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Half Yearly Report/Accounts

Document date:  Thu 24 Apr 2003
Published:  Thu 24 Apr 2003 08:33:21
Document No:  203518
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

AUSTRALIA AND NEW ZEALAND BANKING GROUP       2003-04-24  ASX-SIGNAL-G

HOMEX - Melbourne                                                     

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                   CHIEF EXECUTIVE OFFICER'S REVIEW
                         2003 INTERIM RESULTS

STRONGER UNDERLYING PERFORMANCE OFFSET BY ONE-OFF CARDS CHARGE

In the six-month period ending 31 March 2003, ANZ recorded a net
profit after tax of $1,141 million, up 8.7% on the same period last
year. Earnings per share rose by 8.6% to 72 cents and cash EPS by
10.4%. The interim dividend was increased by 12.8% to 44 cents,
reflecting our strong capital position.

Excluding significant transactions, net profit after tax rose 7%, EPS
rose 6.8% and cash EPS rose by 8.7%.

Return on equity was down marginally to 20.3%, but above our 20%
target. Our productivity continues to be in the top five per cent of
major banks globally with the cost-income ratio further reduced to
45.6%, from 46.5%.

In the half, we took a one-off charge of $27 million in the Consumer
Finance business. This related to the under-accrual of loyalty points
for past years. This was inconsistent with ANZ's normally high
execution standards and action has been taken to avoid similar issues
in future. Despite this, Consumer Finance has been one of our fastest
growing businesses during recent years and the underlying growth in
that business remains strong.

Of significance, in the half we settled a long-standing tax dispute
with the Australian Taxation Office relating to equity product
transactions, mainly from the late 1990s. The settlement of $262
million was met from ANZ's existing tax provisions.

Risk levels have improved. Specific provisions were down by 29% to
$259 million, net non-accrual loans were down 28%, and the economic
loss provisioning charge as a percentage of risk-weighted assets was
reduced.

We also ended the half with strong common equity and general
reserves, and maintained our double A category rating.

The first half result follows a particularly strong 2002 performance.
In an environment that continues to be difficult for banks around the
world, this is a reasonable result, but marginally below our internal
target.

OUR PORTFOLIO OF SPECIALIST BUSINESSES IS PERFORMING WELL

Our specialisation strategy is distinctive. Eight of our seventeen
specialist businesses delivered double-digit earnings growth and
eleven delivered profit increases.

Institutional, Corporate, Mortgages, Asset Finance and Asia Pacific
all produced strong performances. Results from the ING Joint Venture
were subdued in difficult equity markets, while Consumer Finance and
Treasury recorded profit decreases.

Personal Banking Australia is worthy of special mention in the
context that we are working to revitalise a business that has not
been a traditional strength of ANZ. Although earnings were not as
strong as its sister businesses we are investing heavily in this
segment for the long run. The Restoring Customer Faith program,
together with much of the group's technology investment, relates to
upgrading our strategic capability in this area. Additionally we are
currently experiencing the early impact of reducing the prices of our
everyday banking accounts. These are now the simplest products
offering the best deal in Australia, and we expect earnings growth to
remain subdued in the near term, as we work to increase market share
and generate a more sustainable strategic position in this segment.

RISKS LEVELS HAVE BEEN BROUGHT DOWN

The credit quality of our portfolio of assets has improved with
economic loss provisioning (ELP) as a percentage of risk-weighted
assets down to 40 basis points (bp) from 43bp. Gross non-accrual
loans, net non-accrual loans, new non-accrual loans and specific
provisions are all down materially. Domestic credit quality remains
particularly strong.

The risk of our offshore energy and telecommunications exposures
appears to have stabilised. Nonetheless, we are taking steps to
further reduce exposure. While some losses are inevitable, they are
containable, and we continue to expect full year specific provisions
to be less than our ELP for 2003.

WE ARE FOCUSED ON FOUR KEY PRIORITIES FOR THE FUTURE

Leveraging real capabilities to build a sustainable strategic
position

* Leverage specialisation as a distinctive strategy
* Leverage leading product capability to increase customer share
* Leverage superior cost position:
  - To give customers the best deal
  - To give shareholders sustainable and growing returns
* Leverage ANZ's emerging and distinctive human face to gain:
  - Unique positioning against peers
  - Traction in earning the trust of the community

Growing value by creating a rich, diversified portfolio of
specialised businesses

* Leverage decentralisation and focus to gain distinctive momentum
* Actively manage the portfolio to optimise sustainability, growth 
  and return
* Substantially raise revenue productivity in Personal Banking:
  - Develop new Banking Product and Transaction Services business
  - Further decentralise autonomy to Local CEOs
  - Enrich Restoring Customer Faith with a retailing culture
  - Upgrade customer service levels and reliability
* Enhance productivity and financial performance in Wealth Management
* Develop sustainable post-interchange Consumer Finance strategy
* Regain leading position in Small to Medium Business
* Develop the Institutional portfolio while reducing risk 
  concentrations 
* Leverage specialised distribution in Mortgages
* Advance the customer franchise in New Zealand through a local 
  approach 
* Turn Asset Finance into a sustainable growth proposition
* Create a portfolio of growth options: 
  - Invest in high growth domestic franchises
  - Leverage distinctive capabilities with local partners in 
    Asia-Pacific 

Becoming one of the best managed and most efficient banks in the
world

* Make execution a distinctive capability
* Accelerate revenue and productivity momentum in businesses
* Rebalance higher risk segments
* Simplify and streamline operations and technology infrastructure:
  - End-to-end rationalisation of major processes
  - Substantial cutback in technology project load
  - Leverage low-cost international locations
  - Focus on core activities and eliminate the tail

Being bold and different, leveraging a unique performance culture and
approach

* Systematically improve across all measures of high performance 
  culture
* Make financial management and values orientation distinctive 
  capabilities 
* Build on ANZ's position as a preferred employer
* Gain community and shareholder recognition
* Raise our game in execution to minimise surprises

THE DOMESTIC ECONOMIES REMAIN STRONG IN AN UNCERTAIN GLOBAL
ENVIRONMENT

The global economic environment remains challenging; in part
reflecting heightened levels of geopolitical uncertainty and more
recently the potential effect of SARS. The US and world economies are
likely to be weighed down over the medium-term by the continued
after-effects of the collapse of the 1990's equity market bubble.

Despite this relatively unfavourable external environment, the
Australian and New Zealand economies are still likely to record
reasonable growth in 2003. In particular, Australia does not have to
cope with the direct fallout from the collapse of an equity market
bubble, which is one factor likely to underpin continued growth in
business investment and businesses demand for credit. The expected
breaking of the drought in Australia could also provide a boost to
economic growth this year.

There are clearly a number of downside risks to the outlook. Activity
in the housing market is likely to soften and weigh on housing credit
growth over the period ahead. Widespread house price declines in
Australia are not expected, partly due to the benign interest rate
outlook and partly because the strong rises of recent years reflect
the structural decline in interest rates over the last decade. There
is also the risk that business sentiment continues to be affected by
geopolitical uncertainties and leads to some deferral of investment
intentions.

WE REMAIN ON TRACK FOR TARGET EARNINGS GROWTH IN FULL-YEAR 2003 AND
FOR 2004

We believe domestic economic growth over the balance of 2003 is
likely to remain reasonable.

The outlook for 2004 is likely to be similar. In a broader sense,
ANZ's performance in 2004 will in part be a function of the economic
environment, general levels of confidence and activity and the extent
to which slowing mortgage growth is offset by business credit growth.

An important challenge is positioning the Consumer Finance business
for the changes in credit card interchange levels announced by the
Reserve Bank of Australia. In this respect, we announced the combined
impact of changes in credit card interchange and increased costs of
loyalty programs are expected to cause a $40 million negative impact
on earnings in 2004. While the strategy for the Consumer Finance
business for the period ahead is still evolving, we are confident the
impact won't exceed this $40 million estimate.

With respect to dividend policy, given our strong capital generation,
as in this half, our current view is that we are likely to pursue a
higher level of dividend growth than earnings growth, resulting in an
increase over the next few years in the dividend payout ratio to an
upper sixty percent level.

All in all, we are confident overall growth in net profit after tax
for 2003 (excluding significant transactions in 2002) will be in line
with market expectations of approximately 8%. Additionally,
notwithstanding the challenges of the global economy and in credit
cards, we believe there are reasonable prospects of a similar
performance level in 2004.


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