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2000 Annual Results

2000 Annual Results. Australia and New Zealand Banking Group Limited 26 October 2000 John McFarlane Chief Executive Officer. 2000 Annual Result. Strong result – better than expectations $1,703m up 15% $885m second half up 8.2% on first half We delivered on all our commitments

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2000 Annual Results

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  1. 2000 Annual Results Australia and New Zealand Banking Group Limited 26 October 2000 John McFarlane Chief Executive Officer

  2. 2000 Annual Result • Strong result – better than expectations • $1,703m up 15% • $885m second half up 8.2% on first half • We delivered on all our commitments • Financial performance • Rebalancing the portfolio • Reducing risk • Restructuring program accelerates strategy • Sensible application of surplus capital • EPS accretive • Superior to buyback alternative

  3. Results summary • Operating profit after tax before abnormals: • Full year: $1,703 million, up 15% • Second half: $885 million, up 15.8% on 1999, and 8.2% on first half 2000 • Earnings per ordinary share up 15% to $1.04 • Return on ordinary shareholders’ equity of 18.3%, up from 17.2% • Final dividend 35 cents, up 5 cents with 100% franking. Full year dividend 64 cents, up 14% • $361m restructuring charge to accelerate new strategy • Net abnormal profit $44 million - Grindlays profit largely offset by restructuring and other provisions • Costs flat. Cost income ratio down to 51.7% from 54.4%

  4. Our three year commitments to shareholders • Achieve superior financial performance • Deliver double-digit earnings growth • Improve return on equity • Bring down our cost income ratio to 53% • Re-balance our portfolio • Increase proportion of Personal business • Enhance leadership position of Corporate • Simplify and focus our International business • Build momentum in eCommerce • Reduce risk

  5. We have delivered superior financial performance % ROE $m NPAT CAGR 13.3% Total Shareholder Return Cost Income Ratio

  6. We have re-balanced our portfolio Loans & Advances NPAT 10% 5% 8% 39% 41% 23% 49% 50% 56% 49% 43% 27% PFS CFS International • Includes Grindlays • Excludes Group

  7. Portfolio breakdown - indicative $772m $647m $1,703m* % % 100 Small Business Other Institutional Corporate Corporate General Banking Personal Transaction Services Asset Finance Wealth Mgmt Capital Markets International Mortgages Foreign Exchange Funds Mgmt ANZIB Financial Services Cards 40m* 0 Personal Corporate Pacific Asia * Excluding Grindlays ($127m) International Customer Businesses

  8. We continue to reduce risk ELP Factors Market Risk (Av. VaR) bp’s A$m 23 23 5.4 4.4 • Beta reducing towards 1.0, in line with peer average

  9. We didn’t get everything right – firm action taken • Personal loan portfolio • International provisioning from historical book • Panin writedown to market • Took action to put historical Grindlays issues behind us

  10. Accelerating our transformation program 35 Initiatives across our portfolio of businesses including: • Standardisation and rationalisation of IT and processing platforms • Rationalisation and upgrading of EFTPOS network • Transformation of Branch Network • Improving efficiency in Asia/Pacific by rationalising IT platforms and centralising back office processing • Establishing new business platform for Esanda Expected cost reduction $300m

  11. Building for the future - recap on our strategy • 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

  12. Portfolio strategy should reflect degree of globalisation and leverage real capabilities now • FX Institutional Banking GSF • Funds Management Soon Trade B2B Capital Markets Esanda Custody Cards Impact of globalisation B2C Later Wealth Management • Mortgages General Banking Mid Corporate Not yet Small Business Less developed At par Local leader Regionally distinctive Globally distinctive ANZ’s capability

  13. Different businesses need different strategies Business size by NPAT Invest for rapidgrowth Create new businesses e-Payments FM GSF High e-Asia Wealth Cards 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

  14. Prime accountability for profit and value Freedom to pursue opportunities within agreed boundaries Operate using agreed set of platforms, systems and shared services Transfer pricing based on market - no cross subsidisation Drive group strategic direction and set policy Portfolio management and resource allocation Cross-Business Unit synergies Control and oversight of risk, brands and technology Balancingthe autonomy of each business with strong leadership from the centre Business Unit Corporate Centre

  15. Personal Financial Services Peter Hawkins Accountabilities PFS 50% Group 50% General Banking Wealth Management Small Business Mortgages Cards Funds Management Theme Drive sales and efficiency Invest to grow Aggressively rebuild Maintain profitable growth Accelerate growth Reinvigorate and grow • Advanced marketing/ segmentation • Straight through processing • Lower cost to serve • Expert advice • Open architecture • “Wrap” facility • Seamless access • Build profitable market share • Relationship based proposition • Redesign end-to-end processes • Maintain distribution strength • Straight through processing • “Best of breed” delivery platform • Data mining • Exploit growth opportunities • Leverage distribution channels • Optimise products/ capabilities • Double FUM by 2003 Priorities anz.com systems CRM SSP brand risk management

  16. Material reallocation of resources Substantial e-transformation reducing costs and focused service Performance optimised EPS, ROE, investment capital management Transformational cultural change Substantial portfolio shifts Narrower, more focused portfolio with leading positions Increased investment in high growth business Modern performance culture Higher stock rating ANZ in the medium term ANZ in 1 - 2 years ANZ in 3 - 7 years

  17. 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

  18. 2000 Annual Results Australia and New Zealand Banking Group Limited 26 October 2000 Peter Marriott Chief Financial Officer

  19. Highlights • Earnings growth of 15% (13.3% compound) • Return on equity 18.3% (17.2%) • Cost income ratio 51.7% (54.5%) • Grindlays sold, realising net profit after tax of $404m after related provisions • Income up 6%, costs flat, ELP down 4bp’s to 39bp’s • $2bn returned to shareholders in the form of dividends and share buyback • Dividends returned to 100% franking • Restructuring charge to accelerate transformation program

  20. 1999 2000 Drivers of performance (excluding abnormals)

  21. Good progress across the board Other income 47 Costs (14) Tax & outside interests (123) Other fee 111 Net profit after abnormals 1747 Debt provisioning 8 Lending fee 48 Profit before abnormals 1703 Net interest income 146 Abnormals 44 1480 2000 2000 1999

  22. Income drivers Margins stabilised in second Half • Smaller differential between 90d BBSY and Cash Rate • Greater focus on improving margins * Includes Grindlays Other Non-interest income showed healthy improvement MOS Trading FX • Driven by higher fee income • FX and trading profits lower, reflecting lower volumes Other Fees Lending Fees

  23. Cost-income ratio continues to decline 63.1 * * 51.7 Target - comfortably in the 40’s * estimate of market expectations for 2000

  24. Costs are flat and a new baseline is established for 2001 Grindlays 46 3314 (50) (288) 18 3300 3268 GST & EFTPOS NZ GST & acquisitions Sold businesses - Investment to build business prior to sale & FX effects Sale of Grindlays 74 3100 • Higher restructuring costs • Increased marketing spend • Higher profit share Baseline 2000 1999 Adjusted 2000 1999

  25. Sale of Grindlays re-balances the Group’s portfolio NII/Assets Margins • Reduces lending in Middle East and South Asia by $4.8b • Reduces loans by 3.9% but reduces non-investment grade loans by 6.8% • Exposure to countries rated below A reduced by $8.5b • Capital released being addressed by current buyback Other Income/Assets ROA Cost/Income Cost/Assets Group 2000 Grindlays Continuing ELP (bp’s) ELP/Assets

  26. Strong organic asset growth $m Australian Assets Asset growth has been strong without material acquisitions

  27. Geographic $m Aust. NZ Inter. Non-accrual loans stable despite asset growth Historic $m Gross Non-Accrual Loans (LHS) Non-Accrual Loans/ Loans & advances (RHS) Net Non-Accrual Loans (LHS)

  28. Overall book continues to improve Australian Loans & Advances Australian Lending Asset Profile $b AAA to BBB+ BBB to BBB- BB + to BB BB- > B • Mortgages now represent 46% of book, up from 40% in March 1999 • Investment grade 66% of book • Diversified portfolio • Minimal exposure to media/telco’s

  29. Credit quality is sound in our largest industry exposures - Australia Lending Assets (AUDm) % of Portfolio (RHS scale) % in CCR 7D-8G (RHS scale) Manufacturing Wholesale Trade Real Estate Operators & Dev. Accomm. Cafes & Restaurants Construction Agriculture

  30. Specific provisions: Corporate offsets personal loans problem Personal Loans 254 221 214 201 171 Daewoo 140 134 125 123 96 84 A single “B” exit account 41 1999 2000 1999 2000 1999 2000 Corporate Financial Services Personal Financial Services International Sold Businesses ELP NSP

  31. PFS specific provisions were driven by personal loans and credit cards Av Volume $b Personal Loans • Loss rate approximately 6% against expected loss rate 3.5% • Average margin 5-6% (excludes fees which cover approval costs) • Loss on product ~ $15m after tax • Hence specific provisions largely offset by margin but product design and controls upgraded to bring losses back in line with expectations SP $m Av Volume $b Credit Cards SP $m • Loss rate 2.3% • Average margin >5%

  32. Asian credit quality improves significantly despite two large specific provisions Asian Specific Provisions Risk Grade Profile $2.9b $4.3b $m AAA to BBB+ A single ‘B’ exit account BBB to BBB- BB+ to BB BB- Daewoo B to CCC Non-accrual • ‘B’ exposures now only $130m • Investment grade 68% of book • Expected losses declined significantly from 1.4% to 0.5% • Specific Provisions relate to two unusual losses

  33. Provisioning levels strengthen General Provision ELP charge* $m Times (383) 502 FX impact (51) (90) 1373 1395 Net SP transfer Sale of Grindlays ELP charge Surplus406 967 2000 1999 APRA Guidelines ELP - Economic Loss Provision SP - Specific Provision * ex Grindlays for 2000

  34. The result incorporated several abnormal items $m After tax 404 Cr 245 Dr 81 Dr 33 Dr 64 Dr 30 Cr 33 Cr 44 Cr Net gain on sale of Grindlays businesses Strategic business and transformation restructuring provision Panin writedown Litigation provision Tax rate change Revaluation of property Sale of Colonial shares Net abnormal gain Average purchase price

  35. Abnormals - Grindlays transaction $m Net sales proceeds 1,225 Provisions raised on sale 575 Income tax 246 Net profit 404 Indemnities • ‘Indian scam’ matters • US$80m Pakistan cross border risk for 12 months • US$186m indemnity covers 80% of losses on certain customer accounts. Receive fee equal to ELP • Standard tax indemnities

  36. We have used the financial capacity from the Grindlays sale to accelerate restructuring programs spread across 35 separate initiatives Drivers Benefits Selected Programs • Specialist businesses, eTransformation, and funding growth • Cost income ratio comfortably in the 40’s • Approximately $300m lower costs • Enhance customer service and revenue • Greater flexibility • Platform for further eTransformation • Invest savings in growth businesses subject to EPS growth targets • Leaves capacity in routine $80-100m pa restructuring for further programs • Reconfigure metropolitan branch network in line with needs and demographics • Re-engineer Esanda operation • Simplify Asian business platform & operations • IT platform rationalisation for eWorld • General Banking sales and service platform • Two year program • Provision relates to costs of ‘dismantling the old’ and investment spend will be covered by normal operations

  37. Capital management will continue • Capital Management • Philosophy: • Capital scarce resource to be managed effectively and efficiently • Maintain capital consistent with ANZ’s AA status and peer group ratings • Tier 1 (6.5 - 7.0%) • Inner Tier 1 (6.0%) $b % 7.9 7.7 7.5 7.4 6.9 6.5 6.7 6.4 • Progress • $1014m of buyback • Capping of DRP/BOP to reduce dilution • Remaining $500m buyback in progress • Restructure more EPS accretive than buyback

  38. 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

  39. The material in this presentation is general background information about the Bank’s activities current at the date of the presentation. It is information given in summary form and does not purport to be complete. It is not intended to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any particular investor. These should be considered, with or without professional advice when deciding if an investment is appropriate. For further information visit www.anz.com or contact Philip Gentry Head of Investor Relations ph: (613) 9273 4185 fax: (613) 9273 4091 email: gentryp@anz.com

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

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