Bank of Queensland Limited

Thank you for standing by and welcome to the Bank of Queensland Group half-year results 2023. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you'd like to ask a question, you'll need to press the start key followed by the number one on your telephone keypad. I'd now like to hand the conference over to Ms Tanya Azkov, General Manager of Investor Relations. Please go ahead.

Good morning, everyone, and welcome to BOQ's results presentation for the half year ended 28 February 2023. My name is Tanya Azkov and I am the General Manager of Investor Relations. Before we begin, I would like to acknowledge the traditional custodians of the land 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. With me is Patrick Alloway, Managing Director and CEO. Rachel Callaway, our Chief Financial Officer. We are also joined in the room by BOQ's executive team and senior management. This morning, we'll be providing you with an overview of our half-year results. Patrick will provide you with an update on our strategy. Rachel will speak to our financial results before Patrick closes with a summary and outlook for the second half. Following the briefing, there will be an opportunity for questions and answers. I will now hand over to Patrick.

Thank you, Tanya, and good morning, everyone. and thank you for joining us. As Tanya mentioned, I'm joined this morning by Rachel and other members of the executive team and our senior leaders. Moving to slide eight, key messages to leave you with. BOQ is in a strong financial position as we enter this more challenging economic environment. We're well positioned to continue to invest in our transformation to deliver a stronger and simpler low-cost digitally enabled bank. We've made progress since announcing our strategy in 2020 across digitisation, improving our strategic position through the MeBank acquisition, achieving growth across our brands and strengthening our financial resilience. We detailed at the December AGM that we would be prioritising, strengthening and simplifying BOQ, whilst optimising returns, providing stronger foundations for our target state digital and data-led bank. Our brands target specific customer segments across retail and business, providing differentiated value propositions in the market and diversification across our portfolio. We have high conviction that our transformation strategy will address our structural challenges as a smaller bank through our targeted customer value proposition, lowering cost of funding through a broader digital deposit base, and simplifying and automating our business to materially decrease our operating costs. BAQ's asset quality remains sound, with a well-diversified and collateralized book with prudent risk settings. Our purpose and values will lead our behavior in delivering this strategy and improve outcomes for our customers, people, and shareholders. Looking at slide nine for our financial performance for the half, our statute net profit after tax for the half was $4 million. which included two one-off non-cash items, a $60 million provision for the integrated risk program, and a $200 million impairment for goodwill, which we announced last Friday. We delivered $256 million of cash earnings after tax. This was supported by a margin tailwind, which is materially reduced over the last two months of the half, with heightened mortgage and deposit competition. The margin uplift was offset by 7 percent growth in expenses. We know this is unsustainable and we will address expense growth through our simplification program, which I will talk to shortly. CET1 at 10.71% is an increase of 114 basis points from the prior half and includes the benefit received from the implementation of Basel III. Our spot liquidity coverage ratio was 143%. We will be returning the higher capital buffer with our revised CT1 target range between 10.25 and 10.75 percent. The Board has determined to pay an interim dividend of 20 cents per share. On the reported cash earnings result, the dividend payout ratio was 51 percent. This dividend represents a 61 percent payout after the one-off provision for the risk program is included. Rachel Kelleway, our CFO, will provide more context to our financial results shortly. Turning now to slide 10 for a review of the retail bank. Improving our customer experience as we progress work on the digital bank has been a focus of our retail transformation this half. Housing lending was broadly flat as we tempered growth while competition remains heightened. We've seen two billion growth in customer deposits and 110,000 deposit customers on the new digital platform. We now have $3.8 billion in deposits on the new platform. We have been proactive in our customer contact given the sharp increase to interest rates. A large portion of these customers have never before experienced interest rate rises. For our customers whose fixed rates are due to mature within the next 12 months, We are contacting them to offer support in preparation for this change. Turning now to slide 11 for an overview of the business bank. Our business bank performance and associated high return on equity is a key strength of BOQ. The refocus on SME business has seen pleasing returns and quality growth. The business bank has driven efficiency, evidenced by a low cost-to-income ratio of 40.2% this half. and improve risk-adjusted returns. The business banking book is well-collateralized with limited cash flow lending and diversity across industries. We have made significant progress in our transformation as detailed on slide 12, enhancing our customer value proposition and experience. We improved our strategic position through the me acquisition and our final year of its standalone integration program. Our digital platform is delivering results with increased customer numbers and more of them calling BOQ their main financial institution. We now have over 170,000 customers on the new platform. We've improved group customer MPS and employee engagement scores on the prior comparative period, but recognise we have more work to do. We've strengthened our financial resilience with strong capital and liquidity buffers. And we intend to retain our capital buffer given our transformation journey and as we're entering a more challenging economic cycle. We're committed to moving to slide 14. We're committed to our purpose as announced at the full year of building social capital through banking. This is our guiding principle, our why for being in business. The values which underpin this purpose are more important than ever. and they inform how we will transform our bank while providing best-in-class experiences for our customers and our people. We've taken pause to reflect on how far we've come and what is most critical to success in the next stage of our transformation. We are taking an even more holistic and integrated approach to the transformation program to deliver a stronger, more resilient bank with a simplified structure, reduced duplication, and increased productivity. A digital bank that can grow at scale and optimise for sustainable profits and returns. We have a clear set of capabilities to achieve these outcomes and with a now proven and experienced team delivering the digital bank. Our existing strong relationships through our community anchored owner managers and our specialist bankers will be complemented by our digital bank. Now I'll talk to strengthening BOQ on slide 15. As we announced last week and further to the 2022 results and the AGM in December last year, there is work required to uplift our operational resilience and risk culture. We have now scoped, costed and commenced a clear program of work supported by a robust governance structure and independent assurance to deliver sustainable embedment of this uplift across our three lines of defence. This integrated risk program is a $60 million investment in strengthening the bank. This program will include improvement across our systems, processes, risk and compliance outcomes, including AML. Our risk culture plays an important role in delivering on this program. We believe risk is everyone's business, and this is being further embedded across the group, led from the top. Our most recent engagement survey showed our people feel increasingly safe to speak up, with an improvement to 78%, This will be an ongoing focus of the group. Slide 16 sets out our simplification of BOQ. Simplifying our complex operating model is no small task, but we have already seen the benefits of improving processes, reducing the number of products, and decommissioning redundant technologies. The next phase in this simplification is to align the structure of our organization to our target customer segments and business model. reducing duplication through an integrated model, and leveraging the automation of processes. We are consolidating our supplies and property footprint and are making clear decisions about non-core activities, such as the sale of our New Zealand asset finance business. This simplification program of work will address cost inflation, and we will provide a more detailed update to the market in the second half, providing productivity targets. We anticipate material cost benefits will start to be realised in FY24. Now talk to digitising BOQ is outlined on slide 17. We are on track against our digitalisation roadmap. We know from data globally that simple and targeted digital models are not only levelling the playing field, but enabling smaller players to outperform the big banks. One initiative we've accelerated in our digitalisation is the build-out and migration of MeBank customers onto the new digital platform, which will provide current and new Me customers with the best digital experience possible, from transaction accounts to mortgages. It also enables us to decommission redundant systems earlier, to provide an early proof point in FY25 of a digital, low-cost, scalable national brand and operating model. Turning now to optimising BOQ on slide 18. BOQ has strong foundations to further optimise with a quality asset book, a strong 149-year heritage, and a portfolio of quality brands with deep customer relationships in targeted segments. We anticipate material performance uplift from FY25. We remain committed to achieving the target cost-to-income ratio of below 50%, with an ROE of over 9.25%, by FY26. These targets are supported by a robust financial model and clear transformation plan, which assumes normalization of highly competitive market conditions. I will now talk to building a sustainable business on slide 19. Our purpose and values will enable us to support our customers while they're facing escalating cost of living or rising costs in their businesses and higher interest rates. Our owner managers have deep ties to their communities giving these relationship-based customers the backing of a national bank, local knowledge, and a banker who is a true partner. Our community partners provide support to some of the most vulnerable Australians, and we are proud to continue this important work. Our people are core to our business and customer proposition, and we're building a future-fit organisation that is agile with curious bankers. As engaged... An engaged and diverse workforce with inclusive leaders is paramount to creating value for our people, customers and shareholders. We have clear environmental targets that overlay our strategy and are committed to the transition to a low carbon economy and will reduce our scope one and scope two emissions by 90% and scope three by FY30. I will now hand over to Rachel to provide more detail on the financial results. Over to you, Rachel.