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Westpac Builds On Strong Earnings Momentum

Monday 8 November 2004

Westpac Builds On Strong Earnings Momentum From First Half Of 2004

A $617 million net profit, best-ever customer satisfaction ratings, a record share of housing lending growth and the successful launch of a number of customer-focussed initiatives have been the highlights of 2004 for Westpac in New Zealand.

Westpac Chief Executive Ann Sherry said that the solid result for the year ended 30 September 2004 built on the momentum in the first half of the period and demonstrated that Westpac’s customer focus was delivering consistent, sustainable financial performance.

“We are heading in the right direction in all the measures that matter: profitability, market share, customer satisfaction in both the retail and business banks and also in terms of ongoing innovation in how we serve our customers. All this means that Westpac is in a solid, sustainable position ahead of a likely slowing in the economy and housing market in 2005.”

Westpac returned a $617 million normalised net profit for the year ended 30 September 2004, up $36 million or 6% on the prior year. Reported net profit after tax (NPAT) at 30 September 2003 was $462 million, however that included the one-off transfer of a general provision for Bad and Doubtful Debts of $178 million, from the Australian Group accounts.

In the ACNielsen Main Bank Satisfaction results for the September 2004 quarter, Westpac scored 57% “excellent” or “very good”, the best result to date. “While clearly it isn’t where we need to be, it does represent a 12% improvement over where we were in January 2004,” Ann Sherry said. “It is pleasing to see building customer recognition of the effort we have been putting into Westpac’s customer experience.”

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Customer focus had also driven Westpac’s housing lending success, with the bank taking a 20.8% share of housing market growth during the year. This peaked with a 27% share in August 2004, a Westpac record.
Year to Year to
30 September 2004 30 September 2003
$m $m
Net Interest Income 1097 1033
Non-Interest Income 591 538
Non-Interest Expense (731) (699)
Core Earnings 957 872
Bad and Doubtful Debts Expense (39) (205)
Underlying Performance 918 667
Income Tax Expense and Minority Interests (301) (205)
Reported Operating Profit After Income Tax Expense 617 462
After tax effect of Transfer of General Provision for Bad and Doubtful Debts Expense -

Normalised Operating Profit After Income Tax Expense 617 581
“Overall, and further assisted by independent recognition of the quality of our lending products, with 5-star Cannex ratings across all of our home loans, Westpac has a 20.1% share of total New Zealand housing loans at 30 September 2004.”

Westpac also recorded strong results in the business market. “TNS Business Finance Monitor results show that we have increased our share of the Small to Medium Enterprise (SME) sector to a market-leading 25%, and lifted ‘excellent’ and ‘very good’ customer satisfaction ratings from 44% in 2003 to 50% at 30 September 2004. Again, it’s not yet where we need to be it is good to be heading in the right direction,” Ann Sherry said.

Westpac had achieved a number of other significant successes in 2004. “We have launched our five Customer Service Commitments, which represent a public commitment to five standards of service and give our customers a clear idea of what to expect from Westpac,” Ann Sherry said.

Westpac also launched two new Youth Accounts to help develop financial literacy in young New Zealanders. As at 30 September 10,000 people had opened the accounts, 7000 of them new customers for Westpac.

Westpac’s share of disputes at the Banking Ombudsman’s office has further reduced. In the Ombudsman’s current year (July to June), Westpac’s share of disputes fell to 10% compared to 26% in the prior period (and 38% in 2002). The number of complaints has fallen by more than half, from 144 (38% of all complaints) in 2003 to 69 (27% of all complaints) in 2004.

“This year we launched our inaugural Social Impact Report for New Zealand,” Ann Sherry said. “This is an independently audited record of our social, economic and environmental impacts and we believe it’s a first for a bank in New Zealand. It’s frank and contains a number of measures that our staff and New Zealand stakeholders told us they wanted Westpac to measure itself against.”

“We will conclude 2004 with one of our most important events: the Westpac Group AGM will be held in Auckland on 16 December, the first time New Zealand has hosted this event. It reflects the importance to Westpac of its New Zealand shareholders and the importance of the New Zealand business.”

Turning to the key drivers of the financial results, Ann Sherry said that net interest income had increased by $64 million or 6% from the equivalent period in 2003, due to higher loan and deposit volumes, despite margin compression and strong competition. A greater level of transactions and a focus on fees was largely responsible for the $53 million or 10% increase in non-interest income, compared to the year ended 30 September 2003.

Non-interest expense rose $32 million or 5% from the prior period, chiefly due to increased staff costs. Bad and doubtful debts expense decreased $166 million from the prior period, which included the one-off $178 million general provision.


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