Solid Result Positions Westpac Well
For immediate release
Thursday 5 May 2005
Solid Result Positions Westpac Well For Slowing Economy
A focus on sustainable business growth has seen both a solid 4% lift in net profit to $323 million and a 7% lift in the residential lending book to a record $20.1 billion, for the half year ended 31 March 2005 for Westpac in New Zealand.
Westpac Chief Executive Ann Sherry said that for the past 18 months she had constantly reiterated that Westpac would not buy market share. “Our approach in the first half of 2005 has been consistent with that policy. That Westpac did not trade-off market share against profitability to the same extent as some competitors during the period is reflected in this solid result.”
“We ensured choice for our customers through competitively priced specials, while also having confidence in the quality and service proposition for our customers – reinforced by a second-consecutive five-star Cannex rating across the entire range of our lending products – of what we had in the market.”
“That this confidence was well-placed is shown in the amount of business done. Westpac had a 15% lift in residential mortgages from $17.4 billion at 31 March 2004 to $20.1 billion at 31 March 2005, and a 6% increase in non-interest income (from loan origination and arrangement fees) from $290 million in the prior period to $306 million,” Ann Sherry said. “Clearly, with this amount of business, had competitive conditions in the market been different our solid profit result would have been even better.”
While, as anticipated by the bank, Westpac’s share of market growth has dipped over the period to 13% from 20% in the previous six months – it has since recovered to 17.2% in March – its share of the overall housing market has remained relatively flat at 19.25%.
Six months to Six months to
31 March 2005 31 March 2004
Net Interest Income 558 541
Non-Interest Income 306 290
Non-Interest Expense (360) (356)
Core Earnings 504 475
Bad and Doubtful Debts Expense (21) (18)
Underlying Performance 483 457
Income Tax Expense and Minority Interests (160)
Reported Operating Profit After Income Tax Expense 323
“Westpac has also been assisted by not relying on housing as heavily as some of our competitors,” Ann Sherry said. “Non-housing lending is up considerably, increasing from growth of $548m in the period to 31 March 2004 to growth of just over $1 billion in the six months to 31 March 2005. That growth was across the board, in the Small to Medium Enterprise (SME), Middle Market and Corporate sectors.”
BT Funds Management, Westpac’s wealth management business, improved its performance in the New Zealand market in the six months to 31 March 2005. The Mercer Survey has rated BT as having upper quartile performance for Trans Tasman equities – or second out of eight fund managers – second out of six for New Zealand equities and second out of five for listed property over that period.
Other highlights of the six months were a $35,000 donation by Westpac staff to the victims of the Tsunami. This was matched dollar-for-dollar under the bank’s Staff Matching Gifts Programme as part of a Westpac Group contribution of more than $1 million in donations and funding of redevelopment initiatives.
“Right at the end of the period Westpac maintained its top ranking on the Corporate Responsibility Index, while also outperforming 133 companies in the UK,” Ann Sherry said. The result recognised Westpac’s corporate responsibility processes and reporting in both Australia and New Zealand. In 2004 Westpac produced its first – annual – Social Impact Report specific to New Zealand, How We Measure Up. Another report will be published in the second half of 2005.
Turning to the key drivers of the financial results, Ann Sherry said that net interest income had increased by $17 million or 3% from the equivalent period in 2004, due to mortgage and deposit volume growth and reflecting the impact of margin compression and competitor pricing activity.
Non-interest expense was flat, rising $4 million or 1% from the prior period, due to a focus on costs. Bad and doubtful debts expense increased $3 million or 17%, largely due to provisioning on the increase in loan balances.