Westpac Banking Corporation

Good morning, everyone. Welcome to Westpac's 2024 results. My name is Justin McCarthy, General Manager of Investor Relations. Before we begin today, I acknowledge the Gadigal people of the Eora Nation as the traditional custodians of the country we are meeting on today. I pay my respects to Elders past and present and extend that respect to all First Nations people present today. The result will be presented by our CEO, Peter King, and CFO Michael Rowland. At the end of the presentation, you'll have an opportunity to ask questions. As a reminder, to ask questions, please press star 1. With that, over to you, Peter.

Well, thank you, Justin, and good morning, everyone. Overall, I'm very happy with the progress we've made this year. Financially, we were disciplined, with margin management a highlight, and the balance sheet is in a strong position. We've grown in all our key segments off the back of improving customer service. Business loans and consumer deposits grew 8%, while mortgages were up 5%. Our mortgage approval times were cut to less than five days, and importantly, service levels were more consistent throughout the year. In business, merchants and payments innovation, along with investment in bankers and simplification, has driven growth. And we've consolidated its leading position in markets and delivered strong balance sheet growth. The strength of the group's balance sheet, particularly the capital position, supported a further $1 billion increase in the share buyback program. Starting with our financial performance, statutory net profit was $7 billion this year. That's down 3%, while our key return metric, return on tangible equity, was 11%. Excluding notables, which were only hedging volatility, net profit was $7.1 billion. Revenue was up 1% from good loan growth across all key segments, while margins were well managed. Net interest margin excluding notables declined just one basis point, despite ongoing competition in the consumer segment. Non-interest income was lower, with the main drivers being the impact of businesses we sold last year, along with a softer performance in markets. We indicated costs would be higher this year, with expenses up 7%. Technology expenses have been a headwind, reflecting the previously flagged rise in software amortisation, along with higher technology expenses. Costs to wind down rams have also been a headwind. Impairment charges have reduced to seven basis points of loans, and this low level of impairments reflects a combination of prudent lending practices and resilience across household and business customers. Improving customer service underpinned our financial performance. In consumer, we are again improving our physical, digital and virtual banking offerings. Across our digital channels, we continue to upgrade services, improve navigation and enhance budgeting tools. The Westpac app was again rated the number one mobile banking app by Forrester. And we continue to reshape the branch network and we now have 111 co-located branches. We also committed to keeping regional branches open until at least 2027. everyday banking is at the heart of the customer relationship. We grew household deposits above system through the year and our focus on behavioural saving products saw them rise to 85% of savings balances. And these deposits provide a very stable source of funding. New prompts within the app helped over 190,000 customers earn on average an extra $324 in annual interest. And this sees more than 80% of bouncers receive a bonus rate each month. A very competitive consumer banking environment did put pressure on margins. NIM was down 18 basis points over the year, but up one basis point in the second half. Consumer return on tangible equity is 9% this year, reflecting that intense competition in this segment. More consistent service has underpinned our growth in mortgages, and the chart on the top right shows the differential between Westpac's rate for new owner-occupied loans relative to the majors. We have priced above peers in the last six months, while holding share excluding the impact of RAM's wind down. For us, lifting services improved the customer proposition, time to decision ended the year at less than five days, with almost 20% of applications this year approved within two days. The performance in broker and first party channels is now similar, with broker average time to decision at 4.7 days in the month of September. We also improved our settlement process, recognising it's a key moment for our customers. We improved our on-day settlement by four percentage points, and that sees us consistently towards the top of PEX's ratings. In business, we have and we will continue to invest in improving service, payments capabilities and increasing banker numbers. Merchant points of presence grew strongly as payments innovation remained a focus. FPOS Air, which turns your phone into a merchant terminal, continues to grow, benefiting from our first mover advantage. We also launched FPOS Flex, a cost-effective merchant terminal that integrates to over 500 point-of-sale systems. These capabilities help drive the 16% lift in transactional account openings. In line with the rising interest rates, there's been a shift in deposits away from call to term, with term deposits in the business bank now comprising over a third of total business deposits. In business lending, the Biz Edge program is digitising lending processes and our processing times improved by five days. We've also approved more than a billion dollars in loans since the launch of our simplified pathway for loans up to $3 million. And these initiatives, along with investment in bankers, supported lending growth of 9%. While growth was diversified, it was stronger in our target sectors, as you can see on the chart. Turning to institutional, focus on client service has been the key to repositioning WIB as a leading domestic institutional bank. We delivered solid revenue growth and maintained a return on tangible equity of 14%. Importantly, clients have recognised this with customer advocacy up five points to 64, and this is the highest result since the survey commenced seven years ago. 20% growth in average interest earning asset reflected higher lending and much higher trading inventory to facilitate client activity. Lending was up 9% for the year, mostly to existing customers, and we saw growth across property, infrastructure and industrials. Growth has not come off at the cost of either margin or risk, with margins ex-markets up four points to 2.10%. The average credit rating on new lending was also unchanged. On deposits, we have the number one position with government, and that's across both state and federal governments. We're also applying a client-led approach to growth in financial markets, And we've been externally recognised with nine Kanga News Awards, including the number one bond house in Australia and New Zealand. And that's for the first time in more than a decade. That translated into higher fixed income revenue across rates, credit and bond fees. However, a negative DVA adjustment and softer FX revenue did weigh on total markets income this year. We're investing for the future in bankers, in their capability and also our systems. In particular, the build-out of Westpac One, our digital transaction banking platform, is making good progress and we expect the pilot to commence with customers in late 2025. In New Zealand, we've supported customers through a challenging economic environment. Modest balance sheet growth reflected tough operating conditions. Core earnings rose 1% as revenue growth was partially offset by ongoing investment to strengthen the technology foundations. We delivered an improved second half with margins up and better cost control. From a credit perspective, mortgage customers are on average 11 months ahead on repayments, and we've been proactive and engaged early with those customers in stress. Stress in the business sector was lower than expected, and these dynamics drove a low credit impairment charge. Despite these headwinds, return on tangible equity was a solid 13%, aided by a resilient asset quality. Across all segments, we've delivered improved service in both supporting and keeping customers safe. Three areas have been a particular focus. Hardship arrangements, access to cash and scams. On hardship, we recognise households and businesses have displayed resilience. However, we also know some are doing it tough. This year we provided 47,500 tailored support packages to customers requiring assistance. The majority only required three months' support, with the peak in hardship in June. There's been some reduction in hardship in the last few months, which is encouraging. Access to cash remains important for many customers. and it costs Westpac approximately $330 million a year to provide cash services. The economics of providing cash are getting worse as volumes decline, and so we're working with governments and industry to find a long-term solution. Helping customers avoid scams was also a major focus. We launched Safer Pay in March, which asks customers questions about their payments and then alerts them to likely scams. 150 million in payments have been abandoned based on safer pay alerts. Westpac Verify is another feature we added this year and we're finding approximately 5% of payee details are wrong and the number of business email compromise scams has reduced 19% off the back of Verify. In an Australian first, we will soon launch Westpac SafeCall in collaboration with Optus. It will provide customers with verified Westpac branded in-app calls. We're currently in pilot and expect the rollout to commence in the next few months. All up this year, we prevented customers losing $237 million to scammers. Unite is our business led technology enabled simplification program and it's underway. It has three objectives, a better experience for customers, making systems easier for bankers and finally increased shareholder return. It is important that I restate that we're not starting from scratch. It's about accelerating the level and pace of simplification for a program of coordinated initiatives. In 2024, we focused on planning, ramping up resourcing and commencing the first phase of projects. In the second half, we refined the plan, consolidating the number of initiatives from 85 to 61 to improve delivery sequencing. The only change to scope this half has been the decision to consolidate the three deposit systems to one rather than the previously advised two. And we're confident that one deposit system will be able to cope with the volume of data and one system will reduce complexity and lower the project costs. We've now commenced 39 of the initiatives and have commenced two smaller initiatives, including decommissioning MIDAS, which was a 38-year-old system that supported New Zealand financial markets. Just to recap on the financials of the program, having spent approximately $150 million in 2024, we expect Unite to account for 35% to 40% of our estimated 2 billion annual group investment envelope over 2025 to 2028. Unite is at its core consolidating down to our best processes. An example that brings this to life is identity verification. We previously built a very good process in mortgages and Unite is now driving the consolidation of 22 other verification processes to one. So far we've consolidated 18 consumer processes and this is a good example of the Unite outcomes that will deliver a better experience for customers, employees and shareholders. For customers it means a fast and easy digital verification process and we have already seen an improvement in the success rate for new to bank customers using the process. For employees, it means spending more time with customers. And for shareholders, this initiative is expected to cost $25 million and expected to provide ongoing savings of $15 million per annum, as well as achieving compliance with the ABA scam accord commitments. As I said at the opening, our balance sheet is strong and it's worth reflecting on how much it has strengthened over the last 15 years. Capital levels have materially increased since 2009. Our position is strong with a CET1 ratio of 12.5%, placing us in the top quartile of banks globally. The excess capital sees us well positioned to support growth, help customers and for potential external shocks. Impairment provisions are 1.5 billion above the base case scenario and that includes a 42.5% weighting to the downside scenario. Liquidity also increased significantly over the years. Liquid assets as a proportion of total assets are now 19%. Now, funding position is superior to that of both 10 and 15 years ago. Customer deposits have risen from 57% to 67% of total funding, while reliance on wholesale funding reduced from 35% to 26%. Moving to capital management, we've sought to balance the use of capital across investing for simplification, supporting growth, while also returning some of the surplus to shareholders. This half we've increased the on-market share buyback by a further $1 billion. With 77% of the previously announced share buybacks complete, around $1.7 billion remains to be bought back. and buybacks have reduced the share count by 6% over the last three years. We believe the buyback supports dividend sustainability over the medium term, and the buybacks completed over the last three years would have added more than 20 cents per share in dividends. Full-year ordinary dividends were increased by 6% to $1.51, including a final dividend of 76 cents per share. The payout ratio was 73 per cent, which is at the upper end of our medium term range of 65 to 75 per cent. On a pro forma basis, that is post the buybacks that have been announced but not completed, the CET1 ratio is 12.1 per cent, which equates to 2.7 billion of capital above the top end of the range. We believe this provides sufficient capital to support investment growth and for potential external shocks. Thanks, and over to Michael to take you through the financials.

Thanks, Peter, and good morning, everyone. Core net interest margin increased three basis points over the half to 1.83%. This compared to a decline of three basis points in the prior half. We continue to balance spreads on loans and deposits at a time when competitive pressures persist in home lending. We also benefited from higher earnings on hedged capital and deposits. Moving to the drivers for the half. Loan spreads, notably in mortgages, subtracted one basis point. Customer retention, along with the averaging impact of competition in prior periods, had the largest impact during the half. This impact was largely offset by switching from lower margin fixed rate mortgages to higher margin variable rate mortgages. We are now through the high point of fixed to variable rate mortgage switching. Business lending spreads tightened slightly. The release of business lending remediation provisions added one basis point to margin, equating to two basis points in the fourth quarter. Deposits were neutral in the half. A four basis point benefit from the replicating portfolio was offset by a mixed shift from at-call deposits to lower spread term deposits and savings accounts. Wholesale funding costs were slightly higher as the final tranche of the term funding facility rolled off. We timed our funding well and took advantage of favourable credit markets, raising $22 billion of new long-term wholesale funding in the period. Higher earnings on capital contributed three basis points, reflecting the higher replicating portfolio rate. Treasury and markets detracted one basis point, with the contribution falling from 14 to 13 basis points, still above the expected medium-term average contribution. Notable items added six basis points to margin, with a five basis point detraction in the first half moving to a benefit of one basis point in the period. Moving to non-interest income. Excluding the impact of notable items, non-interest income decreased 6% on the prior period. Fee income was down 1% with lower underwriting fees in WIB. Wealth income was up 2% with higher funds under administration driven by the strong equity market. Trading income in markets was down 4% with lower income from both rates and FX trading. Turning to expenses. Expenses were up 3% in the half. High technology operating expenses saw total technology expenses rise by 9% due to higher software licence, data and storage costs and vendor inflation. We also increased the number of bankers in business and WIB. We worked hard to offset these cost headwinds, delivering $391 million of savings through cost reset. This included the benefit of lower FTE from operating model simplification, automation, and reductions in the corporate head office space. Cost related to closing RAMS to new business in the half was similar to the first half, with full year costs of approximately $130 million. As Peter discussed, Unite is progressing well with expenses higher in the half. Investments ex-Unite increased largely due to the usual seasonality of investment spend. We remain committed to cost reset and our objective remains to close the cost-to-income ratio gap to peers over the medium term. Moving to investment spend. Total investment spend decreased 9% compared to the prior year following the completion of several large programs in 2023. Risk and regulatory spend, while 11% lower following the completion of the Basel III program and BS11 in New Zealand, remains the largest component, accounting for almost 60% of total investment. Growth and productivity initiatives continued with digital investment to improve the customer experience, the cash management platform Westpac One in institutional, and BizEdge, a business lending and origination and simplification platform. Unite investment was up $147 million with the majority of the spend in the second half. The proportion of investment that was expensed increased to 56%. We expect a higher expensing trend to continue. Turning to credit quality. Overall, the portfolio continues to show resilience across both the consumer and business books. Stressed exposures to total committed exposures increased nine basis points to 1.45%. This reflects the lift in mortgage arrears and an increase in stress in some business segments. Most customers have adjusted to higher repayments and many have also maintained buffers above their scheduled repayments. However, some customers have found the adjustment more difficult, with the 90-plus day arrears rate in Australian mortgages increasing to 1.12%. Importantly, the rise in arrears slowed during the half. In the first half, arrears increased at an average rate of three basis points a month, dropping to one to two basis points in the third quarter, and in the most recent quarter, arrears were stable. Unsecured lending delinquencies deteriorated slightly, driven by the cards and personal loans portfolios. The increase in business stress was most pronounced in the manufacturing, services and transport sectors, driven by single names. Other increases related to a small number of customers across a range of sectors, with no obvious systemic stress evident. Turning to credit provisions. Total impairment provisions declined $39 million over the half, remaining just above $5 billion. While there was little change in the overall balance, the composition shifted. Overall overlays were lower. The Australian mortgages overlay is now largely captured in model outcomes in CAP. Stage 1 CAP increased mainly, reflecting growth in our business portfolio. Stage 2 CAP decreased largely due to the runoff of the auto finance portfolio and RAMS. Revisions to commercial property price and GDP forecasts, along with delays in rate costs, partly offset the decline. Stage 3 cap was little changed. IOPs were $75 million higher, reflecting some single names in manufacturing and transport, as I mentioned earlier. In total, our provision coverage remains appropriate for the risks in our portfolio. Collectively assessed provisions to credit risk weighted assets decreased six basis points to 1.32%, mostly due to a 2% lift in credit risk weighted assets. We did not make any changes to our scenario weights and continue to believe a 42.5% weight to the downside is the appropriate setting for what we know now. We will continue to assess this as economic conditions evolve. Total impairment provisions provide a buffer of $1.5 billion above our base case scenario. looking at the impairment charge in more detail. The charge of $175 million was equivalent to four basis points of average loans, down from nine basis points in the prior half. This remains well below the long-run average. The IOP charge comprised new IOPs of $210 million related to a number of small exposures, mostly in the manufacturing sector. Write-backs and recoveries increased, largely in credit cards and personal loans. The cap charge of $128 million was made up of write-offs of $275 million and other changes in cap of $147 million. These other changes reflect movements in collective provisions outlined on the previous slide. Moving to capital. The CT1 capital ratio entered the half at 12.49%. Net profit added 83 basis points, while the payment of the interim dividend reduced capital by 60 basis points. Risk-weighted assets added one basis point, with non-credit risk-weighted assets lower, as interest rate risk in the banking book risk-weighted assets declined, following data refinements and lower interest rates, driving a regulatory embedded gain. Credit risk-weighted assets reduced capital by 19 basis points, with further benefits from data refinements, more than offset by lending growth and a modest deterioration in credit quality. The ongoing share buyback reduced capital by 22 basis points this half, with $1.8 billion of shares having been purchased over the year. Other items reduced capital by 14 basis points. This was mainly due to reserve movements and a higher deduction for deferred tax assets. With this result, we also announced an additional $1 billion buyback to return capital to shareholders and further reduce our share count. The buyback takes the pro forma CT1 capital ratio to 12.11%. This is $2.7 billion above the top end of our target operating range, and as Peter noted, provides flexibility and capacity to support growth and absorb any impact from potential external shocks. Finally, looking to the first half of 2025, the strength of our balance sheet and financial performance positions us well to navigate domestic economic conditions and ongoing geopolitical uncertainty. On revenue, we expect system credit growth to be at similar levels to the second half of 2024 as we target growth in line with market in all our segments. We anticipate mortgage competition and the deposit trends we saw in the half to continue. Returns on hedge deposits and capital will contribute positively to margin, but the contribution is likely to be slightly lower. At the end of the second half, we increased our replicating portfolio deposit hedge by around $10 billion. The outlook for NIM will also be sensitive to the timing of lower interest rates and movements in wholesale funding markets, which is difficult to predict in the current environment. Expense growth is likely to continue at a similar pace into the first half, driven by higher technology costs, salary and wage growth, and Unite, partially offset by cost reset savings. Credit quality is sound, and while some further deterioration is likely, it's expected to be manageable. Across all metrics, we are well positioned to support customers, growth, and our Unite investment. With that, I'll hand back to Peter.