Performance and Growth - delivering on our commitments
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Transcript of Performance and Growth - delivering on our commitments
Performance and Growth - delivering on our commitments
Australia and New Zealand Banking Group Limited November 2000
John McFarlaneChief Executive Officer
Page 2
ANZ
One of the ‘Big Four” Australian banks. Provider of full range of financial services in Australia (since 1835) and New Zealand (since 1840) with leadership in Corporate Banking, Credit Cards and Mortgages, an emerging strong e-Commerce position and an offshore network in Asia and Pacific.
• Assets A$172b
• Market Cap A$21b
• Profit (pre abnormals) A$1,703m
• Staff 23,134
• Credit Ratings AA-/Aa3
ANZ Headquarters100 Queen StreetMelbourne
Page 3
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 4
Our commitments to shareholders three years ago:
• 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 5
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
Page 6
Good progress across the board
$1,200
$1,300
$1,400
$1,500
$1,600
$1,700
$1,800
$1,900
1480
1999 20002000
Net interest income
146
Lending fee 48
Other fee 111
Other income
47
Debt provisioning
8
Costs (14) Tax & outside
interests(123)
Profit before abnormals
1703
Abnormals44
Net profit after
abnormals1747
Page 7
We have re-balanced our portfolio
302
772
547
647251
149
1997 2000
NPAT Loans & Advances
PFS
CFS
International
41577
65264
46861
456847966
5930
1997 2000
27%
50%
23%
49%
41%
10%
56%
39%
5%
43%
49%
8%
• Includes Grindlays
• Excludes Group
Page 8
We continue to reduce risk
43
3936
20
25
30
35
40
45
AN
Z 1
999
AN
Z 2
000
AN
Z 2
000
- ex
Gri
ndla
ys
ELP Factors
bp’s
1997 1998 1999 2000
Market Risk (Av. VaR)
A$m2323
5.4 4.4
• Beta reducing towards 1.0, in line with peer average
Page 9
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 10
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
Mar-99 Sep-99 Mar-00 Sep-00
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
Page 11
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
Page 12
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
Page 13
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 $4.3b
Page 14
Provisioning levels strengthen
500
700
900
1100
1300
1500
1700
1900
2100
2.7
3.1
1.5
1.7
1.9
2.1
2.3
2.5
2.7
2.9
3.1
3.3
1999 2000
1395
502 (383)
(51)(90)
1373
967
1999 2000 APRA Guideline
s
ELP charge
Net SP transfer
FX impact
Sale of Grindlays
ELP - Economic Loss Provision
SP - Specific Provision
General ProvisionELP charge*
* ex Grindlays for 2000
Times$m
Surplus406
Page 15
Active capital management a priority
5.0
5.5
6.0
6.5
7.0
7.5
8.0
8.5
Mar-99 Sep-99 Mar-00 Sep-00100
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%)
Page 16
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
Page 17
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
Page 18
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
Page 19
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
Page 20
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
Page 21
We are delivering consistent growth
12.0
13.0
14.0
15.0
16.0
17.0
18.0S
ep-9
7
Dec-
97
Mar-
98
Jun
-98
Sep-9
8
Dec-
98
Mar-
99
Jun
-99
Sep-9
9
Dec-
99
Mar-
00
Jun
-00
ANZ
CBA
NAB
WBC
220
616
772
647
40
472466
176
562
0100200300400500600700800900
PFS CFS Int.
1998
1999
2000
• Growth has been strong, particularly in mortgages and cards
• Consistently increased market share, without material acquisitions
• Declining profits in International offset by substantial growth in PFS
• Profits in PFS less volatile, giving us a strong base
*
* Excludes Grindlays for 2000
$m% Australian market share - assets
NPAT
Page 22
Share of Credit Card Spend
15
20
25
30
Jun-94 May-96 Apr-98 Mar-00
Momentum in Personal Financial Services
%
10
11
12
13
14
15
Jun-94 Jun-96 Jun-98
Mortgages Market Share
%
Apr-00
Page 23
Balancing the autonomy of each business with strong leadership from the centre
• Prime accountability for profit and value
• Freedom to pursue opportunities within agreed boundaries
• Operate using agreed set of platforms, systems and shared services
• Transfer pricing based on market - no cross subsidisation
• Drive group strategic direction and set policy
• Portfolio management and resource allocation
• Cross-Business Unit synergies
• Control and oversight of risk, brands and technology
Business Unit Corporate Centre
Page 24
Personal Financial ServicesPeter Hawkins
General Banking
Wealth Management
Small Business
Mortgages CardsFunds
Management
Drive sales and efficiency
Invest to grow
Aggressively rebuild
Maintain profitable
growth
Accelerate growth
Reinvigorate and grow
• Advanced marketing/ segmentation
• Straight through processing
• Lower cost to serve
• Expert advice
• Open architecture
• “Wrap” facility
• Seamless access
• Build profitable market share
• Relationship based proposition
• Redesign end to end process
• Maintain distribution strength
• Straight through processing
• “Best of breed” delivery platform
• Data mining
• Exploit growth opportunities
• Leverage distribution channels
• Optimise products/ capabilities
• Double FUM by 2003
Th
em
eP
riori
ties
Systems CRM SSP Brand Risk Management
AccountabilitiesPFS 50%Group 50%
• Make the numbers• Achieve on-line targets
• Deliver new value to other Bus• Strengthen ANZ e.commerce leadership
Page 25
The Group has delivered compound EVA growth of 20% pa
EVA* Growth (1995-2000)
0
200
400
600
800
1,000
1,200
1995 1996 1997 1998 1999 2000
EVA ($m)
CAGR ~ 20%pa
EVA Management Philosophy
The Group is being managed to outperform peers in terms of EVA growth over time
Internal stretch EVA performance targets are established for businesses based on peer and market expectations
Business units develop strategies that are expected to deliver against mid-term EVA targets
Business unit performance managed against stretch EVA targets
Compensation tied to performance against EVA targets
* EVA = PAT adjusted for economic credit costs, the value of imputation credits, the cost of equity (at 11%) and one off items
Page 26
• EVATM based - creating a direct link to shareholder value;
• Benchmarked to market levels
• ensures rewards are contained at fair and reasonable levels;
• Emphasises ’at risk’ incentives
• limits fixed pay and increases variable, performance-based pay;
• Variable payments comprise significant deferral and possible
relinquishment.
• Bonuses comprise one third cash, one-third shares deferred for one year and
one-third shares deferred for three years (toughest relative to peers);
• Two levels of hurdles in the LTI component
• one based on individual performance
• one based on Group performance relative to peers.
ANZ Remuneration - a framework to drive performance
Page 27
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
Page 28
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 29
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]
Page 30
Copy of presentation available on
www.anz.com