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Gonski: simplification is critical

This was a challenging year for both ANZ and the entire banking industry.

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Our statutory profit was $A6.4 billion, flat since 2017. Cash profit for ANZ’s continuing operations (which excludes non-core items and the discontinued wealth businesses from the statutory profit) was $A6.487 billion, down 4.7 per cent.

" We recognised many of the headwinds facing the sector early and actions commenced several years ago to simplify our business are now benefiting shareholders.”

The final dividend of 160 cents per share fully franked was unchanged from 2017. This reflects a dividend payout ratio of 79.5 per cent of cash profit (total group), with $A4.6 billion in dividends paid to shareholders.

This is above our target fully franked payout ratio of 60 per cent to 65 per cent of cash profit however our strong capital position has allowed us to maintain a stable dividend.

While growth was subdued, particularly in Australian retail banking, the fundamentals of our business remain sound. We recognised many of the headwinds facing the sector early and actions commenced several years ago to simplify our business are now benefiting shareholders.

During the year, we announced the sale of both our pensions and investments businesses to IOOF and our life insurance businesses to Zurich, as well as the sale of our Life Insurance business in New Zealand to Cigna.

We also increased our focus on institutional banking with the announced sale of our retail and commercial business in Papua New Guinea to Kina Bank and the sale of our ANZ Royal Bank (Cambodia) joint venture to J-Trust.

We completed the sale of our minority stake in Shanghai Rural Commercial Bank and the sale of our share in the Philippines-based Metrobank Card Corporation joint venture.

A highlight of the year was completing the complex separation of our six retail and wealth businesses in Asia on time and under budget.

This simplification of our business is critical. We know a simpler bank is more focused and easier to manage in an environment where regulation and compliance is increasing. We have rebalanced our business, improved the returns of the institutional division, delivered consistent outcomes in New Zealand and we are directing investment and capital to our areas of strategic focus such as Australian homeowners.

Earning trust

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry has been confronting for all of us at ANZ, including the board. We are all unanimous in our resolve to build a company of which we and all of our stakeholders can be proud.

We recognise this has not been the case in the last decade and we have failed in some circumstances to do the right thing and to keep the needs of our customers as our priority.

The board and senior management will improve transparency with customers and ensure the balance between earnings and providing worthwhile, fair and desired services to our customers is maintained at all times.

This is why we have engaged openly and constructively with the Royal Commission and will not wait for its final recommendations before taking action to ensure our failures do not occur again.

We also support strongly the approach our Chief Executive Officer, Shayne Elliott has stated publicly which is that where ANZ has failed we will compensate those affected quickly and fairly and take steps to ensure it does not happen again.

The Ethics, Environment, Social and Governance Committee of the board is active and well informed. The board has also made it known within ANZ that asking the question ‘is this the right thing to do?’ is critical.

As you will see in the Remuneration Report, variable remuneration at all levels of ANZ has been materially reduced.

We now have a new executive team running the bank. However, accountability for our failures is still reflected in this year’s remuneration of our most-senior team including our Chief Executive Officer.

While the board itself does not receive variable compensation, it shares some accountability for what has occurred.

As an indication of the board’s understanding of its accountability, existing non-executive directors will receive in fiscal 2019 a reduction of an amount equivalent to 20 per cent of the fiscal 2018 base non-executive director fee (and in my case 20 per cent of my Chairman’s fee). This is in addition to the bank’s efforts to identify and fix the causes of our failures.

On review

ANZ’s Annual Review describe how its business model, strategy, governance and risk-management processes are addressing its most-material issues and delivering value for shareholders and other stakeholders.

It outlines the bank’s response to external social and environmental challenges, including the work undertaken to rebuild its reputation as a fair and responsible business, driving sustainable returns for all stakeholders. You can click HERE to see the review.

Capital management

Despite these difficult macro conditions the progress of our transformation means we have been able to return surplus capital to shareholders while retaining appropriate flexibility to invest in our business.

This year we have maintained our unquestionably strong capital levels, reducing shares on issue by 67 million (equivalent to $A1.9 billion) from an announced $3 billion share buyback program.

Outlook

We expect the trading environment in Australia to remain challenging, particularly in retail banking, as the industry responds to increasing regulation and compliance costs, as well as implementing the recommendations of the Royal Commission.

ANZ is well placed to navigate these difficult conditions given the progress of our transformation and simplification agenda.

Our focus on cost and capital management and our exposure to international trade and commercial banking also positions ANZ well for the future.

I know we have the right management team in place, led by Shayne Elliott, to deliver on a strategy that will create sustained value for our shareholders, customers and employees well into the future.

I know we are taking the action required to create a company we can all be proud of.

David Gonski is chairman at ANZ

 

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