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ANZ Strategy specialisation eTransformation performance and growth

ANZ Strategy specialisation eTransformation performance and growth. Our commitments to shareholders three years ago. Achieve superior financial performance deliver double digit earnings growth improve return on equity reduce our cost income ratio to 53% Rebalance the portfolio

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ANZ Strategy specialisation eTransformation performance and growth

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  1. ANZ Strategyspecialisation eTransformation performance and growth

  2. Our commitments to shareholders three years ago • Achieve superior financial performance • deliver double digit earnings growth • improve return on equity • reduce our cost income ratio to 53% • Rebalance the portfolio • increase our business with Personal customers • Enhance our leadership position in Corporate Banking • Simplify and focus International • Build momentum in eCommerce • Reduce our risk profile

  3. PFS CFS International Focus leading to improved performance NPAT 1997 ROE 16.9% NPAT $1,171m (5% increase) Share Price $9.92 (as at 15 Dec 1997) 10% 41% 23% 50% 49% 2000 ROE18.3% NPAT$1,703m (15% increase) Share Price$14.37 (as at 14 Dec 2000) 27%

  4. The performance drive of the past 3 years is an important part of our strategic journey Perform and grow Earn the right to grow • Increase growth investments • Build strong performance culture • Out-execute competitors Deliver performance • Rebalanced portfolio • Developed growth opportunities • Continued to perform • Delivered: • Stable costs • Risk reduction • Revenue growth • Share value

  5. ANZ’s new strategy • A portfolio of specialist businesses • An eBank with a human face • Perform and Grow for shareholders

  6. A strategy to build for the future • Proposition • Specialists will win over conglomerates • Corporations need to embrace new technologies • Value depends on performance and growth • Strategy • Reconfigure ANZ as a portfolio of 21 specialist businesses • An e-Bank with a human face • Drive results whilst investing in growth businesses • Implications • Specialist approach to customer and product businesses • Transform the way we do business by using IP technology • Meet expectations, fund growth by cost reduction Specialise e-Transform Perform and Grow

  7. We are experiencing very profound change Globalisation Mobility of capital Internet Oldeconomy New globaleconomy

  8. The basis of success is changing Incumbents’ historic advantages . . . Neutralised in some/most cases Privileged access to customers - barriers to entry Easier for new competitors to enter and for customers to switch Familiarity with local ways of doing business Regional/global standards – local familiarity less important Vertical integration the best model No need for integration – can be accomplished through alliances Geographic protection from capital market Global capital market rewards the strong and punishes the weak

  9. %NIM %NIM Egg launched 20 Halifax 15 Net interest margin ~30% margin compression Lloyds/TSB Headline net interest margin 10 5 Supermarkets 0 91 93 95 97 99 Egg MBNA, Capital One 95 96 97 98 99 Impact of new competitors Entry of US monolines into UK credit card market UK interest margins

  10. Opportunity to skip consolidation stage Fragmentation . . . to consolidation . . . and specialisation Leading to globalisation USA EUROPE AUSTRALIA ASIA

  11. Specialists are providing higher returns on equity 40 Specialists/ focused players Global Mega players Lloyds TSB Schwab Amex BOS Barclays Macquarie Mellon MBNA Citigroup HSBC CBA 20 ROE (%) ANZ NAB Bank of America WBC SCB StGeorge Geographic integrators Geographic incumbents 0 20 50 Book Equity ($US)

  12. Different businesses, different strategies Business size by NPAT Invest for rapidgrowth Create new businesses e-Payments FM GSF High e-Asia Cards Wealth GTS Market Growth Institutional FX Cap Mkts Corporate Small Bus Low • Defend position and return • Grow selectively Gen Banking • Optimise performance • Identify new growth products Esanda Mortgages Low High ROE

  13. Strategy reflects impact of globalisation and ANZ capabilities Now • FX • Institutional Banking GSF • Funds Management • B2B Soon Trade • Capital Markets • Esanda Custody Cards Impact of globalisation B2C • Mortgages Later Wealth Management General Banking Mid Corporate Not yet Small Business Less developed At par Local leader Regionally distinctive Globally distinctive ANZ’s capability

  14. Aspiration is performance and growth PE Ratio Aspiration - improve EPS and higher PE sacrifice EPS to build P/E Share price curves sacrifice P/E to achieve EPS EPS growth %

  15. New growth will be funded by cost initiatives Percent change in share price Cost to income ratio 5 70 0 65 63.1 -5 * NAB 60 CBA * -10 WBC 55 ANZ 51.7 -15 50 -20 45 1997 1998 1999 2000 80 85 90 95 100 105 110 115 * estimate of market expectations for 2000 Actual earnings as a percentage of expected earnings

  16. The benefit of high growth expectations Ratio of market value to asset replacement value of S&P 500 2.0 • Increased value of intangibles • Unique process • Knowledge • Brand • Reputation • Talent 1.5 1.0 Mean 0.5 0 1945 1995 * Tobins ‘Q’ is a measure of the ratio of the market value of corporations to the replacement value of their tangible assets Source: McKinsey & Company

  17. What motivates talented people? (% of top 200 executives surveyed rating factor absolutely essential) Great jobs Freedom and autonomy 56 Job has exciting 51challenges Career advancement 38and growth Fit with boss I admire 29 Great company Values and culture 58 Well managed 50 Company has exciting 38challenges Strong performance 29 Industry leader 21 Many talented people 20 Good at development 17 Inspiring mission 16 Fun with colleagues 11 Job security 8 Great company Great jobs Compens-ation and lifestyle Compensation and lifestyle Differentiated compensation 29 High total compensation 23 Geographical location 19 Respect for lifestyle 14 Acceptable pace/stress 1 Source: McKinsey & Company

  18. We need to align our values ANZ Current Values ANZ Desired Values Personal Values Society Community Organisation Transformation Best practice Relationship Survival

  19. Longer term aspiration for ANZ A unique specialist financial services company that breaks new ground and delivers: • Superior performance and growth for shareholders • An experience which pleases our customers • Challenging opportunities for talented people • Behaviour that is respected by the community

  20. Goals going forward • EPS growth above peer average (target 10+%) • ROE over 20% • Cost-income ratio comfortably in the 40’s • Inner Tier 1: 6% • Maintain AA category credit rating

  21. Copy of presentation available on www.anz.com

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