Bank of Queensland Limited

Thank you for standing by and welcome to the Bank of Queensland half-year results 2022 call. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Ms. Cherie Bell, General Manager of Investor Relations. Please go ahead.

Good morning everyone and welcome to BOQ's first half 2022 results presentation. Before we begin, I would like to acknowledge the traditional custodians of the lands upon which we are meeting today, the Gadigal people, and recognise Elders past, present and emerging. Thank you for taking the time to join us this morning, especially given it's the day before the Easter long weekend. We received some feedback at our full year results that a shorter management briefing is preferred, and as such we would like to keep this morning's session to one hour. Can I please ask that during the Q&A you limit your questions to one per person in order to enable us to get through everyone within the time allowed. I will now hand over to George Frazes, our Managing Director and CEO, to provide an overview of the first half results and an update on execution of the BOQ strategy.

Thank you, Cherie. Good morning, everyone, and thank you for joining us. With me this morning is Ewan Stafford, our Chief Financial Officer and Chief Operating Officer. and Rachel Kelleway, who will succeed Ewan as our CFO on the 1st of July. Sadly, this will be Ewan's last set of BOQ results. At the outset, I'd like to personally extend my sincere thanks to Ewan for his counsel and leadership during his time with BOQ. Ewan was instrumental in the development of the refresh strategy in 2020, helping us execute on our digital bank and completing the transformational acquisition of MeBank. Now is the right time for us to prepare to hand over to Rachel as we are developing the next phase of our strategy. Rachel has been on my executive team over the last two and a half years and I want to congratulate Rachel on her well-deserved new role. Rachel is a highly experienced finance executive and leader and the first woman to hold the CFO position in BOQ's 148-year history. I also have other members of my executive team and senior management here available to answer your questions. I'm pleased to be able to share with you another solid performance for the first half and you can see the strong continued momentum of the BAQ group. These results highlight our progress on returning the group to sustainable profitable growth and they reflect the sharp focus on our strategic priorities the disciplined execution of the MEE integration and the digital transformation plan. Our cash earnings increased 14% compared to prior corresponding period, reflecting balance sheet growth, tightly managed costs and improvements in our portfolio quality. Pleasingly, growth momentum continues to build. MEE Bank has returned to net growth during the period. The VMA and BOQ housing portfolios continue to outpace the market and our focus on SME lending has delivered a material uplift in business lending growth ahead of market for the half. The integration program is delivering ahead of plan with accelerated and increased synergies, and we remain within the plan integration expense envelope. We are delivering our strategic transformation roadmap with the addition of the first phase of the BAQ brand enabled on the single cloud-based digital retail banking platform in March. proving out the multi-brand capability of the digital bank. The quality of our portfolio and improvements in the economic environment has enabled us to reduce our provisioning levels in the half. We continue to have the balance sheet strength to support business growth and the transformation agenda, with a CET ratio of 9.68%, 9.76% pro forma. As a result of this solid performance, the Board has determined to pay an interim dividend of 22 cents per share. This represents a 53% cash earnings payout ratio, or around 66% after adjusting LIE to longer-term loss rates, which we believe is prudent while we have the opportunity to profitably grow and continue to transform the business. Turning now to the results in more detail on slide 7. Total income increased 1% while operating expenses remained flat. This resulted in underlying profit growth of 1% to $370 million. The quality of the portfolio and the improving economic environment has resulted in a provision benefit for the half, which combined with the underlying profit growth has produced cash earnings of $268 million, an uplift of 14% compared to PCP. Reported statutory net profit after tax was $212 million. Cash return on average equity was up 130 basis points to 9.1%. Common equity tier one remained strong at 9.68%, 9.76% pro forma, and our cash earnings per share increased to 41.1 cents per share. The drivers of the result are outlined on slide eight. Total income increased $5 million compared to PCP to $831 million in the half. The drivers of net interest income were strong balance sheet growth during the period for the underlying BOQ business, partly offset by the drag from the legacy MeBank portfolio runoff prior to acquisition and the NIM pressures felt across the sector in the first half. We remain committed to productivity and improving our cost base and have produced a fifth consecutive period of reductions in expense growth as outlined on slide nine. During the half, we have achieved 23 million in productivity and synergy savings, which have offset our increases required to support the ongoing growth across all channels and brands, as well as our investment in our transformation. We remain committed to achieving positive jaws and expect our long-term cost base to continually improve as we move towards a single cloud-based digital retail banking platform. Turning now to lending and deposit growth on slide 10. Lending growth momentum has continued to accelerate with lending GLAs increasing by $3.2 billion for the half. Pleasingly, the growth has come through both our housing and business lending portfolios. This demonstrates the benefits of our diversified portfolio with our multi-brands and balance between retail and business banking. BRQ and VMA housing growth remained strong at 1.8 times system and we have returned MeBank to net growth in the half ahead of our initial acquisition projections. This growth has been high quality with LVR above 90% home lending flows reducing below 2%. We have also achieved strong growth in the business banking portfolio with our focus on SME lending delivering results, reflecting our niche segment strategy, providing high quality relationship banking. We are also achieving growth in BRQS as the impacts of COVID abate in the health sector. Customer deposits increased by $1.8 billion and a half, supporting asset growth and enabling us to broadly maintain the deposit to loan ratio at 74%, while further reducing our reliance on term deposits. A highlight was transaction accounts, growing at 16% or 31% on an annualised basis. Diving into our key areas of focus in more detail on slide 11. During the half, we have returned MeBank to growth, reversing the declining FY21 trend. Our home buying transformation program has delivered material improvements in the customer, broker and banker experience, through reduced turnaround times and improved processes. We have tilted our business to high-quality SME lending, which has produced solid growth in the sector compared to prior periods. We've been able to leverage the superior relationship skills and the competitive advantage provided by our owner-managers and specialist bankers to drive the uplift and have also invested in our broker relationships. Our BOQ specialist business also continued to perform well, growing across both SME and corporate portfolios during the half. Importantly, lending remains high quality across the business and housing portfolio. We have continued to grow our transaction and savings deposit account balances, which has enabled us to reduce our reliance on high-cost term deposits. 45% of the ATCOR portfolio is now priced at less than five basis points, and we expect these balances to benefit from a rising cash rate environment. The launch of our VMA and myBOQ mobile banking apps creates additional opportunities to attract new customers and drive increased flows into our transaction and savings accounts. Turning now to an update on the MeBank integration on slide 12. The integration program has continued to execute at pace. We remain ahead of the original plan and delivering within our expense envelope. We have returned MeBank to growth and have consolidated our business under one ADI licence in February. The technology integration is progressing well with collaboration tools in place and key applications enabled across the network, and the MeBank broker portal implemented. The risk and remediation program has aligned risk management and capability at the MeBank with the broader BOQ group. Further consolidation of supply chain arrangements has begun to deliver early synergy benefits, which will accelerate in the second half. Our synergies remain ahead of schedule, and I'm pleased to be able to confirm that we now anticipate additional cost synergy benefits of $20 million in FY24 and beyond. This brings the total to more than $95 million, or 125% of our original forecast, as me consolidates on the core banking platform and legacy technologies decommissioned. The mere acquisition was transformative for BOQ. The good progress on integration synergies and growth show the value of the brand. We continue to execute against the transformation roadmap as outlined on slide 13. The transformation is delivering significant improvements in the customer and banker experience. The simplification, automation and process re-engineering initiatives are starting to deliver meaningful efficiencies, which is evident in our expense-based reduction in the half. Delivery of the transformation roadmap has been enabled by our ongoing focus on execution capability, including upskilling of our people, portfolio management, discipline delivery, reporting and governance. Diving into more detail on our digital bank progress on slide 14, we have made significant progress towards a single cloud-based digital retail banking platform that will benefit from ongoing innovation by our global provider, Terminos, and other strategic partners. We are transforming BOQ from a bank that was constrained by legacy architecture with batch processing, non-real-time complex layered technology, into a cloud-based fully digital bank. This will deliver us a scalable solution that is multi-brand enabled, providing operational excellence and a high degree of automation that will be fully digitised. We intend to fully leverage cloud capabilities and benefits and intend to accelerate our proportion of services in the cloud. Our digital transformation will radically simplify and reduce the number of technology systems. We have successfully completed the migration of 300,000 Mi customers from the legacy Ultrax core banking platform to version 18 of Terminos. That enables the pathway to the cloud version 20. We have completed the decommissioning of Ultrax, including five apps and 20 servers. We have launched our mobile-first capability for both VMA and BOQ with a focus on everyday banking. Recent declines in our consumer NPS are primarily a result of poor experience with our legacy digital offerings, highlighting further the importance of our new mobile banking apps. The VMA mobile app has enabled us to successfully target a new customer demographic who is younger, urban and digitally savvy. Since launch, we have seen deposit balances in VMA grow to circa $1.1 billion. These customers have an average balance of $27,000. 41% are saving towards purchasing a home, 54% are under the age of 39, and 94% are new to the BOQ group. As you can see, our new mobile banking apps are bringing to the group a new set of attractive customers. The BAQ mobile app, My BAQ, that has just been released, provides further proof of the multi-brand capabilities of our digital platform. The end state will see all retail brands on a fully digital single platform, providing significant scale, productivity and customer experience benefits. The development of our digital home loan product onto the new cloud platform is progressing well and expected to be delivered over the next 12 months, which will enable us to meet the home lending needs of our customers with even faster turnaround times and the ability to scale efficiently. Our cultural transformation is key to our underlying success, and I'm pleased with the improvements we've been able to achieve from a low base across a number of key measures as outlined on slide 15. The achievements with me integration and the digital transformation are testament to the depth of capability and execution experience of our team right across the business. We have a highly skilled and increasingly motivated workforce with engagement and culture scores trending upwards. Our people are telling us that they are focused on execution of the strategy and that we've created a culture where people feel safe to speak up and contribute to delivering our purpose. We encourage our people to collaborate to achieve great outcomes for our customers. There's more to do for BRQ to be one of the best and enriching places for people to work, and this will be an ongoing focus for me and the executive team. Before I hand over to Euan, I'd like to recognise my executive team, who are highly capable and experienced. I'd like to thank them and all our people for their tireless efforts in supporting our customers, improving our business and performing financially in these challenging times. I want to acknowledge all our customers who have shown resilience and trusted us with their banking needs. Over to you, Ewan.