Financial Performance and Business Review
|Full Year Ended||Jun 05 vs|
|Net profit after
The Bank’s net profit after tax (‘statutory basis’) increased by 55% to $3,991 million for the year ended 30 June 2005. This result includes an Appraisal Value uplift of $778 million ($201 million in 2004) and goodwill amortisation of $325 million (which is consistent with 2004).Net profit after tax (‘cash basis’) increased by 31% to $3,538 million compared with $2,695 million in the prior year. Earnings per share (‘cash basis’) was $2.68, an increase of 30%, which is at the upper end of the market guidance provided in February. Net profit after tax (‘cash basis’) includes:
- Shareholder investment returns, which increased from $152 million after tax in 2004 to $177 million after tax; and
- Substantially lower Which new Bank expenses of $105 million after tax, compared with $535 million in 2004.
Excluding these items, net profit after tax (‘underlying basis’) increased by 13% to $3,466 million compared with $3,078 million in the prior year. Strong income growth and good cost control contributed to the strong result, with:
- Growth in lending assets of 15%, with market share growth across a range of products, and net interest margins remaining flat over the year;
- Growth in Funds under Administration of 12%, with the gross margin declining by only two basis points;
- Insurance revenues benefiting from a 8% growth in inforce premiums, despite severe weather storms in February;
- Expenses remaining virtually flat for three halves, despite being impacted by higher spend on compliance projects and a stronger NZ dollar; and
- The charge for bad and doubtful debts as a proportion of Risk Weighted Assets remaining consistent with the previous year at 17 basis points.
Total Shareholder Return (TSR) over the two years ended 30 June 2005 was 50.5%. This is in excess of the 40.6% increase in the ASX Accumulation Financial Index over the same period.
The result for the second half of the year was also strong, with Total Operating Income increasing 5% compared with the first half and operating expenses remaining flat.
Net profit after tax (‘underlying basis’) increased by 8% on the first half year. The operating environment was characterised by significantly stronger price competition in the retail deposit market, and a moderate slowdown in home lending volumes.
Weaker shareholder investment earnings in the second half (down 41%) and a substantially higher Which new Bank expense ($86 million compared with $19 million in the first half) resulted in net profit after tax (‘cash basis’) increasing by 1% to $1,782 million.
Which new Bank
The Bank has continued to meet or exceed its Which new Bank market commitments and critical project milestones. A comprehensive discussion of progress and outcomes is set out in the Which new Bank Summary.
The Group’s assets increased by $23 billion to $329 billion (2004: $306 billion) over the year.
Total lending assets increased by $30 billion from $206 billion to $236 billion at 30 June 2005 reflecting growth across a range of lending products.
The Bank’s capital position remained strong throughout the year, sitting comfortably above the Bank’s target minimum ratios and in compliance with the requirements of the regulators. The Tier One capital ratio increased from 7.43% to 7.46% and the Total Capital ratio decreased from 10.25% to 9.75% during the year to 30 June 2005.
During the year, the Bank’s risk-weighted assets grew from $169 billion to $190 billion.
The Bank’s long term credit ratings remain unchanged. At 30 June 2005, the Bank’s credit ratings were:
|Credit Ratings||Long Term||Short Term|
|Moody's Investor Services||Aa3||P—1|
|Standard & Poor's||AA—||A—1+|
The following significant capital management initiatives were undertaken to actively manage the Bank’s Tier One capital:
- Issue of NZ$350 million (A$323 million) of Perpetual Preference Shares in December 2004;
- Issue of $200 million of shares in March 2005 to satisfy the DRP in respect of the interim dividend for 2004/2005; and
- In accordance with APRA guidelines, the estimated issue of $272 million of shares to satisfy the DRP in respect of the final dividend for 2004/2005.
As required by APRA, the Bank’s investment in its life insurance and funds management companies is deducted from regulatory capital to arrive at the Bank’s Capital Ratios. The Bank’s life and funds management companies held an estimated $580 million excess over regulatory capital requirements at 30 June 2005 in aggregate.
The Bank has an integrated risk management framework to identify, assess and manage risks in the business. The Bank’s risk profile is measured by the difference between capital available to absorb loss and risk as assessed by target equity required.
The total dividend for the year is another record at $1.97 per share, an increase of 14 cents or 8% on the prior year. The dividend payout ratio (‘cash basis’) for the year is 73.9% consistent with the payout ratio in the prior year, after adjusting for the additional Which new Bank expenses in that year.
The dividend payment for the second half of the year is $1.12 per share ($1.04 per share in the previous year). This dividend payment is fully franked and will be paid on 23 September 2005 to owners of ordinary shares at the close of business on 19 August 2005 (‘record date’). Shares will be quoted ex-dividend on 15 August 2005.
The Bank issued $200 million of shares to satisfy Shareholder participation
in the Dividend Reinvestment Plan (‘DRP’) in respect of the interim
dividend for 2004/2005. It expects to issue around $272 million of shares
in respect of the DRP for the final dividend for 2004/2005.