Transcript John McFarlane

Perform Grow and Breakout
Presentation to
JB Were Financial Services Conference
Singapore, 6 June 2001
John McFarlane
Chief Executive Officer
Australia and New Zealand Banking Group Limited
ANZ - who we are
•
•
•
One of the ‘Big Four” Australian banks.
Provider of full range of financial services in
Australia (since 1835) and New Zealand (since
1840)
Leadership in Corporate Banking, Credit Cards
and Mortgage origination, a strong
eCommerce position and an offshore network
in Asia and Pacific.
•
Assets
A$181b
(US$ 95b)
•
Market Cap
A$20.5b
(US$ 11b)
•
Profit (half year)
A$895m
(US$ 470m)
•
Staff
22,815
•
Credit Ratings
AA-/Aa3
ANZ Headquarters
100 Queen Street
Melbourne
Page 2
Note: figures as at 31/3/01
We are on track to deliver on our 3 year
commitments
Measure
3 Year Commitment
EPS growth
> 10%
13%
ROE
> 20%
19.1%
Cost-income ratio
mid 40’s
49.4%
Inner Tier 1
6%
Credit rating
maintain AA category
•
Achievement
6.2%
maintained
We have also committed to improving customer satisfaction,
and will publicly report our progress
Page 3
Building for the future - a distinctive
strategy
Proposition
Strategy
Specialise
• Entrepreneurial
specialists create
more value
• Reconfigure ANZ as
a portfolio of 16
specialist
businesses
• Specialist
approach to
customer and
product
businesses
e-Transform
• Corporations
must embrace
new technologies
• An e-Bank with a
human face
• Transform the
way we do
business with IP
technology
Perform Grow
& Break out
• Value depends on
performance,
growth and
breaking out
• Drive results,
invest in growth
businesses and
create new
paradigms
• Meet
expectations,
fund growth by
cost reduction,
transform
Page 4
Implications
Transforming ANZ through Perform,
Grow and Breakout
Break
out
Grow
Perform
Page 5
• Focus:
long term ‘destiny’
• Benchmark:
global industry/players
• Looking for:
transforming moves
• Horizon:
5-10 years
• Success:
dramatic market cap increase
• Focus:
specialisation and out-growing
the market
• Benchmark:
competitors in each business
• Looking for:
breakout moves in key
businesses (eg QTV, Origin)
• Horizon:
3-4 years
• Success:
4-5 moves taking share and
worth ~AUD1bn+ market cap
each
• Focus:
performance
• Benchmark:
market expectations
• Looking for:
six monthly delivery
• Horizon:
1-2 years
• Success:
meet/exceed expectations
consistently
We are performing well - interim results
• NPAT from continuing operations $907m - up 18%
• EPS up 13% to 55.8 cents
• ROE of 19.1%, up from 17.8%
• Costs flat - cost income ratio down to 49.4%
• Credit quality sound:
– ELP charge down to 35 bp’s
– Total non-accruals down
– Specific provisions flat
• Profit on sale of holding in St George $99m ($65m after
tax), offset by write downs in investments ($84m)
• Improved disclosure - financial information provided for each
business unit
Note: Comparisons are against half year ended March 2000 (including Grindlays)
Page 6
...and building a strong track record
NPAT/ROE
NPAT $m
2000
1800
1600
1400
1200
1000
481
800
600
400
625
200
0
1998
Cost to Income
ROE %
20
19
18
17
930
763
817
895
13
2000
2500
58
56
2000
54
52
1500
50
48
1000
1.5%
1200
900
1.0%
600
0.5%
300
0
0.0%
1999
2000
Gross Non Accruals
Net Non Accruals
Non Accruals/Loans
46
Sep-98 Mar-99 Sep-99 Mar-00 Sep-00 Mar-01
2.0%
1500
1998
62
60
CTI
3000
2001
Non-accrual loans
1800
14
12
1999
64
Income
16
15
717
Expenses
3500
2001 1H
45
40
35
30
25
20
15
10
5
0
Internet banking users as % of
main relationships
39.1
32.0
23.5
13.7
ANZ
Page 7
WBC
NAB
Source: JP Morgan & Roy Morgan Research
CBA
$m
Good profit growth across a diversified
portfolio
Mar 00 v Mar 01
140
120
Personal
100
80
Corporate
60
International and
subsidiaries
40
20
0
Metro Banking
Mortgages
Institutional
Structured Finance
Regional Banking
Corporate Banking
Cards
Transaction Services
Small Business
Asset Finance
Foreign Exchange
Investment Mgmt
Asia
Capital Markets
Pacific
Wealth
Page 8
80% of businesses delivered revenue
growth greater than expense growth
revenue
growth
%*
ROE
top third
middle third
Mortgages
50
45
40
35
bottom third
Cards
30
Institutional
25
GCM
20
Asia
15
General
Banking
Small
Business
-25
-20
-15
-10
10
Pacific
Corporate
5
Wealth
-5
5
Asset
Finance
10
15
20
25
30
-5
-10
-15
*based on pcp
GFX
GTS
Page 9
Investment
Management
expense
growth
%*
We continue to actively manage and
reduce risk
Lending Profile by Asset Type*
100%
• Exiting higher risk businesses
• More emphasis on lower risk
businesses
80%
60%
• Corporate balance sheet
deliberately constrained –
focus on fee income
40%
• Risk based approach
embedded through EVA
20%
0%
ANZ ANZ ANZ
1991 1996 2001
CBA
NAB
WBC
business
consumer
* CBA as at 31/12/00, NAB & WBC as
at 30/9/00
Page 10
Total non-accrual loans continue to
fall, but increase in Australia
Historic
$m
1800
Gross Non-Accrual
Loans (LHS)
Geographic
Non-Accrual Loans/
Loans & advances (RHS)
1662
2.0%
$m
Gross Non-Accrual Loans
Mar-00
1000
1543
1500
Sep-00
Mar-01
1391
1295
1.5%
800
1200
749
681
651
872
900
600
900
495
1.0%
657
699
457
727
400
600
428
858
0.5%
Net Non-Accrual
Loans (LHS)
200
300
72 59 89
0
0.0%
1997
1998
1999
0
Aust
2000 2001 1H
Page 11
NZ
Inter
Provisioning levels remain strong
$m
ELP
charge
241
1700
1500
represents
3 years
expected
losses
%
1.10
1.06
FX
impact
1460
27
1.05
1373
1.02
1.00
(181)
Net SP
transfer
1300
GP/Lending Assets*
Surplus
448
0.98
0.97
0.95
0.90
1100
1012
0.85
900
0.80
700
0.75
0.70
500
1H
APRA
2001 Guidelines
2000
ANZ
Mar-01
CBA
Dec-00
NAB
Jun-00
ELP - Economic Loss Provision
SP - Specific Provision
Page 12
* includes acceptances
WBC
Jun-00
We are developing a track record for
building growth businesses
%
15
%
30
Mortgage market
share
14
Share of credit
card spend
25
13
12
20
11
10
95
96
97
98
99
00
$m
700
%
16
600
FM inflows
(LHS)
500
400
300
01
(RHS)
m
4.2
96
97
98
99
00
01
Personal customers
- Australia
14
3.8
12
3.6
200
100
10
3.4
Mar-98 Sep-98 Mar-99 Sep-99 Mar-00 Sep-00
0
-100
95
4.0
Deposit
market share
15
Mar-00 Jun-00 Sep-00 Dec-00 Mar-01
8
Page 13
Most businesses’ targeting revenue
growth well in excess of expense growth
Plan Revenue Growth 01-03 cagr
Personal
Cards
Corporate
High
Int. & Subsidiaries
GFX
Asia
Asset Fin
Nominal
GDP
Growth
GCM
Small Bus
Cost:Income
falling
Inst.
Bank
Metro
& Reg Banking
GSF
GTS
Pacific
Corporate
Low
Mortgages
ILLUSTRATIVE
Low
Note: Bubble size in
proportion to 2001 Npat
Wealth
ANZ
Investments
High
Plan Operating Expense Growth 01-03 cagr
Page 14
Substantial growth opportunities in
Personal
System Growth
Customer #’s
(m)
Total potential revenue
growth - $1.5b
• Underlying credit growth ~
8-10% pa
Market Share
• Product businesses growing
customer numbers and mkt
share
Peer Average
10
7.3
Increased
wallet on higher
share $160m
Potential revenue
$650m
Increase Wallet
• Customer businesses
deepening wallet share
5
4
0
• Customer #’s increasing by
1.0m - translates to $650m
in additional revenue pa
Potential
revenue
$650m
Existing revenue
$2.6b
40%
50%*
Share of Customer Wallet
* Average share of wallet for CBA, NAB, SGB, WBC
- source: Roy Morgan Research
Page 15
• $650m revenue gain by
matching our peers
– Created customer
businesses
- Sales programs
- CRM
Our breakout approach is
differentiating us
Strategy
• Specialised businesses
• First class execution (no surprises)
Staff
• 91% of managers on individual contracts
• 12% rise in staff satisfaction
Customers
• Establishment of Customer Charter,
Customer Advocate and distinctive
customer and community initiatives
eTransformation
• Leading cost income ratio
• Highest internet banking penetration
Risk
• Leading financial disclosure & transparency
• EVA embedded in culture
Page 16
Developing a breakout performance
culture
Mission
/aspiration
where we are
where we want to be
Distinctive (Top 10%)
Targets/goals
Superior (Top 25%)
Organisational
approach
Average
BU Performance
feedback
Consequence
management
People
Financial
Operational
Coordination and
control
Average
+
Rewards &
recognition
Superior
Distinctive
* Benchmark - 33 Australasian companies surveyed over 1999-2000
Page 17
Opportunities
Motivation
Values
Creating a more dynamic working
environment
80
%
70
1999
2000
2001
60
50
40
30
20
10
0
Satisfied working at ANZ
Would recommend ANZ as
a place to work
ANZ has a genuine concern
for staff
• 91% of managers have signed individual contracts
• pc’s@home
• tertiary qualifications for managers
• 130 staff have commenced eMBA
• comprehensive level of share ownership amongst staff
Page 18
Economic outlook - cautiously optimistic
7
Real GDP Growth incl. and excl.
housing and Olympics (est)
%
6
5
4
Year ended, excluding
dwellings and Olympics
3
2
1
-0
0
Se
p
-9
9
Se
p
-9
8
Se
p
Se
p
-9
7
0
Index
Financial conditions in Australia
1.4
more expansionary than US
1.2
1.0
US
0.8
0.6
Contractionary
0.4
0.2
0.0
-0.2
-0.4
-0.6
-0.8
Australia
-1.0
Expansionary
-1.2
-1.4
90 91 92 93 94 95 96 97 98 99 00
• Retail sales continue to rebound
• Housing recovery continues
• But unemployment is still rising
• Forecast GDP growth for 2001
calendar year - 2%, rising to
3¾% in 2002
Page 19
• Unlike the US, Australia did not
experience contractionary
financial conditions
• With domestic growth indicators
strengthening, and early signs of
rising inflation, interest rate cycle
has likely bottomed
ANZ’s aspiration
A high performing company,
exceeding expectations
• Revenue growth
• Cost leadership
• Risk mitigation
• EPS
• ROE
Perform
Grow
AND
Breakout
More dynamic than
competitors
• High P/E rating
• Performance culture
• Lean and agile
• The e-bank with a human face
• A breakout mentality
Page 20
Positioned in
growth markets
• Actively managed
portfolio
• Annual
investment in
growth ideas
• Higher than peer
revenue growth
Summary
• We are performing well
• Cost management momentum –
eTransformation has just
begun…
• Risk reduction continues
• Our new strategy is creating
value and better positioning us for
growth
• We are differentiating ourselves
through our Breakout program
Page 21
We are
on track
to achieve
our goals
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 22
e-mail: [email protected]
Supplementary
Information
2001 Interim Results and
credit quality information
Strong income growth, with good
progress across the board
1,100
1,000
$m
Abnormal/
Discontinued
Items
930
104
Profit on
sale of St
George
65
NonInterest
Income
76
Write
downs
(84)
Expenses
(34)
Provisioning
Tax
(14)
(12)
Interest
Income
84
900
826
Discontinued
(12)
907
895
Eftpos NZ acquisition
and GST ($26m)
800
700
2H 2000
2H 2000
Continuing
2001 1H
Continuing
Page 24
2001
1H
“Unusual” items – St George profit
offset by write downs in investments
• St George - $99m profit ($65m after tax)
– regulatory issues
- not critical to strategy
– attractive price
• Panin - $43m
280
Panin
IDR
Share Price
230
writedown#
– long term growth prospects
remain positive
• E*Trade - $21m writedown#
– online broking service provides
core customer offering
180
130
80
Oct-00
2.30
Dec-00
Feb-01
Apr-01
$
E*Trade
1.80
Share Price
1.30
• Other - $20m writedown#
– a number of small eCommerce
related investments
# - no tax relief on these writedowns
Page 25
0.80
0.30
Oct-00
Dec-00
Feb-01
Apr-01
Income drivers*
%
4
3.68
3.56
3.35
3.23
Margins stabilised in first
half
3.22
3.48 3.45
3
3.12
PFS
2.81
International
2.62
CFS
2
1.73
1.64
1.90
1.90
• Greater focus on improving
margins
1.91
1
Mar-99
Mar-01
143
Other
126
Trading
44
173
32
Non-interest income
continues to grow
140
FX
Other Fees
Lending
Fees
Mar-00
• Benefit from differential
between 90d BBSY and cash
rate
496
• Driven by higher non-lending
fee income
560
351
372
1H 2000
1H 2001
• FX profits higher, reflecting
AUD volatility
* For continuing businesses
Page 26
Cost-income ratio on track to meet
target of mid 40’s
$m
3500
Expenses
Income
CTI
Sale of
Grindlays
3000
CTI
70
65
2500
60
2000
55
1500
50
1000
45
Sep- Mar- Sep- Mar- Sep- Mar- Sep- Mar97
98
98
99
99
00
00
01
Page 27
• Reduction in Cost
Income ratio driven
by revenue growth
and cost control
• Approximately $65m
of restructuring
provision used
– two year program,
with benefits
principally 2002 and
beyond
• eTransformation will
continue to drive
costs down
Personal portfolio
Profit Breakdown
• Mortgages and Cards
reinforce value of our
specialisation strategy
Mort
27%
• Clear opportunities for
customer businesses to
replicate success of
product businesses
• Significant market share
growth opportunities
remain
– creation of Metrobanking
and Regionalbanking
– a 1% increase in market
share for customer
businesses worth
$100m+ revenue
Cards
14%
Wealth
3%
Small
Bus
11%
Metro
27%
Region
18%
$m
1250
1050
850
Interest Income
Other Income
650
Expenses
450
250
Sep-99 Mar-00
Page 28
Sep-00
Mar-01
Corporate portfolio – fee income driving
profit growth
Profit Breakdown
• Five of six businesses
delivered profit growth
greater than 10%
• “Non-traditional” income
for Corporate Banking
grew 40%+ on
annualised basis, largely
by executing Wall St to
Main St strategy
Inst
25%
GSF
24%
GTS
15%
Corp
18%
GCM GFX
7% 11%
$m
600
550
Interest Income
500
Other Income
Expenses
450
400
350
300
250
Sep-99
Page 29
Mar-00
Sep-00
Mar-01
International & Subsidiaries – risk
Profit Breakdown
reducing, profits up
Pacific
16%
• Asset Finance
reconfiguring back office
platform to deliver
substantial efficiencies
Asset
Finance
35%
Asia
23%
Inv
Mgmt
26%
• Negative profit growth
for Investment
Management due to tax
changes and increased
growth spend
Asian Credit Quality
• Asia showing positive
signs, on track to record
significant profit growth
for the full year
AAA to
BBB+
28.8
BBB to
BBB-
14.1
BB-
20.4
BB+ to BB
43.8
15.5
Non-accrual
Page 30
24.4
26.0
7.4
B to CCC
52.0
12.7
13.7
5.1
3.0
11.1
10.0
4.0
3.0
5.0
Sep-99
Sep-00
'March-01
Capital management will continue
$b
%
8.5
8.0
140
7.7
7.9
7.5
7.5
130
7.4
7.0
7.3
120
Capital Management
Philosophy:
• Maintain capital consistent with
ANZ’s AA status and peer group
ratings
– Tier 1 (6.5 - 7.0%)
– Inner Tier 1 (6.0%)
6.5
6.0
6.7
6.9
6.5
6.4
6.2
110
5.5
5.0
100
Mar-99
Mar-00
Mar-01
Tier 1
Inner Tier 1
RWA's
Page 31
Progress
• $413m in share buybacks in the
half year
• New framework for allocating
capital for operating risk
implemented
• Capping of DRP/BOP
Arrears analysis indicates no systemic
deterioration
%
% personal lending assets over 60 days in arrears
%
7.50
2.50
Personal Loans
7.00
2.00
Business FDAs
6.50
6.00
1.50
5.50
5.00
Housing Loans
1.00
Credit Cards
4.50
0.50
RILs*
4.00
Overdrafts
3.50
0.00
3.00
Mar-00 Sep-00 Dec-00
Jan-01
Feb-01 Mar-01
Mar-00 Sep-00 Dec-00 Jan-01
Feb-01 Mar-01
• Small upturn in arrears in Jan-Feb
largely reversed during March
• Increase in credit card arrears
reflects seasonal influences
• Arrears broadly in line with same
period last year
• Personal loan arrears continue to
increase in % terms due to
reducing book
* Residential Investment Loans
Page 32
Corporate book holding up well, despite a
few one off “issues”
Corporate risk grade profile
AAA to
BBB+
BBB to
BBB-
38.4%
26.4%
37.9%
26.7%
38.4%
Risk actively managed
38.9%
• Quarterly strategy reports prepared
for all high risk accounts
26.9%
• June to October 2000 - all BB rated
accounts within Corporate reviewed
in expectation of downturn
27.4%
• New accounts > $3m to be referred
“one level higher”
BB + to
BB
18.2%
19.1%
19.4%
20.3%
BB-
11.7%
12.3%
11.7%
9.3%
>B
5.3%
4.0%
Sep-99
Mar-00
3.6%
Sep-00
4.1%
Mar-01
>B = B, B-, CCC
& non-accrual
Page 33
Credit quality is sound in some of our
larger industry exposures - Australia
Lending Assets (AUDm)
% of Portfolio (RHS scale)
% in CCR 7D-8G (RHS scale)
% in CCR 9-10 (RHS scale)
x
Manufacturing
Real Estate Operators & Dev.
10bn
12.0% 10bn
12.0%
8bn
10.0%
10.0%
8bn
8.0%
6bn
6.0%
4bn
4.0%
2bn
2.0%
0bn
0.0%
Sep-98
8.0%
6bn
6.0%
4bn
4.0%
12.0%
8bn
10.0%
8.0%
6bn
4.0%
4bn
2bn
2.0%
2bn
2.0%
0bn
0.0%
0bn
0.0%
4bn
Sep-98
12.0% 10bn
10.0%
10bn
6.0%
Agriculture
8bn
8.0%
6bn
Mar-01
10bn
Retail Trade
Mar-01
Accomm. Cafes &
Restaurants
8bn
Mar-01
Construction
12.0% 10bn
12.0%
10.0%
10.0%
6.0%
4bn
4.0%
Sep-98
8.0%
6bn
6.0%
4.0%
8bn
8.0%
6bn
6.0%
4bn
4.0%
2bn
2.0%
2bn
2.0%
2bn
2.0%
0bn
0.0%
0bn
0.0%
0bn
0.0%
Sep-98
Mar-01
Sep-98
Mar-01
Page 34
Sep-98
Mar-01
Group risk grade profile continues to
improve
$114.6bn
$126.5bn
$134.9bn
$141.0bn
AAA to
BBB+
14.8%
16.2%
16.2%
16.9%
BBB to
BBB-
41.5%
49.7%
50.5%
14.6%
14.7%
15.6%
14.1%
BB + to
BB
19.2%
BB17.3%
>B
ELP (bp’s)
45.3%
15.8%
5.4%
17.3%
3.9%
7.2%
3.8%
Sep 1998
Sep 1999
Sep-2000
Mar-01
45
43
38
35
>B = B, B-, CCC
& non-accrual
• Risk grade profiles by division and
geography in appendix
Page 35
Current provisioning in line with
expectations
$m
Actual SP v ELP
charge
140
120
100
ELP charge
SP charge
80
60
40
20
0
-20
-40
Mar00
Sep-00 Mar-01
Personal
Mar-00 Sep-00 Mar-01
Corporate
Mar-00 Sep-00 Mar-01
Int & Sub.
• ELP is a function of volume (on and off balance sheet),
risk grade profile, and level of security
• Specific Provisions tend to be less volatile in Personal
businesses and track more closely to ELP
Page 36
ANZ is different…..
A$b
140
120
Lending assets by
asset type
100
80
60
40
20
0
1991
A$b
180
160
140
120
100
80
60
40
20
0
Business
Consumer
1996
Total assets by
geography
2001*
International
NZ
Australia
1991
1996
2001*
We were
Today
• Reliant on market trading
earnings
• Developing specialist businesses
from distinctive capabilities
• Higher risk asset base,
particularly emerging
markets
• Australasian, with regional
interests
• Strong consumer growth engine
balancing leading position in
Corporate
• Prone to adverse surprises
* as at 31 March 2001
Page 37
Economic Loss Provisioning
GP % net lending
assets
Actual Losses are funded
from the General Provision
2.5%
ELP Charge
= Loan Amount x
Probability loss x
Loss Given default
General
Provision
balance
2.0%
1.5%
Plus
1.0%
Actual
SP’s
P&L Charge
An adjustment to
ensure the GP balance
is sufficient to cover:
0.5%
•
0.0%
1
2
3
4
5
6
7
8
9
10 11 12 13 14 15
ELP charge will vary from year to year based on:
• changes in lending volumes
• change in risk grade profile
• security levels
• product and geographic mix
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•
•
Volatility around
expected loss (using
statistically quantified
variance)
Remaining term of loan
portfolio
Balance sheet growth
Summary of forecasts - Australia
Calendar years
1999
2000
2001
2002
Real GDP growth
4.7
3.7
1¾
3¾
Inflation
1.5
4.5
4.0
1½
Unemployment (Dec)
6.7
6.2
7.0
6¾
Current account deficit (%GDP)
-5.8
-4.0
-2.3
-3.3
Housing starts (‘000)
157
147
123
135
90-day bill yield (% pa, Dec)
5.48
6.20
4.75
5.1
10-year bond yield (% pa, Dec)
6.64
5.50
5.9
6.2
A$ (US cents, Dec)
65.8
55.8
55.0
62.0
Sources: ABS; RBA; Economics@ANZ.
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Outlook
• System credit growth forecasts*
– housing
12.4%
– personal
11.1%
– business
6.5%
• Personal to exceed system credit growth
• Corporate credit growth - continuing higher quality focus
• Margin compression will continue
• Costs flat
• Challenges ahead, however we are well placed to
continue to perform well, and achieve our targets over
the medium term
* forecast for year ending 30 September
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