Bank of Queensland Limited

Thank you for standing by. Welcome to the Bank of Queensland FY24 results 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 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 full year ended 31st of August 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. Before we begin, I would like to acknowledge the traditional custodians of the land on which we meet today, the Gadigal people of the Eora Nation and pay my respects to Elders past and present. I'm joined today by BOQ's Managing Director and Chief Executive Officer, Patrick Alloway, and our Chief Financial Officer, Rachel Kelleway, who will present the results. We are also joined in the room by BOQ's executive team. Following the briefing, there will be an opportunity for questions. I will now hand over to Patrick.

Thank you, Jess. And a warm welcome to everyone on the call today. I also welcome our executive team who are with us in the room today. Before moving to the slides, I'd like to set a bit of context. We're transforming BOQ to a simpler specialist bank with an improved customer experience and enhanced shareholder returns. I've previously said the transformations of this scale are difficult, take time, and are particularly challenging against the current backdrop of industry headwinds. This management team has taken the challenge. We've acknowledged our legacy and structural disadvantages, being transparent, held ourselves accountable and outlined a clear strategy to address and transform BOQ. We've navigated the bank through two difficult years and over the past four halves have demonstrated disciplined and consistent execution. We're starting to see the benefits of our transformation. Moving on to slide eight. This year, We delivered $343 million in cash earnings after tax. Against elevated competition, we took a disciplined approach to uneconomic home lending. Cost inflation continued, and we continued to invest in our transformation. We finished the year with a stronger second half. Business lending grew 7% on an annualised basis. Retail bank income stabilised, and NIM improved by two basis points – and we continue to discipline cost management through the year. We're delivering against our strategic pillars with strong execution proof points and are now well through peak investment spend. We've strengthened our operational and financial resilience and delivered against our remedial action plans. We further simplified our operating model and have recently increased our productivity target and announced plans to simplify our distribution channels. We've largely completed the foundational build of our end-to-end digital retail bank. We're focusing on optimising BOQ and have commenced recycling lower returning capital to growth in higher returning target specialist segments. The customer experience has materially improved on our digital bank and through the contact centre. We're supporting our customers through this cycle of higher cash rates and sustained cost of living pressures. Our strong financial resilience has continued, with our CET1 ratio at the top end of our target range, prudent liquidity settings, and continuing strong asset quality through the cycle. We have a clear pathway to deliver improved shareholder returns. Turning to slide 9 for a summary of this year's financial performance. Statutory net profit after tax was $285 million. Cash earnings after tax of $343 million reflected lower total income from a contraction in home lending and margins. We continue to demonstrate discipline in how we operate the business and have held cost growth at 2.9%, excluding investment and amortisation. We ended the year with a CET1 ratio of 10.66% at the top end of our range. enabling the board's decision to pay a dividend of 17 cents per share. This is a full-year payout ratio of 65.4% on cash earnings and a 5.4% yield on the year-end share price. Rachel will provide further detail on the financial shortly. Turning now to slide 10 for an overview of the retail bank. We've spoken for some time about our home lending contraction. as we prioritise economic return over growth. We are continuing this discipline and recycling low-returning home lending capital while returns are not yet sustainable. We anticipate returning to growth once we've reduced our cost to serve through digital mortgages and restructured distribution channels, delivering a lower-cost operating model. While we've continued to grow home lending through our lower-cost acquisition ME channel, we've paused lower returning legacy platform origination through BOQ and VMA broker channels and continued originating through our BOQ branches. In August, we announced the strategic decision to convert all 140 non-managed branches to corporate branches, which is expected to be completed by March 2025. This decision addresses an unsustainable economic model, structural market shifts, including changing consumer habits, and our complexity. It gives us the opportunity to align our branch structure with our digital and specialist banking strategy, including branch consolidation and investment in business banking growth corridors. We're working with our owner managers in good faith and have now met individually with each of them. Pleasingly, we've had a strong positive response to employment expresses of interests from both owner managers and their employees. We're working to ensure a seamless customer experience as branches convert. The annualised cash net profit after tax impact of the conversion is expected to be broadly neutral in FY25, with an anticipated annual uplift of approximately $20 million from FY26. We expect there will be opportunities to further optimise this. Looking at the business bank performance on slide 11, At our first half result, we said we were prioritising the business bank for quality growth in the second half. We've delivered $432 million of balance sheet growth in the half. We targeted segments where we have strong capabilities and relationships. Over half of the flow in the second half was direct. We expect proprietary flow to remain strong. We will accelerate this growth through investment in bankers and new business centres and growth corridors. particularly in Queensland, where we have a competitive advantage. We're increasing the number of bankers by approximately 70%, bringing on up to 40 new bankers over the next two years, in addition to the 10 who joined in the second half of FY24. We're differentiating through our capability in targeted specialist sectors, including health, professional services and agriculture. with deep industry knowledge and stronger relationship coverage through smaller portfolios for our bankers. We will continue to modernise and strengthen the business bank technology platform to further support banker effectiveness and productivity. I will now spend some time on our $6.9 billion asset finance company on slide 12. The finance company is a differentiated strategic asset for the group. delivering high returning niche product capability across asset finance, novated leasing, structured finance and insurance premium funding. Excluding the impact of the New Zealand asset finance sale, the portfolio grew 1.6% in FY24 and 4% in the second half. Importantly, in this area of our business, we have strong competitive advantage and a lower relative cost of funding than key peers. The portfolio is well positioned for continued growth. Turning to slide 13, our purpose of building social capital. Key to our purpose is our support for our customers and the communities in which we operate, enriching our people and our commitment to positive environment, social and governance outcomes. We are proud to have facilitated 220,000 Australian families with their home ownership. and supported the growth of 160,000 businesses. This is a difficult period for many Australians, adjusting to higher interest rates and cost of living. Supporting customers in the banking moments that matter is at the heart of our customer-first approach. We've continued this support through proactive management of those converting from fixed to higher variable rates, customers in hardship and more vulnerable Australians. We know scams and fraud continue to have a devastating impact across the industry. We are part of the Australian Banking Association's Scams Accord and have invested in new biometric technology on our digital bank, which helps prevent fraud. Pleasingly this year, we prevented and recovered more customer losses from scams than ever before. This continues to be an ongoing focus. Moving now to slide 14, Transforming Our Culture. Shifting our culture and enhancing our people's capabilities is an important part of transformation. This year, we've defined and communicated our target state culture. We've kept it simple with three target state attributes, customer first, performance and outcomes driven, and agility and speed in the way we work. We've implemented the program to support this important shift, which includes developing the future state skills of our people. We're seeing notable improvements across key indicators of our target culture, including customer experience, delivery of outcomes, collaboration and accountability metrics. Pleasingly, during a time of significant change for our organisation, with difficult decisions impacting our people and the owner-manager branch network, our People Engagement Index has held steady at our recent survey in August. While we have more work to do in reaching our aspirations for engagement, we're seeing strong uplift in leadership, safety to speak up and an understanding of what needs to be done to deliver the strategy. I will now talk to each strategic pillar in more detail. Turning to slide 16, strengthening BOQ. As we progressed our remedial action plans, we've continued to strengthen our operational resilience and risk culture through Program RQ and strengthened our compliance in anti-money laundering and counter-terrorism financing through AML First. These programs are delivering against our remediation commitments, supported by constructive and transparent engagement with our regulators. For Program RQ this half, we've matured our three lines of defence model, simplified and uplifted our governance structure, improved transparency, and clearly articulated the tone from the top, with an improvement in our risk culture metrics. For AML first this half, we improved detection, escalation management and financial crime breaches, and undertook targeted deep dive assessments. We are now more progressed with the remedial action plans. It has been opportune to review the accuracy of the provision. We've increased the provision to deliver these programs by $11 million, and this was reflected in FY24 cash earnings. Turning to slide 17, simplifying BOQ. As announced in August, we identified further simplification opportunities, increasing our productivity target to $250 million by FY26. This target will be delivered through operating model simplification, technology delivery, property and procurement savings and process and automation initiatives. We're delivering further efficiency in our operating model in FY25 through FTE reduction and simplifying our distribution channels as announced in August. The rollout of digital mortgages, me-customer migration and decommissioning of our legacy core banking platforms will deliver material productivity benefits in FY26. We are well progressed in our corporate footprint production, doubling the first half reduction to a total of 12,000 square metres. We are taking action to optimise third party service provider spend and continue to automate processes and simplify our technology landscape. 57% of our IT assets are now on the cloud and 44 technology assets were decommissioned this year. Turning now to slide 18, with some detail on the digital home loan. We have now completed the foundational build of our digital banking mortgage product and originated our first digital mortgage in August of this year. This is a key delivery proof point in our transformation, digitising end-to-end home lending with materially improved customer experience, reducing our cost to serve and reduced operational risks. This scalable platform will be rolled out across all three of our brands in FY25. Customers will experience a materially improved time to yes and 24-7 management of the process on the digital banking app from application, documentation, settlement, loan variations and offset accounts. The new platform will halve our cost to originate, reduce processing time by two-thirds and and reduce handover points from 17 to 2. We will also simplify our retail lending products from over 100 down to 2. We've delivered a product that has a compelling customer experience, is compliant by design with straight-through processing, and leverages data, reducing reliance on manual interventions and checks. This program has digitized, strengthened, and simplified, and will help optimize BOQ. Turning now to slide 19, looking at digital deposits. With the build of the new digital retail banking platform now largely complete, our focus is shifting to migrating our customers and decommissioning heritage technology and operations. We commence migration of me deposit customers with 30,000 customers migrated in August and are planning a further 90,000 by the end of this calendar year. We're seeing early signs of value emerging from our investment in digitisation with material reductions in unit costs of the digital bank and a vastly improved customer experience being observed. We expect this to continue as the digital bank scales. We've experienced 34% customer growth with 26% of retail deposit customers and $7.2 billion in savings balances now on the digital platform. Average app store ratings are 4.4 compared to 1.4 on legacy. We've come a long way in building our end-to-end digital bank with a proven and mature execution capability. We have a clear pathway for the decommissioning of me legacy systems. We are now finalising the pathway for full decommissioning of BAQ Heritage Bank over the next few years, delivering material productivity benefits beyond FY26. Turning now to slide 20, optimising BOQ. Successful delivery of our transformation will provide high shareholder returns. There are four key components to achieving our revised FY26 8% ROE and 56% CTI targets. Firstly, delivering our upgraded $250 million productivity initiative. I've spoken to the operating model efficiencies, property and procurement savings, digital mortgages and decommissioning of new legacy systems that will support delivery of these benefits by FY26. Secondly, returning to revenue growth, supported by the acceleration of our specialist business bank and finance company, margin optimisation opportunities and branch conversion commission savings. Thirdly, scaling the new digital banking platform. providing funding benefits and returning home lending to growth in FY26. Finally, the cash earnings benefit commencing in FY26 from the branch conversion with further opportunity to optimise this. Our ambition is to enhance returns beyond the FY26 targets, driven by full transformation to our target state future state and decommissioning of the legacy bank. returning the retail bank to sustainable growth. I will now pass to Rachel to provide more detail on the financial results. Thank you.