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Preliminary Final Report

Document date:  Thu 26 Oct 2000
Published:  Thu 26 Oct 2000 11:29:48
Document No:  168995
Document part:  H
Market Flag:  Y
Classification:  Preliminary Final Report , Dividend Record Date , Dividend Pay Date , Dividend Rate

AUSTRALIA & NEW ZEALAND BANKING GROUP LI      2000-10-26  ASX-SIGNAL-G

HOMEX - Melbourne                                                     

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CHIEF FINANCIAL OFFICER'S REVIEW

OVERVIEW

Australia and New Zealand Banking Group Limited (ANZ) recorded a
profit from operations of $1,703 million for the year ended 30
September 2000. This excludes the net positive impact of $44 million
from abnormals and compares to a result for the year to September
1999 of $1,480 million. Excluding abnormals, earnings per ordinary
share were 103.9 cents, up 15% from 90.6 cents in September 1999. The
return on ordinary shareholders' equity was 18.3% (September 1999 was
17.2%).

The second half profit before abnormals of $885 million is an
increase of 8% on the first half, and demonstrates the continuing
growth in the Groups' operations.

Including abnormals, the Group recorded a profit after tax of $1,747
million up 18% over the September 1999 year.

The year witnessed significant transformation with the sale of
Grindlays refocusing the Group's operation on Australia, New Zealand,
Asia and the Pacific. The sold businesses contributed $109 million to
profit after tax in the ten months prior to sale.

On 18 July we announced that our strategic direction would build upon
specialisation, eTransformation and Growth. To execute our strategy
we are committed to accelerating our cost efficiencies program, both
to achieve a superior operating platform sooner, and to fund the
growth investments we wish to make. We have made provision for a
number of major abnormal items, as well as recognising the Grindlays'
profit on sale of business: 

* restructuring provision to accelerate cost efficiencies for the new
  specialist businesses and for eTransformation of the Group ($245
  million after tax)
* write down of investment in Panin Bank Indonesia ($81 million)
* net profit on sale of Grindlays' businesses ($404 million),
  including $1,225 million income offset by the recognition of $575
  million for provisions relating to indemnities and restructuring on
  sale, and provision for income tax of $246 million
* other (net charge of $34 million)

Total earnings per share were 106.8 cents, up 16.2 cents from 1999,
with net profit from abnormals contributing 2.9 cents. Return on
ordinary shareholders' equity increased to 18.8% from 17.2% in 1999.

The cost income ratio from the operating result reduced to 51.7%
(excludes impact of abnormals) from 54.5% in the year to September
1999, reflecting the results of a continued emphasis on cost
efficiency and income growth. Reduction in cost income ratio is
comfortably within the 53% target set publicly 3 years ago.

The 15% increase in the operating result (excluding abnormals)
reflects strong growth in all major areas of income, flat costs and
flat bad debt provisioning, with improvements in credit quality
offsetting volume growth.

INCOME

Net interest income increased $146 million over the previous year,
with 11% growth in volumes being partly offset by reduced
margins(down 18 basis points). Mortgage lending in Australia and New
Zealand accounted for the majority of the lending growth however,
competitive pressures and the delay in repricing customer loans as
official cash rate increases impacted adversely on margins
particularly in the first half.

Growth in fee income at 9% (11% excluding sold businesses) was strong
and reflected increased lending fee volumes in Personal Financial
Services, Structured Finance and Corporate and Institutional banking.
Transaction fees in all areas continue to be reviewed and repriced as
necessary to reflect the changing cost of providing services.

EXPENSES

Operating expenses remained constant, reflecting the success of the
Group's continued focus on cost containment and improved operating
efficiency. Costs for the continuing businesses increased only 1%
reflecting the acquisition of EFTPOS New Zealand and the introduction
of GST. Implementation costs for the GST were $23 million. Costs were
kept 'flat' notwithstanding significant increases in eCommerce spend.

ANZ continues to build a robust and flexible IT infrastructure. Core
systems and platforms are being rationalised to reduce software and
hardware costs. The Group is leveraging off Win2000, Unix, and web
based technologies to improve operating efficiencies with automated
straight through processing.

RISK

Risk levels have continued to reduce across the Group. The Economic
Loss Provision charge as a percentage of average net lending assets
declined from 0.43% in September 1999 to 0.39% reflecting improved
risk profiles in Corporate Financial Services, and International,
combined with strong growth in the mortgage portfolio. Non accrual
loans reduced and net specific provisions fell 21% over the year to
$383 million from $482 million. Notwithstanding a further $56 million
in specific provisions for Daewoo ($46m in the March half year),
overseas markets specific provisions were down $194 million on
September 1999. Specific provisions on high margin personal loans in
Personal Financial Services exceeded expectations which coupled with
strong growth in credit card and mortgage volumes saw a $105 million
increase in specific provisions in that division.

CAPITAL MANAGEMENT

Reflecting our focus on capital management and strong balance sheet
growth, the Group's Tier 1 position reduced to 7.4% with a
corresponding reduction in surplus capital. Inner Tier 1 reduced to
6.4%, within our target range of 6.0% to 6.5%. This includes $1,014
million share buybacks. The total capital adequacy ratio remains
strong at 10.2%. 

The Group is being managed to maximise value for our
shareholders. Internally, performance against targets is measured
through EVA(TM) (Economic Value Added). EVA(TM) is a measure of
economic profit and is based on operating profits after tax adjusted
for one off items, the cost of equity, the assessed value of
imputation credits, and economic credit costs. EVA(TM) for the year
ended 30 September 2000 was $1,031 million up from $828 million for
the year ended 30 September 1999, using a cost of capital of 11%.
This calculation excludes the effect of abnormal items.

ACCOUNTING POLICIES

The adoption of AASB1038 'Life Insurance Business' has resulted in
the recognition of the $4 billion of assets and liabilities in
statutory funds. While there is no net profit and loss impact from
the introduction of AASB 1038, the requirement to recognise life
insurance income on a gross basis results in the recognition of an
additional net $58 million of income. This is offset by $7 million
operating expenses and $51 million of income tax expense.
Comparatives for 1999 have been restated. The Group uses the margin
on services method for recognising income.

BUSINESS SEGMENT PERFORMANCE

On 18 July 2000 ANZ announced its intention to use technology to
transform its existing businesses and focus on creating new growth
opportunities. As part of the approach, which aims to prepare ANZ for
the globalisation of financial services and the new economy, ANZ
will: 

* Reconceive ANZ as 21 specialist businesses, each to be
developed strategically with a strong customer focus 

* Become an "e-bank with a human face" by embracing new technology 
which transforms the economics of the business and enables ANZ to 
provide its customers with a multi-channel, personalised experience 

* Create a portfolio of valuable growth businesses built around 
eCommerce and ANZ's other core capabilities

Management along the 21 specialist business lines commenced from 1
October 2000.

During the year ended 30 September 2000, ANZ managed its activities
along the following lines of business: Personal Financial Services,
Corporate Financial Services and International. Definitions of these
business segments are included in the glossary.

Operations of Sold Business comprises the revenues and expenses of
Grindlays and associated businesses sold to Standard Chartered Bank,
to date of sale. Group includes the results of asset and liability
management, earnings on central capital, and certain central costs.

This report is based on the 2000 business segments. The segment
results exclude abnormal items.

OPERATING PROFIT AFTER SERVICE TRANSFER PRICING (EQUITY
STANDARDISED)(1)

                                          2000      1999       MOVT 
                                           $M        $M          % 

Personal Financial Services                772       616        25% 
Corporate Financial Services               647       562        15% 
International                               40        62       -35% 
Operations of Sold Businesses              109       115        -5% 
Group                                      135       125         8% 
                                         1,703     1,480        15% 

Abnormals                                   44         -        N/A 
                                         1,747     1,480        18% 

1 Refer definitions on page 63 

Personal Financial Services contributed $772 million to the Group
operating result. Continued strong growth in the mortgage lending and
cards portfolios in Australia and New Zealand were partly offset by a
reduction in lending margins following rises in wholesale interest
rates. Fees rose in line with increased transaction levels, while
continued focus on operating efficiencies kept costs flat.

Corporate Financial Services increased profits by 15% to $647
million, and represents 38% of the Group's operating profit. The
result reflects the growth in non-interest income, improved credit
quality, and control of costs.

The continuing International network contributed $40 million to the
result, a 35% decrease since September 1999. This reflects the lower
interest margins resulting from improved asset quality and reduced
risk, increased costs associated with restructuring, and write off of
deferred tax assets ($10 million).

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