2000 Annual Results

2000 Annual ResultsAustralia and New Zealand Banking Group Limited

26 October 2000

John McFarlaneChief 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

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%

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

We have delivered superior financial performance

1171 1175

1480

1703

400

600

800

1000

1200

1400

1600

1800

1997 1998 1999 2000

$m NPAT

CAGR 13.3%

18.3

16.915.5

17.2

10

12

14

16

18

20

1997 1998 1999 2000

% ROE

51.7

54.5

60.963.1

45

50

55

60

65

1997 1998 1999 2000

Cost Income Ratio

100

100

84

135

020406080

100120140160

1997 1998 1999 2000

Total Shareholder Return

We have re-balanced our portfolio

302

772

547

647251

149

1997 2000

NPAT Loans & Advances

PFS

CFS

International

41577

65264

46861

456847966

5930

1997 2000

27%

50%

23%

49%

41%

10%

56%

39%

5%

43%

49%

8%

• Includes Grindlays

• Excludes Group

Portfolio breakdown - indicative

International

PersonalCorporate

Other

0

100

Cards

Wealth Mgmt

Mortgages

Funds Mgmt

General Banking

Small Business

Corporate

Foreign Exchange

Asset Finance

Capital Markets

Institutional

ANZIB Financial Services

Transaction Services

0 100AsiaPacific

%

* Excluding Grindlays ($127m)

$1,703m*

40m*

$772m $647m

International CustomerBusinesses

100

0

%

Personal Corporate

We continue to reduce risk

43

3936

20

25

30

35

40

45

AN

Z 1

999

AN

Z 2

000

AN

Z 2

000

- ex

Gri

ndla

ys

ELP Factors

bp’s

1997 1998 1999 2000

Market Risk (Av. VaR)

A$m2323

5.4 4.4

• Beta reducing towards 1.0, in line with peer average

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

Accelerating our transformation program

• 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

35 Initiatives across our portfolio of businesses including:

Expected cost reduction

$300m

Building for the future - recap on our strategy

Proposition

• Specialists will win over conglomerates

• Corporations need to embrace new technologies

• Value depends on performance and growth

Strategy

• Reconfigure ANZ as a portfolio of 21 specialist businesses

• An e-Bank with a human face

• Drive results whilst investing in growth businesses

Perform and Grow

e-Transform

Specialise

Implications

• Specialist approach to customer and product businesses

• Transform the way we do business by using IP technology

• Meet expectations, fund growth by cost reduction

Portfolio strategy should reflect degree of globalisation and leverage real capabilities

Imp

act

of

glo

balis

ati

on

ANZ’s capability

FX

Institutional Banking

Mid Corporate

GSF

Custody

Capital MarketsTrade

Esanda

B2B

General Banking

Small Business

Mortgages

CardsB2C

now

Late

rN

ot

yet

Less developed

At par Local leader

Regionally distinctive

Globally distinctive

Soon

Wealth Management

Funds Management

e-Payments

Gen Banking

Corporate

FM

Mortgages

GSF

Esanda

Wealth

FXInstitutional

Different businesses need different strategies

Low

Low

High

High

Invest for rapid growth

• Defend position and return

• Grow selectively

Create new businesses

• Optimise performance• Identify new growth products

ROE

MarketGrowth

Business size by NPAT

Small BusCap Mkts

Cardse-Asia

GTS

Balancing the autonomy of each business with strong leadership from the centre

• Prime accountability for profit and value

• Freedom to pursue opportunities within agreed boundaries

• Operate using agreed set of platforms, systems and shared services

• Transfer pricing based on market - no cross subsidisation

• Drive group strategic direction and set policy

• Portfolio management and resource allocation

• Cross-Business Unit synergies

• Control and oversight of risk, brands and technology

Business Unit Corporate Centre

Personal Financial Services

Peter Hawkins

General Banking

Wealth Managemen

t

Small Business

Mortgages Cards Funds Management

anz.com

systems CRM SSP brand risk management

Th

em

e

Drive sales and

efficiency

Invest to grow

Aggressively rebuild

Maintain profitable

growth

Accelerate growth

Reinvigorate and grow

Prio

rities

•Advanced marketing/ segmentation

•Straight through processing

•Lower cost to serve

•Expert advice

•Open architecture

•“Wrap” facility

•Seamless access

•Build profitable market share

•Relationship based proposition

•Redesign end-to-end processes

•Maintain distribution strength

•Straight through processing

•“Best of breed” delivery platform

•Data mining

•Exploit growth opportunities

•Leverage distribution channels

•Optimise products/ capabilities

•Double FUM by 2003

AccountabilitiesPFS 50%Group 50%

ANZ in the medium term

• Material reallocation of resources

• Substantial e-transformation reducing costs and focused service

• Performance optimised– EPS, ROE, investment– capital management

• Transformational cultural change

• Substantial portfolio shifts

• Narrower, more focused portfolio with leading positions

• Increased investment in high growth business

• Modern performance culture

• Higher stock rating

ANZ in 1 - 2 years ANZ in 3 - 7 years

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

2000 Annual ResultsAustralia and New Zealand Banking Group Limited

26 October 2000

Peter MarriottChief 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

Drivers of performance (excluding abnormals)

3.05

2.87

Margins

54.5

51.7

Cost/Income

0.43

0.39

Provisions/NLA

17.2

18.3

ROE

2.41

2.30

Net Interest/Assets

0.97

1.03

ROA

17.7 17.8

"Leverage"

1.57 1.56

Other Inc./Assets

2.17

2.00

Cost/Assets

0.34

0.30

Provisions/Assets1999

2000

Good progress across the board

$1,200

$1,300

$1,400

$1,500

$1,600

$1,700

$1,800

$1,900

1480

1999 20002000

Net interest income

146

Lending fee 48

Other fee 111

Other income

47

Debt provisioning

8

Costs (14) Tax & outside

interests(123)

Profit before abnormals

1703

Abnormals44

Net profit after

abnormals1747

Income drivers3.60

3.51

3.19

3.14

2.552.642.60

2.67

1.90

1.841.911.72

1.00

1.50

2.00

2.50

3.00

3.50

4.00

Mar-99 Sep-99 Mar-00 Sep-00

PFS

International*

CFS

679 727

10221133

340342

175174

1999 2000

Lending Fees

Other Fees

FXTrading

MOSOther

Margins stabilised in second Half

Non-interest income showed healthy improvement

• Smaller differential between 90d BBSY and Cash Rate

• Greater focus on improving margins

• Driven by higher fee income

• FX and trading profits lower, reflecting lower volumes

* Includes Grindlays

Cost-income ratio continues to decline

45

50

55

60

65

70

1997 1998 1999 2000

NAB

CBA

WBC

ANZ

Target - comfortably in the 40’s

*

*

* estimate of market expectations for 2000

51.7

63.1

Costs are flat and a new baseline is established for 2001

$2,500

$2,600

$2,700

$2,800

$2,900

$3,000

$3,100

$3,200

$3,3003300

(288)331446(50)18

1999

3268

74 3100

GST & EFTPOS

NZ Sale of Grindlays

Sold businesses - Investment

to build business

prior to sale & FX effects

• Higher restructuring costs

• Increased marketing spend

• Higher profit share

Baseline 200020001999 Adjusted

Grindlays

GST & acquisitions

Sale of Grindlays re-balances the Group’s portfolio

1.03 1.021.27

ROA

2.3

3.91

2.22

1.51.6

2.8

2.00

3.35

1.92

0.30

0.72

0.28

NII/Assets

Cost/Assets

Other Income/Assets

ELP/Assets

2.873.33

2.76

Margins

51.7

50.0

51.9

Cost/Income

39

113

36

ELP (bp’s)

• 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

Group 2000

Grindlays

Continuing

Strong organic asset growth

50,000

70,000

90,000

110,000

130,000

150,000

170,000

190,000

210,000

1995 1996 1997 1998 1999 2000

ANZCBANABWBC

Asset growth has been strong without material acquisitions

Australian Assets$m

Non-accrual loans stable despite asset growth

1662

1543

1391

872

699657

900

428

0

200

400

600

800

1000

1200

1400

1600

1800

1997 1998 1999 20000.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

2.0%Gross Non-Accrual Loans (LHS)

Net Non-Accrual Loans (LHS)

$mNon-Accrual Loans/Loans & advances (RHS)

Historic

870

59

623

50

681651

0

100

200

300

400

500

600

700

800

900

1000 1999

2000

Aust. Inter.NZ

Geographic

$m

Overall book continues to improve

18 16

1615

49 53

14 13

3 30%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1999 2000

AAA to BBB+

BBB to BBB-

BB + to BB

BB-

> B

Australian Lending Asset Profile

28.4 31.7 36.2 40.6

41.843.6

45.548.4

0

10

20

30

40

50

60

70

80

90

100


Other

Mortgages

$b

Australian Loans & Advances

• Investment grade 66% of book

• Diversified portfolio

• Minimal exposure to media/telco’s

• Mortgages now represent 46% of book, up from 40% in March 1999

Credit quality is sound in our largest industry exposures - Australia

Lending Assets (AUDm)

% of Portfolio (RHS scale)

% in CCR 7D-8G (RHS scale)

0bn

2bn

4bn

6bn

8bn

10bn

Sep- 98 Sep- 00

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

0bn

2bn

4bn

6bn

8bn

10bn

Sep- 98 Sep- 00

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

0bn

2bn

4bn

6bn

8bn

10bn

Sep- 98 Sep- 00

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

0bn

2bn

4bn

6bn

8bn

10bn

Sep- 98 Sep- 00

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

0bn

2bn

4bn

6bn

8bn

10bn

Sep- 98 Sep- 00

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

0bn

2bn

4bn

6bn

8bn

10bn

Sep- 98 Sep- 00

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

Real Estate Operators & Dev.

Manufacturing Wholesale Trade

Agriculture Accomm. Cafes & Restaurants

Construction

Specific provisions: Corporate offsets personal loans problem

0

50

100

150

200

250

300

123

96

171

201

221

125

214

41

134

254

84

140Daewoo

Personal Loans

ELP NSP

Personal Financial Services

Corporate Financial Services

International

1999 2000 1999 2000 1999 2000

A single “B” exit account

Sold Businesses

PFS specific provisions were driven by personal loans and credit cards

Credit Cards

40

63

2.1

2.8

0

10

20

30

40

50

60

70

1999 20001.5

1.8

2.1

2.4

2.7

3 • Loss rate 2.3%

• Average margin >5%

SP $m

Av Volume

$b

76

18

1.20.8

01020304050607080

1999 20000.0

0.5

1.0

1.5

2.0

Personal Loans • Loss rate approximately 6% against expected loss rate 3.5%

• Average margin 5-6% (excludes fees which cover approval costs)

• Loss on product ~ $15m after tax

• Hence specific provisions largely offset by margin but product design and controls upgraded to bring losses back in line with expectations

SP $m

Av Volume

$b

Asian credit quality improves significantly despite two large specific provisions

77

56

25

0

10

20

30

40

50

60

70

80

90

13.7 11.1

15.5

7.4

20.4

12.7

14.1

24.4

28.8

43.8

3.05.1

1999 2000

Asian Specific Provisions Risk Grade Profile

• Specific Provisions relate to two unusual losses

• ‘B’ exposures now only $130m

• Investment grade 68% of book

• Expected losses declined significantly from 1.4% to 0.5%

AAA to BBB+

BB+ to BB

BB-

B to CCC

Non-accrual

BBB to BBB-

$m

Daewoo

A single ‘B’ exit account

$2.9b $4.3b

Provisioning levels strengthen

500

700

900

1100

1300

1500

1700

1900

2100

2.7

3.1

1.5

1.7

1.9

2.1

2.3

2.5

2.7

2.9

3.1

3.3

1999 2000

1395

502 (383)

(51)(90)

1373

967

1999 2000 APRA Guideline

s

ELP charge

Net SP transfer

FX impact

Sale of Grindlays

ELP - Economic Loss Provision

SP - Specific Provision

General ProvisionELP charge*

* ex Grindlays for 2000

Times$m

Surplus406

The result incorporated several abnormal items

0

200

400

600

800

1000

1200

Jun-98

Oct-98

Feb-99

Jun-99

Oct-99

Feb-00

Jun-00

Oct-00

Panin

JSX

Net gain on sale of Grindlays businesses

Strategic business and transformation restructuring provision

Panin writedown

Litigation provision

Tax rate change

Revaluation of property

Sale of Colonial shares

Net abnormal gain

404 Cr

245 Dr

81 Dr

33 Dr

64 Dr

30 Cr

33 Cr

44 Cr

After tax$m

Average purchase price

Abnormals - Grindlays transaction

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

$m

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

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

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5


105

110

115

120

125

130

135

140

Tier 1

Inner Tier 1

RWA's

% $b

7.77.9

7.5

7.4

6.76.9

6.56.4

Progress• $1014m of buyback• Capping of DRP/BOP to reduce

dilution• Remaining $500m buyback in

progress• Restructure more EPS accretive

than buyback

Capital ManagementPhilosophy:• 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%)

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

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 GentryHead of Investor Relations

ph: (613) 9273 4185 fax: (613) 9273 4091 email: [email protected]

Copy of presentation available on

www.anz.com

2000 Annual Results

Documents

Transcript of 2000 Annual Results