Bank of Queensland Limited

Thank you for standing by and welcome to the Bank of Queensland FY23 results briefing. 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 Jessica Smith, General Manager of Investor Relations and ESG. Please go ahead.

Good morning everyone and welcome to Bank of Queensland's results presentation for the full year ended 31st of August 2023. My name is Jessica Smith and I'm the General Manager of Investor Relations and ESG at BOQ. 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 and present. Thank you for taking the time to join us this morning. With me today is Patrick Alloway, our Managing Director and CEO, and Rachel Kelleway, Chief Financial Officer. We are also joined in the room by BOQ's executive team and senior management. Today, we will present an overview of our full year results. Patrick will outline the key features of the result and also provide an update on BOQ's strategy. Rachel will then speak to our financial results before Patrick closes with a summary and outlook. Following the briefing, there will be an opportunity for questions. I will now hand over to Patrick.

Thank you, Jess, and good morning, everyone, and thank you for taking time for joining us this morning. I'd also like to welcome our chairman and our executive team who are in the room with Rachel and me today. I'll be starting on slide eight of the investor pack with some key messages to leave you with. BAQ has a strong platform to build on, underpinned by our 149-year heritage of supporting customers and local communities. We have distinctive brands operating in niche segments and a quality, well-secured $81 billion lending portfolio with diversified revenue streams across retail and business banking. This year, we delivered $450 million in after-tax cash earnings. and $124 million statutory profit after tax. Our cash earnings result reflects the industry margin and cost inflation headwinds we called out at the half. Our statutory result reflects the cost of a business in transformation, addressing decade-long legacy issues from underinvestment in technology and inadequate integration from multiple acquisitions over our history. We also have changes in the way we work, reducing our property footprint. We recognise this has been a difficult year for our shareholders with changes in leadership, identified weaknesses in our operational resilience and risk maturity, and the subsequent two voluntary and court enforceable undertakings with our regulators. As I will talk to later on in the presentation, we've taken accountability and consequence management for these outcomes. We continue to invest in our business through the cycle, and have traded interim performance in FY23 for medium and long term benefits. We've accelerated the investment in our digital transformation to improve our customer experience, diversify our funding on the new digital banking platform and reduce our cost to serve. We've invested in risk and restructuring to strengthen our operational resilience, reduce operational complexity and deliver productivity gains. We've moderated growth in mortgages and prioritised customer retention and economic return. We've strengthened our financial resilience, holding higher capital and liquidity buffers through the economic downturn and the term funding facility repayment. We're making the difficult decisions to address our challenges head on. Our transformation is progressing at pace, with key milestones achieved on plan and budget in FY23. Our simplification program is targeting over $200 million in productivity benefits from FY24 through FY26, aiming to offset cost inflation. Our digital transformation is delivering a scalable, simpler, digitally enabled bank, future fit for growth and returns. We will continue to focus on diversifying our revenue mix and improving our margin over this period through the growth of our business bank and capital light revenues. We have high conviction in our transformation plan with a clear roadmap to deliver a stronger and simpler bank, better for our customers better for our people, with improved returns for our shareholders. We are managing what we can control in the current market conditions, positioning BOQ for recovery and growth when the cycle turns. Moving to slide nine for our financial overview. Our statutory net profit for the full year was $124 million. This includes four below-the-line items, including the goodwill impairment and the risk remediation provision taken at the first half. At the half, we said we would be progressing a simplification program to deliver future productivity benefits, for which we have taken a $35 million after-tax restructuring charge in the second half. We've also announced $44 million after-tax additional MEE integration costs, resulting from recent decisions to further consolidate our property footprint in Melbourne and accelerate the digital transformation of me. Cash earnings of $450 million this year included income growth of 5%, which was offset by higher costs and an increase in loan impairment expense to more normalised levels. At the half, we called out an initial margin tailwind, which we noted had turned in October 2022. Our outlook included expectations of heightened mortgage and deposit competition in the second half. This has played out as anticipated, and we stood back from mortgage pricing below our cost of capital, prioritising economic return, customer retention and prudent risk settings. Ongoing high inflation through the second half and increased investment impacted our cost base, with growth of 8% for the year. At the half, we know that this was unsustainable, and we would be addressed through our simplification program, with benefits coming through from FY24. I will talk to this shortly. We've maintained strong capital liquidity buffers through FY23. Our CET1 ratio of 10.91% is above our target range, and this has supported the Board's decision to pay a final dividend of 21 cents per share. This represents a full year 59.7% payout range on cash earnings and a 7.1% dividend yield on the year-end share price. Rachel will provide further context on the financial results shortly. Moving to slide 10 for a view of the retail bank. Total income for the retail bank was flat on the prior year as benefits from increasing cash rate was more than offset by the impact of competitive pressures in housing and the normalisation of non-interest income. As noted in my introduction, we maintained our prioritisation of economic return over growth, resulting in a decline in our mortgage book over the period. We will continue to monitor this and are well positioned to return the growth when we deliver our lower costs to serve in 2024 or rational pricing returns to the market. We continue to see strong execution of our digital strategy, with more customers choosing to bank with us. All three retail brands are now on the new digital banking platform, delivering an improved customer experience. We've experienced 267% growth on the platform, which has supported the group's funding profile with $5.5 billion in digital retail deposits. Turning to slide 11 for a review of the business bank, we have a diversified portfolio of assets across retail and business banking. The business bank has performed strongly this year, delivering 55% of the group's cash profit. Our strategic approach to prudent and targeted lending and our highly specialised bankers serving niche industry sectors where we can differentiate and win has achieved income growth of 14% for the business bank in the year. We delivered improvements to our risk-adjusted returns and an improvement to cost-to-income ratio of 4.5%. Our differentiated approach focused on targeted small to medium-sized enterprise lending across healthcare, agriculture, owner-occupied commercial property and equipment finance. The book is well collateralised with 87% secured lending and diversified across geography, channel and asset class. Turning to slide 12 for a review of our customer experience. We recognise that our customers have a choice of who they bank with. Delivering a consistent, exceptional and differentiated customer experience will drive our success. We have amended our vision to be the bank that customers choose. To this end, we've elevated the customer voice across the organisation and amended our operating model to create a chief people and customer officer. We're building a differentiated approach focused on niche customer segments across both relationship and digital banking. We're structuring the organisation to serve customers the way they wish to be served. simplifying the banking experience. Those customers requiring a fast and simple self-help digital experience will be served through our me and VMA national digital brands, leveraging our target state low-cost-to-serve end-to-end digital banking platform. Those customers with more complex needs requiring a human touch will be served through our BRQ brand, leveraging our deep community relationships, specialist bankers and unique owner-manager network. Our network of owner-managers are deeply embedded in their communities and are all well positioned to support our customers' relationship banking needs across both retail and SME. As we navigate a period of sustained high inflation and sharp increases to interest rates, we've been proactively engaging with our customers. including supporting more than 3,500 customers who experienced hardship during the year. We've increased focus on protecting our customers from escalating industry fraud and scams through education, working with industry partners and monitoring of suspicious activities. The landscape for scams is rapidly changing and criminals are becoming more sophisticated and more targeted. While regrettably we're unable to prevent all instances of customer loss, our teams have helped to prevent our customers from losing more than $6 million in FY23. The launch of our new digital banking platform across all three retail brands has resulted in improved NPS and App Store ratings and driven 10% customer growth in FY23, providing a more diversified funding base for BOQ. Moving to slide 13 for an overview of the transformation. Our four strategic pillars of strengthen, simplify, digitise and optimise are driving bold decisions to uplift performance and drive shareholder value. As noted in my opening comments, we're confident that we have the right strategy to deliver against our legacy issues and build a future fit bank for the long term benefit of our customers, people and shareholders. These strategic pillars are addressing our disadvantages, including our higher cost of funding, our higher cost to serve, historical technology deficit, and our complex and duplicative operating structure. I will now talk to each of these strategic pillars in more detail. Slides 14 and 15 cover our strengthened strategic pillar. Throughout the year, we've reinforced our financial resilience with increases to CT1 and our liquidity coverage ratio due to prudent capital and liquidity settings. We've announced early in the second half that we've entered into two enforceable undertakings with APRA and Austrac. We acknowledge and embrace the need to build a stronger foundations for BOQ by addressing deficiencies in our operational resilience risk culture and governance and our AML CTF compliance. We've taken accountability and consequence management over the past 18 months for these weaknesses with leadership changes and associated remuneration consequences. Moving to slide 15. The scope of the two remediation programs have been finalised and submitted to the respective regulators. These multi-year programs are set to affect meaningful and sustainable change addressing all requirements under the two EUs. Program RQ is designed to strengthen our risk culture, governance and operational resilience, while AML First is focused on addressing weaknesses and gaps across BOQ's AML CTF compliance. Clear workstreams, deliverables and actions are in place to monitor sustainable embedment and reporting against these two programs. we've appointed an independent assurance provider to report to the board and regulators. As we execute against the programs, we will deliver a stronger bank with improved operational resilience, risk maturity and culture. Slide 16 covers our simplified strategic pillar. Over the course of our 149-year history, we have acquired complementary businesses to build our successful multi-brand approach. What we haven't done as well is fully integrate those businesses into our group structure. We realise that we can't wait for our digitisation to deliver future state productivity gains, and that there's a lot we can do now to simplify and streamline our business. We called out on behalf that we were commencing a program of work to simplify BOQ, designed to provide productivity benefits. while the investment in the digital transformation and strength and target future operating state continues. This work will also help to reduce operational risk and prepare us to take full advantage of our digitisation. As already touched on, we've recognised the $35 million after-tax restructuring charge in FY23 being implemented across four key work streams. Throughout FY23, we've begun work implementing our new operating model, including reducing our senior executive leadership team by four and FTE by approximately 100. We will further reduce our FTE by 150 in the first quarter of FY24. Our technology transformation and decommissioning of legacy platforms has continued, with a further reduction of 12% of tech assets since FY21 and a reduction in the core number of banking platforms from eight to six. We have targets in place across each of our four work streams to further simplify and finalise the future operating model and pathway to delivering a materially lower cost to serve. We've moved to a shared service operating structure in FY24. We will decommission a further 35 technology assets in FY24 and are targeting a reduction of six to three core banking platforms by FY26. With our new ways of working, we're reducing 16,000 square metres in corporate property space. and we're targeting automating 80% of our processes, including 95% of home lending controls, reducing home loan origination costs by 50% in FY25. These activities contribute to our productivity program, targeting over $200 million in savings over three years, aiming to offset cost inflation with benefits commencing in FY24. Slide 17 covers our digitalised strategic pillar. Since we announced our 2020 strategy, we've made considerable progress and remain on track in the build of our end-to-end cloud-based digital banking platform. Some of the highlights achieved in FY23 include delivery of our roadmap on time and on budget, upgrading our business banking technology, migrating all of our people onto one platform, enabling improved collaboration and operation as an enterprise-wide team. and launching MeTransaction and saving accounts on the new cloud-based digital banking platform. Over the next 12 to 24 months, BOQ will continue to advance work against the digital roadmap. Significant milestones will be the delivery of the digital mortgages in 2024 and decommissioning of the MeLegacy banking platform by FY25. This will provide further proof points on the delivery of our end-to-end scalable digital bank enabling BOQ to compete at a lower cost, a faster time to yes, and improve customer experience in a highly commoditized mortgage market. Moving to slide 18. With the launch of MeeGo, we have now delivered all three retail brands onto the digital banking platform. Over the year, we've seen digital deposits increase 267% to $5.5 billion. Customer growth of 103% includes a mix of new-to-bank acquisitions and those that have self-migrated from legacy platforms. On MyBOQ, we're seeing the average age of our customers reduced to 34 compared to 49 on BOQ legacy platforms. Pleasingly, these customers are transactionally active and supporting the diversification of our low-cost funding base. Slide 19 covers our optimised strategic pillar. Increasing competition requires a simple, low-cost, scalable operating model with prudent allocation of capital focused on return on equity. We have more work to do in our optimisation strategic initiative, which will focus on improving risk-adjusted returns and the diversification of our business to optimise margin and capital-like revenues. We remain committed to achieving our cost of income and return on equity targets by FY26. Our updated financial model reflects both the current revenue headwinds and our productivity initiatives announced today. Moving to slide 20, our purpose and values drive everything we do at BOQ. Our purpose of building social capital is about what we stand for as an organisation. This includes doing the right thing, supporting our customers and communities, enriching our people and committing to our environmental targets. We're on track to source 100% of our energy needs through renewables by 2025. We've supported nine community partners in FY23 in delivering key services to vulnerable Australians with an investment of $2.2 million. This year, BOKU launched its new financial literacy activity with an introduction to budgeting and the basics of money management. In 2023, we were proud to partner with Head Start Housing, supporting single parents, First Nations peoples and families living in community housing to buy their own home. In the Australian market first, we gave MeGo customers the option to select from five charity-linked debit cards, each of which will provide a one-cent donation per digital wallet transaction. These are all examples of how we're building social capital through banking. On that note, I'll now hand over to Rachel, who will talk through the financial results in more detail. Over to you, Rachel.