BEING DIFFERENT 2007 Annual Report HAS ITS REWARDS ANNUAL REPORT CONTENTS Chairman’s Report 3 Financial Report 54 33 Average Balance Sheet and Overview of Operations 4 Income Statements 54 Related Interest 106 Overview of Business Divisions 6 Balance Sheets 55 34 Interest Spreads and Net Interest Average Margins 109 Ten Year Summary 8 Statements of Recognised Income and Expense 56 35 Financial Risk Management 110 Directors’ Report 10 Cash Flow Statements 57 36 Interest Rate Risk 122 Principal Activities 10 37 Fair Value of Financial Assets Result 10 Notes to the Financial Statements and Financial Liabilities 123 State of Affairs 10 1 Signifi cant Accounting Policies 58 38 Segment Analysis 129 Dividends 10 2 Critical Estimates and 39 Notes to the Cash Flow Statements 132 Review of Operations 10 Judgements Used in Applying 40 Controlled Entities 134 Accounting Policies 65 Events Since the End of the 41 Associates 135 Financial Year 10 3 Income 68 42 Interests in Joint Venture Entities 135 Future Developments 10 4 Expenses 69 43 Fiduciary Activities 136 Environmental Regulation 10 5 Compensation of Auditors 70 44 Commitments 137 Directors’ Qualifi cations, Experience 6 Income Tax Expense 71 45 Contingent Liabilities, and Special Responsibilities 11 7 Dividends 72 Contingent Assets and Credit Company Secretaries’ Qualifi cations 8 Earnings per Ordinary Share 74 Related Commitments 138 and Experience 11 9 Liquid Assets 74 46 Superannuation and Other Post Non-Audit Services 11 10 Due from Other Employment Benefi t Schemes 143 Lead Auditor’s Independence Financial Institutions 74 47 Employee Share and Option Plans 148 Declaration 12 11 Trading Securities 75 48 Key Management Personnel Directors and Offi cers Who Were 12 Derivative Financial Instruments 75 Disclosures 154 Previously Partners of the Auditor 12 13 Available-for-sale Assets 83 49 Transactions with Other Related Parties 155 Chief Executive Offi cer / 14 Net Loans and Advances 86 Chief Financial Offi cer Declaration 12 50 Exchange Rates 155 15 Impaired Financial Assets 87 Directors’ and Offi cers’ Indemnity 12 51 Events Since the End 16 Provision for Credit Impairment 88 Rounding of Amounts 12 of the Financial Year 155 17 Regulatory Deposits 89 Executive Offi cers’ and 18 Shares in Controlled Entities, Directors’ Declaration 156 Employee Share Options 12 Associates and Joint Independent Auditor’s Report 157 Remuneration Report 14 Venture Entities 89 Director Remuneration 14 19 Deferred Tax Assets 92 Financial Information Executive Remuneration 19 20 Goodwill and Other Intangible 1 Cross Border Outstandings 158 Chief Executive Offi cers’ Assets 93 Remuneration 22 2 Certifi cates of Deposit and Term 21 Other Assets 94 Deposit Maturities 158 Disclosed Executives’ 22 Premises and Equipment 94 Remuneration 25 3 Volume and Rate Analysis 159 23 Due to Other Financial Institutions 96 4 Concentrations of Credit Risk 160 Equity Instruments Relating 24 Deposits and Other Borrowings 96 to Disclosed Directors and 5 Provision for Credit Impairment Executives 26 25 Income Tax Liabilities 97 – Industry Analysis 161 26 Payables and Other Liabilities 97 6 Short Term Borrowings 162 Corporate Governance Report 36 27 Provisions 98 7 Capital Management 162 28 Bonds and Notes 98 Shareholder Information 50 8 Additional Financial Instrument 29 Loan Capital 99 Risk Disclosures 166 30 Share Capital 102 Glossary of Financial Terms 170 31 Reserves and Retained Earnings 104 32 Minority Interests 105 Alphabetical Index 172 ANZ Annual Report 2007 1 2 ANZ Annual Report 2007 CHAIRMAN’S REPORT A MESSAGE FROM CHARLES GOODE 2007 has been a year of achievement and change. ANZ has performed solidly during 2007, delivering value for shareholders, customers and the community. Our level of staff engagement grew and our approach to corporate responsibility gained increasing recognition. Looking ahead, we are conscious of the demands of increasing competition and the turbulence in world markets. OUR PERFORMANCE LEADERSHIP ANZ’s performance in 2007 was John McFarlane completed his term as characterised by strong revenue growth Chief Executive on 30 September having and a prudent approach to risk. occupied that position for ten years. John Our profit after tax for the year ended made an enduring contribution to ANZ’s 30 September 2007 of $4,180 million was development, especially in the areas of up by 13%. Cash profit1 was $3,924 million, customer satisfaction, staff engagement, up by 9%. lifting our position in the community and consistently delivering on promises to The dividend is 136 cents per share fully shareholders. ANZ now has a strong franked, a 9% increase on 2006. foundation and on behalf of shareholders These results reflect the efforts of our and the Board, I thank him for his management and staff, and I thank them contribution and service. for their contribution. Michael Smith commenced as Chief EXPANSION AND GROWTH Executive on 1 October. Michael is an outstanding all round international banker. The Personal Division delivered another very He joins us from HSBC where he had strong result driven by revenue growth of responsibility for HSBC’s business in Asia. 12%. In New Zealand we increased market David Gonski retired from the Board in June share in a number of key segments and 2007. David made a significant contribution delivered improved financial performance. and we thank him. Ian Macfarlane, former The Institutional Division had a mixed year Governor of the Reserve Bank of Australia, but should perform better in 2008. joined the Board in February 2007. We continued our expansion in Asia. We acquired an initial 19% of Malaysia’s AMMB OUtlooK Holdings Berhad; 20% of China’s Shanghai Looking ahead, there are some global Rural Commercial Bank; 60% of the Vientiane uncertanties however the economies of Commercial Bank in Laos; 10% of Vietnam’s Australia, New Zealand and Asia remain Saigon Securities Incorporation; and 100% supportive of growth. ANZ remains in good of the Citizens Security Bank in Guam. shape, with a strong liquidity and funding In Australia, we completed the successful position. We are well positioned for 2008. acquisition of ETRADE Australia Limited. We have committed approximately $1.5 billion to investments during 2007. Given this, we are taking the opportunity to enhance our strategic flexibility by offering a discount of 1.5% under our Dividend Reinvestment Plan, which is underwritten and expected to raise an additional $1 billion in capital. CHARLES GOODE CHAIRMAN 1 ANZ excludes from cash profit significant items, ANZ National Bank integration costs and volatility associated with fair value movements relating to economic hedges. Chairman’s Report 3 OVERVIEW OF OPERATIONS ANZ recorded a profi t after tax of $4,180 million for the year ended 30 September 2007, an increase of 13% over the September 2006 year. Movt Income Statement ($m) 2007 2006 % Net interest income 7,302 6,943 5% Other operating income 4,083 3,209 27% Operating income 11,385 10,152 12% Operating expenses (4,953) (4,531) 9% Provision before credit impairment and income tax 6,432 5,621 14% Provision for credit impairment (567) (407) 39% Profi t before income tax 5,865 5,214 12% Income tax expense (1,678) (1,522) 10% Minority interest (7) (4) 75% Profi t attributable to shareholders of the Company 4,180 3,688 13% ANZ recorded a $492 million (13%) 2007. The increase was impacted by a $113 NET INTEREST INCOME increase in profi t attributable to million cost recovery during 2006 following Net interest income increased $359 million shareholders of the Company, from the settlement of a claim against a number (5%) to $7,302 million for the year ended $3,688 million for the year ended of reinsurers in relation to the National 30 September 2007. Net interest income 30 September 2006 to $4,180 million for Housing Bank (NHB) matter, partly offset by was driven by an increase in average the year ending 30 September 2007. Key ANZ National Bank integration costs of $39 interest earning assets of 11% and average factors infl uencing this increase were: million incurred in 2006. deposit and other borrowings growth of 8%, Net interest income increased $359 Provision for credit impairment increased partially offset by a decline in net interest million (5%) from $6,943 million for the $160 million (39%) from $407 million for margin of 12 basis points. the year ended 30 September 2006 to year ended 30 September 2006 to $7,302 The growth in average interest earning $567 million for the year ended million for the year ended 30 September assets included an increase in Personal 30 September 2007. 2007. Net interest income was driven by of 11% in lending assets, primarily in average lending growth of 11% and average Income tax expense increased $156 Mortgages, and from growth in retail deposit growth of 8%, partially offset by a million (10%) from $1,522 million for the loans and one-off borrowings following decline in net interest margin of 12 basis year ended 30 September 2006 to $1,678 superannuation legislation changes. points. million for the year ended 30 September Institutional grew 9% as a result of Other operating income increased $874 2007. The effective tax rate was 28.6%, continuing strong customer demand for debt million (27%) from $3,209 million for the a reduction from 29.2% at 30 September products, especially in Relationship Lending year ended 30 September 2006 to $4,083 2006. The decrease includes the usage in the latter part of the year and Business million for the year ended 30 September of capital losses which offset the capital