FORM 6-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Report of Foreign Private Issuer

 

Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934

 

 

 

For the month of October 2003

 

Australia and New Zealand Banking Group Limited

(Translation of registrant’s name into English)

 

Level 6, 100 Queen Street Melbourne Victoria Australia

(Address of principal executive offices)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

 

Form 20-F.     ý     Form 40-F     o

 

 

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

 

Yes     o     No     ý

 

 

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-

 

 

 



 

 

 

Australia and New Zealand
Banking Group Limited

ABN 11 005 357 522

 

 

Consolidated Results
Dividend Announcement
and Appendix 4E

 

 

Full year
30 September 2003

 



 

FOR PRIORITY TRANSMISSION

 

Name of Company:                                           Australia and New Zealand Banking Group Limited

ABN 11 005 357 522

 

 

Report for the year ended 30 September 2003

 

 

 

A$ million

 

 

 

 

 

Group operating revenue

 

7,119

 

 

 

 

 

Operating profit after tax and outside equity interests

 

2,348

 

 

 

 

 

Final dividend per ordinary share, fully franked at 30% tax rate

 

51 cents

 

 

 

 

 

Record date for the final dividend

 

13 November 2003

 

 

 

 

 

Payment date for the final dividend

 

19 December 2003

 

 

The final dividend will be payable to shareholders registered in the books of the Company at close of business on 13 November 2003. Transfers must be lodged before 5:00 pm on that day to participate.

 



 

RESULTS FOR ANNOUNCEMENT TO THE MARKET

 

Name of Company:                                           Australia and New Zealand Banking Group Limited

ABN 11 005 357 522

 

 

Report for the year ended 30 September 2003

 

 

 

 

 

 

 

 

 

A$ million

 

 

 

 

 

 

 

 

 

 

 

Group operating revenue

 

up

 

2

%

to

 

7,119

 

 

 

 

 

 

 

 

 

 

 

Operating profit after tax attributable to members

 

up

 

1

%

to

 

2,348

 

 

 

 

 

 

 

 

 

 

 

Extraordinary items after tax attributable to members

 

 

 

Nil

 

 

 

Nil

 

 

 

 

 

 

 

 

 

 

 

Operating profit and extraordinary items after tax attributable to members

 

up

 

1

%

to

 

2,348

 

 

 

 

 

 

 

 

 

 

 

Final dividend per ordinary share, fully franked at 30% tax rate (previous corresponding period: 46 cents, fully franked at 30% tax rate)

 

 

 

 

 

 

 

51 cents

 

 

 

 

 

 

 

 

 

 

 

Interim dividend per ordinary share, fully franked at 30% tax rate

 

 

 

 

 

 

 

44 cents

 

 

 

 

 

 

 

 

 

 

 

Record date for the final dividend

 

 

 

 

 

13 November 2003

 

 

Refer to Chief Financial Officer’s review on page 7 for an explanation of these figures.

 



 

 

 

Corporate Affairs
Level 22, 100 Queen Street
Melbourne Vic 3000
Facsimile 03 9273 4899
www.anz.com

 

For Release: 24 October 2003

 

ANZ delivers solid earnings growth

 

Australia and New Zealand Banking Group Limited (ANZ) today announced a record operating profit after tax and excluding significant transactions of $2,348 million for the year ended September 2003, up 8.3% on 2002 (FY2002 $2,168 million).

 

Results Summary (excluding significant transactions)

 

                  2003 Full year operating profit after tax of $2,348 million, up 8.3%

 

                  Earnings per ordinary share up 8.2% to $1.48 per share.  EPS excluding goodwill up 9.2% to $1.52 per share.

 

                  Return on ordinary shareholders’ equity of 20.6% down from 21.6%

 

                  Final dividend 51 cents, fully franked.  Full year dividend 95 cents, fully franked, up 11.8%

 

                  Cost income ratio 45.1% down from 46%

 

                  Specific provisions $527 million down 27.6% from $728 million.

 

All comparisons with Full Year 2002.

 

ANZ Chairman, Mr Charles Goode said: “This is a solid result that demonstrates the effectiveness of our specialist business model in delivering consistent returns.  Management and staff are to be congratulated on their achievements.”

 

Chief Executive Officer, Mr John McFarlane said the 2003 financial result was reasonable in an environment that continued to be difficult for banks around the world.

 

“While the Australian and New Zealand economies are sound, significant challenges are posed by low interest rates and associated margin pressure, the rising Australian dollar and softness in the international economy,” Mr McFarlane said.

 

Our specialisation strategy has allowed us to develop ANZ as a low risk, well-managed company that aims to produce consistent results.

 

“Increasingly though another measure of our progress will be the actions we take in other areas to seek to ensure continued superior performance and growth over the coming years.

 

“Much of this involves building on the competitive advantages that exist in our specialist businesses and maximising their growth potential.  At the same time we continually evaluate opportunities to expand in Australia, New Zealand, the Pacific and to a lesser extent elsewhere in Asia.

 



 

“In the year ahead however the environment is likely to be at least as challenging with fewer opportunities to achieve earnings growth in our specialist businesses at the levels achieved in 2003.  However, by creating a very different bank we have improved our capacity to succeed and deliver against market expectations,” Mr McFarlane said.

 

 

For media enquiries, contact:

 

For analyst enquiries, contact:

 

 

 

Paul Edwards

 

Simon Fraser

Head of Group Media Relations

 

Head of Investor Relations

Tel:  +61-3-9273 6955 or +61-409-655 550

 

Tel:  +61-3-9273 4185 or 0411-125 474

email:  paul.edwards@anz.com

 

email:  frasers22@anz.com

 

 

 

 

 

Stephen Higgins

 

 

Senior Manager Investor Relations

 

 

Tel:  +61-417-379 170

 

 

email:  higgins@anz.com

 

 

ANZ’s 2003 Annual Results are available on www.anz.com

 



 

Chief Executive Officer’s Review
2003 Final Results

 

2003 Earnings up 8.3%

 

I am pleased to report a solid result for ANZ in 2003.  ANZ’s net profit after tax was another record at $2,348 million.  This is an 8.3% increase in earnings and an 8.2% increase in earnings per share over 2002, excluding one-off significant transactions in 2002.

 

ANZ’s productivity is now among the best in the world, with our cost to income ratio of 45.1% reflecting further gains in efficiency during the past year.  Return on equity remained very healthy at 20.6%, down marginally, partly driven by our very strong capital position.  The final dividend of 51 cents is up 10.9%.  This brings the full year dividend to 95 cents, up 11.8%.

 

Second half performance demonstrated solid growth over the first half result, with net profit after tax up 5.8%.

 

We maintained our AA- credit rating, and ended the year with a strong common equity and reserves position.

 

Our risk position remains sound, with net non-accrual loans down 16% and a reduction in the economic loss provisioning charge as a percentage of risk-weighted assets from 43 basis points to 39 basis points.  Net specific provisions were down 28%.  We have continued to rebalance the portfolio, with an increased proportion of lower risk assets and a reduction in the higher risk parts of our portfolio, such as power and telecommunications.

 

Overall, this is a solid result, in a challenging environment, broadly in line with market estimates and our internal targets.

 

Gaining Momentum with the ANZ Agenda

 

At ANZ, we are currently on a journey to create an organisation that is both different and sustainable.  This is not something that can be achieved overnight or with a simple statement of intent.  It requires sustained commitment, persistence and investment over a number of years.

 

We took the first major step on this through our innovative strategy that created a portfolio of specialist businesses, and embarked on a journey to transform the culture of the whole organisation.  The success of these programmes is making ANZ very distinctive.  Specialisation has not only brought a sharper financial focus through greater accountability, it has also contributed to a greater sense of ownership and commitment from our people.  Staff satisfaction is at a record high.  This has already contributed to improved customer satisfaction across many business units, and in turn, improved results.

 

1



 

Our Breakout programme has now been attended by over 13,000 of our people. We see this as fundamental to the creation of a different organisation, with motivated people, satisfied customers and superior returns.

 

The next step on this journey is to determine how we build an institution that is capable of sustained performance over the long term.  It means serving our customers well, with innovative and good value services, and delivering sound profitable growth for shareholders.  It means our being committed to creating more jobs, and building a challenging, exciting and caring environment for our people.  It means earning and retaining the trust of the communities in which we operate and extends to making an overall contribution to society.  It means being bold and different, investing for growth and partnering with world-class organisations where joint capability creates a competitive advantage that we could not achieve on our own.  This is the ANZ Agenda, with the overall aim of making ANZ the most respected major company in Australia and New Zealand in the eyes of our stakeholders:

 

                  Customers: A bank that is easy to do business with, a human face, and one that values and builds enduring relationships.

 

                  People: A great company, with great people, great values and great opportunities.

 

                  Shareholders: One of the most efficient, best managed. and most successful banks in the world.

 

                  Community: A company that is trusted by the community, and makes a sustainable contribution to society.

 

Progress on the ANZ Agenda in 2003

 

People make great companies.  At ANZ, we are committed to helping our people continuously to improve their skills and capabilities, and support them in obtaining tertiary and post-graduate qualifications.  This year saw the first of our MBA graduates from our online MBA with Charles Sturt University.  We now have 100 people on the programme.  We continue to be one of the largest private sector recruiters of graduates with a new intake of 240 in Australia and New Zealand alone.

 

In July, we conducted our annual staff satisfaction survey and I am delighted to report that satisfaction levels have again risen and are now at 82%.  With capable, satisfied and motivated people, we have a strong foundation for the future.

 

In our retail banking businesses, trained and committed staff acting as advocates for ANZ, are essential to the health of our relationships with customers and the broader community.  Over the last two years, staff satisfaction in our network has risen from under 50% to over 80%.  We have also maintained high levels of investment to improve customer service, quality and efficiency.  In Australia we have invested over $100 million in a new industry-leading technology for our branch network, and the new telling project, “MyTell”, is now in a number of pilot branches, with full roll out to occur during this financial year.

 

We are particularly excited about the growth in our rural Australia franchise, through the commitment of our people in the more remote communities.

 

2



 

In our Small and Medium Enterprises business, special focus and investment in specialist relationship managers is yielding above average levels of growth.

 

Many people in Australia find difficulty in understanding financial information, and this is putting the most vulnerable at considerable potential risk.  This year we were proud to launch Australia’s first financial literacy survey, and are continuing to take a lead in alleviating this problem.  We see this study as a first step towards empowering people with the appropriate financial skills to make informed basic financial decisions.

 

Our specialised business portfolio provides a strong platform for growth

 

At ANZ we have an attractive portfolio of businesses.  Our specialisation strategy is based on the premise that specialists will outperform generalists, and that a portfolio of specialised businesses provides synergistic benefits and also a diversified risk profile.

 

ANZ’s traditional strength is in Institutional Financial Services and Corporate Banking.  These businesses, by function of their size and market position should be key drivers of ANZ’s future success, as should our developing franchise in Small to Medium Business.  We believe the economic outlook now favours an overweight position in these areas as activity shifts from the consumer-centric growth of recent years.

 

We have a strong portfolio of specialised product businesses.  Our credit card franchise remains a major strength of ANZ notwithstanding issues in the first half together with the reduced interchange levels from the Reserve Bank of Australia’s reforms.  The Mortgage business has become a major force in the third-party market and is employing innovative new distribution channels.  Esanda in Australia, and UDC in New Zealand, are also leading brands in auto and equipment finance.

 

We are the largest bank in the English-speaking South Pacific, the leading Australian bank in Asia, and the market leader in key domestic niche markets such as credit cards and auto-finance.

 

Personal Banking and Wealth Management are less traditional areas for ANZ, making it difficult to transform quickly our market position against larger entrenched competitors.  Nevertheless we are finding new ways to build these businesses so that we can transform our position over the medium to long term.

 

Building a future

 

Organic growth remains our priority, based on realising the competitive advantages of our specialisation strategy.  Specialisation creates a demonstrably more agile operation, able to respond rapidly to the opportunities presented within each business segment.  Our efficiency levels enable us to provide highly competitive customer value, such as in personal transaction accounts.  We are targeting further productivity gains through technology-based process improvements.

 

3



 

We will consider enhancing our capabilities, growth opportunities, scale benefits and other synergies through selective acquisitions.  In order to proceed, any proposed acquisitions must demonstrate a capacity to add value for shareholders and pass a rigorous investment review.

 

We will also enter commercial arrangements and partnerships where these provide a strategic fit with our existing businesses.  Our recently announced agreement with Diners Club Australia is an example of this approach.  In response to the regulatory regime for credit cards, we have provided a different solution that enhances our prospective performance whilst continuing to service our customers’ needs.

 

Our regional international strategy is focused on consumer banking, ideally on transactional and deposit-taking business.  We have a long and successful experience of running businesses within the Pacific and East Asia.  Our preference is to work with local partners with domestic customer franchises where we can add our own distinct capabilities to theirs.  A good example is our credit card joint venture with Metrobank in the Philippines.  Over time we would like to pursue further initiatives, but at a more modest pace and scale, reflecting the need to maintain a lower risk profile.

 

We do have a very strong institutional business across Australasia, Asia, Europe and North America, and this is focused on Trade and Project finance, and financial markets.

 

Finally, our regional international strategy is disciplined and long-term. We have no pressing sense of urgency and if a proposed investment does not meet our requirements, we will not proceed.  As well-publicised events in 2003 demonstrated, we are quite prepared to discontinue discussion where the transaction fails to meet our required return, or risk tolerance.

 

The year ahead

 

The directors expect that ANZ will continue to perform well in a more difficult banking industry environment in 2004.  Based on current economic conditions, the directors anticipate that for the year ending 30 September 2004 ANZ will see moderately lower growth in consolidated net profit after tax (excluding significant transactions) than it achieved in 2003.

 

4



 

ANZ Management Structure

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chief Executive Officer
John McFarlane

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chief Financial Officer
Peter Marriott

 

Chief Operating Officer
Bob Edgar

 

Group Development
Peter Hawkins

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal Banking
Elmer
Funke-Kupper

 

Corporate-SMB
Graham Hodges

 

New Zealand
Greg Camm

 

Institutional
TBA

 

Consumer Finance
Brian Hartzer

 

Mortgages
Chris Cooper

 

Asset Finance
Elizabeth Proust

 

OTSS
Mike Grime

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

People Capital
Shane Freeman

 

Risk
Mark Lawrence

 

Major Projects
Grahame Miller

 

 

 

 

 

 

5



 

Australia and New Zealand Banking Group Limited

ABN 11 005 357 522

 

CONSOLIDATED FINANCIAL REPORT AND DIVIDEND ANNOUNCEMENT

Year ended 30 September 2003

 

CONTENTS

 

HIGHLIGHTS

 

FINANCIAL HIGHLIGHTS

Net Profit

Net Profit Reconciliation

Profit excluding profit on sale of businesses to joint venture, NHB recovery and special general provision for doubtful debts

Performance Measurements

Statement of Financial Position

Assets and Capital

 

CHIEF FINANCIAL OFFICER’S REVIEW

 

BUSINESS PERFORMANCE REVIEW

 

GEOGRAPHIC SEGMENT PERFORMANCE

 

RISK MANAGEMENT

 

COUNTRY EXPOSURES

 

FIVE YEAR SUMMARY

 

CONSOLIDATED FINANCIAL STATEMENTS - TABLE OF CONTENTS

 

DEFINITIONS

 

ALPHABETICAL INDEX

 

All amounts are in Australian dollars unless otherwise stated. The information on which this announcement is based is in the process of being audited by the Group’s auditors, KPMG. The Company has a formally constituted Audit Committee of the Board of Directors. This report was approved by resolution of a Committee of the Board of Directors on 23 October 2003.

 



 

HIGHLIGHTS

 

 

CHIEF EXECUTIVE OFFICER
John McFarlane

 

Year end results

 

 

 

 

 

Change

 

Sep ‘02

 

Net profit after tax

 

$

2,348 million

 

1.1

%

$

2,322m

 

Earnings per ordinary share

 

148.3 cents

 

0.7

%

147.3 cents

 

Final dividend

 

51 cents

 

10.9

%

46 cents

 

Net specific provisions

 

$

527 million

 

(27.6

)%

$

728 million

 

 

Year end results excluding significant transactions(1)

 

 

 

 

 

Change

 

Sep ‘02

 

Net profit after tax

 

$

2,348 million

 

8.3

%

$

2,168m

 

Earnings per ordinary share

 

148.3 cents

 

8.2

%

137.0 cents

 

EPS excluding goodwill(2)

 

152.4 cents

 

9.2

%

139.6 cents

 

Return on ordinary shareholders’ equity

 

20.6

%

(1.0

)%

21.6

%

Cost to income(3)

 

45.1

%

(0.9

)%

46.0

%

 


(1).         Significant transactions during year ended 30 September 2002 were NHB recovery ($159 million after tax), special provision for doubtful debts ($175 million after tax), and profit on sale of businesses to INGA ($170 million after tax).  ANZ believes that the exclusion of significant transactions provides investors with a measure of the performance of the operating business without the distortion of one-off gains and losses.  Refer page 2 for reconciliation to net profit

(2).         EPS excluding goodwill is calculated by dividing cash earnings by the number of ordinary shares outstanding.  Refer to Note 6 for the calculation.  Refer to page 10 for a reconciliation of cash earnings to net profit

(3).            This excludes goodwill amortisation.  Refer to page 101 for a reconciliation and an explanation of the usefulness of this adjusted measure

 

1



 

FINANCIAL HIGHLIGHTS

 

Net Profit

 

 

 

Half
year
Sep 03

 

Half
year
Mar 03

 

Movt
Sep 03
v. Mar 03

 

Full
year
Sep 03

 

Full
year
Sep 02

 

Movt
Sep 03
v. Sep 02

 

 

 

$M

 

$M

 

%

 

$M

 

$M

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

2,171

 

2,140

 

1

%

4,311

 

4,018

 

7

%

Other operating income

 

1,456

 

1,352

 

8

%

2,808

 

2,970

 

-5

%

Operating income

 

3,627

 

3,492

 

4

%

7,119

 

6,988

 

2

%

Operating expenses

 

(1,626

)

(1,602

)

1

%

(3,228

)

(2,905

)

11

%

Profit before debt provision

 

2,001

 

1,890

 

6

%

3,891

 

4,083

 

-5

%

Provision for doubtful debts

 

(311

)

(303

)

3

%

(614

)

(860

)

-29

%

Profit before income tax

 

1,690

 

1,587

 

6

%

3,277

 

3,223

 

2

%

Income tax expense

 

(482

)

(444

)

9

%

(926

)

(898

)

3

%

Outside equity interests

 

(1

)

(2

)

-50

%

(3

)

(3

)

0

%

Net profit attributable to members of the Company

 

1,207

 

1,141

 

6

%

2,348

 

2,322

 

1

%

 

Net Profit Reconciliation

 

Profit excluding profit after tax from sale of businesses to joint venture

 

 

 

 

 

 

 

 

 

 

 

 

 

NHB recovery and special general provision for doubtful debts

 

1,207

 

1,141

 

6

%

2,348

 

2,168

 

8

%

Special general provision for doubtful debts after tax

 

 

 

n/a

 

 

(175

)

-100

%

Recovery from NHB litigation after tax

 

 

 

n/a

 

 

159

 

-100

%

Profit on sale of businesses to ING joint venture after tax

 

 

 

n/a

 

 

170

 

-100

%

Net profit attributable to members of the Company

 

1,207

 

1,141

 

6

%

2,348

 

2,322

 

1

%

 

Profit excluding profit on sale of businesses to joint venture, NHB recovery and special general provision for doubtful debts

 

 

 

Half
year
Sep 03

 

Half
year
Mar 03

 

Movt
Sep 03
v. Mar 03

 

Full
year
Sep 03

 

Full
year
Sep 02

 

Movt
Sep 03
v. Sep 02

 

 

 

$M

 

$M

 

%

 

$M

 

$M

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

2,171

 

2,140

 

1

%

4,311

 

4,018

 

7

%

Other operating income

 

1,456

 

1,352

 

8

%

2,808

 

2,796

 

0

%

Operating income

 

3,627

 

3,492

 

4

%

7,119

 

6,814

 

4

%

Operating expenses

 

(1,626

)

(1,602

)

1

%

(3,228

)

(3,153

)

2

%

Profit before debt provision

 

2,001

 

1,890

 

6

%

3,891

 

3,661

 

6

%

Provision for doubtful debts

 

(311

)

(303

)

3

%

(614

)

(610

)

1

%

Profit before income tax

 

1,690

 

1,587

 

6

%

3,277

 

3,051

 

7

%

Income tax expense

 

(482

)

(444

)

9

%

(926

)

(880

)

5

%

Outside equity interests

 

(1

)

(2

)

-50

%

(3

)

(3

)

0

%

Net profit excluding significant transactions

 

1,207

 

1,141

 

6

%

2,348

 

2,168

 

8

%

 

2



 

Performance Measurements

 

 

 

Half
year
Sep 03

 

Half
year
Mar 03

 

Full
year
Sep 03

 

Full
year
Sep 02

 

 

 

$M

 

$M

 

$M

 

$M

 

EVATM(1)

 

828

 

744

 

1,572

 

1,457

 

Profitability ratios

 

 

 

 

 

 

 

 

 

Return on:

 

 

 

 

 

 

 

 

 

Average ordinary shareholders’ equity(2)

 

20.9

%

20.3

%

20.6

%

23.2

%

Average ordinary shareholders’ equity(2) excluding significant transactions(3)

 

20.9

%

20.3

%

20.6

%

21.6

%

Average assets

 

1.24

%

1.22

%

1.23

%

1.30

%

Average risk weighted assets

 

1.60

%

1.57

%

1.59

%

1.68

%

Total income

 

17.4

%

17.1

%

17.2

%

18.4

%

Net interest average margin

 

2.64

%

2.71

%

2.67

%

2.77

%

Profit per average FTE ($)

 

53,348

 

51,077

 

103,779

 

102,246

 

Efficiency ratios(4)

 

 

 

 

 

 

 

 

 

Operating expenses to operating income (excluding significant transactions(3))

 

44.6

%

45.6

%

45.1

%

46.0

%

Operating expenses to operating income

 

44.6

%

45.6

%

45.1

%

41.3

%

Operating expenses (excluding significant transactions(3)) to average assets

 

1.7

%

1.7

%

1.7

%

1.8

%

Operating expenses to average assets

 

1.7

%

1.7

%

1.7

%

1.6

%

Debt provisioning

 

 

 

 

 

 

 

 

 

Economic loss provisioning ($M)

 

311

 

303

 

614

 

610

 

Special general provision charge ($M)

 

 

 

 

250

 

Net specific provisions ($M)

 

268

 

259

 

527

 

728

 

Earnings per ordinary share (cents)

 

 

 

 

 

 

 

 

 

Earnings per ordinary share (basic)

 

76.3

 

72.0

 

148.3

 

147.3

 

Earnings per ordinary share (diluted)

 

76.1

 

71.7

 

147.9

 

146.6

 

Earnings per ordinary share (basic) excluding significant transactions(3)

 

76.3

 

72.0

 

148.3

 

137.0

 

Earnings per ordinary share (basic) excluding significant transactions and goodwill amortisation(5)

 

78.4

 

74.0

 

152.4

 

139.6

 

Ordinary share dividends (cents)

 

 

 

 

 

 

 

 

 

Interim - 100% franked (Mar 02: 100% franked)

 

n/a

 

44

 

44

 

39

 

Final - 100% franked (Sep 02: 100% franked)

 

51

 

n/a

 

51

 

46

 

Dividend payout ratio(6)

 

67.0

%

61.3

%

64.2

%

57.8

%

Preference share dividend

 

 

 

 

 

 

 

 

 

Dividend paid ($M)

 

48

 

54

 

102

 

117

 

 


(1).         EVATM refers to Economic Value Added, a measure of shareholder value.  See page 12 for reconciliation of EVATM to reported net profit and a discussion of EVATM and an explanation of its usefulness as a performance measure

(2).         Ordinary shareholders’ equity of EVATM excluding outside equity interests

(3).         Refer footnote 1 on page 1 for an explanation of the usefulness of adjusting profit to remove the impact of significant transactions.  For a reconciliation to net profit, see page 2

(4).         This excludes goodwill amortisation.  Refer to page 101 for a reconciliation and an explanation of the usefulness of this adjusted measure

(5).         Earnings used in ratio of $2,308 million (Full year 2002: $2,089 million; Sep 2003 half: $1,190 million; Mar 2003 half: $1,118 million) excludes significant transactions $nil (Full year 2002: $154 million; Sep 2003 half: $nil; Mar 2003 half: $nil) and goodwill and notional goodwill amortisation $62 million (Full year 2002: $38 million; Sep 2003 half: $31 million; Mar 2003 half: $31 million)

(6).         Dividend payout ratio is calculated using the dividend declared but not paid for as at 30 September 2003

 

3



 

Statement of Financial Position

 

 

 

As at
Sep 03

 

As at
Mar 03

 

As at
Sep 02

 

Movt
Sep 03
v. Mar 03

 

Movt
Sep 03
v. Sep 02

 

 

 

$M

 

$M

 

$M

 

%

 

%

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Liquid assets

 

6,592

 

7,759

 

7,410

 

-15

%

-11

%

Due from other financial institutions

 

2,427

 

3,123

 

3,815

 

-22

%

-36

%

Trading and investment securities

 

8,980

 

9,520

 

9,482

 

-6

%

-5

%

Net loans and advances including acceptances

 

162,643

 

155,235

 

145,856

 

5

%

12

%

Other

 

14,949

 

14,881

 

16,542

 

0

%

-10

%

Total assets

 

195,591

 

190,518

 

183,105

 

3

%

7

%

Liabilities

 

 

 

 

 

 

 

 

 

 

 

Due to other financial institutions

 

6,467

 

8,824

 

10,860

 

-27

%

-40

%

Deposits and other borrowings

 

124,494

 

122,122

 

113,259

 

2

%

10

%

Liability for acceptances

 

13,178

 

13,270

 

13,796

 

-1

%

-4

%

Bonds and notes

 

16,572

 

14,917

 

14,708

 

11

%

13

%

Other

 

21,093

 

18,900

 

19,017

 

12

%

11

%

Total liabilities

 

181,804

 

178,033

 

171,640

 

2

%

6

%

Total shareholders’ equity

 

13,787

 

12,485

 

11,465

 

10

%

20

%

 

4



 

Assets and Capital

 

 

 

As at
Sep 03

 

As at
Mar 03

 

As at
Sep 02

 

Movt
Sep 03
v. Mar 03

 

Movt
Sep 03
v. Sep 02

 

 

 

$M

 

$M

 

$M

 

%

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

195,591

 

190,518

 

183,105

 

3

%

7

%

Risk weighted assets

 

152,164

 

148,603

 

141,390

 

2

%

8

%

Shareholders’ equity(1), (2)

 

13,770

 

12,468

 

11,448

 

10

%

20

%

 

 

 

 

 

 

 

 

 

 

 

 

Total advances

 

164,661

 

157,323

 

147,937

 

5

%

11

%

Net advances

 

162,643

 

155,235

 

145,856

 

5

%

12

%

Net tangible assets per ordinary share ($)

 

7.49

 

7.32

 

6.58

 

2

%

14

%

Net tangible assets attributable to ordinary shareholders

 

11,398

 

11,072

 

9,893

 

3

%

15

%

Total number of ordinary shares (M)

 

1,521.7

 

1,513.4

 

1,503.9

 

1

%

1

%

 

 

 

As at
Sep 03

 

As at
Mar 03

 

As at
Sep 02

 

 

 

$M

 

$M

 

$M

 

Capital adequacy ratio (%)

 

 

 

 

 

 

 

Tier 1

 

7.7

%

7.7

%

7.9

%

Tier 2

 

4.0

%

3.4

%

2.8

%

Total capital ratio

 

11.1

%

9.9

%

9.5

%

Adjusted common equity ratio(3)

 

5.7

%

5.7

%

5.7

%

 

 

 

As at
Sep 03

 

As at
Mar 03

 

As at
Sep 02

 

Movt
Sep 03
v. Mar 03

 

Movt
Sep 03
v. Sep 02

 

 

 

$M

 

$M

 

$M

 

%

 

%

 

Impaired assets

 

 

 

 

 

 

 

 

 

 

 

General provision

 

1,534

 

1,530

 

1,496

 

0

%

3

%

General provision as a % of risk weighted assets

 

1.01

%

1.03

%

1.06

%

-2

%

-5

%

Gross non-accrual loans

 

1,007

 

1,153

 

1,203

 

-13

%

-16

%

Specific provisions

 

(482

)

(553

)

(575

)

-13

%

-16

%

Net non-accrual loans

 

525

 

600

 

628

 

-13

%

-16

%

Specific provision as a % of total non-accrual loans

 

47.9

%

48.0

%

47.8

%

0

%

0

%

Total provisions(4) as a % of non-accrual loans

 

200.2

%

180.7

%

172.2

%

11

%

16

%

Net non-accrual loans as a % of net advances

 

0.3

%

0.4

%

0.4

%

-25

%

-25

%

Net non-accrual loans as a % of shareholders’ equity(5)

 

3.8

%

4.8

%

5.5

%

-21

%

-31

%

 

 

 

 

 

 

 

 

 

 

 

 

Other information

 

 

 

 

 

 

 

 

 

 

 

Full time equivalent staff (FTE’s)

 

23,137

 

22,483

 

22,482

 

3

%

3

%

Assets per FTE ($M)

 

8.5

 

8.5

 

8.1

 

0

%

5

%

Market capitalisation of ordinary shares ($M)

 

27,314

 

27,135

 

26,544

 

1

%

3

%

 


(1).         Excludes outside equity interests

(2).         Includes preference share capital of $2,212 million (Mar 2003: $1,225 million; Sep 2002: $1,375 million)

(3).         Adjusted common equity is calculated as Tier 1 capital less preference shares at current rates and deductions from total capital.  This measure is commonly used to assess the adequacy of common equity held.  See page 11 for a reconciliation to Tier 1 capital

(4).         General provision plus specific provisions on non-accrual loans

(5).         Includes outside equity interests

 

5



 

This page has been left blank intentionally

 

 

6



 

CHIEF FINANCIAL OFFICER’S REVIEW

 

 

CHIEF FINANCIAL OFFICER
Peter Marriott

 

2003 results

 

Australia and New Zealand Banking Group Limited (ANZ, or the Group) recorded a profit after tax of $2,348 million for the year ended 30 September 2003, an increase of 1% over September 2002 year.

 

Excluding the significant transactions(1) profit increased 8% driven by strong lending growth which was the principal contribution to a 7% growth in net interest income.  Other income was flat excluding significant transactions as a result of the under accrual of loyalty points on credit cards in prior periods.  Expenses were tightly controlled, increasing 2%.  Asset quality improved with ELP stable despite volume increases.

 

 


(1).         Refer footnote 1 on page 1 for an explanation of the usefulness of adjusting profit to remove the impact of significant transactions.  For a reconciliation to net profit, see page 2

 

The result was driven by solid profit growth in seven of the 10 business segments.

 

                  Strong results in Corporate (12%) and Asset Finance (23%) were driven by strong domestic growth, while the 34% improvement in Asia Pacific resulted largely from higher equity accounted income from PT Panin, higher foreign exchange earnings and lending growth.

                  Profit in Mortgages grew 9% reflecting continued growth in the Australian housing market while the 7% improvement in Personal Banking Australia resulted largely from increased deposit volumes and increased commissions on mortgage sales.  

                  The Institutional Financial Services result increased 8% with strong contributions from Capital Markets and the Australasian operations of Institutional Banking. Contributions from Structured Finance International and the offshore operations of Institutional Banking reduced following the decision to reduce exposure to the US and UK markets.

                  New Zealand Banking results were flat after adjusting for the impact of the appreciation in the exchange rate. (refer footnote 3 on page 14).

                  Consumer Finance was impacted by the under accrual of loyalty expense, and mismatch earnings in Treasury reduced as high yielding investments matured.

 

Further commentary is provided in the Business Performance Review on pages 13 to 48.

 

 


(2).            Excludes significant transactions(1).  Results for the corporate centre not included (2003: $24 million loss; 2002: $46 million loss)

 

7



 

 

The following discussion excludes the impact of significant transactions as management believes this provides a better indication of core business performance.

 

Net Interest

 

Volume

(GREATER THAN) 7%

 

Average net lending assets grew by $13.6 billion (10%) overall, with growth of $10.8 billion (18%) in Mortgages, $1.6 billion in Corporate and $0.8 billion in Asset Finance. Net lending asset volumes reduced 15% in overseas markets as a result of the strategy to reduce higher risk exposures in the UK and US and the exchange rate impact of a strengthening Australian dollar. Average deposits and other borrowings grew $13.5 billion, in Treasury ($3.2 billion), Personal Banking Australia ($4.2 billion), Institutional Financial Services ($2.7 billion), New Zealand Banking (NZD 0.8 billion), Asset Finance ($0.8 billion) and Corporate ($1.6 billion). The deposit growth was encouraged by uncertainty in global equity markets.

 

 

 

 

 

Margin

 

 

Net interest margin contracted by 10 basis points:

 

 

        The funding cost associated with unrealised trading gains increased as a result of the appreciation of the AUD. Whilst resulting in a 3 basis point decline in net interest margin, it is offset by an equivalent gain in trading income.

 

 

        Net interest income in Treasury fell by $45 million with maturing high yielding assets not able to be replaced due to the sustained period of low and stable interest rates (3 basis points).

 

 

        The interest benefit from low interest savings accounts and non-interest bearing balances reduced as the rate at which they were invested reduced (3 basis points).

 

 

        The proportion of the balance sheet funded by low interest savings accounts and non-interest balances reduced during the year, offset by an increase in term deposits and wholesale funding. This change in funding mix reduced the net interest margin by 5 basis points.

 

 

        Partially offsetting these declines was an increase in foreign currency hedge earnings revenue as a result of the strengthening AUD (3 basis points) and a reduction in the funding cost on impaired assets (1 basis point).

 

 

 

Other Income
(NO CHANGE)

 

After adjusting to remove the impact of selling the ANZ Funds Management business to INGA other operating income increased 5%:

 

 

        Lending fees increased $57 million on strong volume growth in Corporate, Asset Finance and Institutional Banking in Australasia.

 

 

        Non-lending fees reduced by 3% ($35 million) principally from a $38 million under-accrual of loyalty points on co-branded credit cards in prior years, higher cost of loyalty points and reduced fee revenue from the US and UK structured finance operations.

 

 

        Non-fee other income increased by 17% ($102 million), including increased equity accounted income in PT Panin, development property sales in Institutional and higher profit on trading instruments. The latter is principally due to a change in the split of Capital Markets earnings between trading and net interest income.

 

 

 

Expenses
(GREATER THAN) 2%

 

Personnel costs increased by 2% with staff numbers increasing 3% with an expanded sales force, an increased back office to process higher mortgage activity and additional staff required to implement the RBA interchange reforms.

 

 

Increases in computer expenses were primarily driven by increased software amortisation. Discretionary costs were constrained given the subdued income growth.

 

 

 

Doubtful Debts
(GREATER THAN) 1%

 

A 12% growth in net advances was offset by a moderate improvement in overall average credit quality, with an increased proportion of mortgage loans.

 

 

 

Tax Expense
(GREATER THAN) 5%

 

Tax expense increased less than profit before tax due to a higher amount of equity accounted earnings and other small permanent differences.

 

8



 

Comparison of September 2003 half year with the March 2003 half year

 

 

Profit after tax for the September 2003 half year at $1,207 million was 6% higher than the March 2003 half year.  Earnings per share increased 6% to 76.3 cents and return on ordinary shareholders’ equity was up from 20.3% to 20.9%.  The result was driven by strong performances in Consumer Finance, Asset Finance, Corporate and mortgages.  Earnings in New Zealand Banking, Treasury and Asia Pacific reduced.  The impact of the continued strengthening of the Australian dollar against the USD reduced profit by 1.5%.  There were no adjustments for significant transactions in this half.

 

Net Interest

 

Volume

(GREATER THAN) 1%

 

Average net lending asset volumes grew by $6.5 billion, primarily in Mortgages ($6.0 billion) and Corporate ($1.8 billion) while deposits grew predominantly from the wholesale market. High margin lending volumes in Structured Finance reduced following a decision to reduce exposures to the US and UK markets.

 

 

 

 

 

Margin

 

 

Net interest margin reduced by 7 basis points:

 

 

        Treasury earnings and the interest benefit from low interest savings accounts and non-interest earnings balances fell during the half as a result of the sustained period of low and stable interest rates. This represented 3 basis points.

 

 

        The proportion of the balance sheet funded by low interest savings accounts and non-interest earning balances reduced during the half, offset by increases in term deposits and funding from the wholesale markets. This change in funding mix generated a 4 basis point decline in margin.

 

 

 

Other Income
(GREATER THAN) 8%

 

The $38 million under-accrual in Consumer Finance suppressed fees in the March 2003 half.  This, together with volume growth in Consumer Finance (after adjusting for the under accrual) and Corporate, resulted in a higher level of fee income in the September half. Non-fee other income increased 13% with higher equity accounted income from INGA and profit on sale of development properties in Institutional Banking.

 

 

 

Expenses
(GREATER THAN) 1%

 

Personnel costs increased slightly with higher staffing levels. Premises costs increased in Australia while the rate of increase in software amortisation slowed. Constantly re-engineering our operating costs to ensure tight cost control remains a key aspect of our financial management.

 

 

 

Doubtful Debts
(GREATER THAN) 3%

 

Provision for doubtful debts increased by 3% with asset growth in Australasia.

 

 

 

Tax Expense
(GREATER THAN) 9%

 

Tax expense increased as a result of the favourable impact of the recognition of offshore tax losses and a tax deduction for the general employee share scheme issue booked in the first half.

 

9



 

Cash earnings reconciliation

 

 

 

Half
year
Sep 03

 

Half
year
Mar 03

 

Movt
Sep 03
v. Mar 03

 

Full
year
Sep 03

 

Full
year
Sep 02

 

Movt
Sep 03
v. Sep 02

 

 

 

$M

 

$M

 

%

 

$M

 

$M

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash earnings reconciliation

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash earnings before significant transactions

 

1,238

 

1,172

 

6

%

2,410

 

2,206

 

9

%

Net profit on significant transactions(1)

 

 

 

n/a

 

 

154

 

-100

%

Amortisation of notional goodwill on INGA

 

(22

)

(22

)

0

%

(44

)

(18

)

large

 

Amortisation of other goodwill

 

(9

)

(9

)

0

%

(18

)

(20

)

-10

%

Net profit attributable to members of the Company

 

1,207

 

1,141

 

6

%

2,348

 

2,322

 

1

%

 


(1).         Refer footnote 1 on page 1 for an explanation of the usefulness of adjusting profit to remove the impact of significant transactions.  For a reconciliation to net profit, see page 2

 

ANZ has included this cash earnings measure as it is commonly used by certain investors to evaluate ANZ’s core operating result without the distortion of one-off significant transactions, the impact of the amortisation of goodwill and certain revaluations.  ANZ has not revalued subsidiary entities or other assets in the periods shown.  These earnings do not include any impact from appraisal value movements.

 

Software Capitalisation

 

The Group capitalises the development of software for major projects.  As at September 2003, the balance of software capitalised was $465 million ($451 million at March 2003 and $419 million at September 2002).  Software is amortised over 3 to 5 years, commencing on the date of implementation (the only exception is the branch network platform, which is amortised over 7 years).  During the year, a further $116 million of software build costs were capitalised compared to $178 million in the 2002 year, the right to use the TradeCentrix (Proponix) software was recognised, while software amortisation of $83 million increased from $50 million.  The build up in capitalised projects has been at a time when the Group has had an unusually high number of long term infrastructure projects.

 

 

Risk

 

The Group economic loss provision charge (ELP) was $614 million, compared with $610 million in the year to September 2002.  The ELP charge to operating segments at $514 million reduced from September 2002.  An additional charge of $100 million (7 basis points) was taken to recognise continued uncertainty and expected levels of default in the offshore lending portfolios.

 

The ELP rate decreased over the year to 39 basis points compared to 43 basis points for the September 2002 year. The continuing trend of decreasing offshore institutional assets and increasing lower risk domestic assets (principally mortgages) has progressively reduced the average risk over the year.

 

Net specific provisions were $527 million, down $201 million on the September 2002 year with the reduction due principally to lower offshore losses.  Net specific provisions included $27 million relating to the finalisation of our credit warranty with Standard Chartered (this warranty was given on the sale of Grindlays).  There were no individual name losses exceeding $40 million.

 

10



 

There was some further deterioration in the international power portfolio, while exposure to the Telecommunication sector reduced significantly.  In these two sectors additional specific provisions of $114 million were raised during the year compared to $377 million in the September 2002 year.  There were no large single name losses in excess of $40 million experienced this year.  As a percentage of average net lending assets, net specific provisions reduced to 34 basis points this year, from 51 basis points last year.

 

Net non-accrual loans were $525 million at September 2003 compared with $628 million at September 2002.  The general provision balance at 30 September 2003 remains strong at $1,534 million (1.01% of risk weighted assets), compared with $1,496 million (1.06% of risk weighted assets) at 30 September 2002.

 

Capital management

 

The Group’s total capital adequacy ratio increased from 9.5% to 11.1% over the year to 30 September 2003 due largely to:

                  The $1 billion issuance of 10 million stapled securities (StEPs) on 23 September 2003 increased Tier 1 capital.  The stapled securities comprise an interest paying note issued by ANZ Holdings (New Zealand) Limited, a wholly owned subsidiary of ANZ, and a preference share on which dividend will not be paid while it is stapled to a note.

 

                  A net increase of $1.2 billion of Tier 2 capital in the March 2003 half year, and a further $1.1 billion in the second half.

 

Tier 1 ratio at 7.7% was unchanged from March 2003 but down from 7.9% at 30 September 2002.  The stapled security issue was offset by a new APRA requirement to deduct purchased goodwill directly from Tier 1 capital.

 

The Group plans, subject to APRA approval, to call its TrUEPrs preference shares.  This will release a $76 million net profit after tax that arose from the close out of the TrUEPrs interest rate swap.

 

The Group’s ACE (Adjusted Common Equity; refer page 112 for definition) ratio remained unchanged at 5.7%.

 

ACE reconciliation

 

Sep 03

 

Mar 03

 

Sep 02

 

 

 

$B

 

$B

 

$B

 

Tier 1

 

11.7

 

11.5

 

11.2

 

Preference Shares

 

(2.1

)

(1.3

)

(1.4

)

Deductions

 

(0.9

)

(1.8

)

(1.7

)

Adjusted Common Equity ($B)

 

8.7

 

8.4

 

8.1

 

% of risk weighted assets

 

5.7

%

5.7

%

5.7

%

 

11



 

EVA reconciliation

 

One measure of shareholder value is EVATM (Economic Value Added) growth relative to prior periods.  EVATM for the year ended 30 September 2003 was $1,572 million, up from $1,457 million for the year ended 30 September 2002. EVATM for the September 2003 half was $828 million up from $744 million for the March 2003 half.

 

 

 

Half
year
Sep 03

 

Half
year
Mar 03

 

Movt
Sep 03
v. Mar 03

 

Full
year
Sep 03

 

Full
year
Sep 02

 

Movt
Sep 03
v. Sep 02

 

 

 

$M

 

$M

 

%

 

$M

 

$M

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EVATM

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net profit after tax

 

1,207

 

1,141

 

6

%

2,348

 

2,322

 

1

%

Notional goodwill on ING

 

22

 

22

 

0

%

44

 

18

 

large

 

Other goodwill

 

9

 

9

 

0

%

18

 

20

 

-10

%

Significant transactions(1)

 

 

 

n/a

 

 

(154

)

-100

%

Imputation credits

 

249

 

215

 

16

%

464

 

449

 

3

%

Risk adjusted profit

 

1,487

 

1,387

 

7

%

2,874

 

2,655

 

8

%

Cost of ordinary capital

 

(611

)

(589

)

4

%

(1,200

)

(1,081

)

11

%

Cost of preference share capital

 

(48

)

(54

)

-11

%

(102

)

(117

)

-13

%

EVATM

 

828

 

744

 

11

%

1,572

 

1,457

 

8

%

 


(1)            Refer footnote 1 on page 1 for an explanation of the usefulness of adjusting profit to remove the impact of significant transactions.  For a reconciliation to net profit, see page 2

 

EVATM is a measure of risk adjusted accounting profit.  It is based on operating profit after tax, adjusted for significant transactions, the cost of capital, and imputation credits (measured at 70% of Australian tax).  Of these, the major component is the cost of capital, which is calculated on the risk adjusted or economic capital at a rate of 11%.  At the Group level, total capital is used so the cost of capital reflects the full resources provided by shareholders.

 

At ANZ, economic capital is the equity allocated according to a business unit’s inherent risk profile.  It is allocated for several risk categories including: credit risk, operating risk, interest rate risk, basis risk, mismatch risk, investment risk, trading risk and other risk.  The methodology used to allocate capital to business units for risk is designed to help drive appropriate risk management and business strategies.

 

At ANZ EVATM is a key measure for evaluating business unit performance and correspondingly is a key factor in determining the variable component of remuneration packages.  Business unit results are equity standardised, by eliminating the impact of earnings on each business unit’s book capital and attributing earnings on the business unit’s risk adjusted or economic capital.

 

12



 

BUSINESS PERFORMANCE REVIEW

 

 

BUSINESS SEGMENT PERFORMANCE
Bob Edgar

 

Analysis of the segment and business unit results appears on pages 13 to 48.  The principles used to compile business unit results are explained in the glossary on page 112.

 

Net profit for each business is determined after service transfer pricing and equity standardisation.

 

Profit & Loss (including effect of movements in foreign currencies)

 

 

 

Half
year
Sep 03

 

Half
year
Mar 03

 

Movt
Sep 03
v. Mar 03

 

Full
year
Sep 03

 

Full
year
Sep 02

 

Movt
Sep 03
v. Sep 02

 

 

 

$M

 

$M

 

%

 

$M

 

$M

 

%

 

Net profit after income tax

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal Banking Australia

 

196

 

188

 

4

%

384

 

360

 

7

%

Institutional Financial Services

 

388

 

384

 

1

%

772

 

715

 

8

%

Corporate

 

139

 

131

 

6

%

270

 

242

 

12

%

New Zealand Banking

 

67

 

74

 

-9

%

141

 

131

 

8

%

Mortgages

 

138

 

132

 

5

%

270

 

247

 

9

%

Consumer Finance

 

96

 

48

 

100

%

144

 

150

 

-4

%

Asset Finance

 

66

 

61

 

8

%

127

 

103

 

23

%

ING Australia(1)

 

21

 

17

 

24

%

38

 

43

 

-12

%

Asia Pacific

 

64

 

67

 

-4

%

131

 

98

 

34

%

Treasury

 

46

 

49

 

-6

%

95

 

125

 

-24

%

Group Centre

 

(14

)

(10

)

40

%

(24

)

(46

)

-48

%

Net profit (excl significant transactions)(2)

 

1,207

 

1,141

 

6

%

2,348

 

2,168

 

8

%

Significant transactions(2)

 

 

 

n/a

 

 

154

 

n/a

 

Net profit

 

1,207

 

1,141

 

6

%

2,348

 

2,322

 

1

%

 


(1)            Includes the results of ING Australia (INGA) for the period from 1 May 2002; and the results of the businesses sold into INGA for the prior periods

(2)            Significant transactions during the year ended 30 September 2002 were the sale of business to INGA, the NHB recovery and special general provision for doubtful debts.  ANZ excludes significant transactions to eliminate the distorting effect of one-off transactions on the results of its core business

 

The Group from time to time modifies the organisation of its businesses to enhance the focus on delivery of specialised products or services to customers.  Prior period numbers are adjusted for such organisational changes to allow comparability.  During the half ended 30 September 2003 the significant changes were:

 

                  The re-organisation within Personal Banking Australia, effective from 1 April 2003.  This segment consists of:

                  Personal Distribution which provides a full range of banking services, including the distribution of Wealth Management products, to personal customers and small to medium rural customers in Australia through branches, call centres, ATMs and on-line banking.

                  Banking Products which delivers comprehensive financial advisory, trustee and distribution services to high net worth customers in Australia covering investment, risk, lending and banking.

 

                  In addition, there have been a number of function transfers including the transfer of the Contact Centre to Personal Banking Australia, further customer segmentation between Institutional Banking, Structured Finance International and Corporate, and a number of relatively minor methodology changes to revenue and cost allocations.

 

                  ANZ has increased the allocation of economic capital to business units carrying goodwill on investments.  Business units carrying goodwill will show increased earnings on capital in the equity standardised statement of financial performance.

 

13



 

Profit & Loss (prior period figures restated to remove effect of movements in foreign currencies(3))

 

 

 

Half
year
Sep 03

 

Half
year
Mar 03

 

Movt
Sep 03
v. Mar 03

 

Full
year
Sep 03

 

Full
year
Sep 02

 

Movt
Sep 03
v. Sep 02

 

 

 

$M

 

$M

 

%

 

$M

 

$M

 

%

 

Net profit after income tax

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal Banking Australia

 

196

 

188

 

4

%

384

 

360

 

7

%

Institutional Financial Services

 

388

 

375

 

3

%

772

 

713

 

8

%

Corporate

 

139

 

131

 

6

%

270

 

242

 

12

%

New Zealand Banking

 

67

 

72

 

-7

%

141

 

141

 

0

%

Mortgages

 

138

 

130

 

6

%

270

 

250

 

8

%

Consumer Finance

 

96

 

48

 

100

%

144

 

152

 

-5

%

Asset Finance

 

66

 

61

 

8

%

127

 

105

 

21

%

ING Australia(1)

 

21

 

17

 

24

%

38

 

43

 

-12

%

Asia Pacific

 

64

 

67

 

-4

%

131

 

93

 

41

%

Treasury

 

46

 

47

 

-2

%

95

 

121

 

-21

%

Group Centre

 

(14

)

(11

)

27

%

(24

)

(55

)

-56

%

Net profit (excl significant transactions)

 

1,207

 

1,125

 

7

%

2,348

 

2,165

 

8

%

Significant transactions(2)

 

 

 

n/a

 

 

154

 

n/a

 

Net profit (excl FX movements)

 

1,207

 

1,125

 

7

%

2,348

 

2,319

 

1

%

FX impact on reported Net Profit(3)

 

 

16

 

-100

%

 

3

 

n/a

 

Net profit

 

1,207

 

1,141

 

6

%

2,348

 

2,322

 

1

%

 


(1)            Includes the results of ING Australia (INGA) for the period from 1 May 2002; and the results of the businesses sold into INGA for the prior periods

(2)            Significant transactions during the year ended 30 September 2002 were the sale of business to INGA, the NHB recovery and special general provision for doubtful debts.

(3)            ANZ has removed the impact of exchange rate movements to provide investors with a better indication of the business unit performance in local currency terms

 

14



 

 

This page has been left blank intentionally

 

15



 

BUSINESS PERFORMANCE REVIEW

 

PERSONAL BANKING AUSTRALIA

Elmer Funke Kupper

      Personal Distribution

      Banking Products

 

 

 

Half
year
Sep 03

 

Half
year
Mar 03

 

Movt
Sep 03
v. Mar 03

 

Full

year
Sep 03

 

Full
year
Sep 02

 

Movt
Sep 03
v. Sep 02

 

 

 

$M

 

$M

 

%

 

$M

 

$M

 

%

 

Net interest income

 

430

 

421

 

2

%

851

 

790

 

8

%

Other external operating income

 

191

 

187

 

2

%

378

 

368

 

3

%

Net inter business unit fees

 

202

 

187

 

8

%

389

 

399

 

-3

%

Operating income

 

823

 

795

 

4

%

1,618

 

1,557

 

4

%

External operating expenses

 

(426

)

(409

)

4

%

(835

)

(812

)

3

%

Net inter business unit expenses

 

(107

)

(106

)

1

%

(213

)

(207

)

3

%

Operating expenses

 

(533

)

(515

)

3

%

(1,048

)

(1,019

)

3

%

Profit before debt provision

 

290

 

280

 

4

%

570

 

538

 

6

%

Provision for doubtful debts

 

(14

)

(13

)

8

%

(27

)

(24

)

13

%

Profit before income tax

 

276

 

267

 

3

%

543

 

514

 

6

%

Income tax expense and outside equity interests

 

(80

)

(79

)

1

%

(159

)

(154

)

3

%

Net profit attributable to members of the Company

 

196

 

188

 

4

%

384

 

360

 

7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loans & advances including acceptances

 

5,902

 

5,197

 

14

%

5,902

 

4,945

 

19

%

Other external assets

 

794

 

1,034

 

-23

%

794

 

887

 

-10

%

External assets

 

6,696

 

6,231

 

7

%

6,696

 

5,832

 

15

%

Deposits and other borrowings

 

31,824

 

30,425

 

5

%

31,824

 

28,968

 

10

%

Other external liabilities

 

1,254

 

1,105

 

13

%

1,254

 

1,108

 

13

%

External liabilities

 

33,078

 

31,530

 

5

%

33,078

 

30,076

 

10

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest average margin

 

2.78

%

2.84

%

-2

%

2.81

%

3.06

%

-8

%

Return on assets

 

1.20

%

1.21

%

-1

%

1.21

%

1.31

%

-8

%

Return on risk weighted assets

 

3.67

%

3.78

%

-3

%

3.74

%

4.12

%

-9

%

Operating expenses to operating income

 

64.8

%

64.8

%

0

%

64.8

%

65.4

%

-1

%

Operating expenses to average assets

 

3.28

%

3.31

%

-1

%

3.30

%

3.70

%

-11

%

Net specific provisions

 

(10

)

(9

)

11

%

(19

)

(17

)

12

%

Net specific provision as a % of average net advances

 

0.37

%

0.36

%

2

%

0.36

%

0.36

%

0

%

Net non-accrual loans

 

10

 

7

 

43

%

10

 

10

 

0

%

Net non-accrual loans as a % of net advances

 

0.17

%

0.13

%

31

%

0.17

%

0.20

%

-15

%

Total employees

 

6,822

 

6,733

 

1

%

6,822

 

6,577

 

4

%

 

16



 

2003 result

 

Profit after tax increased by 7% with profit growth in Banking Products of 27% offsetting a 4% reduction in Personal Distribution.  Within Personal Distribution, Rural Banking performed well delivering a 10% profit improvement offsetting investments in Personal Banking and revenue pressure in ANZ Financial Planning.  Significant factors affecting the result were:

              Net interest income increased 8% driven by volume growth in Rural Banking (business lending 22%, business deposits 44%), and in Banking Products with growth in consumer deposits (11%) and margin lending, (19%). Net interest margin, however, was lower by 25 basis points due to the lower interest rate environment and higher growth in lower margin cash and term deposits.

              Other external operating income increased 3%. Revenue from the distribution of investment management products is recorded as external income, whereas prior to the sale of businesses to INGA, this revenue was internal. After adjusting for this:

              Sales and retention commissions received from the sale of ANZ products through the branch network increased 5% reflecting strong demand for mortgages and the effects of our investment in training of sales staff in the second half.

              Fees from core transaction products were marginally up.

              Other external operating income reduced 6% driven by an 18% reduction in sales and retention payments from INGA, reflecting the negative impact of the downturn in the equity markets. This was particularly evident in the first half of the year.

              Operating costs increased 3% due to an $8 million investment in training our sales force, and increased depreciation associated with investments in technology and the branch network. Banking Products benefited from cost savings arising from the creation of INGA.

              Provision for doubtful debts remained low reflecting sound credit quality, and the deposit driven nature of the business.

 

Comparison with March 2003 half

 

Profit after tax increased 4%, with Banking Products growing by 5% and Personal Distribution by 4%:

              Revenues grew by 4%. Net interest income benefited from deposit and rural lending growth, and seasonal growth in gearing products. This was in part offset by a modest margin decline. Sales and retention commissions received from the sale of mortgages and consumer products through the branch network increased by 8%.

              Operating costs increased 3% in the half. Most of the training investment was made in the second half, and the investment in the network led to higher premises expenses.

              Provision for doubtful debts was stable.

 

17



 

Our business

 

Our business generates revenue through four major activities:

              Managing and selling proprietary products (including savings products, transaction accounts and agri-lending) from which we earn interest and fees.

              Selling other ANZ products from which we earn sales commissions and, in some cases, trailer commissions.

              Providing financial advice to individuals and distributing investment products.

              Providing branch and network services to ANZ’s personal and corporate customers (e.g. cash deposit facilities), on a cost-recovery basis.

 

 

Key Performance Indicators

 

Half
year
Sep 03

 

Half
year
Mar 03

 

Half
year
Sep 02

 

Deposit balances ($billion)

 

31.8

 

30.4

 

29.0

 

Lending balances ($billion)

 

5.9

 

5.2

 

4.9

 

Deposit interest margin (%)

 

2.27

 

2.34

 

2.41

 

Mortgage sales ($billion)

 

7.7

 

6.1

 

6.4

 

Managed investment flows ($million)

 

1,043

 

970

 

1,083

 

Sales commissions ($million)

 

89.3

 

78.2

 

82.3

 

Customers (million)

 

3.20

 

3.17

 

3.15

 

 

External considerations

Our business has three significant economic sensitivities:

              GDP growth, which impacts domestic savings and borrowings. We expect deposit market growth of 5-6% over the next 12 months based on Australian GDP growth of around 3%.

              Interest rates. Our margins are normally higher in higher interest rate environments.

              Demand for mortgages. 60% of our sales commissions come from mortgage sales. Demand has been strong for 2003 but is expected to soften over 2004 as the residential property market consolidates after several years of high growth.

 

Business environment measures

 

Half
year
Sep 03

 

Half
year
Mar 03

 

Half
year
Sep 02

 

Real GDP growth (%)

 

1.8

 

2.1

 

3.1

 

Official cash rate (%)

 

4.8

 

4.8

 

4.8

 

Residential mortgage credit growth (%)

 

9.4

 

10.1

 

9.2

 

 

Source: economics@anz. September 2003 figures are forecast.

 

Executing our strategy

We are a distribution business, and are looking to improve our sales performance and customer retention.  Our key areas of focus are:

 

Focus/Strategy

 

Progress

Human Face

Implemented local management teams across Australia

Give customers someone local to turn to: contribute to the communities we live in

Positive recognition in local media for community support

Improved customer satisfaction with branches at 7.7 out of 10

 

 

 

Great Products/Best Deal

Industry transaction account award for last two years

Provide products with excellent features which are simple to understand

Growth in new accounts 6% since September 2002

Growth in cash management FUM of 25% since September 2002

Simplified and re-issued all merchandising

Overall market share of deposits up 0.5% since September 2002

 

 

 

Reliable service

Trained over 4,200 branch staff on sales skills including FSRA compliance

Accessible; deliver on the basics

Reduced peak queue times and queue complaints per month

 

Extended opening hours, opened 6 new branches and added 100 ATMs

Refreshed or refurbished 25% of branch network

Developed new Telling platform ready for implementation from November 2003

 

18



 

PERSONAL DISTRIBUTIONSatyendra Chelvendra (Personal Banking); Mike Guerin (Rural Banking)

Michael Saadie (Private Banking); Dean Nalder (Financial Planning)

 

Provides a full range of banking and financial planning services to personal customers across Australia, and to small business and agri customers in rural Australia

 

 

 

Half
year
Sep 03

 

Half
year
Mar 03

 

Movt
Sep 03
v. Mar 03

 

Full
year
Sep 03

 

Full
year
Sep 02

 

Movt
Sep 03
v. Sep 02

 

 

 

$M

 

$M

 

%

 

$M

 

$M

 

%

 

Net profit after tax

 

114

 

110

 

4

%

224

 

234