2012 ANNUAL REPORT RIGHT PLACE RIGHT TIME OUR SUPER REGIONAL STRATEGY PUTS ANZ IN THE RIGHT PLACE AT THE RIGHT TIME OUR PEOPLE AND UNIQUE STRATEGY ARE THE KEYS TO OUR SUCCESS ANZ IS EXECUTING A FOCUSED STRATEGY TO BUILD THE BEST CONNECTED, MOST RESPECTED BANK ACROSS THE ASIA PACIFIC REGION. WHO WE ARE AND HOW WE OPERATE ANZ’s history of expansion and growth stretches over 175 years. We have a strong franchise in Retail, Commercial and Institutional banking in our home markets of Australia and New Zealand and we have been operating in Asia Paci c for more than 30 years. Today, ANZ operates in 32 markets globally. We are the third largest bank in Australia, the largest banking group in New Zealand and the Paci c, and among the top 20 banks in the world. Res pon P nd for si u OUR SUPER a ou bl r n ed k r c e p o t an pe u gr i ec b op st o o REGIONAL STRATEGY s n d n le om w i n te io a th s o c eg n e V c e r d rs a e t p r c , n s s u o sh d » Strengthening our business in e e o m b r s a p t s m r r e s o e o Australia, New Zealand and the r u h s h o n T c o p m a i t ld e Paci c, while establishing a signi cant ie r e i s r t s y presence in key markets in Asia. , » Building connectivity to support PROGRESS customers who are operating increasingly within and across our region. V I n a A t c e c g » Providing our customers with the l o r s u u it s y e n r right nancial solutions and insights e t • e a g E b C o s s i o r i to help them progress. x li l P ce t la e & l y b l le • or p m n R at o B c es io Pe o e p n g r » Growing and strengthening the bank e ect in h elp P a H d by diversifying our earnings. vio an urs Br ANZ ANNUAL REPORT 2012 1 2 ANZ ANNUAL REPORT 2012 CONTENTS Section 1 Section 3 Financial Highlights 5 Financial Statements 72 Chairman’s Report 6 Notes to the Financial Statements 78 Chief Executive O cer’s Report 7 Directors’ Declaration and Responsibility Statement 193 Directors’ Report 8 Independent Auditor’s Report 194 Remuneration Report 13 Corporate Governance 36 Section 4 Supplementary Information 196 Section 2 Shareholder Information 207 Review of Operating Results 55 Glossary of Financial Terms 213 Principal Risks and Uncertainties 62 Alphabetical Index 216 Five Year Summary 70 CONTENTS 3 SECTION 1 Financial Highlights 5 Chairman’s Report 6 Chief Executive O cer’s Report 7 Directors’ Report 8 Remuneration Report 13 Corporate Governance 36 4 ANZ ANNUAL REPORT 2012 FINANCIAL HIGHLIGHTS 2012 2011 Pro tability Pro t attributable to shareholders of the Company ($m) 5,661 5,355 Underlying pro t1 ($m) 6,011 5,652 Return on: Average ordinary shareholders’ equity2 14.6% 15.3% Average ordinary shareholders’ equity (underlying pro t basis)1,2 15.6% 16.2% Average assets3 0.90% 0.94% Net interest margin3 2.31% 2.42% Net interest margin (excluding Global Markets)3 2.71% 2.80% Underlying pro t per average FTE ($)1,4 122,681 116,546 E ciency ratios Operating expenses to operating income 48.1% 47.4% Operating expenses to average assets3 1.36% 1.40% Operating expenses to operating income (underlying)1 45.6% 45.9% Operating expenses to average assets (underlying)1,3 1.28% 1.35% Credit impairment provisioning Collective provision charge/(release) ($m) (379) 7 Individual provision charge ($m) 1,577 1,230 Total provision charge ($m) 1,198 1,237 Individual provision charge as a % of average net advances 0.38% 0.32% Total provision charge as a % of average net advances 0.29% 0.32% Ordinary share dividends Interim – 100% franked (cents) 66 64 Final – 100% franked (cents) 79 76 Total dividend (cents) 145 140 Ordinary share dividend payout ratio5 69.3% 68.6% Underlying ordinary share dividend payout ratio1,5 65.3% 65.0% Preference share dividend ($m) Dividend paid6 11 12 1 Profit has been adjusted for certain non-core items to arrive at underlying profit, the result 2 Average ordinary shareholders’ equity excludes non-controlling interests and preference shares. for the ongoing business activities of the Group. These adjustments have been determined 3 Comparative information has been restated to reflect the impact of the current period on a consistent basis with those made in prior years. The adjustments made in arriving at reporting treatment of derivative related collateral posted/received and the associated underlying profit are included in statutory profit which is subject to audit within the context interest income/expense. Refer to note 1 of the financial statement for further details. of the Group statutory audit opinion. Underlying profit is not audited, however, the external 4 Comparative amounts have changed reflecting an amendment to FTE to align to the current auditor has informed the Audit Committee that the adjustments, and the presentation year methodology. thereof, are based on the guidelines released by the Australian Institute of Company 5 The 2012 dividend payout ratio is calculated using the March 2012 interim and the proposed Directors (AICD) and the Financial Services Institute of Australasia (FINSIA), and have been September 2012 final dividend. The 2011 dividend payout ratio is calculated using the determined on a consistent basis with those made in prior years. Refer to page 204 to 206 March 2011 interim and September 2011 final dividend. for analysis of the adjustments between statutory profit and underlying profit. 6 Represents dividends paid on Euro Trust Securities issued on 13 December 2004. FINANCIAL HIGHLIGHTS 5 CHAIRMAN’S REPORT A MESSAGE FROM JOHN MORSCHEL ANZ DELIVERED A STRONG FINANCIAL RESULT IN 2012 AND MADE CONTINUED PROGRESS WITH ITS SUPER REGIONAL STRATEGY. I am pleased to report that ANZ’s statutory pro t after tax for the progress with ANZ receiving awards1 as Bank of the Year, Mortgage year ended 30 September 2012 was $5.7 billion, up 6%. This good Lender of the Year and Business Bank of the Year in 2012. performance re ected continued progress with our super regional We were also pleased to be recognised for our long-term strategy which saw growth across our key businesses in Australia, commitment to building the money management skills and savings New Zealand and Asia Paci c, together with renewed focus on of disadvantaged groups, receiving two major awards at the cost management. MoneySmart Week Awards in Australia. The nal dividend of 79 cents per share brings the total dividend Throughout 2012, we have continued to equip our people for for the year to 145 cents per share fully franked, an increase of 4%. high performance, continuing to support them to make ethically, Our capital position remains strong, placing ANZ among the world’s socially and environmentally responsible decisions while promoting best capitalised banks and we remain one of only a small number their wellbeing. of banks globally which have maintained a AA rating from all three We have linked ANZ’s super regional strategy to our corporate credit ratings agencies. responsibility framework and continued to work with stakeholders to guide our activities. This includes reviewing and improving our Super Regional Strategy responsible lending practices which have been built into our Over the past ve years we have had a consistent focus on training programs. creating the region’s best connected and most respected bank. ANZ was ranked the most sustainable bank globally in the 2012 2012 has been another year of achievement. In Asia, we continued Dow Jones Sustainability Index. to invest. For example, in our subsidiary bank in China we increased capital to support growth. Greater China, including Hong Kong and Outlook Taiwan, is now ANZ’s largest market outside Australia and New The global economy is softening as we enter our 2013 nancial year Zealand. We also opened our rst Malaysian branch in Labuan. with many European economies contracting and the United States In Australia and New Zealand, our largest markets, we also continued continuing to recover slowly. to invest in customer service and innovation, and in leveraging Although China’s economy is also in a managed slow-down we expect connectivity with our international network. This is increasingly a source it will continue to grow at 7–8% in 2013. This will see Asia remain the of di erentiation, particularly in Commercial and Institutional banking. best performing region in the world. In Australia and New Zealand At the same time, we have increased our focus on simplifying the consumer and business con dence remains weak and growth during bank and on containing cost growth. Alistair Currie was appointed to 2013 is expected to be around 2.7% and 2.5% respectively. the role of Group Chief Operating O cer to deliver a more integrated Although the year ahead looks challenging with headwinds in a approach to technology, shared services and operations. In New number of areas, ANZ’s unique strategy and the momentum we have Zealand, we made signi cant progress with our simpli cation in adapting to the new environment means for banks we are well program, including our migration to one banking and technology placed to deliver value to our shareholders, our customers and platform, a decision to move to a single brand.