Anz Group Holdings Limited · ASX:ANZ
Anz — Australia and New Zealand Banking Group — FY2004 Earnings Presentation
56 slides from Anz's earnings presentation, Oct 29, 2004
Slide 1: NZ integration complete end 2005 – low risk approach adopted
NZ integration complete end 2005 – low risk approach adopted ANZ and NBNZ share of Personal Customers (Main Bank) is stable
Slide 2: Margin decline is predominantly structural/cyclical
Drivers: • Margin decline • Acquired at an attractive P/E • Dividend policy • Strong volume growth • Good core business growth • Capital management initiatives • Non interest income growth • Low risk integration approach • Increased investment • Improved risk profile * Excludes significant items and
Slide 3: Increased long term wholesale debt required to fund asset growth
Increased long term wholesale debt required to fund asset growth
Slide 4: The changing shape of the domestic yield curve has impacted earnings
The changing shape of the domestic yield curve has impacted earnings • The shape of the curve in FY04 has negatively impacted the funding of mortgages as well as income from the interest rate mismatch position and investment in replicating portfolios. Asset wholesale rate impact NIM Impact (bps) • C
Slide 5: Strong balance sheet growth across most businesses
Rolling average rates (%) Cash 90 Day 3 Year FY01 5.52 5.61 5.98 FY02 4.48 4.56 5.99 FY03 4.75 4.79 5.66 FY04 5.18 5.34 5.36 Strong balance sheet growth across most businesses • Continued strong volume growth in mortgages, FUM up 18% • Institutional lending up marginally with good growth in 2H04 • C
Slide 6: Net lending volumes by division
Personal 50.8 Institutional mSep-03 Corporate NZ Business mSep-04
Slide 7: Non-interest income growing well
* Other deposits include Esanda retail debentures Non-interest income growing well
Slide 8: Expenses - investing for sustainable growth
*reflects P&L impact of hedge income earned in FY03, not earned in FY04 Expenses - investing for sustainable growth
Slide 9: Key drivers of growth
Key drivers of growth • Increased FTE (829 in 2H04) and wage rises • Investment and increased amortisation in Retail telling platform • Investment in branch network - new openings and refurbishment of existing branches • Increased compliance costs of ~ $25m • Higher UK superannuation charges ($7m),
Slide 10: Expected change in FTEs from Mar-04 to Mar-05
Expected change from Mar-04 to Mar-05 600 Growth in FTEs (2) 4210 ABo}OUYraL jeuognansur aqerodso3, puejeez MON leuosiag
Slide 11: Previous growth investments in Personal/Corporate paying off
• Increasing frontline capabilities in our businesses • Increased technology resources to assist in NBNZ integration and compliance requirements • Investment in frontline Small Business personnel driving growth in Corporate • Continued growth in retail frontline resources Previous growth investments
Slide 12: Decline in ELP Rate driven by improved risk profile
Decline in ELP Rate driven by improved risk profile
Slide 13: Specific Provisions continue to reduce
Specific Provisions continue to reduce
Slide 14: Non-accrual loans to Loans & Advances well down
Non-accrual loans to Loans & Advances well down
Slide 15: Default rate continued to show improvement
Default rate continued to show $m improvement. 900 824 800 700 eon. 579 596 500 400 300 200 100 0 Mar- Sep- Mar- Sep- Mar- Sep- 02 02 03 03 04 04 wm a Aust/NZ mem UK/US mam Asia mm Other Inter Default Rate (RHS) 1.4% 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% 0.0%
Slide 16: New Zealand businesses delivering sound results
* Default rate is new non accruals/average gross lending assets annualised. New Zealand businesses delivering sound results NBNZ performance slightly ahead of proforma (NZ$) Item NBNZ Actual* NBNZ Proforma Variance Net Interest Income % Other Income — Operating Expenses (498 ) (487 ) % PDD (70 ) (74
Slide 17: Share of Rural lending is steady
Source: ACNielsen Consumer Finance Monitor Share of Rural lending is steady
Slide 18: Timing of integration costs and benefits
* ANZ renounceable rights issue prospectus page 56: Integration costs A$230m, Cost synergies A$110m. Timing of integration costs and benefits NZ$m 2004 2005 2006 2007 Total Integration costs Incremental Integration costs Cost synergies Revenue synergies Attrition Likely to be approximately • 10% cos
Slide 19: Estimated proportion of NZ earnings hedged
Estimated proportion of NZ earnings hedged
Slide 20: Payout ratio slightly above long term sustainable ratio
Payout ratio slightly above long term sustainable ratio
Slide 21: Capital management initiatives likely in first half
Capital management initiatives likely in first half Capital Management Philosophy Capital is a scarce resource to be managed efficiently • Currently above target range • Continue to generate surplus capital • Sale of London based structured finance business to free up ~USD1.3b RWA but • Uncertainty
Slide 22: NPAT growth
NPAT growth 2,248 2,168 2,731 4,703 1490 nin 1:75 | | 1997 1998 1999 2000 2001 2002 2003 2004
Slide 23: 161.1 cents cash EPS a good result
• 161.1 cents cash EPS a good result • ANZ has come a long way in 2004 • Focus and discipline again delivered strong performance • Shareholders rewarded - ANZ has outperformed major peers TSR over last 10 years • Balanced outlook – investing for medium-term growth while producing acceptable short-te
Slide 24: Personal Banking: NPAT growth of 11% for the year
NPAT growth of 11%* for the year, up 8% in 2H04: • Strong growth in Cards & Merchant Services, up 30%* reflecting reduction in “transactors” following RBA interchange reform and increases in merchant numbers • Banking Products performing well following 10% increase in average deposit volumes and fav
Slide 25: Mortgage prepayment level falling
Mortage prepayment level falling
Slide 26: Business Banking Australia
• NPAT up 11% for the year • Strong lending and deposit growth up 17% and 13% • Wall Street to Main Street continues to deliver solid revenue growth - 19 deals completed in FY04 vs 5 deals in FY03 • Revenue growth opportunities include: • Expanding business footprint in key geographies • Increased c
Slide 27: Small Business Banking
• NPAT up 11% for the year • Revenue increased 14% driven by 27% lending and 13% deposit growth • Expenses up 17%, reflecting: • 70 new frontline FTE employed • Continued focus on industry specialisation – e.g. pharmacy model performing strongly • Revenue growth opportunities include: • Further inve
Slide 28: Esanda & UDC Commercial Asset Finance
‘Commercial Asset Finance 18% Debentures UDC Finance Asset Rental & Fleet Management Traditional Asset Finance (Dealer, Broker, Direct) ae
Slide 29: Pacific – strong performance in most markets
Pacific – strong performance in most markets • NPAT grew 15.5% (17.6% excluding impact of exchange rate movements) driven by solid lending growth, up 12% • Expenses grew 4.9% reflecting increased investment in the region: • Mobile rural banking model rolled out in Fiji, offering banking services to
Slide 30: Market Share by Country
Market Share by Country 63% 61% seo 46% 45% | | | Wii
Slide 31: Asia – retail partnerships delivering solid underlying growth
Asia – retail partnerships delivering solid underlying growth ANZ Asian Network (geographic) • Strong performance by Personal Banking, NPAT up 5% • IFS subdued with NPAT down 1.3%. Continued de-risking of the business, now largely completed • Increased investment in Trade Finance and Capital Markets
Slide 32: Panin Partnership
Panin Partnership • Book value of $160m against market value of $224m at 30 Sep 2004 • Equity profit booked by ANZ is adjusted for excess provisions held by Panin. As this the provision balance approaches more reasonable levels, profit adjustments are being reduced • One-off profit of $23m from bond
Slide 33: Mismatch earnings significantly reduced
Note: Excludes NBNZ Mismatch earnings significantly reduced Composition of Treasury Income $m Group Treasury 2H04 1H04 2004 2003 Revenue Operating Expenses (10 ) (10 ) (20 ) (19 ) Provision for Doubtful Debts PBIT Income Tax Expense (8 ) (20 ) (28 ) (41 ) NPAT
Slide 34: Improving INGA returns reflect strengthening investment markets
Improving INGA returns reflect strengthening investment markets NPAT increased 39% driven by: • Funds management income increased 13%, driven by strong investment markets • Risk income up 15% with increased sales of life insurance products through the ANZ network • Higher capital investment earnings
Slide 35: INGA maintains its number four ASSIRT ranking
INGA maintains its number four ASSIRT ranking (market share of Retail FUM)
Slide 36: Additional Risk Information: Specific Provisions lower
Additional Risk Information Specific Provisions lower, despite impact from our exposure to Telstra’s Reach Joint Venture Net Specific Provisions
Slide 37: Specific Provision Balance by size
Specific Provision Balance by size
Slide 38: Specific Provisions by Source
Specific Provisions by Source
Slide 39: Mortgages growth strong, albeit some slowing in second half
Mortgages Growth strong, albeit some slowing in second half • Mortgages Portfolio continues to experience strong growth off the back of excellent products and strong distribution networks • Growth has been strongest in owner occupied and equity products, whilst some slowing has been noted in investm
Slide 40: Strong growth in the mortgage portfolio
Strong growth in the mortgage portfolio 120) $b 110 102 1100 "sep Mar- Sep- Mar- Sep- Mar- Sep- ol 02 02 03 03 04 04 TWANZ mNBNZ
Slide 41: Mortgage LVR at origination and dynamic LVR
80% 70% 60% 50% 40% 30% 20% 10% 0% HILVR at origination Dynamic LVR 0-60% 61-75% 76-80% 81% —91%+ 90%
Slide 42: Low exposure to Inner City residential mortgage lending
*Australian portfolio only Low exposure to Inner City residential mortgage lending Lending policies driving shift from investment loans to owner occupier loans
Slide 43: HLLVR at Origination and Dynamic LVR
80%. 60% HLLVR at Origination Dynamic LVR. 40% 20% 00% LVR<60% 61-75% 76-80% 81-90% 9190+
Slide 44: US power exposures continue to reduce
US power exposures continue to reduce Total US Limits (1)
Slide 45: US: September 2004
US: September 2004 • Outstandings: $0.6bn (75%) • Other Committed: $0.2bn (19%) • Uncommitted: <$0.1bn (6%) Customers • Non Accrual: 4 [$0.2b] • Total: 16 • We continue to actively manage our exposure to the US power sector • Over the past two years, exposure to the merchant energy sector and other
Slide 46: KMV Median Expected Default Frequency
KMV Median Expected Default Frequency
Slide 47: September 2004 exposures
September 2004 • Outstandings: $1.4bn (43%) • Other Committed: $1.1bn (33%) • Uncommitted: $0.8bn (24%) KMV Median Expected Default Frequency
Slide 48: Group risk grade profile
Note : 1. Excludes Settlement Limits but includes Contingent and Market-Related products. Group risk grade profile
Slide 49: Geographic risk profiles: Australia & New Zealand
B+ to CCC 2.8 % 2.5 % 2.5 % 2.3 % 1.9 % 1.8 % Non Accrual 0.9 % 0.8 % 0.7 % 0.6 % 0.4 % 0.4 % *March & September 2004 includes NBNZ Geographic risk profiles Australia & New Zealand
Slide 50: Risk grade profile AAA to BB
AAA to BBB BBB- BB+ to BB
Slide 51: ANZ maintains the largest safety net for expected and unexpected losses
B+ to CCC 2.3 % 2.0 % 1.7 % 1.8 % 6.1 % 6.1 % 4.0 % 2.4 % Non Accrual 0.4 % 0.4 % 0.4 % 0.3 % 4.5 % 4.4 % 3.3 % 2.9 % *March & September 2004 includes NBNZ ANZ maintains the largest safety net for both expected and unexpected losses • The continued high level of our General Provisioning reflects the
Slide 52: Specific Provision / No Specific Provision loans
Specific Provision/No asa ‘som Loans ANZ Sep 04 CBA Jun 04 -NABMar04 — WEC Mar 04
Slide 53: Industry exposures – Australia & New Zealand
Note : 1. As per most recent company financial reports for CBA, NAB and WBC Industry exposures – Australia & New Zealand
Slide 54: IFRS Project
IFRS Project • Project on track • Estimated project cost ~$20m • Work effort is structured around specific streams • Further commentary is given in the Financial Results and Dividend Announcement (pages 33 to 34)
Slide 55: Basel II Project
Basel II Project • ANZ aiming to achieve Advanced Status • Project on track • Estimated project cost ~$43m, which incorporates enhancements to a number of corporate systems • Additional cost of ~NZ12m to bring ANZ National to Advanced status Composition of “other” in the high level margin analysis (
Slide 56: NIM items and summary of forecasts
• Cashflow mismatch on Capital Markets cross currency swaps negatively impacted the Group’s NIM. • The following items improved NIM: • Increased earnings from FX revenue hedging. • Increases in the proportion of credit card volumes earning interest. • Higher investment earnings from the substitution
Australia and New Zealand Banking Group — FY2004 Earnings Presentation on 6ix