Transcript John McFarlane/Peter Marriott

2000 Annual Results
Australia and New Zealand Banking Group Limited
26 October 2000
John McFarlane
Chief Executive Officer
2000 Annual Result
• Strong result – better than expectations
– $1,703m up 15%
– $885m second half up 8.2% on first half
• We delivered on all our commitments
– Financial performance
– Rebalancing the portfolio
– Reducing risk
• Restructuring program accelerates strategy
– Sensible application of surplus capital
– EPS accretive
– Superior to buyback alternative
Page 2
Results summary
• Operating profit after tax before abnormals:
– Full year:
$1,703 million, up 15%
– Second half:
$885 million, up 15.8% on 1999, and 8.2% on
first half 2000
• Earnings per ordinary share up 15% to $1.04
• Return on ordinary shareholders’ equity of 18.3%, up from
17.2%
• Final dividend 35 cents, up 5 cents with 100% franking. Full
year dividend 64 cents, up 14%
• $361m restructuring charge to accelerate new strategy
• Net abnormal profit $44 million - Grindlays profit largely
offset by restructuring and other provisions
• Costs flat. Cost income ratio down to 51.7% from 54.4%
Page 3
Our three year commitments to
shareholders
• Achieve superior financial performance
– Deliver double-digit earnings growth
– Improve return on equity
– Bring down our cost income ratio to 53%
• Re-balance our portfolio
– Increase proportion of Personal business
– Enhance leadership position of Corporate
– Simplify and focus our International business
– Build momentum in eCommerce
• Reduce risk
Page 4
We have delivered superior financial
performance
$m
1800
1600
1400
1200
%
NPAT
1480
1171
18.3
18
CAGR
13.3%
1175
16
1000
14
800
12
600
17.2
16.9
15.5
10
400
1997
1998
1999
65
63.1
60.9
54.5
55
51.7
50
45
1997
1998
1999
1997
2000
Cost Income Ratio
60
ROE
20
1703
160
140
120
100
80
60
40
20
0
Page 5
1999
2000
Total Shareholder Return
135
100
100
84
1997
2000
1998
1998
1999
2000
We have re-balanced our portfolio
Loans & Advances
NPAT
149
647
10%
8%
7966
49%
46861
41%
5930
5%
45684
39%
65264
56%
251
23%
547
50%
772
49%
43%
41577
302
27%
1997
1997
2000
PFS
CFS
•
Includes Grindlays
•
Excludes Group
International
Page 6
2000
Portfolio breakdown - indicative
$772m
100
$647m
$1,703m*
%
Small Business
Other
General Banking
Personal
%
100
Institutional
Corporate
Corporate
Transaction Services
Asset Finance
Wealth Mgmt
Funds Mgmt
0
Capital Markets
Foreign Exchange
International
Mortgages
ANZIB Financial Services
Cards
40m*
0
Personal
0
* Excluding Grindlays ($127m)
100
International
Page 7
Corporate
Customer
Businesses
We continue to reduce risk
ELP Factors
Market Risk (Av. VaR)
bp’s
45
A$m
43
23
23
39
40
36
35
30
25
5.4
4.4
1999
2000
•
ANZ 2000
- ex
Grindlays
ANZ 2000
ANZ 1999
20
1997
1998
Beta reducing towards 1.0, in line with peer average
Page 8
We didn’t get everything right – firm
action taken
• Personal loan portfolio
• International provisioning from historical book
• Panin writedown to market
• Took action to put historical Grindlays issues behind us
Page 9
Accelerating our transformation
program
35 Initiatives across our portfolio
of businesses including:
• Standardisation and rationalisation of
IT and processing platforms
• Rationalisation and upgrading of
EFTPOS network
• Transformation of Branch Network
• Improving efficiency in Asia/Pacific
by rationalising IT platforms and
centralising back office processing
• Establishing new business platform
for Esanda
Page 10
Expected cost
reduction
$300m
Building for the future - recap on our
strategy
Proposition
Strategy
Implications
Specialise
• Specialists will
win over
conglomerates
• Reconfigure ANZ
as a portfolio of
21 specialist
businesses
• Specialist
approach to
customer and
product
businesses
e-Transform
• Corporations
need to embrace
new
technologies
• An e-Bank with
a human face
• Transform the
way we do
business by using
IP technology
• Value depends
on performance
and growth
• Drive results
whilst investing
in growth
businesses
• Meet
expectations,
fund growth by
cost reduction
Perform and
Grow
Page 11
FX
Later
Soon
Institutional
Banking
Not yet
Impact of globalisation
now
Portfolio strategy should reflect degree of
globalisation and leverage real capabilities
GSF
Funds Management
B2B
Capital Markets
Esanda
Custody
Cards
B2C
Wealth
Management
Trade
Mortgages
General Banking Mid Corporate
Small Business
Less
developed
At par
Local
leader
ANZ’s capability
Page 12
Regionally
distinctive
Globally
distinctive
Different businesses need different
strategies
Business size by NPAT
Create new
businesses
Invest for rapid
growth
e-Payments
FM GSF
High
e-Asia
GTS
Market
Growth
Wealth
Cards
Institutional
Corporate
Low
• Optimise performance
• Identify new growth
products
FX
Small BusCap Mkts
Gen Banking
Esanda
Mortgages
Low
High
ROE
Page 13
• Defend position
and return
• Grow selectively
Balancing the autonomy of each
business with strong leadership from
the centre
Business Unit
Corporate Centre
• Prime accountability for
profit and value
• Drive group strategic
direction and set policy
• Freedom to pursue
opportunities within
agreed boundaries
• Portfolio management
and resource allocation
• Cross-Business Unit
synergies
• Operate using agreed set
of platforms, systems
and shared services
• Control and oversight of
risk, brands and
technology
• Transfer pricing based on
market - no cross
subsidisation
Page 14
Personal Financial Services
Accountabilities
PFS
50%
Group
50%
General
Banking
Theme
Drive sales
and
efficiency
Priorities
•Advanced
marketing/
segmentation
•Straight
through
processing
•Lower cost to
serve
Peter Hawkins
Wealth
Management
Invest to
grow
•Expert
advice
•Open
architecture
•“Wrap”
facility
•Seamless
access
Small
Business
Mortgages
Cards
Funds
Management
Aggressively
rebuild
Maintain
profitable
growth
Accelerate
growth
Reinvigorate
and grow
•Build
profitable
market share
•Maintain
distribution
strength
•Relationship
based
proposition
•Straight
through
processing
•Redesign endto-end
processes
•“Best of
breed”
delivery
platform
•Data mining
•Exploit
growth
opportunities
•Leverage
distribution
channels
•Optimise
products/
capabilities
•Double FUM
by 2003
anz.com
systems
CRM
SSP
Page 15
brand
risk management
ANZ in the medium term
ANZ in 1 - 2 years
ANZ in 3 - 7 years
• Material reallocation of
resources
• Substantial portfolio shifts
• Narrower, more focused
portfolio with leading
positions
• Substantial e-transformation
reducing costs and focused
service
• Increased investment in
high growth business
• Performance optimised
– EPS, ROE, investment
– capital management
• Modern performance
culture
• Transformational cultural
change
• Higher stock rating
Page 16
Goals going forward
• EPS growth above peer average (target 10+%)
• ROE over 20%
• Cost-income ratio comfortably in the 40’s
• Inner Tier 1: 6%
• Maintain AA category credit rating
Page 17
2000 Annual Results
Australia and New Zealand Banking Group Limited
26 October 2000
Peter Marriott
Chief Financial Officer
Highlights
 Earnings growth of 15% (13.3% compound)
 Return on equity 18.3% (17.2%)
 Cost income ratio 51.7% (54.5%)
 Grindlays sold, realising net profit after tax of $404m after
related provisions
 Income up 6%, costs flat, ELP down 4bp’s to 39bp’s
 $2bn returned to shareholders in the form of dividends and
share buyback
 Dividends returned to 100% franking
 Restructuring charge to accelerate transformation program
Page 19
Drivers of performance
(excluding abnormals)
Net Interest/Assets
Margins
2.41
ROA
3.05
2.30
1.03
2.87
0.97
Other Inc./Assets
ROE
1.57
1.56
Cost/Income
18.3
54.5
17.2
51.7
"Leverage"
17.7
17.8
Cost/Assets
2.17
2.00
Provisions/NLA
0.43
1999
2000
Provisions/Assets
0.34
0.30
Page 20
0.39
Good progress across the board
$1,900
$1,800
$1,700
Other
fee
111
Lending
fee
Net interest 48
income
146
Other
income
47
Costs
(14) Tax & outside
interests
(123)
Debt
provisioning
8
Profit before
abnormals
1703
Net profit
after
abnormals
1747
Abnormals
44
$1,600
$1,500
1480
$1,400
$1,300
$1,200
2000
1999
Page 21
2000
Income drivers
4.00
3.60
Margins stabilised in
second Half
3.51
3.50
3.19
3.14
3.00
PFS
2.50
2.60
2.67
2.64
International*
CFS
2.00
1.50
2.55
• Greater focus on improving
margins
1.90
1.72
• Smaller differential between
90d BBSY and Cash Rate
1.91
1.84
Sep-99
Mar-00
1.00
* Includes Grindlays
Mar-99
Other
MOS
Trading
FX
Other Fees
Lending
Fees
Sep-00
175
174
340
1022
Non-interest income showed
healthy improvement
342
• Driven by higher fee income
1133
• FX and trading profits lower,
reflecting lower volumes
679
727
1999
2000
Page 22
Cost-income ratio continues to decline
70
65
63.1
NAB *
C BA
WBC
ANZ
60
*
55
51.7
50
45
1997
1998
1999
* estimate of market expectations for 2000
Page 23
2000
Target comfortably
in the 40’s
Costs are flat and a new baseline is
established for 2001
$3,300
3300
18
$3,100
$3,000
(50)
3314
Grindlays
(288)
3268
GST &
EFTPO
S NZ
$3,200
46
Sale of
Grindlays
GST &
acquisitions
74
3100
Sold
businesses
- Investment
to build
business
prior to sale
& FX effects
$2,900
• Higher
restructuring
costs
$2,800
• Increased
marketing spend
$2,700
• Higher profit
share
$2,600
$2,500
1999
1999
Adjusted
Page 24
2000
Baseline 2000
Sale of Grindlays re-balances the
Group’s portfolio
NII/Assets
Margins
3.91
2.3
2.87
2.22
3.33
2.76
Other Income/Assets
2.8
ROA
1.6
1.5
Cost/Income
1.27
1.03
1.02
51.9
51.7
50.0
Cost/Assets
3.35
2.00
1.92
Group 2000
ELP (bp’s)
Grindlays
Continuing
113
ELP/Assets
0.72
0.30
39
0.28
Page 25
36
• Reduces lending in
Middle East and
South Asia by
$4.8b
• Reduces loans by
3.9% but reduces
non-investment
grade loans by
6.8%
• Exposure to
countries rated
below A reduced by
$8.5b
• Capital released
being addressed by
current buyback
Strong organic asset growth
$m
Australian Assets
210,000
190,000
170,000
ANZ
CBA
NAB
WBC
150,000
130,000
110,000
90,000
70,000
50,000
1995
1996
1997
1998
1999
2000
Asset growth has been strong without
material acquisitions
Page 26
Non-accrual loans stable despite
asset growth
$m
1800
Historic
Gross Non-Accrual
Loans (LHS)
Geographic
Non-Accrual Loans/
Loans & advances (RHS)
1662
1.8%
1543
1600
1391
1400
2.0%
1.6%
1000
1999
2000
900
870
800
1.4%
1200
1.2%
1000
$m
872
900
1.0%
800
657
699
600
0.8%
700
600
500
400
0.6%
300
0.4%
200
200
0.2%
100
0
0.0%
0
428
400
Net Non-Accrual
Loans (LHS)
1997
1998
1999
2000
623
50 59
Aust.
Page 27
681
651
NZ
Inter.
Overall book continues to improve
$b
Australian Loans &
Advances
100
Australian Lending
Asset Profile
100%
Other
90%
Mortgages
90
70
60
41.8
43.6
45.5
60%
49
53
BBB to
BBB-
15
BB +
to BB
18
16
BB-
3
3
>B
1999
2000
50%
40%
30
10
AAA to
BBB+
70%
48.4
40
20
13
80%
80
50
14
28.4
31.7
36.2
30%
40.6
20%
0
10%
Mar-99
Sep-99
16
Mar-00
Sep-00
• Mortgages now represent 46%
of book, up from 40% in
March 1999
Page 28
0%
• Investment grade 66% of book
• Diversified portfolio
• Minimal exposure to
media/telco’s
Credit quality is sound in our largest
industry exposures - Australia
Lending Assets (AUDm)
% of Portfolio (RHS scale)
% in CCR 7D-8G (RHS scale)
Manufacturing
Real Estate Operators & Dev.
10bn
8bn
0bn
12.0% 10bn
12.0%
10.0%
10.0%
10.0%
6.0%
4bn
2bn
12.0% 10bn
8.0%
6bn
4.0%
Sep-98
8bn
2.0%
2bn
0.0%
0bn
10.0%
8.0%
6.0%
4bn
4.0%
2bn
0bn
Sep-98
Sep-00
4.0%
Sep-98
12.0% 10bn
6bn
6.0%
4bn
Agriculture
8bn
8.0%
6bn
Sep-00
10bn
Wholesale Trade
Accomm. Cafes &
Restaurants
2.0%
0.0%
0bn
2.0%
0.0%
0bn
0.0%
Sep-98
Sep-00
Page 29
Sep-00
Construction
12.0% 10bn
12.0%
10.0%
10.0%
4.0%
Sep-98
4.0%
2.0%
6.0%
4bn
6.0%
4bn
2bn
8.0%
6bn
8.0%
6bn
Sep-00
8bn
2bn
8bn
8bn
8.0%
6bn
6.0%
4bn
2.0%
2bn
0.0%
0bn
4.0%
2.0%
0.0%
Sep-98
Sep-00
Specific provisions: Corporate offsets
personal loans problem
300
250
254
Personal
Loans
221
214
201
200
171
134
150
96
84
A single
“B” exit
account
41
50
0
Daewoo
125
123
100
140
1999
2000
Personal
Financial
Services
1999
2000
Corporate
Financial
Services
ELP
Page 30
1999
2000
International
NSP
Sold
Businesses
PFS specific provisions were driven by
personal loans and credit cards
SP
$m
80
70
60
50
40
30
20
10
0
Personal Loans
76
1.2
0.8
18
63
60
50
40
30
20
1.5
1.0
• Loss on product ~ $15m after tax
0.5
• Hence specific provisions largely offset
by margin but product design and
controls upgraded to bring losses back
in line with expectations
2000
Credit Cards
2.8
40
Av
Volume
$b
3
• Loss rate 2.3%
2.7
• Average margin >5%
2.4
2.1
• Loss rate approximately 6% against
expected loss rate 3.5%
• Average margin 5-6% (excludes fees
which cover approval costs)
0.0
1999
SP
$m
70
Av
Volume
$b
2.0
2.1
1.8
10
0
1.5
1999
2000
Page 31
Asian credit quality improves significantly
despite two large specific provisions
Asian Specific Provisions
Risk Grade Profile
$2.9b
$m
90
80
A single
‘B’ exit
account
70
60
25
50
40
30
AAA to
BBB+
28.8
BBB to
BBB-
14.1
BB+ to BB
77
Daewoo
56
20
10
BB-
43.8
20.4
24.4
7.4
12.7
B to CCC
15.5
Non-accrual
13.7
11.1
1999
2000
0
• Specific Provisions
relate to two unusual
losses
$4.3b
5.1
3.0
• ‘B’ exposures now only $130m
• Investment grade 68% of book
• Expected losses declined significantly
from 1.4% to 0.5%
Page 32
Provisioning levels strengthen
$m
Times
2100
1395
1300
Net SP
transfer
ELP
charge
3.1
3.1
FX
impact
(51)
1700
1500
3.3
(383)
502
1900
General Provision
ELP charge*
2.9
(90)
2.7
1373
2.5
Sale of
Grindlays
1100
Surplus
406
967
2.3
2.1
900
1.9
700
1.7
500
1.5
2000
1999
2.7
APRA
Guidelines
ELP - Economic Loss Provision
1999
2000
* ex Grindlays for 2000
SP - Specific Provision
Page 33
The result incorporated several
abnormal items
$m
After tax
Net gain on sale of
Grindlays businesses
Strategic business and
transformation
restructuring provision
1200
404 Cr
Panin
1000
245 Dr
JSX
800
600
Panin writedown
81 Dr
Litigation provision
33 Dr
Tax rate change
64 Dr
Revaluation of property
30 Cr
Sale of Colonial shares
33 Cr
Net abnormal gain
44 Cr
Page 34
400
Average
purchase price
200
0
Jun98
Oct98
Feb99
Jun99
Oct99
Feb00
Jun00
Oct00
Abnormals - Grindlays transaction
$m
Net sales proceeds
1,225
Provisions raised on sale
575
Income tax
246
Net profit
404
Indemnities
• ‘Indian scam’ matters
• US$80m Pakistan cross border risk for 12 months
• US$186m indemnity covers 80% of losses on certain
customer accounts. Receive fee equal to ELP
• Standard tax indemnities
Page 35
We have used the financial capacity from the
Grindlays sale to accelerate restructuring
programs spread across 35 separate initiatives
Drivers
• Specialist
businesses,
eTransformation,
and funding
growth
• Cost income
ratio comfortably
in the 40’s
Selected Programs
• Reconfigure metropolitan
branch network in line with
needs and demographics
• Re-engineer Esanda operation
• Simplify Asian business platform
& operations
• IT platform rationalisation for
eWorld
• General Banking sales and
service platform
Two year program
• Provision relates to costs of
‘dismantling the old’ and
investment spend will be
covered by normal operations
Page 36
Benefits
• Approximately $300m
lower costs
• Enhance customer
service and revenue
• Greater flexibility
• Platform for further
eTransformation
• Invest savings in
growth businesses
subject to EPS growth
targets
• Leaves capacity in
routine $80-100m pa
restructuring for
further programs
Capital management will continue
$b
%
8.5
8.0
140
7.7
135
7.9
7.5
7.5
130
7.4
7.0
125
120
6.5
6.0
6.7
6.9
115
6.5
6.4
105
5.0
100
Sep-99
Mar-00
• Capital scarce resource to be
managed effectively and efficiently
• Maintain capital consistent with
ANZ’s AA status and peer group
ratings
– Tier 1 (6.5 - 7.0%)
– Inner Tier 1 (6.0%)
110
5.5
Mar-99
Capital Management
Philosophy:
Sep-00
Tier 1
Inner Tier 1
RWA's
Page 37
Progress
• $1014m of buyback
• Capping of DRP/BOP to reduce
dilution
• Remaining $500m buyback in
progress
• Restructure more EPS accretive
than buyback
Goals going forward
• EPS growth above peer average (target 10+%)
• ROE over 20%
• Cost-income ratio comfortably in the 40’s
• Inner Tier 1:
6%
• Maintain AA category credit rating
Page 38
The material in this presentation is general background information about the Bank’s
activities current at the date of the presentation. It is information given in summary
form and does not purport to be complete. It is not intended to be relied upon as
advice to investors or potential investors and does not take into account the
investment objectives, financial situation or needs of any particular investor. These
should be considered, with or without professional advice when deciding if an
investment is appropriate.
For further information visit
www.anz.com
or contact
Philip Gentry
Head of Investor Relations
ph: (613) 9273 4185
fax: (613) 9273 4091
Page 39
email: [email protected]
Copy of presentation
available on
www.anz.com
Page 40