Bank Of Queensland Limited · ASX:BOQ
Bank Of Queensland — H1 2009 Earnings Presentation
49 slides from Bank Of Queensland's earnings presentation, Feb 28, 2009
Slide 1: Bank of Queensland Half Year Results
Bank of Queensland Half Year Results 28 February 2009
Slide 2: Agenda
Agenda Result highlights David Liddy Managing Director & CEO Financial result in detail Ram Kangatharan Group Executive & CFO BOQ Portfolio Ram Kangatharan Group Executive & CFO Strategy and outlook David Liddy Managing Director & CEO 2009 Half Year Results 2
Slide 3: Result highlights
Result highlights David Liddy, Managing Director
Slide 4: Result highlights
Result highlights Increasing normalised cash profits in a tougher environment Increased funding costs resulting in NIM compression in 1H09, though likely to be partly unwound in 2H09 - consistent with early signs of re-pricing strategies Distribution power of our model again evidenced by its flexibi
Slide 5: Strong financial results in tough market
Strong financial results in tough market 1H08 1H09 Normalised cash NPAT $65.3m $84.2m 29% Cash EPS (normalised Fully Diluted) 47.6¢ 47.3¢ - Ordinary dividend 35¢ 26¢ 9¢ Loan growth (pcp) *27% 13% Retail deposit growth (pcp) *25% 25% Net interest margin 1.62% 1.52% 10bps Cost to income ratio (normali
Slide 6: Strong lending and deposit growth
Strong lending and deposit growth Lending growth* Retail deposits* 13% 25% 24% 8% BOQ System BOQ System * Last 12 months v pcp Source: APRA data 2009 Half Year Results 6
Slide 7: Expense discipline gaining traction
Expense discipline gaining traction Home synergy benefit forecast of $15m in FY09 on track Cost to income ratio* Expenses* $172m 61.4% $6.8m $165m (4%) $7.0m Admin $50.2m $47.3m Operating 58.7% $32.4m $31.3m Computer $11.6m $12.8m Occupancy 54.0% $70.7m $66.9m Employee 54.3% 2H07 1H08 2H08 1H09 2H08
Slide 8: Strong asset quality
Strong asset quality Focus remains on well secured housing and SME lending Level of impaired assets has increased but in line with expectations Unlike peer group, no large exposures are impaired Underlying bad debts* Impaired assets vs Collective & Specific Provisions Total Impaired Assets Specific
Slide 9: Conservative capital and excess liquidity
Conservative capital and excess liquidity Tier 1 capital improved 0.8% to 8.0% at 1H09 Record liquidity levels well in excess of APRA and internal benchmark Capital adequacy Liquidity 17.9% 11.5% 16.2% 10.8% 11.0% 10.8% Tier 2 13.0% Tier 2 ratio 2.8% 11.1% Hybrid Tier 1 Tier 1 Tier 1 ratio 8.0% 2H07
Slide 10: The result in detail
The result in detail Ram Kangatharan, Chief Financial Officer
Slide 11: Meeting our commitments
Meeting our commitments 1H08 1H09 % Change $m $m vs PCP Total operating incom e 252.9 304.0 20% Expenses 152.9 212.1 39% Adj: Normalisation & non-cash Items 4.6 46.8 Norm alised Expenses 148.3 165.3 11% Impairment on loans and advances 9.2 27.6 Adj: Normalisation Item - 7.2 Norm alised Im pairm ent
Slide 12: Normalisation & restructuring charges
Normalisation & restructuring charges Customer contracts $5.2m ($3.7m post tax) Integration and $9.7m ($6.8m post tax) due diligence costs Non loan asset impairment $13.2m ($9.2m post tax) Head Office $14.2m ($10.0m post tax) restructure NSW distribution Lease/break fees $4.5m ($3.2m post tax) restr
Slide 13: Margin pressure in 1H09
Margin pressure in 1H09 Increasing term and retail funding costs have impacted NIM Similar trend to FY08, with improvement in second half expected NIM up 8bps in 2H08 NIM down 18 bps in 1H09 31bps (23bps) (23bps) 4bps 15bps 4bps 1.70% (4bps) 1.62% (30bps) 1.77% (8bps) (4bps) 1bp (7bps) (1bp) (4bps)
Slide 14: Continued strong revenue growth
Continued strong revenue growth Net Interest Income Non Interest Income 22% 16% $227m $77m $67m $186m 1H08 1H09 1H08 1H09 NII increase driven by balance Strong growth in core banking fees sheet growth, partially offset by facilitated a 16% increase in non increased NIM compression interest income 20
Slide 15: Expenses
Expenses Cost to Income Ratio Operating Expenses Employee, $66.9m (40%) 69.8% 1.7%* 3.2% Operating, $47.3m (29%) 4.4% $32m $32m 6.2% 54.3% Occupancy, $12.8m (8%) Admin $7.0m (4%) Reported Customer Integration Asset Restructure Normalised cost to contracts cost/income $53m IT, $31.3m $57m Costs Impai
Slide 16: Funding our growth
Funding our growth Reduced availability of wholesale funding increased reliance on retail deposits Retail deposits funding 169% of year to date LUM growth Last 12 months retail and wholesale sources have funded $1.4b in additional liquidity 64% 52% 1H08* 1H09* 33% 21% 17% 10% 2% 1% Retail Wholesale
Slide 17: Focus on retail deposits
Focus on retail deposits Bank strategy has been able to Retail deposits secure a larger deposit base Market turmoil led to significant 45% CAGR $16.1b inflows to retail markets OMB model highly effective in $14.0b securing new retail deposits $12.9b Retail deposits growth accounted for 169% of LUM g
Slide 18: Funding balance sheet impact
Funding balance sheet impact Retail deposit growth driving self sufficiency on funding loans growth Securitisation funding retained with warehousing and 2H09 AOFM issue 1H08 Funding 1H09 Funding S/T S/T Wholesale Wholesale 14% 13% L/T L/T Wholesale Wholesale 11% Retail 13% Retail 46% 49% Securitisat
Slide 19: Long-term debt maturity profile
Long-term debt maturity profile Weighted average maturity of long term debt is 1.8 years which remains at pre-crisis levels No necessity to return to term debt markets in 2H09 600,000 Weighted Average Maturity 500,000 400,000 Issuance ($’000s) 300,000 200,000 100,000 - Mar- Jun- Sep- Dec- Mar- Jun-
Slide 20: Capital adequacy
Capital adequacy Capital levels remain at the upper end of target levels, with higher Tier 1 10.8% 11.0% 10.8% Targets: Tier 1 of 7%-8% Total of 10% to 11% 7.2% Tier 1 Tier 1 ratio 8.0% Hybrid Tier 1 Tier 2 Tier 2 ratio 2.8% 1H08 2H08 1H09 2009 Half Year Results 20
Slide 21: Prudent capital management
Prudent capital management Dividend policy aimed at preserving capital strength in current volatile markets 9cps reduction in dividend maintains appropriate yield whilst preserving capital for continued growth Project Pathways delivering significant distribution and efficiency gains to improve earni
Slide 22: Funding & capital self sufficiency
Funding & capital self sufficiency Strong emphasis on retail deposit growth - Not just price driven; influencing customer interaction model Executed a $712m Securitisation deal priced at 128bps (blended) as part of $500m mandate from the AOFM in March 09 BOQ will continue to access the term debt mar
Slide 23: BOQ portfolio
BOQ portfolio Ram Kangatharan, Chief Financial Officer
Slide 24: Loans under management by product
Loans under management by product 27% CAGR $27.5b $26.3b $3.1b 11% $24.3b $3.0b leasing $2.9b $4.6b $4.4b 17% $4.1b commercial $19.2b $19.8b $2.7b $18.9b $17.3b $3.4b 72% Retail $13.1b 2H07 1H08 2H08 1H09 Retail Business Leasing Balance sheet skewed towards retail mortgages and residentially secured
Slide 25: Portfolio quality
Portfolio quality Arrears 90+ days (% of portfolio, excluding securitised loans) 1.00% 0.91% 2H07 0.75% 0.61% 1H08 0.50% 2H08 1H09 0.24% 0.25% 0.00% Retail Business Leasing Total 90 days past due $156.7m which represents 0.78% of portfolio (non-sec) 2009 Half Year Results 25
Slide 26: Impairment levels remain low
Impairment levels remain low Impaired assets increasing in line with softer conditions, but no systemic issues Conservative risk profile leading to superior credit quality 250 2.0% $219.2m $189.0m 90+ days due 200 1.5% Impaired Assets $ (90+ days due + Impaired 150 Millions $126.8m Assets) / RWA (RH
Slide 27: Bad debt analysis
Bad debt analysis Sound credit quality, moderate increase in bad debts Leasing only part of the portfolio to show deterioration on relative terms $7.2m of impairment expense relates to NSW distribution restructure Bad debts by product Underlying bad debts Housing, 6% $17.0m* $14.5m Leasing, 34% Cons
Slide 28: Conservative provisioning
Conservative provisioning Portfolio focus remains on well secured housing and SME lending with no single name exposures of significance. Gross impaired assets remain near historical lows, particularly when compared to major banks and peer group Total provisions Impaired assets / RWA * % of RWA 0.67%
Slide 29: Large exposures
Large exposures The Bank has 66 connections Largest exposures by ANZSIC Group with exposures >$10m Personal Arts & recreation 8% services 1% Total commitment exposure Other 5% $1,601m (drawn balance Construction 20% $1,359m) ~5% of total loans under management Accommodation & food services 4% ~57% m
Slide 30: Top large exposures
Top 20 large exposures Personal 4% ($30.5m) Operating Property entities investment 4% ($30.6m) Type Weighted Average 53% ($403.4m) Security Cover Operating Entities 1.38 Property Development 1.61 Property Investment 1.28 Personal 2.01 Total Cover 1.44 Property development 39% ($296.1m) Top 20 exposu
Slide 31: Differentiated risk profile & fully provisioned
Differentiated risk profile & fully provisioned BOQ lending: secured, small exposures, no syndicated loans*, avoid non-recourse lending, high pre-sales on development Housing Personal Leasing Commercial Large exposures 70% of total 2% of total 11% of total 12% of total 5% of total lending lending le
Slide 32: Strategy and outlook
Strategy and outlook David Liddy, Managing Director
Slide 33: Project Pathways: the next growth phase
Project Pathways: the next growth phase Support growth 1 ` Organic business growth platform ` Portfolio optimisation Consolidation participant Objectives 2 ` M&A activity – niche bolt-on vs transformational Comprehensive ` Introduce ‘strategic partners’ evaluation of a wide array of organic and Incr
Slide 34: Project Pathways: workstreams
Project Pathways: workstreams 1 M&A / Strategic Partner 2 Efficiency 3 Portfolio Optimisation Program 2009 Half Year Results 34
Slide 35: Workstream 1: M&A / Strategic Partner
1 Workstream 1: M&A / Strategic Partner BOQ has a unique opportunity to position itself to begin to bridge the ‘void’ in the banking market left behind by the takeovers of St George and BankWest in recent times Commenced the M&A / Strategic Partner initiative in early 2009 against a back drop of equ
Slide 36: Workstream 2: Efficiency
2 Workstream 2: Efficiency Objective of the Efficiency Team was to reposition the current cost base to react to the current financial environment and for future growth A cross functional group of senior staff were brought together to target a combined ~$50 million+ in cost saving opportunities (50%
Slide 37: Efficiency program overview
2 Efficiency program overview Annualised Benefit Organisational Alignment Completed ~$20m Phase One Expense Optimisation Completed ~$30m ~$50m WIP TBD Phase Two Simplification Sourcing Review & Opportunities WIP TBD 2009 Half Year Results 37
Slide 38: A more efficient model to challenge scale players
2 A more efficient model to challenge scale players These initiatives expect to show further step change improvements in next three years, via structural, distribution and key sourcing changes Cost-to-Income Ratio Targets 64.5% 62.6% 56.1% 54.3% - 1H09(A) Step change improvements in Phase 1 – Effici
Slide 39: Key initiative: structural efficiency
2 Key initiative: structural efficiency Organisational restructure now complete Involved merging our Retail and Business Financial Services channels into one channel: Banking Head Office support functions realigned and refined Frontline staff not affected David Liddy Managing Director & CEO David Ma
Slide 40: Key initiative: NSW consolidation
2 Key initiative: NSW consolidation 56 branches in NSW Majority open for over 3 years Total loans under management in NSW of $2.7b BOQ operating 15 OMBs Deposit growth has been a positive with >60% growth during FY09, total deposits in NSW now $1.8b NSW branch maturity 23 18 10 4 1 <1 year <2 years
Slide 41: NSW – imperatives for consolidation
2 NSW – imperatives for consolidation A number of NSW OMBs are below expectations - As a comparison, on average Victorian branches have loan books 50% larger than NSW, with a similar maturity Combination of factors including: - NSW economy - Poor selection and performance of some Owner-Managers The
Slide 42: OMBs remain core to our strategy
2 OMBs remain core to our strategy The rest of the OMB network is performing in line with expectations The productivity of the model is unmatched We have now converted 31 corporate branches to OMBs Average monthly settlements have increased 64% post conversion Annualised growth before and after conv
Slide 43: Resilient network gaining momentum
2 Resilient network gaining momentum Total OMB Commissions OMB Income Split 1H09 Upfront $54.4m Income, 31% 24% Share of Fees 17% CAGR $48.7m $45.0m Other Income, 14% $39.5m Trail Income, 38% 2H07 1H08 2H08 1H09 Total OMB commission payments Majority OMB income comes from have consistently increased
Slide 44: Workstream 3: Portfolio Optimisation Program
3 Workstream 3: Portfolio Optimisation Program Objectives: Undertake a channel and product diagnostic: - Performance of all existing channels and products - revenues, productivity, margins, cost pools, risks, outlook, customer service, capability strategic and brand fit - Performance v market Identi
Slide 45: POP – key findings and priorities
3 POP – key findings and priorities Priorities Clearly focused on target markets – SME and housing Grow SME market share Improve cross sell and enhance product suite Enablers Reinvigorate OMB commission model (underway) Structural integration of BFS and RFS (underway) SME credit process simplificati
Slide 46: The long-term outlook for the QLD economy remains strong
The long-term outlook for the QLD economy remains strong QLD state final demand1 (GDP equivalent2) Highlights 9.0% ` The Queensland economy has exceeded 8.0% national growth for the last 12 consecutive years 7.0% – Expected to have the highest level of growth 6.0% over the next ten years 5.0% ` Quee
Slide 47: Market guidance
Market guidance The model is proving its resilience and productivity in the toughest of conditions – we’ve cleared the decks on underperforming NSW footprint We expect to continue to grow profitably all aspects of our business ahead of our competitors whilst maintaining pricing and credit discipline
Slide 48: Summary
Summary Strong performance given current economic climate Very successful in retail and wholesale funding growth OMB network resilient despite conditions NSW actions provide a platform for a future healthy network in that State Single channel to market strengthens our model Strong credit and cost di
Slide 49: bank different
bank ditrerent® Bank of Queensland