Bank of Queensland Limited

Thank you for standing by and welcome to the Bank of Queensland 1H24 results. 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. Jessica Smith, General Manager of Investor Relations and Corporate Affairs. Please go ahead.

Good morning, everyone, and welcome to BOQ's results presentation for the half-year ended 29 February 2024. Thank you for taking the time to join us today. My name is Jessica Smith and I am the General Manager of Investor Relations and Corporate Affairs at BOQ. I would like to acknowledge the traditional custodians of the land on which we meet today, the Gadigal people of the Eora Nation. I pay my respects to Elders past and present. With me today is Patrick Alloway, our Managing Director and Chief Executive Officer, and Rachel Kelleway, Chief Financial Officer, who will present the results. We are also joined in the room by BOQ's Executive Team and Senior Management. Following the briefing, there will be an opportunity for questions and answers. I will now hand over to Patrick.

Thank you, Jess. Just before starting, I'd like to convey our condolences to those impacted by the tragic events in Sydney over the past week. Our thoughts and support are with everyone who may have been impacted, including BOQ group team members. I'd like to take the opportunity to welcome everyone on the call. I'd also like to welcome our chairman and the executive team who are in the room with me today. This is a very special year for BOQ as we celebrate our 150 year anniversary, a significant achievement. This milestone has given us a moment to reflect on the evolution of the group over that time and what makes BOQ unique. We provide an important banking alternative to the major banks that is centred on our deep customer and community relationships, our strong Queensland heritage and our niche specialty businesses operating nationally. We have recognised that our future success, we need to address our legacy complexity, structural challenges and change the way we do business in the midst of accelerating industry headwinds and an increasingly commoditised market. This requires differentiation through consistently exceeding our customer expectations, lowering our cost to serve, deepening our position in niche specialist segments, diversifying our revenue mix into higher returning sectors and turning our size into an advantage, making simplicity and agility our strength. Turning now to slide 8 for the key messages I'd like to leave you with today. We said at the full year that earnings would be lower in FY24, with the impacts of heightened competition on both sides of the balance sheet more exacerbated for BOQ due to our higher relative cost of funding. We also said that our simplification program would partially offset cost inflation and increasingly regulatory impost, with low single-digit growth in our underlying cost base. Amortisation combined with investment in our transformation would be incremental to this underlying position. The results we're announcing today reflect this outlook. I want to emphasise that we're delivering against what we said we would, maintaining transparency regarding our challenges and the outlook, and that we have a clear strategy in place to respond to market shifts. This half we delivered $172 million in after-tax cash earnings and $151 million of statutory profit after-tax. We're delivering on our commitments and what we can control. We've agreed our remedial action plans, addressing our court-enforceable undertakings with our regulators, and we've received the first phase independent assurance sign-off for the programs. We've commenced steps to simplify the business, centralising our operations and contact centres, exiting our non-core New Zealand asset portfolio, and reducing our property footprint, making a good start to locking in our $200 million productivity target for FY26. Our digital transformation is progressing on plan, with continued growth and uplift in the performance of our retail banking apps. We're pleased to have reached a milestone of four-star ratings on both MyBOQ and MeGo apps. We're in the last testing stages for digital mortgages and MeLegacy migration, with Phase 1 launch for both of these programs commencing in the second half. I'd like to acknowledge that this is a difficult period for many Australians, adjusting to high cost of living, higher interest rates and difficulty with the rental market. We're continuing to support our customers and communities, with a particular focus on those converting from lower fixed rates to higher variable rates, customers in hardship and more vulnerable Australians. We've held firm on our discipline on how we grow and allocate our capital, while home lending is not providing an adequate return. BAQ's financial resilience remains strong, with a CET1 above our target range, prudent liquidity management through the repayment of the TFF, and a well-secured, high-quality lending portfolio. We continue to have high conviction that our transformation plan will address legacy challenges and deliver a stronger and simpler bank. That said, we do recognise the market dynamics have materially shifted since we set our FY26, ROE and CTI targets, and margin expansion in the prevailing environment is challenged. Should the current margin shifts become structural rather than cyclical, we recognise we will need to think differently to elevate additional ways to achieve these targets. I will talk to this in more detail shortly. Moving to slide nine for our financial overview. Our statutory net profit after tax for the half was $151 million, with cash earnings after tax for the half of $172 million. As I said, this result reflects not only the highly competitive landscape, but decisions we've made supporting the delivery of long-term benefits to our shareholders. Recognising the importance of dividends for our shareholders and balancing the need to continue to invest in the business, the Board has determined to pay a 17 cent dividend, a payout ratio for the half of 65.2%. Rachel will provide more detail on the financial results shortly. Moving to slide 10 for a review of the Retail Bank. Income was down 19% on the same period last year, reflecting continued margin pressure in the home lending portfolio and customers switching to high-yielding deposits. The home lending portfolio contracted $400 million in the half as we continued to hold our position on the careful deployment of capital. We deliberately grew me-brand mortgages broadly in line with system, where we have a lower relative cost of acquisition. we will deliver me as our first major scalable, low-cost-to-serve, end-to-end digital brand in FY25. We again saw growth in deposits in the retail bank of $663 million against the prior comparative period, driven by both term deposits and through our digital assets. Pleasingly, we saw an increase of 17% in active deposit customers on the digital platforms. Our improved app ratings and NPS scores, as compared to legacy, speaks to the enhanced customer experience of the new banking platform. We continue to grow the number of retail customers that choose to bank with us, up 7% in the past 12 months to 1.2 million retail customers. Finally, in the retail bank, we've been able to service a broader range of customers, needs with strong growth in insurance, superannuation and card payments, growing capital-light earnings and further strengthening our relationship offering. We are focused on uplifting our ROE. One avenue is through growing these third-party revenues, while also addressing commoditised mortgages and deposit markets through our low-cost-to-serve digital offering. Moving now to slide 11, a review of the business bank. Competition intensified in the business banking sector in the half, combined with an easing of credit settings across the industry. We've retained a disciplined approach to both credit settings and margin management, with lending growth in healthcare and agriculture offset by a cautious approach to larger commercial real estate and slowing specialist home lending. This resulted in stable lending assets and a 4% decline in total income. we're increasingly focused on growing our high-returning niche SME segments, where we have an existing competitive advantage, particularly in our specialist sectors of equipment finance, insurance premium funding and novated leasing. Initiatives completed in the first half to enable quality growth in the second half include investment in business enabling technology, structural changes to streamline and simplify our business bank operations and recalibration of some credit settings given increased confidence in the economic outlook. Moving now to slide 12 for an overview of our customer centric focus. Our customer experience and voice is at the heart of everything we do. We have fabulous examples every day of great customer experiences. We recognise there's always more to be done and we don't get it right all the time. And the experience of our legacy platforms is not meeting expectations. we're committed to a continuous improvement journey to better service our customers the way they wish to be served through both relationship and simple self-help digital experiences to realise our vision to be the bank customers choose. Through the half, we consolidated our contact centre and cross-trained our bankers to support a more seamless customer experience. We've reduced customer friction points and commenced a program of work to improve customer dispute resolution and remediation. We've improved the experience on our new digital banking apps, measured by improved ratings. We've collaborated with our peers on a whole of industry approach to reducing instances of scams and fraud. And we've supported over 220,000 Australians with their home ownership and helped over 170,000 businesses to grow. We know that our customers have a choice in who they bank with and that we need to earn that choice by delivering a trusted, consistent and differentiated experience, supporting their day-to-day banking needs. Moving to slide 13, our purpose guides everything that we do. Building social capital through banking is about being a safe and inclusive place for our people to come to work. It's about facilitating the important services our community partners provide to vulnerable Australians and empowering First Nations people. It's how we provide support to our customers in their time of need. and build our customers' financial resilience through targeted scam awareness sessions and financial literacy programs. We're fostering curiosity, developing future-fit capabilities and enriching our people. We recognise the need to think deeply about how we can build on the culture of the organisation to be a more agile and outcome-oriented group. Pleasingly, in our most recent employee engagement survey, our people have told us they are increasingly proud to work at BOQ and we have again seen an increase in our people feeling safe to speak up, a reflection of the focus on improving risk culture. We've welcomed Rachel Stock as our new Chief Risk Officer and Alexandra Taylor as our new Chief People Officer. We have a highly capable and right-sized executive team, passionate about transforming this business and leading our people through this next phase of our transformation. Moving now to slide 14, transforming the business. We are confident in the decisions we have made, addressing not only the decade-long legacy complexity and underinvestment, but to build a stronger, simpler and digitally enabled bank. I will now talk to our strategic pillars in more detail. Turning to slide 15, strengthening BOQ. We said we would embrace the court enforceable undertakings as a platform to build stronger foundations, and we have done that. We are committed to working openly and transparently with all of our regulators while we continue to strengthen BOQ. Our immediate action plans have been agreed with our regulators. We have mobilised teams, established project governance and progressed the design phase for both programs. Our independent reviewers have been appointed and successfully completed their first review of the initial phases of the program. These are multi-year programs of work. Across both programs there are 17 workstreams and 84 deliverables. For program RQ, in addition to the mobilisation in this half, we've enhanced management and board governance practices and commenced the design phase for all nine workstreams. Progressing the design phase is the primary focus as we go into the second half. For AML First, which is a program that's been running for over 12 months now, we've completed and closed five deliverables. Nine deliverables are in the implementation phase and 15 are in the design phase. Importantly, the uplift of the group's anti-money laundering and counter-terrorism financing policies and framework has been completed. This is the cornerstone of the program, setting the guardrails for the way we manage AML and CTF risk. In the second half, AML First is focused primarily on progressing the design and implementation of activities, particularly our AML and CTF capability and customer risk assessment. Alongside this important work, we retain focus on the financial resilience of the bank. Prudent provisioning and, as I mentioned earlier, have joined industry-wide approaches to protecting customers from an ever-sophisticated scams and fraud landscape and continue to invest in the uplift of our cyber security. Turning now to slide 16, simplifying BAQ. We said we'd implement a simplification program against four key work streams to progress against our $200 million productivity target, and we are doing that. Key highlights in the half, we progressed our operating model optimisation, which has allowed us to reinvest in our in-house projects, risk and technology capabilities. We consolidated our operations team and contact centres, We completed divestment of the New Zealand asset portfolio and we've automated further 43 key processes in the half, encompassing customer onboarding, cards management and regulatory reporting. We've reduced over 6,000 square metres of floor space with a strong pathway for the remaining 10,000 square metre reduction. Over the life of the leases, this will provide $40 million in savings. Turning to slide 17, digitising BOQ. We said the significant milestones in 2024 will be the delivery of digital mortgages and commencing the migration of customers from the MeLegacy platform. We are well progressed against this plan. We are proud of what we've achieved since we announced our 2020 strategy to deliver a cloud-based digital end-to-end bank. Our well-proven team is delivering against what we committed to, on plan, with our seasoned digital transformation capability now a competitive advantage. The transaction and savings accounts for all three brands on the cloud-based bank that were delivered are performing well. We have 23% of our retail customers now on the digital bank. 56% of our IT assets are in the cloud. And 100% of our people are on one Microsoft 365 platform. We're in the last testing phases of the digital mortgage. In the second half, we're commencing phase one of product launch with a Virgin Money digital mortgage. This will then be extended to Me Brand and our broker channel, followed by further capability releases to the market over FY25. The delivery of digital mortgages will enable BOQ to compete at a lower cost, a faster time to yes, with a materially improved customer experience. Customer migration of legacy platforms will be the most challenging and beneficial period of our transformation. As we said at the full year, this migration will take 12 to 18 months, at which point we will decommission MeLegacy. We're at an exciting juncture on our digital journey. However, we recognise migrations are not without risk of potential interim disruption for our customers, and careful execution against the plan will reduce this risk. We have a well-planned and sequenced process which incorporates learnings from other industry migrations. We will provide extra support to our customers through this period. Migration off the Mi Legacy platform will reduce complexity and risk with end-of-life systems. and is an important step in our productivity program. Cybersecurity remains a key focus for the group. In an environment where the threat landscape continues to evolve, we recognise the need to continually monitor and enhance our cybersecurity posture. We engage leading cybersecurity consultants to undertake regular independent reviews of our capability and maturity. Finally in Digitize, our partnership with Microsoft is helping BOQ accelerate our transformation in cloud, customer experience, data and AI. Turning now to slide 18, optimising BOQ. We are evolving our strategy as the market shifts and elevating our focus on improving shareholder returns, considering initiatives less dependent on home lending margin recovery and growth to achieve our FY26, ROE and CTI targets. We said at the full year that achieving these targets required the competitive mortgage and funding market to be cyclical rather than structural. There could well be elements of the dynamic market shifts that the industry is experiencing that are both cyclical and structural, requiring further action to address this. Our core strategic pillars of strengthen, simplify and digitise support a lower cost to serve, higher returning bank and will not change. We are evaluating the potential to make bolder strategic decisions with respect to our optimised strategic pillar to address potential structural headwinds. These considerations include a shift in our revenue mix, a further simplification of our operating structure and capital optimisation initiatives. Before I hand over to Rachel to provide a more detail of the financial results, I wanted to reconfirm the confidence I have in our management team, the discipline we've shown in executing against our strategy and the considered way we've deployed our capital. Over to you, Rachel.