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Half Yearly Report/ASIC Half Yearly Accounts

Document date:  Thu 26 Apr 2001
Published:  Thu 26 Apr 2001 10:31:48
Document No:  175940
Document part:  D
Market Flag:  Y
Classification:  Half Yearly Report , Half Year Audit Review , Half Year Directors' Statement , Half Year Accounts , Dividend Record Date , Dividend Pay Date , Dividend Rate , Other


HOMEX - Melbourne                                                     



The considerable energy that has gone into the process of rebuilding
ANZ in recent years, has helped produce another strong financial
result in this first half. We have also made good progress in the
implementation of our new strategy, which we announced last year.

ANZ is now managed as a portfolio of specialist businesses. A unique
feature of these results is the disclosure of the earnings from each
of the specialised businesses, which provides a greatly increased
level of disclosure. It is pleasing to report that most of our
businesses are performing strongly, and there is scope for further
improvement. Many of these businesses hold leadership positions and
have the management and product leadership to grow at a faster rate
than the industry, domestically and internationally. This provides us
with a portfolio of businesses that is not only performing well but
has significant growth opportunities.


Following the success against our previous three-year targets, in
October 2000 we announced new commitments for the next three years.
We have made good progress against each of these commitments in the
first half and are on track to achieve them:

MEASURE                     TARGET                     MARCH 2001

EPS growth                  >10%                       13%
Return on equity            >20%                       19.6%
Cost-income ratio           mid 40s                    49.4%
Inner tier 1                6%                         6.2%
Credit rating               AA category                maintained

Following the sale of Grindlays last year, earnings from continuing
businesses were up 18% on the previous first half and up 10% on the
second half of last year. Earnings per share were up 13%, and the
interim dividend of 33 cents per share was up 14% from that declared
for the first half of last year.

Return on equity of 19.6%, up from 17.8%, was achieved through strong
earnings performance and our capital management program. The $1
billion buyback announced in April last year is now almost complete.
Inner tier 1 capital ratio is now approaching our target of 6%.

Once again we improved the cost-income ratio to 49.4% from 51.4%.
This is the first time it has been below 50% and positions us well to
achieve our new target of mid 40s by September 2003. We were able to
hold the increase in costs to 4%, which largely reflected the
increase in costs associated with GST and costs from the acquired
EFTPOS New Zealand. At the same time we were able to grow assets by
8% and income by 10%.

We have continued our prudent approach and reassessed the market
value of several investments. As a result we wrote down the carrying
value of Panin by $43m, E*Trade by $21m and other internet
investments by $20m. These write downs were partially offset by a
profit of $65m after tax realised on the sale of our stake in St
George Bank, which we sold as it no longer fitted our strategic

Risk levels remain stable across the group. The Economic Loss
Provision percentage charge was reduced, and non-accrual loans and
specific provisions were down. While non-accrual loans increased in
Australia, mainly due to sporadic credit situations against which we
have made appropriate specific provisions in the first half, we are
not yet experiencing a systemic shift in credit quality. We
nevertheless remain cautious in our risk approach given the marked
slowdown in the economy.


Our strategy is based around three themes - specialisation,
e-transformation, and growth. Specialisation means we will focus on
areas where we have real capability and can deliver a unique
experience to our customers. E-transformation requires that we use
new internet technologies to revolutionise the way we do banking in
the future, whilst maintaining a human face to our customers and to
the community. Growth requires us to deliver superior earnings
performance by growing revenues faster than system growth, by
controlling our costs, by reducing risk, and by controlling capital.
It also requires us to position ourselves strategically in faster
growing markets and to breakout from current operating paradigms by
having the courage to be both bold and different.


During the first half, we consolidated smaller profit centres into
the main businesses. Additionally in February, we announced that our
largest business, General Banking would be split into two new
customer businesses - Metrobanking and Regionalbanking. As a result,
ANZ now has 16 main specialist business units, each being part of ANZ
but also having the freedom to develop within its own competitive
space. We believe this will allow a more entrepreneurial spirit
within our businesses whilst benefiting from the synergy of cross
business collaboration. In line with our earlier commitments we have,
for the first time, disclosed the earnings of the main business
units. The performance and growth of the businesses are now
transparent, and can be monitored by shareholders, customers and by
the community.

eTransformation is gathering pace. For our customers this is about
providing first-class, low-cost internet banking solutions with a
personal touch and automated processing of supporting functions to
ensure efficient and responsive service. For staff this is about
providing a common customer view through all channels and about
removing bureaucracy and routine manual activities. For shareholders
it means lower costs and higher returns as a result of streamlined
straight-through electronic processes.

We continued to invest heavily in new technology platforms and have a
number of major projects in train such as a new sales and service
platform for our branch network, enhanced internet banking,
Peoplesoft human resource and general ledger system, and customer
value management for our Personal businesses. The implementation of
our Windows 2000 platform is now almost complete. Our e-transformation
strategy has been assisted by the $361m restructuring charge taken
last year, to support a program of 35 discrete initiatives to
restructure our technology and operational infrastructure. This
program is on track with some $65m of this provision utilised in the
first six months. In addition to this our Perform and Grow program
has identified several other cost reduction initiatives and a range
of revenue enhancement opportunities which we are currently
prioritising for action.


Successful revenue enhancement, combined with cost and risk
containment has led to higher than system earnings growth in a
significant number of businesses. In the first half, 80% of our
specialist business segments had annualised double-digit earnings

Over the past few years we have successfully repositioned our
portfolio towards higher growth, higher return businesses. This has
been particularly successful in Mortgages and Cards, where we have
achieved substantial market share increases. However, we continue to
be relatively underweight in overall market share of Personal, and
there is considerable opportunity for further growth through
leveraging the success of Mortgages and Cards across our other
businesses. In Corporate we achieved strong revenue growth in
Institutional, Global Capital Markets, Global Foreign Exchange and
Global Transaction Services.

We recognise that the market is focused on the attractiveness of the
opportunity in funds management. However, we believe our prime focus
lies in the development of our distribution capability across our
customer businesses. We have therefore decided to seek an alliance
with a global player to develop our position in Investment Management,
allowing us to concentrate on the opportunity to service our own
customer base with greater choice of product than we could supply on
our own.

Ensuring earnings growth momentum has also required us to make
decisions on investments where the potential has been less than we
anticipated. In March we announced the unwinding of our joint venture
with OCBC Bank. Despite its initial promise the economic prospects
for this proposition became increasingly challenging and both parties
made a decision to withdraw at an early stage.

Our focus on individual segments and our systematic reallocation of
resources should enable us to take advantage of growth opportunities
as they present themselves, and to be more agile to respond to
changes in their individual marketplaces. This, combined with a
breakout cultural environment should be an effective combination and
act as a catalyst for significant new growth in future periods.


The substantial progress we have made in the rebuilding phase at ANZ
over the last few years has created a much stronger foundation for
the future. This is a significant step forward, but in conjunction
with our new strategy we have set ourselves on a path to create a
much stronger, more dynamic and growth oriented company in the years

To achieve this we will need to dramatically transform the culture
and working environment at ANZ. Balancing the tensions of specialist
businesses within a single entity requires greatly increased
openness, flexibility and trust. eTransformation requires us to be
lean, agile and tolerant of change. Breakout growth will require
passion, boldness, inspiration and much closer relationships with our

As an initial step, in the first half we launched "breakout"
workshops for management across the company to transform the
leadership practices and to help change the overall culture of the


While we are rated very highly by our customers in some businesses,
particularly Corporate and Institutional Banking, there is much we
can do to replicate this perception more broadly across the
organisation. Our biggest challenge is with general consumers and
with the image of banking in the community. Last week, we announced a
range of initiatives, which we believe will begin to make a real

* Unlimited fee-free transactions for customers aged 60 or over from
their ANZ personal transaction account. The change, effective 1 July
2001, acknowledges the greater reliance that older customers have on
face to face banking and the difficulties some experience in adapting
to new technology.

* A new Customer Charter, which will set clear, benchmarks for the
provision of service to customers including commitments on access to
services, personal information and an improved complaint resolution

* Appointment of a senior Customer Advocate to ensure the
satisfactory resolution of customer issues and complaints.

* Improvements and greater funding for ANZ's community relations
program which will become more focused on issues affecting ANZ
customers and the communities in which ANZ operates.

* Paid leave for staff who volunteer for community service.

Over the past three years ANZ has made considerable progress in
rebuilding its reputation for financial performance. We are now
intent on replicating this success with customers and with the wider
community. We realise we still have a long way to go, but these
initiatives are an important step in redressing that imbalance and
demonstrate our commitment to change.


Overall risk continues to reduce in line with our strategy of
rebalancing the portfolio and emphasising growth sectors and lower
risk businesses. Having grown profits over the last 3 - 4 years at
over 20% compound, our Personal businesses together with Investment
Management now for the first time contribute in excess of 50% of
Group profits.

Credit quality remains acceptable despite slowing economic
conditions, and the ELP charge reduced further to 0.35% in line with
the steadily improving mix and quality of the portfolio.

At the Group level total non-accrual loans are down 7% on September
2000, although in Australia there has been a 15% increase in
non-accruals due to the less favourable economic environment. As
expected in any economic downturn there has been a modest increase in
the incidence of delinquencies and businesses incurring financial
stress. However this is broadly consistent with our expectations
given the economic environment and well within our planned
provisioning levels. Total capital adequacy remains strong at 10.5%

In October last year we highlighted several areas, that had not gone
as well as hoped in 2000 and we outlined firm action to address
these. I am pleased to report that good progress has been made with
respect to each of these issues as follows:

* Unsecured personal loan portfolio - the tightening of credit
criteria and review of processes has lead to a steady reduction in
the size of the portfolio and an improvement in the quality of new

* Panin write down - As mentioned earlier we have taken a further
write down to market value.

* International provisioning - there has been no need for any
material new provisioning following the losses incurred in 2000 from
the Asian crisis and Grindlays.


While the economic environment is less certain, at this stage we
continue to expect a positive overall performance for the full year.
However, the weaker economy, combined with the strength of our
earnings in the first half, may make it difficult to replicate the
strong underlying first half earnings growth in the second half.
Having said this, we are confident the considerably stronger
foundation we have now established puts us in a good position to
continue to perform well and achieve our targets over the medium