2007 Final Results. David Morgan Chief Executive Officer. A strong, high quality result

Transcription

1 27 Final Results David Morgan Chief Executive Officer 1 November 27 A strong, high quality result Strong earnings growth and a higher return on equity High quality revenue led performance Enhanced franchise health across all businesses Well provisioned for known risks Investing for growth Broad based momentum into 28 2

2 A strong set of numbers: growth and return Cash earnings Revenue Cash EPS Economic profit Cash ROE Cost to income ratio (cash basis) Fully franked dividend $3,57m $1,86m 189c $2,693m 24% 45% 131c 14% 11% 13% 16% 8bps 22bps 13% 3 Consistency over the long term Cash earnings, revenue and expense ($m) 3,5 3, 12, 1, 1 year CAGR 27 2,5 8, Cash Earnings (LHS)* 1% 14% 2, 1,5 1, 5 6, 4, 2, Revenue (RHS) 7% 11% Expenses (RHS) 4% 6% * AGAAP 1999 to 24; AIFRS 25 to 27. 4

3 Strong returns to shareholders Dividends per share (cents) yr CAGR 13% Share price indexed (Sep 97=1) 34 Westpac 29 ASX Banks Oct97 May98 Jan99 Sep99 May Jan1 Sep1 May2 Jan3 Sep3 23 WBC 1yr CAGR 13% Apr Dec Aug5 Apr6 Dec6 Aug7 Dividend increase in line with EPS growth Sustained higher payout ratio of 69% Fully franked with significant franking surplus of $274m Total shareholder return (TSR) over last year of 31% highest of peers 1yr share price CAGR Westpac 13% ASX Banks 11% 1yr TSR CAGR 18% 5 Broad based business unit performance Consumer Financial Services Cash earnings Strong growth, solid momentum 21% Business Financial Services Prior investments delivering higher growth path 11% Westpac Institutional Bank Leading position and strong activity driving returns 16% BT Financial Group Growing market share in a fast growing market 23% New Zealand Turnaround on track 2% 1 1. In NZ$ terms 6

4 Enhanced franchise health High employee commitment Rising customer satisfaction Increased investment Increased brand strength Employee commitment up to 71% an all time high Employee turnover 17% 4 percentage points below sector median No1 with Corporate and Institutional customers Customer satisfaction: Australian Consumer 1 73% up from 7%; Australian Business 2 72% up from 66% Project investment up 9% to over $5m An additional 8 employees, most in the front line Significant increase in brand spend Equal No1 brand consideration 3 of 68% up from 65% last year 7 A sustainable company Global sustainability and governance leader Numerous sustainable initiatives/products including estatements, Landcare deposits, green housing loans 1. Source: Roy Morgan Research % of customers very/fairly satisfied main financial institution Aged Source: TNS Business Finance Monitor August 27; Base: all businesses with annual turnover up to $1m 3. Source: Australia Market Research (AMR); ranking compared to major banks plus St George at Jun 7 compared to Sept 6 Portfolio repositioning contributing to growth path Separated Business and Consumer Banking (BCB) Finalised separation of BCB into two divisions Consumer Financial Services Business Financial Services Divisional focus delivering enhanced results Aligned for growth Proposed acquisition of RAMS distribution assets Provides a new alternative distribution channel Distribution up 1% Extends distribution of existing Westpac products Strong positive NPV Distribution for growth IPO of BT Investment Management Enhances future growth of investment management business Aligns interests of all stakeholders Structured for growth 8

5 Quality growth Pricing Risk Growth inline with system not growth for growth s sake Margin decline consistent with medium term experience Quality of portfolio maintained Focus on core markets, no subprime exposure Stressed loans remain at low levels Maintained appropriate provisioning Impairment charges up 29% including additional collective provision Coverage ratios remain high Benefiting from enhanced risk management disciplines developed through Basel II 9 A strong, high quality result Strong earnings growth and a higher return on equity High quality revenue led performance Enhanced franchise health across all businesses Well provisioned for known risks Investing for growth Broad based momentum into 28 1

6 The Details Phil Coffey Chief Financial Officer Revenue driving the bottom line H7 2H7 Contributions to cash earnings growth 2627 ($m) Contributions to cash earnings growth 1H7 2H7 ($m) 4,5 2, (85) (248) 4, 2, (18) (17) (112) (25) 3,57 1,9 1,829 3,5 1,8 3,79 1,678 3, 1,7 2,5 1,6 14% 9% 1,5 2, 1,4 26 Revenue Expenses Impairment charges Tax and OEI 27 1H7 Revenue Expenses Impairment charges Tax and OEI 2H7 12

7 Balanced contribution across businesses 3,5 3, H7 2H7 Business unit contribution to cash earnings growth ($m) (6)* 4 8 3,57 Business unit contribution to cash earnings growth 1H7 2H7($m) 1,85 5 1, * 1, , , ,2 45 3,1 3,79 3, 26 CFS BFS WIB BT NZ PB GBU 27 1,7 1,678 14% 9% * Up $7m in $NZ terms * Up $23m in $NZ terms 1,65 1H7 CFS BFS WIB BT NZ PB GBU 2H7 13 Broad revenue components supported by good loan growth Composition of operating revenue cash basis ($m) 1,5 939 (268) 1, (48) 1,86 9,5 9, 8,5 9,98 Net Interest Income up 12% Non Interest Income up 9% 26 AIEA Margins Fees & Commissions Westpac total Australian credit growth 1 as a multiple of banking system growth Wealth Trading Other Mar5 Jun5 Sep5 Dec5 Mar6 Jun6 Sep6 Dec6 Mar7 Jun7 Sep7 1. Annual (12monthly) change. Source: APRA 14

8 Strong Jaws improving productivity Revenue & expense growth (% change over year) Revenue growth Expense growth Employee costs up 1%, composed of Higher salary costs including from more people, particularly in the front line 8% Increased incentive payments 2% Achieving returns on our investment Group expense to income (cash basis) (%) 55 AGAAP H4 2H4 1H5 2H5 1H6 2H6 AIFRS H7 2H7 Business unit revenue & expense growth (% change over year) 2 Revenue Expense CFS BFS WIB BT NZ 15 Continuing to shift investment to the front line Allocation of major project spending (%) 1% 8% 6% 4% 2% % 15% 7% 56% 26% 1% 47% 22% 17% Front office capability Basel II & compliance Productivity & infrastructure Other Invested over $5m in projects over year Increasing frontoffice capability Significant investment in BT Super for Life Card origination enhanced by linking to Reach CRM NZ lending originations system Improved equipment finance capability via Pinnacle Higher compliance costs as Basel II nears implementation Capitalised software ($m) Balance Amortisation Amortisation includes impairments 1H6 2H6 1H H

9 Features of the result Impact of global credit market volatility Factors influencing revenue growth How we are seeing our risks and their effect on credit and capital Aspects of some business units 17 Current global capital market conditions Funding & liquidity Market volatility Credit risk Capital Conditions Tighter funding at a higher cost Increase in market volatility Some falls in financial asset values Higher risk weighted asset growth Response / Impact Holding significantly more liquid assets than normal Continuing to fund ourselves across the curve More customers hedging interest rate and FX exposures Increased trading opportunities No direct subprime exposure No material impact from revaluation of financial assets Customers increasingly seeking bank funding Waratah conduit fully self funded as at 3 Sept 18

10 A high quality result little impact from oneoffs Significant oneoff impacts on revenue ($m) 1H6 2H6 1H7 2H7 Credit card income overaccrual 23 (49) Fair value of securities portfolios MasterCard profit Asset sales 1 1 Concessional R&D rebates 25 Sub custody earn out 5 14 NZ$ Impact 1 (35) (44) (41) Total net impact 65 (56) (14) (2) 1. The NZ$ impact represents the impact of movements in the NZD/AUD exchange rate by restating all NZD income at the 1H6 average exchange rate and includes gains/losses on NZD hedges 19 Markets and Treasury strong sales and trading performance Markets ($m) 1H6 2H6 1H7 2H7 Strong Markets performance in 2H7 given Foreign exchange increased volatility Equity and energy Well positioned in FX Capital markets Growing energy and equities income from a low base Total Little change in VaR Average VaR Improved performance in both sales and trading activities Treasury ($m) 1H6 2H6 1H7 2H7 Treasury was well positioned for market shift in 2H7 although earnings were offset by Net interest income higher funding costs Noninterest income Total VaR at 99% confidence level, 1 day hold period 2

11 Factors impacting 2H7 margins Interest margin movement 1H72H7 (%) % 1H7 (1bp) Asset spread/mix (1bp) Liability spread/mix (5bps) Group Treasury (4bps) WIB, Fin. Mkts & Other 2.14% 2H7 Strong balance sheet growth in retail and business yet margins only contributing 2bps to Group margin decline Some factors impacting margins in 2H7 do not reflect or imply earnings pressure Higher liquidity in Treasury 3bps Mix impacts of strong growth in WIB 2bps Changed income recognition in markets income 2bps Spreads on new WIB lending flat Higher funding costs in Treasury, 2bps 21 Slower fee and commission revenue growth Fees and commissions revenues ($m) Growth in 2H6 from fee realignment in CFS 95 in 1H6 Lower growth over recent halves given 9 Full period impact of fee repositioning in NZ Loss of subcustody income 85 Lower SCG fees Continuing customer migration to low fee products in CFS and BFS H6 2H6 1H7 2H7 22

12 Credit quality remains sound Impairment charges rising off a low base Modest rise in stressed exposures although impaired assets lower from.14% to.13% of TCE Small rise in delinquencies 9 day delinquencies (%) Consumer unsecured Housing Aust. Business Banking Impairment charges to average loans (basis points) Stressed exposures as a % of TCE (%) AGAAP 19 AIFRS Watchlist & substandard 9 days past due well secured Impaired Increase in impairment charges consistent with environment Category 26 $m 375 Comments New individually assessed Writebacks and recoveries New other collectively assessed Additional provision 27 (14) Lower individually assessed as no new significant impaired loans emerged over the year Lower writebacks in 27 given high writebacks in 26, predominantly in the institutional bank Higher writeoffs direct, particularly in cards given larger portfolio but lower collectively assessed given more effective collections management Additional provisions in consideration of uncertainty in current environment 24

13 Healthy capital generation supporting significant growth Adjusted Common Equity (%) bps (17bps) (78bps) 4.55% 4bps (1bps) 4.54% Sep6 Cash earnings Dividends Business Application Capital issued Other Sep7 Growth demands higher risk weighted assets up 18% over year Actively managing balance sheet to optimise capital usage Conduit fully funding itself in the market no additional impact on capital Active management of RWA with over $2.6bn in portfolio risk mitigation 25 Approaching Basel II implementation Seeking advanced accreditation under Basel II Original submission Sept 25 Document detailing ICAAP 1 Oct 27 Confident accreditation to take effect on 1 Jan 28 Working with APRA on final RWA and capital ratios. Higher capital ratios expected Extent of capital reduction constrained by APRA limits and strong internal demands for capital in current environment Tier 1 Capital to be lower by ~ $1.2bn adjusting for AIFRS transitional relief $664m and additional deductions from Basel implementation $52m Basel II provides long run benefit by reducing capital intensity of asset growth and improving risk management capability 1 ICAAP Internal Capital Adequacy Assessment Process Westpac expects a significant decline in RWA given Mortgages Business lending Institutional lending Cards Other risk categories Low default rates and loss experience in portfolio. Largest contributor to RWA reduction Quality of SME and middle market portfolio High quality portfolio. Portfolio quality relatively stable over time Credit card loss experience consistently better than international peers. However capital to be applied to unused limits for first time RWA increases to account for requirement to hold capital against operational risk, market risk, and interest rate risk in the banking book 26

14 New Zealand turnaround on track Net interest income drivers (%) AIEA growth Margin mov't 1H6 2H6 Net interest income growth AIEA growth Margin mov't 2H6 1H7 Net interest income growth AIEA growth Net active consumer customer growth ( s) Margin mov't 1H7 2H Net interest income growth 12.3 Refreshed management team Improved growth momentum Auckland mortgage market share up 3% to 18% Improving new customer growth in 27 with customer retention 1 up 2% to 93% Improved productivity focus New Head of Productivity and new Chief Operating Officer Consumer Revenue per front office employee up 13% (1.37) (2.51) (3.38) Dec 5 Mar 6 Jun 6 Sep 6 Dec 6 Mar 7 Jun 7 Sep 7 Note: Represents net growth in the quarter 1. Customer retention represents the percentage of existing customers at the beginning of the year who remain customers at the end of the year. 27 Strong growth in BT more to come BT revenue contribution by business segment ($m) 1,25 1,2 1,15 1,1 1,5 1, ,31 FY6 Funds Management 58 FUM & FUA 65 Other FM 45 Broking, Margin Lending and Advice revenues 15% (15) 1,184 Insurance Other FY7 FUA & FUM flows solid but impacted by the redemption of low margin mandates Wrap FUA up 44% Wholesale FUM up 43% Improved FUM & FUA margins Very strong funds management performance up 26% particularly in 2H7 Insurance up 21% Improving crosssell Slower 2H7 earnings given higher storm/life claims High growth in other businesses. Broking, Margin lending, and Advice all delivering ~3% revenue growth 28

15 Improving momentum across the business BFS/CFS volume/margin performance 33 Footings* $bn (LHS) 3 Margins % (RHS) Mar6 Sep6 Mar7 Sep7 New Zealand volume/margin performance 8 Footings* $bn (LHS) 7 Margins % (RHS) % 2.5% 2.4% 2.4% 2.3% 2.5% 2.4% 2.3% 2.2% Institutional Bank (excluding SF) core earnings ($m) Mar6 Sep6 Mar7 Sep7 BT Wrap and Corporate Super FUA ($bn) Mar6 Sep6 Mar7 Sep7 2.1% 1 Mar6 Sep6 Mar7 Sep7 * Footings = loans plus deposits 29 High quality clear and straightforward result Strong, broad based earnings growth High quality revenue driven performance Focusing on future earnings sustainability Higher investment spend Providing for known risks Excellent capital outcome absorbed 18% risk weighted asset growth with higher ROE and no deterioration in capital ratios 3

16 Outlook David Morgan Chief Executive Officer Economic environment remains sound In Australia Expansion continues in Australia, despite impact of drought Inflation trending modestly higher Unemployment at 31 year low New Zealand prospects solid Continuing solid global growth at around 5% Annual GDP (Year average, Calendar years %) 5 GDP (Aust) 4 GDP (NZ) (f) 28(f) Source: RBA, RBNZ, Westpac Economics 32

17 Current market conditions impact on the outlook Current conditions create some challenges for financial services companies Credit risk Expect some companies to come under financial stress Funding & liquidity Higher funding costs expected to ease, but settle above prior norms Market volatility Volatility lower from recent highs but uncertainty remains Capital Strong demand for bank funding to continue Better risk pricing For Westpac possible outcomes include Some short term impact from higher funding costs Continuing strong loan growth, with improved risk pricing Opportunities in market sales and trading to continue 33 Credit growth moderating but solid Australian and New Zealand credit growth (%) Forecasts (To Sept 28) Aust. housing Total credit (Aust) Total credit (NZ) Aust. business Total credit avg (Aust) 4 Sep99 Mar Sep Mar1 Sep1 Mar2 Sep2 Mar3 Sep3 Mar4 Sep4 Mar5 Sep5 Mar6 Sep6 Mar7 Sep7 Mar8 Sep8 34

18 Superannuation increasingly dominant form of savings Superannuation and Deposit in Australia ($bn) 35 3,5 3, 2,5 2, 1,5 1, 5 Sources: Note: Total Deposits Super Super already the largest form of savings Dexx&R September 27, RBA, ABS, Westpac Economics Deposits include deposits held with households, unincorporated enterprises and private nonfinancial corporations. Super includes preretirement super products and postretirement products. Balances as at December of each year. $2.9 trillion by Strong broad based momentum into 28 CFS BFS WIB BT NZ Enhancing distribution with a new local model and expanded presence Begin to drive value from the RAMS franchise Realise full benefit from the strong platform and higher banker numbers Sustained business improvement Further leverage leading market position, and strong customer demand Effective execution of customer led strategy Continuing to grow market share in a fast growing market Capitalising on new investments in superannuation and insurance Turnaround on plan, with good progress in 2H7 Solid momentum into 28 36

19 Key priorities Wealth management actively grow our share Business Financial Services capitalise on our investment New Zealand consolidate the turnaround Consumer Financial Services drive value from RAMS distribution assets 37 Confident outlook Confident we can continue to deliver strong results Solid earnings growth Leading return on equity High quality and sustainable performance 38

20 Disclaimer The material contained in this presentation is intended to be general background information on Westpac Banking Corporation and its activities. The information is supplied in summary form and is therefore not necessarily complete. Also, it is not intended that it be relied upon as advice to investors or potential investors, who should consider seeking independent professional advice depending upon their specific investment objectives, financial situation or particular needs. The material contained in this presentation may include information derived from publicly available sources that have not been independently verified. No representation or warranty is made as to the accuracy, completeness or reliability of the information. This presentation contains statements that constitute forwardlooking statements within the meaning of section 21E of the U.S. Securities Exchange Act of The forwardlooking statements include statements regarding our intent, belief or current expectations with respect to our business and operations, market conditions and results of operations and financial condition, including, without limitation, indicative drivers, forecasted economic indicators and performance metric outcomes. These statements reflect our current views with respect to future events and are subject to certain risks, uncertainties and assumptions. We use words such as may, expect, 'indicative', intend, forecast, likely, estimate, anticipate, believe, or similar words to identify forwardlooking statements. Should one or more of the risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from the expectations described in this presentation. Factors that may impact on the forwardlooking statements made include those described in the sections entitled 'Risk factors,' 'Competition' and 'Risk management' in Westpac s 26 and 27 Annual Report on Form 2F filed with the U.S. Securities and Exchange Commission. When relying on forwardlooking statements to make decisions with respect to us, investors and others should carefully consider such factors and other uncertainties and events. We are under no obligation, and do not intend, to update any forward looking statements contained in this presentation. 39