Business Overview
The following commentary provides an overview of the performance of the main businesses of the Group. For further information on the financial performance of these businesses, please refer to the Comments on Statement of Financial Performance.
Banking
Australian Retail
The strong performance of the retail banking operations was driven by continued growth in the residential housing market, improved growth in other personal lending and solid deposit growth. Performance highlights for the year to June included:- Housing growth of 20%, underpinned by record sales volumes in both proprietary and broker channels;
- Strong performance in other personal lending, assisted by enhancements to the Personal Loan product and the launch of a new "Platinum" credit card in March 2004;
- Improved arrears levels across the retail lending portfolios, notwithstanding strong volume growth;
- Strong gains in underlying productivity levels, supported by efficiency improvements in operations processing areas and branch operations; and
- Continued growth in online channels, with the Bank's NetBank service recognised during the year as the number one Internet Banking site in Australia (source: Australian NetGuide magazine May 2004).
- Changes to our home loan process, which make applying for a new loan or changing details on an existing loan much simpler and easier. Through system and process improvements, the great majority of home loan applications through retail proprietary channels are now either conditionally approved on the spot or within one business day. Around 70% of maintenance transactions (such as amending loan repayments on existing loans) can now be completed immediately in the branch or over the telephone, compared with up to 10 days previously;
- The commencement of our "Breakaway" Service and Sales program across our 1,000-strong retail branch network, encompassing a number of changes to improve frontline customer service, including new service-focussed performance measures for all frontline staff, dedicated service and sales coaching and changes to staff roles designed to ensure a greater proportion of time is spent on servicing customers. Early signs of significant improvements in service and sales outcomes are being experienced as this has been rolled out;
- The refurbishment of 125 branches to a modern layout more conducive to effective customer service. A further 200 to 250 branches are targeted for refurbishment over the next two years;
- A continued emphasis on reducing customer waiting times, with some branches showing up to a 50% improvement; and
- The implementation of world class processing techniques in our back-office processing areas, delivering both significant efficiency benefits and improved turnaround times for our customers.
Asia Pacific
Asia Pacific Banking incorporates the Bank's retail and commercial banking operations in New Zealand, Fiji, and Indonesia. ASB Bank in New Zealand represents the majority of the Asia Pacific Banking business.
During the year ASB Bank achieved strong growth across the loan portfolio, particularly in housing credit.
Performance highlights were:- Lending growth at well above market rates in the retail, commercial and rural sectors continued throughout the year. Home loan market share increased to 22.2% from 20.6% in June 2003;
- Leading customer service in the Banking sector. For the sixth consecutive year, ASB was recognised as the top major retail bank in terms of satisfied and very satisfied customers in the Auckland University Bank Customer Satisfaction survey. For the fifth consecutive year, ASB was rated the top business bank on the same criteria;
- A focus on technology innovation has led to the ASB website being judged the best Finance website for the second consecutive year by NetGuide Web Awards; and
- The continued focus on process efficiencies has delivered an end-to-end credit card approval process which is faster, at a lower cost, and with improved service delivery.
The banking operations in Indonesia and Fiji continued to achieve strong balance sheet growth.
Premium, Business, Corporate & Institutional
The strong domestic economy and strict credit discipline have led to continued good credit quality. The market has been characterised by a drive to gain market share via aggressive pricing and competitive terms and conditions. Within this competitive environment we have increased market share in some segments whilst maintaining share in others. Major achievements during the year have been:- Growing market share in the business lending market (source: RBA) with strong performance in the institutional and corporate segments;
- Gained traction in the Transaction Banking segments through some major client wins. Market share in both the top 500 and commercial segments continued to increase (source: East & Partners);
- Strong growth in Asset Finance market share (source: AELA);
- Ranked second in Asia Pacific for project finance deals (source: Thompson);
- Maintained number one position in capital markets (source: Bloomberg, IFR, INSTO); and
- Participated in the acquisition of the Loy Yang A power station as joint advisor. This was a landmark transaction in the energy sector and is the largest secondary market trade sale in the Australian infrastructure sector.
The Premium Financial Services and Institutional & Business Services business units merged on 18 May to more effectively meet the many common needs of premium and business customers. This newly formed business unit, Premium Business Services, enhances our ability to deepen relationships and in doing so, better identify high quality and relevant ideas for our customers.
Other initiatives undertaken during the year to strengthen the business have been:- Completion of the redesign program to deliver better customer alignment and simplified processes;
- Development of the CommSee application to further enhance customer service capabilities; and
- Continued focus on Customer Service Centres for day to day servicing to support the relationships with our clients.
Funds Management
Business Review
During the year there was a recovery of investment markets and an associated improvement in investor confidence. These conditions resulted in a recovery in flows into the retail funds sector after two years of relatively poor market returns.
The emerging preference of retail investors for platform products resulted in the more traditional retail products being in net outflow for the year. In the platform sector, the Bank was well positioned with the FirstChoice product increasing its FUA to over $7 billion. This resulted in the FirstChoice product being the industry leader in platform net flows during the year (Source: Plan for Life: March 2004).
International net flows were very strong, particularly in the United Kingdom, with FUA increasing by 32.5% over the year.
There was a focus on costs during the year which resulted in a $26 million reduction in non volume related expenses. This was achieved despite the business continuing to incur significant additional costs in respect of regulatory and compliance matters.
Which new Bank Program
The Funds Management business is a key contributor to the Bank's Which new Bank transformation program. The majority of the Funds Management initiatives undertaken during the year centred on developing the platform offerings and investing in our adviser network.
There was also a continuation of the system simplification program within the legacy product business which has and will result in significant cost savings. These initiatives will substantially improve our capacity to serve our customers and position the business to meet the changing preferences of investors. Key highlights of the initiatives during the year were:- A continuation of the product migration strategy away from older style closed products. The number of product systems supporting legacy products has already been reduced from 17 to 11, and is targeted to reach five by December 2005;
- Launch of the improved FirstChoice mastertrust platform, with additional services and reporting for financial planners;
- A restructure of back office services to reduce costs and provide simpler processes; and
- A strategic review of our UK operations which resulted in a more targeted product range and a reduction in the cost base of this business.
Insurance
Australia
The profit growth in the Australian business was achieved from strong underwriting performance in both the general and life risk insurance categories. This was driven largely by robust claims management, favourable claims experience, and improved profitability in the annuities market.
Non volume related management expenses were maintained at last year's levels at the same time as providing enhanced customer service levels. This was achieved through significant business process re-engineering delivering enhanced productivity and efficiency in the business.
Key drivers of the current year's result were:- Premium growth with Life Risk Premiums up 8%;
- Strong investment returns;
- Improved margins in the annuity market as a result of a return to more rational competitive pricing behaviour; and
- Robust claims management activity driving enhanced claims expense outcomes despite some large weather related claims in the general insurance segment early in the year.
The group maintained its number one market share of risk premiums with a 14.8% share of the market.
New Zealand
The life insurance operations in New Zealand operate predominantly under the Sovereign brand.
The market for risk products was subdued during the year. However, Sovereign increased market share in new business from 27% to 28% and maintained its market leadership position with 28.2% of the in-force premium market (source: ISI). The business continued to expand sales through aligned channels such as ASB Bank while maintaining the levels of support from traditional independent financial advisers.
During the year, the business fundamentals were further improved through product repricing, tighter underwriting standards and continued rationalisation of products and systems.
The New Zealand business generated $55 million profit after tax. This represents a 20% increase on last year's result of $46 million.
Asia
Asia includes life insurance and pension administration operations in Hong Kong, together with life businesses in China, Vietnam, Indonesia and Fiji. Hong Kong represents our largest operation in the region.
The Asian business continued to improve. Key initiatives during the year included:- Improved risk profile of Hong Kong business following amendments to investment mix, product repricing and product mix;
- Significant reductions in expense levels for the Hong Kong operations; and
- Development of new distribution capabilities.
- Improved investment markets;
- Increased sales across all markets;
- Expense containment; and
- Improved persistency.
The result was impacted by a $16 million write-off of capitalised pre-licence start-up costs in China which was reflected in Australian shareholder investment returns.
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