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Preliminary Final Report

Document date:  Thu 24 Oct 2002
Published:  Thu 24 Oct 2002 10:17:58
Document No:  196680
Document part:  C
Market Flag:  Y
Classification:  Preliminary Final Report , Periodic Reports - Other , Dividend Record Date , Dividend Pay Date , Dividend Rate


HOMEX - Melbourne                                                     



I am pleased to report that ANZ has produced another consistent
result in what has been a very difficult year for banks around the

This year we exceeded all of our financial targets. Once again we
reported a record profit, up 16% on 2001. When we include one-off
significant transactions, profit was up 24%. Earnings per share rose
by 17%, and by 25% after significant transactions.

Return on equity rose to 21.6% (23.2% including significant
transactions) from 20.2%, and our cost-income ratio improved to 46%
from 48%.

The second half performance was roughly equivalent to the first half,
after adjusting for the tax rate change and the increase in goodwill
amortisation arising from the new wealth management and insurance
joint venture with ING.

In the 2002 result, significant transactions added a net $154 million
after tax. In the second half we made a $170 million gain on the
creation of the joint venture with the ING Group.

We also ended the year with strong capital and general reserves, and
maintained our strong credit rating.


Our specialisation strategy is distinctive. This year's performance
reinforces the benefits of our distinctive strategy and our
increasing reputation for execution.

This capacity reflects the changes we have made in recent years to
reduce risk, to achieve global industry-leading productivity, to
build a balanced and sustainable business mix and to evolve a high
performance culture.

Our specialised businesses continue to produce good results with 14
out of 16 increasing their profits during the year. While the new
joint venture with ING has been impacted by the difficult market
conditions that exist in this segment, it is performing respectably.
Integration is on track.

During the year, many banks around the world suffered as a result of
corporate failures. ANZ was impacted by losses from Enron and
Marconi, which were disappointing, but we were able to absorb them.
We have reduced the likelihood of similar losses reoccurring, by
reducing the scope of our international corporate and investment
banking activities and cutting individual customer concentration


Our vision is to generate sustainable returns and growth at low risk.
Over the last five years we have made considerable progress in
reshaping the organisation to this end.

In the years ahead, our challenge is to maintain good financial
performance at low-risk, and to grow our revenue and customer base.
To achieve this we need to establish stronger relative positions in
our core businesses in Australia and New Zealand, and selectively
overseas. We are currently well positioned in our Corporate,
Institutional and Investment Banking businesses, and in Credit Cards
and Asset Finance. Going forward we need to develop similar relative
strengths in Personal Banking, Mortgages, Small to Medium Business,
and in Wealth Management.

Internationally we will continue to seek opportunities to expand our
franchise in the Pacific. In Asia we will consider opportunities to
establish more modest, lower risk growth options, principally in
consumer banking for longer-term growth.

These initiatives will require us to continue to grow our expenses
and invest in future growth, while maintaining acceptable earnings


The investment we have made in our people and culture has resulted in
staff satisfaction rising by 16% in 2002, the largest annual increase
we have experienced. 78% of staff are now satisfied with ANZ,
compared with around 50% five years ago. Over 80% of staff completed
the survey, again the highest ever. During the year, 4,200 of our
people participated in "Breakout", our cultural transformation
program, and we expect 6,000 will participate in 2003.

We are also experiencing a dramatic improvement in new people looking
for a career with ANZ. Last year, we had around 3,000 applicants for
our graduate recruitment program. This year it was around 11,000.


The strength of our relationships with corporations is generally
recognised, but it is very clear that we need to do more to improve
relationships with personal customers, small to medium businesses,
and with the wider community.

In 2002 we launched "Restoring Customer Faith" in Victoria and New
Zealand. This program decentralises our consumer banking business
into small, community-based businesses, each with a local CEO. We
launched simpler, lower-cost transaction accounts for our personal
customers. Initial results are very encouraging and we have seen a
rise in new customers and a fall in customer turnover. Customer
satisfaction and retention in the pilot programs rose, as did staff
satisfaction, and there are early signs of significant improvement in
financial performance in the pilot areas.

We have also appointed a senior Customer Advocate as part of the
Office of the Chief Executive. We updated our Customer Charter, with
ten charter promises for our customers, and we are publishing our
performance in our annual report. For the second year we will also
publish the customer satisfaction ratings for our businesses.

Increasingly, our people are engaged through volunteering leave and
support from the ANZ Community Fund. These actions that we are taking
in the communities in which we operate are gradually improving the
image of ANZ in the wider community.


2002 has been a year of increased focus on the integrity and
governance of corporations. During the year, the Board undertook a
review of governance procedures and strengthened ANZ's governance
process, disclosure levels and transparency. These included a new
policy covering ANZ's relationship with its auditor and new reporting
arrangements for the company's internal audit function that sees it
report directly to the Board Audit Committee.

This year has also seen a desire that options should be expensed. For
the first time, we have included a schedule showing the impact that
this would have on our 2002 results. It is our aim to treat options
as a full expense in the year they are granted, once we have an
approved accounting standard together with government clarification
that the taxation treatment will be neutral.

We are equally conscious of the debate on the use of options as part
of senior executive remuneration. We have decided that options have a
legitimate place in executive compensation, provided the value
allocated is reasonable, the value is disclosed, and their nature is
aligned with the interests of shareholders.

In the second half, we restructured the long-term incentive scheme
for senior executives to be more in line with shareholder sentiment
and interests. We reduced the value of options granted and increased
the use of deferred stock. The use of traditional options where
senior executives could benefit from a general rise in bank stock
prices was disbanded. In its place we will use a new type of option
which links the exercise price to movements in the S&P/ASX 200 Banks
Accumulation Index excluding ANZ. This ensures executives are only
rewarded when ANZ out-performs its peers and the reward is only the
value of the out-performance.


Global economic prospects for the year ahead are likely to remain
subdued. Closer to home however, we expect the Australian and New
Zealand economies to continue to perform steadily.

The housing market is overheating and is prone to decline. There is
also a reasonable expectation of an upswing in business credit to
offset this, although, the pacing of these may not be perfectly
aligned. Domestic interest rates are likely to pursue a neutral to
upwards bias. Taken together, we expect to see an increase in
domestic consumer default, but not sufficient to create severe credit
difficulties in either the corporate or consumer sectors. Further, we
expect any such impact to be lagged, impacting 2004 and beyond rather
than 2003. Also for 2004, as we separately announced, we expect a
$40m after tax profit decline from the recently announced changes in
credit card interchange and increase in the costs of loyalty
programs. In 2003, credit losses from the international corporate
sector, while cyclically high, are likely to be below 2002 levels.

Over the past few years, ANZ has been through one of its most
successful periods in its history. We have also been through one of
our most challenging periods in the context of external risks. All of
this has helped to strengthen our capacity to be successful in
different environments.

Looking ahead, the coming years are likely to become more
challenging, but we remain confident of our ability to perform
relatively well.

For 2003 our initial internal forecasts lie marginally below our 10%+
earnings per share target, however this is not unusual at this early
stage in the year and is consistent with our philosophy of managerial
stretch. Accordingly our target earnings per share growth for 2003
remains unchanged.