Anz Group Holdings Limited · ASX:ANZ
Anz — Australia and New Zealand Banking Group — FY2003 Earnings Presentation
75 slides from Anz's earnings presentation, Dec 30, 2003
Slide 1: A specialised portfolio - efficient allocation of resources to deliver results
* Sep-02 excludes significant items A specialised portfolio - efficient allocation of resources to deliver results A specialised portfolio allows us to efficiently allocate resources to those businesses experiencing, or with the potential for growth and to reduce resources away from those businesses
Slide 2: eros
eros met specie proven - $m (US) Ss mematona SP (i) eb SD charge:- ben 0
Slide 3: NBNZ acquisition creates the leading bank in New Zealand
NBNZ Acquisition NBNZ acquisition creates the leading bank in New Zealand Purchase price equivalent to A$4.915 billion (at exchange rates on 23 October 2003) ANZ and NBNZ, when combined, will create: • The leading bank in New Zealand • One of New Zealand’s top three companies • Market leadership in
Slide 4: Price / LTM cash earnings multiples
Price* / LTM cash earnings multiples 20 eo 146 [| [l / : Past Domestic Major Australian” ANZ Standalone "ANZ / NBNZ. SSE Sen ec
Slide 5: We have rebalanced the bank's lending portfolio
*Source – Boston Consulting Group We have rebalanced the bank’s lending portfolio ANZ has refocused the loan book towards lower risk retail lines of business through: 1. Corporate to retail lines of businesses • In 2003, Gross Lending Assets are split approx. 66/34% across retail and corporate lines
Slide 6: Outlook
Outlook • We expect ANZ will continue to perform well in a tougher industry environment in 2004 • Expected NPAT growth in 2004 for existing businesses on a stand alone, individual basis: • Growth in net profit after tax for ANZ and NBNZ on an individual/stand alone basis expected to be moderately lo
Slide 7: Strong growth in loans and advances
Strong growth in loans and advances Nz$b 40 35 30 2 20 Dec-01 Dec-02 Jun-03
Slide 8: Declining cost-to-income ratio
Declining cost-to-income ratio Dec-01 Dec-02 Jun-03 (LTM)
Slide 9: Charge as % of loans and advances
ps Charge as % of loans and advances ps i 5 : | : Dec-01 Dec-02 —_Jun-03 (LTM)
Slide 10: NBNZ purchased at attractive multiple
Source: NBNZ Group Financial Reports NBNZ purchased at attractive multiple
Slide 11: Price / LTM cash earnings multiples
16 12 Price® / LTM cash earnings multiples 16.1 Ke 13.3 | | | il : ‘Australian Regional Banks Past Domestic Major Australian ‘Acquisitions* Banks (excl ANZ) [ANZ Standalone ANZ / NBNZ
Slide 12: Funding the NBNZ acquisition
* - Average of 10 past Australian and New Zealand transactions # - Price used in calculating LTM cash earnings multiples and NTA multiples for the major Australian banks and the 11 Australian regional banks are 30-day volume weighted average prices as at 23 October 2003 Funding the NBNZ acquisition
Slide 13: Solid credit growth during the past decade
• Solid credit growth during the past decade has also contributed to the out performance of Australian banks. • A significant driver of recent credit growth has been the consumer sector, in particular via home lending. • Our forecast is for a weakening in housing growth, which in part is forecast to
Slide 14: Banking industry profit growth will be more challenging
Sources: # RBA, *Economics@ANZ , ^Citigroup Analyst Forecasts, CBA 2003 Results Banking industry profit growth will be more challenging Future growth within the financial services sector will be more challenging than in the last five years, largely due to the following: • There is greater penetratio
Slide 15: Monolines win, but returns more volatile - diversification reduces risk
Monolines win, but returns more volatile –diversification reduces risk Independent analysis* has found that monoline specialists create greater returns than generalists. ANZ’s response has been to create a portfolio of specialist businesses. Whilst the returns from individual business units within t
Slide 16: We have rebalanced the bank's lending portfolio
*Source – Boston Consulting Group We have rebalanced the bank’s lending portfolio ANZ has refocused the loan book towards lower risk retail lines of business through: 1. Corporate to retail lines of businesses • In 2003, Gross Lending Assets are split approx. 66/34% across retail and corporate lines
Slide 17: Non-core to core markets
2. Non-core to core markets • Further, ANZ has re-orientated its loan book towards domestic lending opportunities and to improving the quality of its international diversification • International exposure, outside our core domestic markets of Australia and NZ, within the loan book has been reduced f
Slide 18: Clear international strategy
*Business segment profit, #Lending assets Clear international strategy ANZ’s international focus is twofold and remains clear 1. US and Europe – REDUCE Involving: • Focusing on core products and relationships • Reallocating capital to fund growth options • Returning excess capital, primarily to dome
Slide 19: ANZ's forward looking agenda
ANZ’s forward looking agenda To become Australia and New Zealand’s most respected company
Slide 20: Results Review: Full year result driven by asset and deposit growth
SECTION 4 Results Review Full year result driven by asset and deposit growth Full year NPAT growth increased 8.3% with growth in net income, tight expense control, and improving credit quality being the highlights. Net interest income • strong lending growth resulted in a $454m increase in net inter
Slide 21: Higher interest income, driven by strong mortgage and deposit growth
* Sep-02 excludes significant items Higher interest income, driven by strong mortgage and deposit growth • Average net lending assets grew by $13.6b (10.0%) in 2003, with growth of $10.8b (18%) in Mortgages, $1.6b in Corporate and $0.8b in Asset Finance. • Average deposits and other borrowings grew
Slide 22: Lending Asset Growth for the year to September 2003
Lending Asset Growth for the year to September 2003, ANZ Group ‘Australia & NZ 7 International ay Een Frey a ioee a
Slide 23: Average Lending & Deposit Volumes
$b Average Lending & Deposit Volumes 97.3 99.7 100 96.4 992 a0 738 ee 7 58, | 72 159.2 56.9 S82 504 40 aot Mortgages Business* Deposits* mar-02 -«mSep-02 ss MMar-03. © mSep-03
Slide 24: Margins down, primarily due to yield curve and mix effect
*Business Lending includes Corporate & Small Business, and Institutional Segments. Deposits includes Esanda retail debentures Margins down, primarily due to yield curve and mix effect Net interest margin contracted by 10bp yoy: • Net interest income in Treasury fell by $45 million as a result of run
Slide 25: Margin Drivers
Margin Drivers 27 @) ® cee: ii Tee tome o) S85 esmings oniow a, = | interest aah fons - | deposits Fung tone ‘mi foregone wedges 202 2003
Slide 26: Treasury - adversely impacted by a tough interest rate environment
Treasury – adversely impacted by a tough interest rate environment • Over the last three halves Group Treasury’s earnings have been in decline, with further decreases expected in 2004. • Group Treasury mismatch income is a function of the steepness of the yield curve (ie. rolling avg 3yr assets fund
Slide 27: Non interest income impacted by Cards under-accrual and loyalty costs
Non interest income impacted by Cards under-accrual and loyalty costs, underlying growth strong • Lending fees increased $57 million due to strong volume growth in Corporate, Asset Finance and Institutional Banking in Australasia • Non lending fees reduced by $81 million principally from a $38 milli
Slide 28: Expense growth well controlled
* Sep-02 excludes significant items # excludes volume impact and benefits from repricing ^ refer also Margin Drivers (p8) Expense growth well controlled Expense growth was relatively flat, with discretionary cost growth minimised due to lower revenue growth. • Personnel costs up 2%, reflecting growt
Slide 29: Doubtful Debts Provision reflects improved underlying portfolio
Doubtful Debts Provision reflects improved underlying portfolio • “Standard” ELP (as a % of NLAs) has decreased significantly from 46 bps to 32 bps across the period 1998 through 2003. This is consistent with mortgage growth in key lending markets of Australia and NZ and reduced Group risk profile •
Slide 30: Cumulative ELP balance is well above the specific provision balance
Cumulative ELP balance is well above the specific provision balance • The cumulative ELP balance continues to comfortably exceed the specific provision balance. • In 2003 an additional $100 million was provided in ELP as precaution against continued above expected levels of default on the offshore l
Slide 31: Healthy dividend growth
Healthy dividend growth • The full year dividend of 95 cents per ordinary share represents a 12% increase on 2002. • The final dividend is 100% franked. • For year ending 30 Sep 2004, the directors expect to at least maintain a fully franked dividend per share at the same level as for the year ended
Slide 32: Capital targets reduced, reflecting lower risk
Capital targets reduced, reflecting lower risk • Net impact of FX rate movements on ACE capital was approximately -$235 million. • FX impact on RWA was approx -$3.2bn down due to FX rate movements, again principally the US$ depreciation (US$ accounted for -$3.3bn of the movement). • Net impact on AC
Slide 33: Restructuring our hybrid funding will impact the relationship between PAT & EPS in 2004
Restructuring our hybrid funding will impact the relationship between PAT & EPS in 2004 Background TrUEPrS StEPS Issued Sept/Nov 1998 27 Sep 2003 Amount USD 0.775 bn AUD 1bn Cost of Dividend 8% Fixed BBSW Floating To be called 1H 2004 — Profit & Loss Income Fixed to Floating Swap nil Tax Tax on Swap
Slide 34: Source - Greenwich and Associates
*Source – Greenwich and Associates
Slide 35: We continue to strengthen our position in the Corporate and SME markets
We continue to strengthen our position in the Corporate and SME markets • High levels of customer satisfaction and continued focus on our service proposition enabled Corporate Banking to deliver a 6% increase in NPAT in the half to September. • A solutions based proposition led by our Wall St to Mai
Slide 36: Score out of 10: Source - Roberts Research
* Score out of 10: Source - Roberts Research 1996-2003
Slide 37: Market leader: Asset Finance continues to prosper
Market leader: Asset Finance continues to prosper growing 23% in 2003 Asset Finance has continued its momentum, with NPAT growth of 23% in 2003. This strong performance is largely attributable to three key factors: • Cultural transformation and a continued commitment to increasing staff satisfaction
Slide 38: Mortgages - strong growth drives performance
# - NPAT for Australian businesses only * Source - RBA July 2003 Mortgages –strong growth drives performance • The momentum in ANZ’s mortgages business in Australia and New Zealand continued during the year delivering a 9% increase in NPAT, with FUM increasing 19.9% on prior year. The cost of increa
Slide 39: Personal Banking - underlying health of the business improving
* Australia (excluding Origin) Personal Banking – underlying health of the business improving… The personal banking business has continued to invest in its Restoring Customer Faith (“RCF”) program. This program aims to improve the “health” of the business. Significant improvements have been achieved
Slide 40: Mortgages portfolio sound
TPMI - third party mortgage introducers O/O ^ owner occupied Mortgages portfolio sound • A Loan to Valuation Ratio (LVR) analysis of ANZ’s mortgage portfolio suggests it has sufficient equity margin to sustain a reasonable devaluation in Australian residential property prices. • Emerging risks in ap
Slide 41: Strong growth in the mortgage portfolio
3 Strong growth in the 90 ‘mortgage portfolio 70.3 m0 2 Sep-01 Mar-02 Sep-02 Mar-03 Sep-03
Slide 42: Strong LVR profile
Strong LVR profile 80% 70% 60% 50% 40% 30% 20% 10% 0% LVR at origination Dynamic LVR 0-60% 61-75% 76-80% = Bi%+
Slide 43: APRA's findings from mortgage industry stress test
APRA’s findings from mortgage industry stress test APRA Comments ANZ Response • APRA found that 32% of loans with LVR’s greater than 80% are not mortgage insured • Comparative figure for ANZ was 16%, however APRA analysis included all “retail” type lending including Small Business lending, which may
Slide 44: Asset Quality Sept 2003 v Sept 2001
Asset Quality Sept 2003 v Sept 2001 (Australia & New Zealand) ‘Net Non Accruals J down 50% Net Specific Provisions J down 32% Economic Loss Provision rate J down Sbps Lending Growth T 23% (over 70% due to mortgages) 8 or lower ratings continue to decrease
Slide 45: US Energy Portfolio - issues remain, but exposure continues to reduce
US Energy Portfolio – issues remain, but exposure continues to reduce • Management has been proactive in addressing Group exposure to the global energy sector • Concentration risk associated with exposure to energy lending as a proportion of the aggregate loan book has been mitigated by management i
Slide 46: Quality of Group Telco lending book has also improved
No of Cust (Total 20) Investment Grade 51.6 % 51.5 % 43.0 % Non Accrual 9.2 % 10.8 % 14.8 % Specific Provisions (AUD) 9.7 m 9.1 m 46.1 m n/a (six months) Note : 1. Includes utilised guarantees and market related products 2. Includes US domiciled exposures only (Excludes Mexico) Quality of Group Telc
Slide 47: Group risk grade profile
No of Cust (Total 39) Investment Grade 83.1 % 81.7 % 82.8 % Non Accrual 5.0 % 3.4 % 2.1 % Group risk grade profile
Slide 48: Specific provisions down 28% on 2002
B+ to CCC 3.0 % 2.8 % 2.5 % 2.5 % 2.3 % Non Accrual 0.9 % 0.9 % 0.8 % 0.7 % 0.6 % Specific provisions down 28% on 2002– no large single provisions
Slide 49: Specific Provisions
‘Specific Provisions Significant impact from ‘single customers > Sep: 8 Mar Sep: EF 9 Mar Sep- Mare Sep- Mar Sep- Mar Sep: 00 00 6G 6G 602 2030 ‘MIM Net specific provisions - $m (LHS) =2=% Intemational SPs (RHS) ep charge - $m (LHS)
Slide 50: Geographic Specific Provisions
Geographic Specific Provisions 2003 AusyNZ fIUK/US Asia Other Inter
Slide 51: Non-accrual loans continue to fall
Non-accrual loans continue to fall
Slide 52: Historic Gross Non-Accrual Loans
Historic jm Gross Non-Acerual * ‘Loans (LHS) 1.75% 1662p Non-Accrual Loans/ Loans & ‘advances (RHS) 1800 1500 1.50% 1.25% 3200 1.00% 0.75% 0.50% 0.25% 0.00% 1998 1999 2000 -«-2001.-~=S=«2002Sep-03
Slide 53: New non-accruals reduced 23% on 2002
New non-accruals reduced 23% on 2002
Slide 54: Geographic New Non-Accrual Loans
Geographic New Non-Accrual Loans $m 8 8 € 8 8 Ty AusyNZ ENUK/US Asia Other Inter
Slide 55: Existing and future problem loans are well provided for
Existing and future problem loans are well provided for • The period 1998 through 2003 has seen Group GP trend down 16% to 101 bps, consistent with the sustained de-risking of the Group lending book. • As at September 2003, gross non-accrual loans were 61 bps of GLAs (or A$1.0bn). Of this, 48% was c
Slide 56: Proactive reduction in volume of top 10 client committed exposures
Note : 1. As per most recent company financial reports for CBA, NAB and WBC Proactive reduction in volume of “top 10” client committed exposures • ANZ has implemented credit management policies to diversify loan book exposure by reducing the volume of “top 10” client committed lending. This has led
Slide 57: Position of top 10 exposures
Postion of top 0 Auom 0 250 8007800003280 Funded = Unfunded
Slide 58: Economic forecasts
Note : 1. The reduction in RWAs using Advanced IRB outcomes (excluding operational risk) when compared with current accord capital requirements can be used as an indicator of the relative riskiness of a bank’s assets. 2. RWA calculations were performed using the capital functions used in QIS 3.0 The
Slide 59: Our record profit in 2003 of $2,348 million
Our record profit in 2003 of $2,348 million is a continuation of the strong returns ANZ has delivered in recent years. This momentum has been achieved by a combination of repositioning our business in previous years and a focus on productivity. Over the past five years we have rebalanced our portfol
Slide 60: Average lending and deposit growth; non-interest income
* Business lending includes corporate, small business, and institutional segments. Deposits includes Esanda retail debentures. Average net lending assets grew by $13.6 billion (10%) overall, $10.8 billion (18%) in Mortgages, $1.6 billion in Corporate and $0.8 billion in Esanda/UDC. Average net lendi
Slide 61: Strong capital levels maintained
* Sep 02 excludes significant transactions ** excludes volume impact and benefits from repricing We maintained strong capital levels in 2003 as a prudent measure considering the world economic climate. Our Adjusted Common Equity remained at 5.7% of Risk Weighted Assets the same as September 2002 (Ta
Slide 62: Serving different stakeholders; The National Bank of New Zealand
Serving different stakeholders Shareholders own ANZ and appoint directors, therefore the directors’ focus is on shareholders Directors have a duty to act in the best interests of ANZ Growing acknowledgement that to protect the long-term value of ANZ, the needs of our customers, people, shareholders
Slide 63: A specialised portfolio - NPAT by business segment
* Sep-02 excludes significant items A specialised portfolio - efficient allocation of resources to deliver results A specialised portfolio allows us to efficiently allocate resources to those businesses experiencing, or with the potential for growth and to reduce resources away from those businesses
Slide 64: Geographic Gross Non-Accrual Loans
Geographic Gross Non-Accrual Loans
Slide 65: NBNZ acquisition creates the leading bank in New Zealand
NBNZ Acquisition NBNZ acquisition creates the leading bank in New Zealand • Purchase price equivalent to A$4.915 billion (at exchange rates on 23 October 2003) • ANZ and NBNZ, when combined, will create: • The leading bank in New Zealand • One of New Zealand’s top three companies • Market leadership
Slide 66: High asset quality - Provisioning charge as % of loans and advances
High asset quality – Provisioning charge as % of loans and advances
Slide 67: Declining cost-to-income ratio
Declining cost-to-income ratio
Slide 68: Dec-01 Dec-02 Jun-03 (LTM)
50 45 40 35 30 Dec-01 Dec-02 Jun-03 (LTM)
Slide 69: NBNZ purchased at attractive multiple
Source: NBNZ Group Financial Reports NBNZ purchased at attractive multiple Price # / LTM cash earnings multiples
Slide 70: Price / Net tangible assets multiples
Price # / Net tangible assets multiples
Slide 71: Estimated operating cost synergies and integration costs
* - Average of 10 past Australian and New Zealand transactions # - Price used in calculating LTM cash earnings multiples and NTA multiples for the major Australian banks and the 10 Australian regional banks are 30-day volume weighted average prices as at 23 October 2003 Estimated operating cost syne
Slide 72: Previous estimates of expense savings
Previous estimates of expense savings? Current expected tm expense savings 100 High Estimate 80 60 Low Estimate 40 20 2003 2004 2005
Slide 73: Our specialisation strategy - Monolines win, but returns more volatile
Note: 1) Annualised 2002 total operating expenses inflated for cpl & wage growth; 2) Previous estimates were 10-15% savings from base; Strategy Our specialisation strategy - Monolines win, but returns more volatile. Diversification reduces risk Independent analysis* has found that monoline specialis
Slide 74: Internationally, we will reduce our US & European exposures
Internationally, we will reduce our US & European exposures, and seek longer term growth options in East Asia and the Pacific ANZ’s international focus is twofold and remains clear 1. US and Europe – REDUCE Involving: • Focusing on core products and relationships • Reallocating capital to fund growt
Slide 75: Summary
Summary A solid result in 2003 • Cash EPS up 9.2% • Portfolio well positioned • Credit quality improving NBNZ is a very different acquisition • We have purchased a quality asset with quality management • Focus on customers and growth • No change intended in total number of branches • Is transforming
Australia and New Zealand Banking Group — FY2003 Earnings Presentation on 6ix