Download Performance and Growth - delivering on our commitments

Performance and Growth delivering on our commitments
Australia and New Zealand Banking Group Limited
November 2000
John McFarlane
Chief Executive Officer
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 Headquarters
100 Queen Street
Melbourne
Page 2
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 3
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 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
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
$1,200
2000
1999
Page 6
2000
We have re-balanced our portfolio
Loans & Advances
NPAT
149
647
10%
8%
7966
49%
46861
41%
5930
5%
45684
39%
65264
56%
251
23%
547
50%
772
49%
43%
41577
302
27%
1997
1997
2000
PFS
CFS
•
Includes Grindlays
•
Excludes Group
International
Page 7
2000
We continue to reduce risk
ELP Factors
Market Risk (Av. VaR)
bp’s
45
A$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
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 10
0%
• Investment grade 66% of book
• Diversified portfolio
• Minimal exposure to
media/telco’s
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 11
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
2.1
10
1.8
0
1.5
1999
• 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
2000
Page 12
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 13
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 14
Active capital management a priority
$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 15
Progress
• $1014m of buyback
• Capping of DRP/BOP to reduce
dilution
• Remaining $500m buyback in
progress
• Restructure more EPS accretive
than buyback
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 16
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 17
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 18
Corporate
Customer
Businesses
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 19
• Defend position
and return
• Grow selectively
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 20
Regionally
distinctive
Globally
distinctive
We are delivering consistent growth
Australian market
share - assets
%
18.0
17.0
16.0
15.0
ANZ
14.0
CBA
13.0
NAB
WBC
Jun-00
Mar-00
Dec-99
Sep-99
Jun-99
Mar-99
Dec-98
Sep-98
Jun-98
Mar-98
Dec-97
Sep-97
12.0
$m
900
800
700
600
500
400
300
200
100
0
NPAT
1998
772
616
466
1999
647
2000
562
472
220
176
40
PFS
CFS
*
Int.
• Growth has been strong,
particularly in mortgages
and cards
• Declining profits in
International offset by
substantial growth in PFS
• Consistently increased
market share, without
material acquisitions
• Profits in PFS less volatile,
giving us a strong base
* Excludes Grindlays for 2000
Page 21
Momentum in Personal Financial Services
Share of Credit Card Spend
Mortgages Market Share
15
%
%
30
14
25
13
12
20
11
10
Jun-94
Jun-96
Jun-98
Apr-00
15
Jun-94
Page 22
May-96
Apr-98
Mar-00
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 23
Personal Financial Services
Peter Hawkins
Priorities
Theme
Accountabilities
PFS 50%
Group 50%
General
Banking
Wealth
Management
Small
Business
Mortgages
Cards
Funds
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
• “Best of breed”
delivery
platform
• Leverage
distribution
channels
• Straight
through
processing
• Data mining
• Optimise
products/
capabilities
• Make the numbers
• Achieve on-line targets
Systems
CRM
• Exploit growth
opportunities
• Double FUM by
2003
• Deliver new value to other Bus
• Strengthen ANZ e.commerce leadership
SSP
Page 24
Brand
Risk Management
The Group has delivered compound EVA
growth of 20% pa
EVA* Growth (1995-2000)
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 ($m)
1,200
1,000
800
600
400
200
0
1995
1996
1997
1998
1999
2000
* EVA = PAT adjusted for economic credit costs, the value of
imputation credits, the cost of equity (at 11%) and one off items
Page 25
ANZ Remuneration - a framework to
drive performance
• EVA based - creating a direct link to shareholder value;
TM
• 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.
Page 26
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 27
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 28
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 29
email: [email protected]
Copy of presentation
available on
www.anz.com
Page 30