Australia and New Zealand Banking Group Ltd. — Annual Report 2017

Oct 25, 2017

News Release

For release: 26 October 2017

ANZ NZ 2017 Full-Year Result

Australia and New Zealand Banking Group Limited (ANZ) results for the Financial Year to 30 September 2017 were released today. ANZ New Zealand[1] delivered a statutory profit of NZ$1.78 billion, up 15% on the prior financial year. Cash profit[2] was NZ$1.86 billion, up 21%.

ANZ New Zealand Chief Executive Officer David Hisco said the bank’s continued solid performance was due mostly to lending growth and ongoing strong cost management. The result was also buoyed by a lower than normal provision charge, reflecting growth in some parts of the New Zealand economy.

“We have reduced the number of products from almost 350 in 2012 to offer fewer than 90 in 2017, improving staff efficiency and making life simpler for them and our customers,” Mr Hisco said.

“Our expenses decreased 8% in FY17 and are below our 2010 levels, while we’ve maintained high customer satisfaction. That’s a remarkable achievement and reflects our team’s strong discipline, high productivity and our digital push.

“The strength in some parts of the economy also meant fewer bad loans to contend with and a more benign credit environment saw the provision charge trend lower.”

FY17 revenue increased 7% to NZ$4.08 billion comprised of net interest income of NZ$3.08 billion up 2% and other operating income of NZ$999 million up 26%, reflecting higher markets trading income and valuation gains on derivatives predominantly in the first half.

Net interest margin stabilised in the second half of FY17 after a period of contraction caused by increased funding costs and a customer preference for fixed rate home loans.

One of the highlights of the year was customer deposits increasing 6%. Another was KiwiSaver, with almost 735,000 New Zealanders investing over NZ$11 billion of their retirement savings in an ANZ KiwiSaver scheme.

1 ANZ New Zealand represents all of ANZ’s operations in New Zealand, including ANZ Bank New Zealand Limited, its parent company ANZ Holdings (New Zealand) Limited and the New Zealand branch of ANZ.

2 Statutory profit has been adjusted to exclude non-core items to arrive at cash profit, the result for the ongoing business activities of ANZ New Zealand. Refer to Summary of Key Financial Information for details of reconciling items between cash profit and statutory profit.

Australia and New Zealand Banking Group Limited ABN 11 005 357 522

“Our results reflect our number one market position in home loans, deposits, credit cards and KiwiSaver. One in two New Zealanders have a financial relationship with us and we’re proud of the role we play in the community.”

Mr Hisco said he was particularly proud of the time staff volunteered in the community in FY17 (up 14% to 18,440 hours), the NZ$658,528 in community donations via the ANZ Staff Foundation and the almost NZ$1 million raised for Daffodil Day[3] . More than 650 people in vulnerable communities completed the bank’s financial literacy programme MoneyMinded. ANZ New Zealand’s carbon footprint reduced by 6%.

Key Points

All comparisons are Financial Year 30 September 2017 compared to Financial Year 30 September 2016 unless otherwise noted

• Statutory profit up 15% at NZ$1.78 billion.

• Cash profit up 21% at NZ$1.86 billion.

• Revenue up 7% at NZ$4.08 billion.

• Expenses decreased 8% (or 2% adjusting for charges associated with a change to the application of ANZ’s software capitalisation policy in FY16), reflecting ongoing disciplined cost management and productivity gains. Now below FY10 levels.

• Lower levels of credit losses reflect improvements in credit quality in the Retail, and Commercial and Agri portfolios, partially offset by new provisions.

• Customer deposits up 6% and gross lending up 4%.

ANZ New Zealand continued to be a technology-driven organisation, constantly looking at ways to innovate and meet customers’ needs.

“ANZ was the first bank in New Zealand to offer Apple Pay and in one year almost half of eligible[4] customers have set it up, which is an impressive uptake of a new technology. We’ve also made banking on the go faster and easier on our ANZ goMoney app.

“We’re focused on technology with a ‘human touch’ because our customers tell us they still want to have key financial conversations directly with our staff.”

FY17 was a record year for ANZ New Zealand’s contribution to the economy.

We paid around:

• NZ$680 million in corporate taxes (more than 5% of New Zealand’s total corporate tax take);

• NZ$800 million in staff wages and salaries;

• NZ$545 million to local contractors and suppliers;

3 Daffodil Day is the Cancer Society’s annual fundraiser. 4 ANZ retail customer with an ANZ Visa Debit or personal ANZ Visa credit card and an Apple Pay compatible iPhone.

• NZ$13 million in sponsorships and charitable donations; and

• NZ$70 million in dividends to about 17,500 New Zealand shareholders and managed funds.

A table of key financial information follows

For media enquiries contact: Emma Mellow, 021 614 165

Summary of Key Financial Information ANZ New Zealand

Profit	Half year Half year Sep 17 v Sep 17 v Full year Full year Sep 17 v Sep 17 v Sep 17 Mar 17 Mar 17 Mar 17 Sep 17 Sep 16 Sep 16 Sep 16 NZ$m NZ$m NZ$m % NZ$m NZ$m NZ$m %
Net interest income Other operating income Operating income Operating expenses Profit before credit impairment and income tax Credit impairment charge Profit before income tax Income tax expense	1,544 1,534 10 1% 3,078 3,029 49 2% 485 514 (29) -6% 999 795 204 26%
	2,029 2,048 (19) -1% 4,077 3,824 253 7% 728 718 10 1% 1,446 1,580 (134) -8%
	1,301 1,330 (29) -2% 2,631 2,244 387 17% 19 40 (21) -53% 59 149 (90) -60%
	1,282 1,290 (8) -1% 2,572 2,095 477 23% 355 362 (7) -2% 717 566 151 27%
Cashprofit	927 928 (1) 0% 1,855 1,529 326 21%
Reconciliation of cash profit to statutory profit Cash profit 927 928 (1) 0% 1,855 1,529 326 21% Reconciling items (net of tax): Economic hedging volatility1 (26) (24) (2) 8% (50) (29) (21) 72% Insurancepolicyasset valuations2 10 (35) 45 large (25) 42 (67) large
Statutory profit	911 869 42 5% 1,780 1,542 238 15%
Comprising: Retail Commercial Operations & Support New Zealand Businesses Institutional Other	520 499 21 4% 1,019 941 78 8% 220 219 1 0% 439 417 22 5% 2 (1) 3 large 1 3 (2) -67%
	742 717 25 3% 1,459 1,361 98 7% 164 198 (34) -17% 362 199 163 82% 21 13 8 62% 34 (31) 65 large
Cashprofit	927 928 (1) 0% 1,855 1,529 326 21%
Reconcilingitems	(16) (59) 43 (75) 13 (88)
Statutory profit	911 869 42 5% 1,780 1,542 238 15%

1. Economic hedging volatility - fair value gains/(losses) ANZ New Zealand enters into economic hedges to manage its interest rate and foreign exchange risk. Statutory profit includes volatility from fair value gains or losses on economic hedges that are not designated in accounting hedge relationships under IFRS, as well as ineffectiveness from designated accounting cash flow and fair value hedges. Fair value gains/(losses) on all of these economic hedges are excluded from cash profit, as the profit or loss resulting from these transactions will reverse over time to match the profit or loss from the economically hedged item.

2. Insurance policy assets valuations

Profit and loss volatility is created by the remeasurement of policyholder assets for changes in market discount rates, which over time reverses to zero.