Overview David Morgan Chief Executive Officer 29 July 2004
Topics that you have raised The changing operating landscape Margin performance in the increasingly competitive market How do you plan to continue to outperform your peers The impact of the adoption of international reporting standards IFRS An update on progress and likely impact on capital of Basel II Market Update July 2004 David Morgan 2
Sustainable growth path Restore Viability Boost ROE Optimise growth / return mix Expand Customer Franchise via acquisition Close capability gaps Enhance sustainability Westpac Share Price & Financials Ex Property Trusts Indexed (Dec 93=100) 450 400 350 300 Westpac Financials Excluding Property Trusts 250 200 150 100 50 0 Dec-93 Jun-94 Dec-94 Jun-95 Dec-95 Jun-96 Dec-96 Jun-97 Dec-97 Jun-98 Dec-98 Jun-99 Dec-99 Jun-00 Dec-00 Jun-01 Dec-01 Jun-02 Dec-02 Jun-03 Dec-03 Jun-04 Market Update July 2004 David Morgan 3
The evolving operating environment Economic Customers Competitors Regulatory Aust/NZ GDP growth ahead of OECD growth but below Asia Credit growth to continue to exceed nominal GDP growth Ageing population Increasing demand for investment advice Looking for a wider range of products and services Reverting to customer oriented strategies Specialist, third party and nonfinancial players Global players entering Increased reporting requirements Further opening of competition possible Possibility of social charter International harmonisation challenges Market Update July 2004 David Morgan 4
Where are the risks? Risk Probability of occurrence Irrational competition Medium / High New entrants/niche competitors Medium Housing market collapse Low Blow-out in bad debts Low Greater than expected funds outflows Low Re-regulation Low New wave of corporate collapses Low Global economic recession Low Market Update July 2004 David Morgan 5
Risks - responses While the competitive environment is changing, Westpac: - Will not engage in unsustainable price competition - Has demonstrated that it is prepared to forego unprofitable growth and market share - Will systematically and rationally consider responses Over the longer term, Westpac s strategy has been to increase the Group s resilience to external shocks across all four quadrants of its scorecard: - Employees - Customers - Shareholders - Corporate responsibility Market Update July 2004 David Morgan 6
Employee commitment Employee commitment % of employees reporting a positive score 70 65 60 55 50 2000 2001 2002 2003 2004 Westpac Global high performing companies Australian large company national norm Global large financial services company norm Market Update July 2004 David Morgan 7
Customer satisfaction Consumer Satisfaction - % of main financial institution customers very or fairly satisfied 70% SME satisfaction 65% 60% 55% 50% WBC Peer Average 65% 45% Jun-02 Sep-02 Dec-02 Mar-03 Jun-03 Sep-03 Dec-03 Mar-04 Jun-04 60% Middle Market & Priority satisfaction 75% 70% 55% Sep 00 Mar 01 Sep 01 Mar 02 Peer average Sep 02 Mar 03 Sep 03 WBC Mar 04 65% 60% 55% Jun-02 Sep-02 Dec-02 Mar-03 Jun-03 Sep-03 WBC Peer Average Dec-03 Mar-04 Jun-04 Source: Consumer - Roy Morgan Research. Data based on rolling four quarter average. Consumer satisfaction is up to May 2004 and based on consumers aged 14+ who regard Westpac as their MFI. Business - TNS Business Finance Monitor is since June 2002. Market Update July 2004 David Morgan 8
Global leadership in sustainability Ranked number one in the global banking sector by the Dow Jones Sustainability Index, for the second consecutive year GovernanceMetrics International Global Governance Ratings 2004 - one of 22 companies to score 10.0 (the highest rating) of 2,100 global organisations and only Australian company to do so Number 1 company overall in the 2003 RepuTex Social Responsibility Ratings, and the only one of the top 100 to receive a AAA rating Awarded BEST IN CLASS by Storebrand Investments. Westpac was #1 overall of the 94 global banks rated. Market Update July 2004 David Morgan 9
Market share Australian financial system market share 22% 20% 18% 16% Increase in credit market share over recent years (to 30 Sept): 2001-30 basis points 2002-10 basis points 2003-60 basis points 94 94 95 95 96 96 97 97 98 98 99 99 00 00 01 01 02 02 03 03 04 14% 12% 10% 8% 6% 4% Business credit Retail deposits Total credit Source RBA to 31 May 2004 Market Update July 2004 David Morgan 10
Consistent, sustainable core earnings growth $m 4,000 3,500 3,000 2,500 5 Year CAGR 1 Revenue 7% 2 Expenses 3% Core earnings 12% 2,000 1,500 1,000 500 1H99 2H99 1H00 2H00 1H01 2H01 1H02 2H02 1H03 2H03 1H04 Cash earnings Cash EPS ROE (5 year avg) 5 year CAGR 1. Underlying basis (excl. significant items but not adjusted for acquisitions and disposals) 2. Excluding goodwill amortisation Market Update July 2004 David Morgan 11 10% 11% 20%
Total shareholder return rankings Three year TSR percentile rank as at 30 June each year 100 Percentile 75 50 25 0 1999* 2000* 2001 2002 2003 2004 Peer group comprises the top 50 Australian companies by market capitalisation, excluding property trusts and investment companies. * 1999 & 2000 data as at 30 September. Market Update July 2004 David Morgan 12
Consistency in returns over the medium term Achieved total shareholder return of 80% over the last 5 years Global Shareholder Performance Hall of Fame Mercer Oliver Wyman 1 Shareholder performance hall of fame ranks those companies with a market cap greater than $US10 billion who have most frequently been placed in the top third in the annual Shareholder Performance Index (SPI) 2 Rank 1 2 3 4 5 6 Name UnitedHealth Group Royal Bank of Canada Royal Bank of Scotland Citigroup Danske Bank Group Westpac 1. Mercer Oliver Wyman State of the Financial Services Industry 2004. Companies are ranked by their 2003 SPI 2. SPI Measures risk adjusted performance over the medium term. The calculation is based on a five year moving window of performance. The SPI is calculated by dividing the average monthly total shareholder return by the standard deviation of the monthly shareholder return. Market Update July 2004 David Morgan 13
Strategic options Option Organic growth Acquisition International expansion Comments Aust/NZ lowest risk and highest value available Significant opportunities still remain within existing customer franchise No diversion risk No major capability gaps Very limited opportunity to generate value at current prices Disciplined adherence to criteria has served us well No compelling offshore competitive advantage Low synergies Learn from other s mistakes Status Aggressively pursue Maintain watching brief Keep open mind but low probability Market Update July 2004 David Morgan 14
Our customer focused strategy Vision Strategy How? Outcomes To be a great Australian and NZ Company A great place to work A superior customer experience 1st quartile shareholder returns A good corporate citizen Customer Focus Differentiator: Superior Execution Our high performance culture: Quality people Effective people & performance mgt processes Values Medium term Objectives Best practice employee commitment Service leadership in our industry Top quartile shareholder returns Leader in corporate responsibility Mission To be at the forefront for service in our industry by September 2005 Values Teamwork Integrity Performance Internal Service Quality Employee Commitment Employee Retention Employee Productivity Service Profit Chain Employee Customer Shareholder Superior Customer Experience Customer Satisfaction Customer Loyalty Revenue Growth Profitability Shareholder Value Ask Once Market Update July 2004 David Morgan 15
Focussed initiatives Employees Customers Corporate responsibility High performance culture Maximising value from existing customer set Underpinning reputation and sustainability Leadership training People Leaders Forums Westpac Academy Recruiting policy changing the demographics Ask Once customer service programs Institutional lead bank program Risk and reward program Leadership on a global level Embedded into the business and across suppliers Shareholder value focussed Shareholders Low risk Balance of profitable growth and returns Lower risk earnings streams Consistency of delivery Disciplined approach to acquisitions Market Update July 2004 David Morgan 16
Supporting programs Markets Franchise Extending reach and capability Maximising value from existing customer set Strategic alliances eg. Virgin credit card, Amex card Leading technology eg. development of Wrap platform Specialised capital group Taking advantage of competitor distractions CRM platform being rolled-out (eg Reach) Enhancing wealth distribution platform beyond integration Specialised funds Business Improving the efficiency and effectiveness of our operations Business improvement programs Enhancing enterprise efficiency (eg Pinnacle) Straight through processing Market Update July 2004 David Morgan 17
A strong board Board member Appointed Audit & Compliance Credit & Market Risk Remuneration Social Responsibility Nominations Leon Davis Chairman 1999 Chair Gordon Cairns 1 2004 David Crawford 2002 Chair Llewellyn Edwards 1988 Chair Ted Evans 2001 Chair Carolyn Hewson 2003 Chair Helen Lynch 1997 David Morgan 2 1997 Peter Wilson 2003 1 Appointed July 2004. 2 Attends all other Board Committee meetings. Market Update July 2004 David Morgan 18
An experienced executive team David Morgan Chief Executive Officer Mike Pratt Group Executive Business & Consumer Banking Philip Chronican Chief Financial Officer David Clarke Chief Executive Officer BT Financial Group Phil Coffey Group Executive Institutional Bank Michael Coomer Group Executive Business & Technology Solutions & Services Ilana Atlas Group Executive People and Performance Ann Sherry Group Executive Westpac New Zealand & Pacific Market Update July 2004 David Morgan 19
Today s agenda Group Executive Mike Pratt Ann Sherry David Clarke Philip Coffey Question time and break Michael Coomer Ilana Atlas Philip Chronican David Morgan Question time and close Title Business and Consumer Banking New Zealand BT Financial Group Institutional Bank Business Technology Solutions & Services People and Performance Finance Outlook and summary Market Update July 2004 David Morgan 20