals of $7.8b, up 38% on last year. Housing 70% 2003 $5.7b Consumer “ 4% Business 26% 30 Housing 62% 004 > Leasing Consumer 6% 2% Housing 2002 $3.7b Business 22% usiness 30%
Slide 31: New Core Banking System
New Core Banking System Implemented in May 2004 on budget at a cost of $40m. Replaced our 25 year old core banking system. We needed a new system to support our growth aspirations and product requirements. Will be the cornerstone of the PEP Il initiative. Core Banking System Benefits bed eo a . Cust
Slide 32: Information Technology & Infrastructure
Information Technology & Infrastructure > We have invested in new technology to replace our outdated systems. > With the new core banking in system in place the investment in IT has peaked: » Carrying value of IT hardware & software, and Infrastructure Investment of $106m, annual depreciation of $18
Slide 33: Outsourcing Objectives on Track
Outsourcing Objectives on Track > Benefits exceeding our original expectations of $100m over 10 years. > Performance Management: > EDS performance is monitored against >50 critical service levels. > monitored weekly by Management. > reported monthly to Board. >» PEP Il will consider any other areas
Slide 34: BOQ Equipment Finance
BOQ Equipment Finance (formerly UFJ Finance) » UFJ Finance settled on 8 October 2003 and renamed BOQ Equipment Finance. > BOQ now has $1.5b in equipment finance receivables under management (representing 12% of total lending portfolio). > Diversified assets geographically and across various industri
Slide 35: ATM Solutions
ATM Solutions > ATM Solutions acquisition completed on 10 September 2003, (1,052 ATMs.) > ATM Solutions currently have over 1,700 ATMs (1,661 at 31 August 04) deployed nationally, positioning them as the 2nd largest third party deployer and 2nd largest bank ATM deployer. > Enables BOQ to directly se
Slide 36: Profitability of Expansion
Profitability of Expansion > One of our challenges is sustaining traditional profit measures whilst expanding aggressively. > Following slides illustrate the compelling nature of our growth story. 36
Slide 37: Profitability of Expansion - A Product View
Profitability of Expansion - A Product View > Our expansion is built on a foundation of profitable products, coupled with our Owner Managed Branch model and a mature profitable book. > Example home loan through an Owner Marginal Home Loan ROE Managed Branch, 50% weighted average Target Funding mix -
Slide 38: Profitability of Expansion - A Branch View
Profitability of Expansion - A Branch View » New OMBs operate under 2°77 Managed Branch a variable cost structure which is shareholder 20% value accretive. > Size of portfolio, product 15% - profitability and establishment costs 10% ~ dilute ROE in Year 1 & 2. ROE improves as book matures and deposi
Slide 39: Profitability of Expansion - Branch Growth
Profitability of Expansion - Branch Growth > Our Owner Managed Branch model has proved to be successful. >» Generating strong lending and deposit growth from growing a strong customer base. > The branches we have opened to date fall into 3 categories: > New - opened within last year (22 OMBs) > Emer
Slide 40: ROE Profile
ROE Profile > The initial strong period of asset growth in our new OMBs is followed by accumulation of deposit funds. > However, the expansion puts short term pressure on ROE. 17% Growth phase 16% : Mature branches @--%--4 15% wea Total Bank 14% “ 13% 4 eiirven improving ROE a so out of existing the
Slide 41: People
People > Our people driven approach: » » » » » » Loyal customers due to service priority. OMBs drive high service standards. Face-to-face business banking the key to SME market. More branches does mean more customers. Cross-selling strength - a real bank, not just lending. New Certified Agreement in
Slide 42: Our Strategy
Our Strategy > Driving growth... » Cessation of Mortgage Brokers in favour of own channels. » Growth in Equipment Finance, Debtor Finance, International Trade and Merchant Acquiring. » Continue to grow ATM Solutions business. » Select product alliances in Insurance & Wealth Mgmt. » Attract, retain a
Slide 43: Our Strategy
Our Strategy > Going forward: » Specialist distributor focused on superior customer service. » Competitive platform provided by Core Banking System. » Interstate expansion of OMB model into NSW, Vic, ACT & NT. » Consolidation of Qld branch network. » Grow Business Banking presence. > BOQ’s “stepped”
Slide 44: Goals
Goals > Financial goals for 2005: » Substantially above system asset (1.5x system) and deposit growth (2x system). » Maintaining credit quality. » Cash EPS growth of 10%-12%. » Cost to income ratio of 63%. > Key objectives for our 2005 financial year are to: » Continue the interstate branch network
Slide 45: Challenges...
Challenges... > Invest in expansion without sacrificing expense management. > Realise benefits from new core banking system and PEP Il. > Continue to diversify income streams. +> Holding the margin steady, whilst increased competition drives lending rates down and deposit rates up. > Housing expecte
Slide 46: Future Looks Bright...
Future Looks Bright... > Infrastructure investment complete. > Our growth strategy will create substantial shareholder value. > We are differentiating through our distribution focus. > Focused, committed management team. > Moving into a new head office. > Unique, differentiated retail franchise dist
Slide 47: Queensland
: Queensland 47