Bank of Queensland Limited

Welcome to the BOQ Group first half results presentation. Following the formal presentation, there will be a Q&A session. To ask a live audio question, press the request to speak button at the top of the broadcast window. The broadcast will be replaced by the audio questions interface. Use the dial-in number and access pin provided to ask your question via the phone. Alternatively, for those on a home or personal network, you can ask your question via the web by pressing join queue. If prompted, select Allow in the pop-up to grant access to your microphone. If you have any issues using the platform, dial-in details can also be found on the homepage under Asking Audio Questions. The audio queue is now open, and I'll hand over to Jessica Smith, General Manager, Investor Relations and Corporate Affairs.

Thank you and good morning everyone. Welcome to BOQ Group Results presentation for the half year ended 28 February 2025. My name is Jessica Smith and I am the General Manager, Investor Relations and Corporate Affairs. On behalf of the management team, I would like to acknowledge the traditional custodians of the land we are meeting on today, the Gadigal people of the Eora Nation. We pay our respects to Elders past and present. I am joined in the room 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 by BOQ's Executive Team and Chair. 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 joining our results presentation today. This morning I'm pleased to take you through the considerable progress our team has made in delivering on our strategy, meeting market commitments in the first half and improving BOQ's performance. Before I get to the results, I wanted to step back for a moment and reflect on the industry operating environment over the past few years, our strategic response and the progress we're making in delivering on our transformation. We're operating in an increasingly dynamic environment. driven by rapid technology advancement, changing consumer preferences, heightened competition and increased regulation. These structural shifts, when combined with differences in capital treatments impacting smaller banks, are necessitating bold decisions to fundamentally change the way we operate and allocate our capital. As we make these decisions, we're carefully balancing competing trade-offs across our stakeholder groups. Our advantage as a smaller bank is that we can make decisions and move quickly, with the outcomes having a more material impact on our performance. We're transforming BOQ to a simpler specialist bank with a superior customer experience and enhanced shareholder returns. We're seeing considerable progress in improved customer experience, growth on the digital platform, simplification of benefits, and uplifting both our operational resilience and financial performance. We have high conviction in our strategy, and it's rewarding to see these transformation benefits emerging from disciplined execution of what we said we would do, recognising we still have a way to go to achieve our future state. With that said, we're pleased to have delivered after-tax cash statute earnings growth of 6% and 13% respectively against the prior comparative period, and a return on equity uplift of 40 basis points. This performance in the current operating environment is validating our strategy to shift our portfolio and not grow where home lending returns are uneconomic, evidenced by a stable margin for a third consecutive half. We continue to support our customers and communities, particularly as we redesign distribution of our products, support those facing financial difficulties, enhance scams and fraud prevention, and migrate customers to an uplifted experience on our digital platforms. Our strong capital and liquidity metrics and asset quality support continued robust financial resilience and the ability to invest and grow. We're optimistic about building on this strong momentum into the second half and into FY26. Turning now to slide nine on the progress we've made in delivering against our strategy in the first half and improved outcomes for our customers. We continue to strengthen our operational resilience, completing more than 30% of our immediate election plans with independent assurance. We've completed the conversion of 114 franchise and manager branches to a corporate run network and consolidated 20 branches in predominantly metropolitan locations. We've decommissioned 22 systems, simplifying and reducing risk in our technology landscape. We've delivered on our simplification, reducing complexity. We reduced expenses by 5% on the prior half. while continuing to invest in technology transformation, business bankers and regulatory change programs. As we continue to digitize, over 140,000 me deposit customers were migrated off legacy systems. We now have 41% of retail deposit customers and over $9 billion in deposits on the future state digital banking platform. Finally, we accelerated the growth of quality commercial lending with an annualised growth of 10%. I will go into more detail on these milestones shortly, but what we're most proud of is the progress we've made in transforming the bank and delivering on these outcomes. Turning to slide 10 for a summary of this half's financial performance. Highlights include improved cash earnings and statutory profit, supported by stable revenues, lower expenses and subdued loan impairment expense. It's pleasing to see all of our key financial metrics improve across ROE, EPS, CTI and CET1. The Board is determined to pay an interim dividend of $0.18, being a payout ratio of 65% and a yield of 5.4%, based on the half-year share price. Rachel will provide more detail on the financial results shortly. Moving to slide 11 for an overview of our now-completed branch conversion. The decision to convert branches to a fully corporate-run network, while difficult for owner-managers, was necessary to align with our strategy, meet evolving customer preferences and reduce our cost to serve. I'd like to take a moment to recognise the tremendous work undertaken by all of our teams in supporting our customers and our people with this significant change. Achieving this conversion within six months is commendable. We've now completed conversion of branches as planned. We had 34 branches converted in the first half and took the opportunity to consolidate 20 predominantly metropolitan branches. We were pleased to have the remaining 80 branches open their doors as corporate branches on the 1st of March, with these branches now operating under a corporate ownership. Pleasingly, we welcomed over 570 new team members from the owner-manager network, providing continuity in the wonderful in-person service that our customers value. This converted proprietary channel will provide considerable opportunity to grow our business bank in identified regional growth corridors, particularly in Queensland. We're continuing to work with 63 former owner-managers who are in dispute. This hasn't impacted our conversion, nor will it impact our current future branch operations. Turning to slide 12, our retail banking performance reflects our conscious decision to focus on transformation and return over growth. As we reposition to a scalable, low cost to serve digital bank, The pause in lower returning broker-originated loans on our legacy platforms through Virgin Money and BOQ brands resulted in further deliberate contraction of the mortgage portfolio. This was partially offset by mid-brand growth, which we prioritised as this lower acquisition cost and higher conversion channel supports interim profitability. We've made strategic portfolio decisions, resulting in underlying profit in the retail bank increasing 3% against the prior comparative period. Retail bank margin was up one basis point on the half. This financial year will represent the peak in our mortgage portfolio contraction. In the second half, we will commence originating mortgages with materially lower origination costs through the phased rollout of our digital mortgage and leveraging our commission-free converted proprietary branch channel. Turning to slide 13 for an overview of the performance of the business bank. Commercial lending grew 10% on an annualised basis, driven by strong growth in our target specialist sectors across healthcare, unoccupied commercial property and agriculture. Asset finance grew 1%, with continued demand for innovated leasing, offset by seasonal slowdown in cash flow finance and other portfolios. We also had targeted 7% decline in the BOQS housing portfolio in line with our broader home lending strategy. Total income was up 3% and cash earnings increased 20% against the prior comparative period. We've onboarded 22 bankers over the last nine months, supporting our growth in this half. We're planning a further 30 to join through FY26. We're well positioned to grow above system, leveraging our new bankers and targeted branch network in growth corridors. Our strategy for leveraging the branch conversion for business lending growth has seen early success with our first co-located banking centre launched late 2024, delivering strong growth. We're now replicating this model across two Queensland regions and we'll continue to expand on this. In our finance company, we recently partnered with TradeLedger to digitise our asset finance lending process. This will significantly improve our customers' time to decision and funding, creating an automated, compliant by design, scalable business model, and will over time replace nine existing origination and reporting platforms and leverage our existing Microsoft strategic partnership. Finally, on the business bank, I'm delighted with the appointment of Julian Russell as Group Executive Business Bank. Julian's finance and commercial background will bring a fresh perspective to optimising returns and serving our relationship customers in an increasingly competitive market. Julian will start on the 22nd of April. Turning now to slide 14 on our purpose and values. We're proud to support the growth of 160,000 businesses. be the bank of choice to 210,000 home loan customers and provide over 500,000 Australians with interest payments on their savings. We recognise that many Australians are being impacted by the cost of living pressures. We continue to support our customers whose budgets are challenged, encouraging customers experiencing financial difficulty to talk to us. We've facilitated individual solutions for over 2,000 customers with their lending this half. We continue to invest in technologies and uplifting awareness to protect our customers from increasingly sophisticated scams and fraud activity and have inbuilt biometric behavioural and facial recognition technology in the digital bank. Our commitment to our community is longstanding. We have strong relationships with key community partners who provide invaluable assistance to vulnerable Australians and First Nations youth. On uplifting our culture, as I've said before, we're striving for a step change in cultural performance, which underpins our group operational transformation. Pleasingly, our people experience score has held steady at 71% during a period of significant change. And again, we saw increases in risk measures of safe to speak up and people leadership. Sustainability remains a priority across the organisation. We've contributed to consultation across the industry, and as a Group 1 reporter, we're preparing for mandatory climate-related disclosures. Turning to our strategic pillars now. Slide 15 sets out the progress we've made on our two enterprise-wide programs, Program RQ and AML First, which are uplifting our risk practices and bolstering our anti-money laundering and counterterrorism financing compliance. In program RQ, we've made solid progress, having now completed one third of the program. We've achieved material milestones for the group, reinforcing our target risk culture through the launch of our refreshed code of conduct, strengthened our governance and accountability practices, uplifted regulatory engagement and redesigned key enterprise frameworks across risk management, strategic change and capability. In AML First, we've finalised our Part A and Part B program, uplifted financial crime operational capability, enhanced customer due diligence processes, uplifted risk assessment, and importantly, closed 21 deliverables. Turning to slide 16, simplifying BOQ. We're reducing complexity to be more efficient. simplifying our operations, our ways of working, products, technology, supply chain and processes. This is driving improved productivity for BOQ and an improved experience for our customers and people. Our FY26 $250 million productivity program is well progressed and is on track for delivery in FY26. There are four key levers to this target. Firstly, simplifying our operating model and distribution channels which has been achieved through the consolidation of shared service activities reducing the number of products we offer reducing contractors terminating our franchise model and consolidating our branch network secondly Moving to our future state technology stack, which is moving at pace, having built the foundations of the digital bank, we are partway through migration, which will in turn allow significant decommissioning of legacy. Automated processes will drive material efficiency, scalability, system savings and improve customer outcomes through FY26. Thirdly, targeted reductions across property. with a further 2,500 square metre reduction in head office floor space in the half. We've now reduced floor space by 17,000 square metres, materially reducing annual lease costs. And finally, we're taking action to reduce third-party spend, eliminating non-essential activities, renegotiating and re-tendering material contracts, an example of which is our recent transfer of our telco service providing cost benefits and efficiencies. Moving now to slide 17, digitising home learning. We've delivered significant digital milestones in the first half and are well on our way to achieving our ambition of all me customers and products on one digital end-to-end platform and fully decommissioning me legacy systems in FY26. This will provide a superior customer experience and a cost to serve far lower than today. The rollout of our phase one release of digital mortgages to staff, friends and family was successful. This scenario testing has provided key insights, providing us with the confidence to move into phase market release in the second half of 2025. The product this team has built is simple, straight through, compliant and data-driven by design. Our digital mortgage is end-to-end and provides significant self-service functionality, allowing customers to manage their lending at their convenience. Our digital mortgage will materially simplify our processes, reducing 18 manual handoffs on our legacy platform to three. The digital mortgage leverages data with improved analytics and reporting, Importantly, a customer will have a materially faster decision on their lending application, have a much simpler process to accept a loan, and once it's settled, they'll have an intuitive and easy-to-manage facility. We're excited to start the phase release this month and will continue releasing features and tools throughout FY25 before delivering scale and cost-efficient growth in mortgages in FY26. Moving now to slide 18, digitising deposits. The other key aspect of BO Group's digitisation is migrating customers off our legacy banking platforms. While the digital bank build has been an enormous success, we've approached migration in a considered and phased manner. This half, 140,000 me deposit customers were migrated from legacy to digital platforms. This equates to 235,000 unique accounts and over $1.5 billion in customer deposits. We're already starting to see the benefits with increased engagement and activity as customers move to the new digital platform. Importantly, we were able to prevent a number of pain points that customers usually experience in migration. with same account numbers, transaction history, pays and recurring payments migrating to the new platform, helping ensure a relatively smooth journey. More customers now benefit from in and outbound real-time payments, personal financial management and greater self-serve capabilities, a much improved experience with their daily banking needs. This is an exciting time for the group. In the second half, we'll complete the remainder of Mi deposit migration and commence home loan migration. Once we've completed full Mi migration, not only will Mi customers have all of their loans, deposits and savings accounts on one digital end-to-end bank, we will be in a position in mid-FY26 to decommission and consolidate 40 technology platforms and vendors, making a material contribution to our simplification target. Average app store ratings have improved to 4.5, with a considerably improved customer experience on the digital bank, compared to 1.4 on our legacy platforms. This is delivering a stable source of funding for the group, attracting a younger demographic and experience that resonates with evolving customer preferences, and crucially, improved defence against scams and fraud. Turning to slide 19, we are now optimising BOQ. we're executing against the planned productivity and revenue initiatives with a pathway to delivering our FY26, ROE and CTI targets. Our transformation has delivered a 40 basis point uplift in ROE as compared to our first half, 2024, and material benefits will escalate into FY26. These targets are being driven by an uplift to revenue, organisation-wide productivity and simplification and optimising our balance sheet. On revenue, we will further accelerate the growth of business lending through targeted segments, the strength of our asset finance company, and particularly as we increase our focus on Queensland. The conversion of branches to a proprietary channel will provide a step up in NIM of 12 basis points from the second half, and we're on track to exceed our expected $20 million cash NPAT benefit from FY26. On expenses, our $250 million productivity program, as I've said, is progressing well, having supported a 5% reduction in expenses this half. There will be material simplification benefits through the second half and into FY26 as we decommission legacy systems, continue to reduce our property footprint and third party spend. On the balance sheet, we will continue to optimise returns through growth and higher returning assets, scaling lower cost digital deposits and in FY26, scale our lower cost to originate and serve digital mortgages. We're continuing to explore capital-like growth and initiatives to optimise the deployment of our capital. All of these transformation initiatives are combining to deliver emerging benefits this year and improve financial performance into FY26. I will now pass over to Rachel to talk you through the financials in more detail.