Bank Of Queensland Limited · ASX:BOQ
Bank Of Queensland — FY2011 Earnings Presentation
51 slides from Bank Of Queensland's earnings presentation, Aug 31, 2011
Slide 1: Bank of Queensland Full year results
Bank of Queensland Full year results 31 August 2011
Slide 2: Agenda
Agenda Result highlights Ram Kangatharan Acting CEO and Chief Operating Officer Financial results & portfolio details Ewan Cameron Chief Financial Officer Strategy and outlook Ram Kangatharan Acting CEO & Chief Operating Officer 2 Bank of Queensland Limited ABN 32 009 656 740
Slide 3: Result highlights
Result highlights Ram Kangatharan Acting CEO and Chief Operating Officer
Slide 4: Result highlights
Result highlights Normalised underlying profit up 18% at $447m Reduction in 2H11 bad debt expense; Collective provisions strengthened with all of 1H Flood & Economic Overlay collective preserved at year end Cost-to-income ratio 44.5% beat guidance Continued growth above System EF business turnaround
Slide 5: Underlying earnings momentum
Underlying earnings momentum 2010 2011 Normalised Underlying profit $379.0m $447.4m 18% Normalised cash NPAT $197.0m $176.6m (10%) Statutory profit $181.9m $158.7m (13%) Cash EPS (normalised fully diluted) 83.4¢ 69.8 ¢ (14¢) Ordinary dividend 52¢ 54¢ 2¢ Loan growth* (pcp) 11% 4% (7)pts Retail deposi
Slide 6: Key drivers of strong underlying profits
Key drivers of strong underlying profits Strong earnings growth year on year (acquisitions 12 vs 2 months contribution), masked by impaired assets spike 3.4 $474m 25% Growth 44.4 4.4 26.7 18% Growth 51.7 447.4 +68m 379.0 FY10 Asset & Margin Acquisitions Non-Interest Opex Impaired non- FY11 Growth In
Slide 7: Growth ahead of system
Growth ahead of system Lending growth: ~1.4 system* Deposit growth: ~1.5x system 6% 12% 4% 9% BOQ System BOQ System SystemSystem BOQ System BOQ Lending growth Retail deposit growth * Last 12 months 7 Source: APRA data (GLA + Val of HL Securitised). Excludes Leasing (-$220m). Bank of Queensland Limit
Slide 8: Good expense disciplines
Good expense disciplines Expense disciplines continue across the business. Positive jaws maintained while absorbing investment in acquisitions (excluding acquisitions 1% growth) Normalised Cost-to-income ratio* Expenses* $358.7m $320.8m $20.3m Admin 62.6% 12% $16.5m $89.6m Operating 56.1% $86.6m $66
Slide 9: Asset quality should return to industry trend
Asset quality should return to industry trend High level of 2011 losses as a result of flood and economic overlays and 3 large exposures Overall level of bad debts well below major banks through the cycle BDD / GLA performance* 0.79% 0.62% BOQ 0.45% 0.45% 0.43% Majors 0.33% 0.30% 0.28% 0.18% 0.20% 0
Slide 10: Strong capital base and liquidity
Strong capital base and liquidity Tier 1 and total capital levels remain in excess of APRA and internal benchmarks, whilst absorbing impact of securitised assets coming back on balance sheet Conservative liquidity maintained above 15%, whilst paying down $550m GG Debt Capital adequacy Liquidity 11.5
Slide 11: Restarting dividend growth…
Restarting dividend growth… Final dividend of 28¢ up 2¢ (or 8%) from pcp, bringing the full year dividend up to 54¢ Spike in bad debts dilutes EPS during the period, but better organic capital generation provides platform for future dividend growth Earnings per share* Dividends Dividend yield 98¢ 54
Slide 12: Financial results and portfolio details
Financial results and portfolio details Ewan Cameron Chief Financial Officer
Slide 13: Delivering commitments on income growth and expense management
Delivering commitments on income growth and expense management 2010 2011 % Change $m $m vs pcp Total Income 710.6 796.4 12% Adj: Normalisation & non-cash items (10.8) 9.7 Normalised Total Income 699.8 806.1 15% Expenses 348.3 374.1 7% Adj: Normalisation & non-cash items (27.5) (15.4) Normalised Oper
Slide 14: Normalisation items
Normalisation items Summary of normalised income and expense items below Normalisation adjustments Income ($m) Expenses ($m) After tax (before tax) (before tax) Amortization of customer contracts (8.4) (6.2) Integration and due diligence costs (5.9) (4.1) Amortisation of fair value adjustments (5.0)
Slide 15: Strong recovery in normalised cash NPAT as indicated by 1H11 trend
Strong recovery in normalised cash NPAT as indicated by 1H11 trend Normalised cash NPAT $119m versus FY10 $114m +18% Adjusting for flood provision $97m $100m and one-off losses on large exposures, cash NPAT increased 18% 2H11 Increase by 19% driven by acquisitions and loan $57m growth 1H10 2H10 1H11
Slide 16: Positive NIM Trend
Positive NIM Trend On a normalised basis NIM* increased 5bps through the year Increase in non-performing loans in line with increase in impaired asset balances NIM up 5 bps 4 bps 12 bps 7 bps 7 bps 3 bps 1.70% 1.65% 1.60% Asset CIT Non Margin Margin Funding & performing Third party FY10 pricing & ac
Slide 17: Growth across both major income lines
Growth across both major income lines Net Interest Income Non Interest Income 12% 28% $628m $178m $562m $138m 2010 2011 2010 2011 Acquisition of CIT, combined with FY11 Non Interest Income increased Asset Growth offset Non-Earning $40m, or 28% year on year drag St Andrews acquisition contributed str
Slide 18: Expense composition
Expense composition Cost initiatives implemented have created a more efficient and productive organisation Cost-to-income ratio target of sub 45% achieved, with delivery of increased capability from FY10 acquisitions Cost-to-income ratio Operating expenses Occupancy $27m (12% growth) 1.4% Employee c
Slide 19: Increasing Retail Deposits
Increasing Retail Deposits Core retail deposit growth, at 52% of Total Funding. On the path to 60% LT Wholesale proportion remains steady, reduction in ST wholesale and securitisation 2010 Funding 2011 Funding S/T S/T Wholesale Wholesale (14%) (11%) Retail Retail (48%) (52%) L/T L/T Wholesale Wholes
Slide 20: Wholesale funding task manageable
Wholesale funding task manageable Wholesale funding ($b) Long term debt issuance ($b) $17.4 $16 - $17 0.5 $16.0 $5.4 0.5 0.1 0.5 5.3 4.9 4.2 2.5 6.0 5.5 5.3 - 6.1 $1.0 - $2.3 0.1 $1.8 0.3 2.8 0.8 - 1.6 5.7 1.0 5.6 5.0 - 5.4 0.5 0.2 - 0.6 2010 2011 2012E 2010 2011 2012E Term Debt Securitisation Sub D
Slide 21: Portfolio Details
Portfolio Details Ewan Cameron Chief Financial Officer
Slide 22: Loans under management by product
Loans under management by product 15% CAGR $32.0b $33.3b 11% 8% $3.5b leasing $28.9b $3.8b Contraction $26.3b $5.4b 16% $3.2b $5.2b 4% Growth SME and commercial $3.0b $4.7b $19.2b $24.4b $4.4b 23.0b $21.0b $2.7b $18.9b $3.4b 6% Growth 73% retail $13.1b 2007 2008 2009 2010 2011 Focus continues to rem
Slide 23: Geographic diversification continues
Geographic diversification continues Consistent trend of growing geographic diversity – less reliance on Queensland Strongest growth from interstate franchise, particularly VIC and NSW WA turnaround plan in place 2007 2011 FY11 – Growth rate % QLD 75% QLD 62% QLD 2% NSW 12% NSW NSW 8% NSW VIC VIC 16
Slide 24: Impairments stepping down from 1H11
Impairments stepping down from 1H11 Impairment charges for the year at Specific and collective expense ($m) $201m driven by 1H11 flood provision $134m and large exposures $27.7m $51m $53m $66m 2H11 charges down $68m from 1H11 Collective $6.7m $14.9m to $66m Specific $106.7m $66.8m $44.7m $37.9m and
Slide 25: Impaired loans stabilising
Impaired loans stabilising Impaired loans increased by $21m in Total impaired loans $423m $444m 2H11, following $275m increase in 1H11 Significant reduction in new impaired; although levels still elevated as a result of $148m increased arrears level seen during 2011 1H11 increase driven by large exp
Slide 26: Stronger provision coverage
Stronger provision coverage Increasing provision coverage, Provision Coverage reflecting a more prudent approach Marginal increase in impaired GRCL 1.56%* 1.47%* during 2H11 Collective Provision $67.0m $57.2m 1.00%* Specific provision coverage Specific Provision $80.8m $80.1m $77.0m increasing from
Slide 27: More robust collective coverage
More robust collective coverage Collective provisions for FY2011 remain at $80m following 1H11 flood and general Collective provision economic overlay $81m $80m During 2H11, flood and general economic $17m overlay migrated through to product $35m collectives and more conservative $53m $2m $23m Overl
Slide 28: Arrears management
Arrears management Collection strategy improvements Arrears 90 Day + by product 2.74% initiated during 2H11 in the EF portfolio 2.61% 2H10 yielding dividend 1.68% 1.80% 1.78% 1.73% 1H11 1.49% 1.28% Uptick in 30+ & 90+ in Retail and 0.73% 0.88% 1.11% 1.03% 1.15% 2H11 0.55% Business lending following
Slide 29: Small number of large exposures driving 2011 bad debts
Small number of large exposures driving 2011 bad debts Property Finance Group $5.4b Impaired (20%) Total Loan $2.3b Exposure 30+ Arrears $0.9b (3%) Specific Bad Debt Expense Performing $63m (77%) $80m $98m Property Commercial Property Finance Group OMB network commercial origination 20% of book is i
Slide 30: Large exposures
Large exposures The Bank has 21 relationships with Largest exposures by Industry group exposures greater than $20m. Down from 25 at FY10 Financial and Insurance Services 4% Retail Total commitment exposure $734m 6% (drawn balance $612m) Other 7% Construction 23% 2% of total loans under management 11
Slide 31: Strategy and outlook
Strategy and outlook Ram Kangatharan Acting CEO and Chief Operating Officer
Slide 32: Sticking to the plan: Value Accretion
Sticking to the plan FY11 Progress… High margin/ Expand / acquire high low capital margin / low capital intensity products 2 new divisions – BOQ Finance in Sydney and St Value Accretion Geographic, Acquisition of Pioneer & Home in WA- focused higher Andrew’s in Perth Scale M&A growth geo plays Merge
Slide 33: Operating model
Operating model St Andrew’s and CIT now fully transitioned and operating as stand-alone businesses BOQ is running three key business lines, 2 new divisions driving capital-lite & higher margin business Banking Finance Insurance Combined ROE for the acquired businesses is ~35% vs. forecast of 25%; ~$
Slide 34: Shifting the ROE profile of the BOQ group… pathway to FY14
Shifting the ROE profile of the BOQ group… pathway to FY14 Business units Group Banking Insurance BOQ Finance LUM ~$36bn - ~$6bn Assets ~$42bn 25% ROE ROE 14% 13% 15% The new business units have introduced positive impetus to the group ROE and transform the profitability & organic growth profile of
Slide 35: Cross sales critical link
Cross sales critical link In a lower credit growth environment, the OMB model is being repositioned to continue its lending outperformance, but also to drive cross sales: Low cost sticky deposits Î New Day 2 Day Plus account performing well Mortgage protection Î Premiums increase 31% vs FY10; Mortga
Slide 36: OMB Network resilience grows…
OMB Network resilience grows… Total OMB commissions OMB income split Upfront income $133.1m $136.2m 26% $116.1m $93.7m FY11 Share of fees 13% Trail income Other income 54% 7% FY08 FY09 FY10 FY11 Upfront income 50% Total OMB commission payments continue Share of fees to increase, driven by existing b
Slide 37: BOQ Finance – a specialist Asset Finance company
BOQ Finance – a specialist Asset Finance company Financial strength Funding diversity Bank Integrity Branch Distribution Specialist asset knowledge Finance Out of the square company mentality Relationship approach Combines the best of being a Bank and a Finance company 37 Bank of Queensland Limited
Slide 38: Clear competitive advantages
Clear competitive advantages Competitor categories BOQ Finance advantages Major Specialised International asset & risk Relationship Finance Banks knowledge Equipment approach Companies Out of the square Local OMB mentality Motor Invoice Distribution vehicle discounting Integrity Funding Small Captiv
Slide 39: BOQ Finance - Key success factors
BOQ Finance - Key success factors Risk Pricing Product & Relationship management discipline distribution approach differentiation Predictable loss Price for risk Add value to BOQ’s personal outcomes Price for services distribution service Specialist risk and value channels Portfolio knowledge delive
Slide 40: Comprehensive risk capabilities
Comprehensive risk capabilities 4% of Assets 3% of Assets 87% of Assets 2% of Assets 4% of Assets High growth High growth 5-10% growth High growth High growth Consumer Small Ticket Large Ticket Inventory Invoice Commercial Commercial Finance Discounting Automated risk Automated risk Individual risk
Slide 41: BOQ Finance security & risk profile
BOQ Finance security & risk profile Other transport & special purpose Avg contract bal: $26k 30% of contract volumes in Technology Avg contract bal: $11k Technology, smaller tickets 16% Agricultural Avg contract bal: $55k means only 11% of portfolio 11% 6% Earth moving / 137 exposures in EF & VF Min
Slide 42: St Andrew's update
St Andrew’s update ~90% of the full acquisition cost of the business has already been repaid via dividend payments (< 14 months) Discussions progressing with several potential corporate partners BOQ account St Andrew’s premium growth 31% vs FY10 Product diversification strategies being implemented C
Slide 43: Summary
Summary FY11 strong underlying result, despite challenging economic climate & weather events FY12 is a turnaround year for BOQ Group Growth of 1.5x system; with good risk/reward disciplines BOQ Finance positioned for expansion maintaining 15% ROE returns Cost disciplines now part of the DNA, but no
Slide 44: Bank of Queensland Limited ABN 32 009 656 740
Bank of Queensland Limited ABN 32 009 656 740
Slide 45: Appendix
Appendix
Slide 46: Housing portfolio
Housing portfolio Geographic diversification strategy Housing arrears 30 / 90 Days 2.5% into other states continues 2.0% 30+ Execution of collection strategy 1.5% 1.85% change in Q4, resulting in reducing 1.0% 90+ 0.88% 30 days trend 0.5% 0.0% Increase in 30+ reversed with 90+ Aug Sep Oct Nov Dec Ja
Slide 47: Strong mortgage book
Strong mortgage book The Bank’s mortgage book is in a LVR Band Current LVR strong position. 56% of the book has 45% 38% Original LVR an LVR of less than 60% 20% 21% Mortgages typically secured by the 19% 14% 10% 10% 10% 11% property and by Lenders Mortgage Insurance (LMI) if the LVR is over 80% 0 -
Slide 48: Lines of Credit portfolio
Lines of Credit portfolio Majority of ‘Other retail’ is Lines of Line of Credit 30 / 90 days 5.0% Credit, secured by residential property 4.0% 30+ 4.05% Increase in arrears more amplified than 3.0% 90+ 2.61% home loans as measurement is ‘time 2.0% 1.0% over limit’ 0.0% Same collection strategies as
Slide 49: Commercial portfolio
Commercial portfolio Commercial 30+ arrears has reduced Commercial 30 / 90 days 5.0% by 70bps since May 11 peak 4.0% 30+ 3.97% 4 large exposures contribute ~50% of 3.0% 90+ 2.74% the commercial impaireds and 2.0% 1.0% provisions, and are concentrated in 0.0% property Aug Sep Oct Nov Dec Jan Feb Mar
Slide 50: Leasing portfolio continues to improve
Leasing portfolio continues to improve 50%+ reduction in 90+ arrears from Leasing 30 / 90 days 5.0% August 2010, demonstrating 4.0% effectiveness of 2010 collection 3.0% 30+ strategy, and impact of risk appetite 2.0% 2.30% setting through origination strategy 1.0% 90+ 0.55% from 2010 0.0% Aug Sep Oc
Slide 51: Bank of Queensland Limited ABN 32 009 656 740
51 Bank ofBank Queensland Limited Limited of Queensland ABN 32ABN 009 32 656009 740656 740