Exhibit 1

 

 

 

 

 

 

 

 

 

2019

Interim

Financial

Results

 

 

 

 

 

 

 

THE INTERIM FINANCIAL RESULTS ANNOUNCEMENT HAS BEEN

 

PREPARED FOR DISTRIBUTION IN THE UNITED STATES OF AMERICA

 

 

 

 

 

 

 

 

 

 

 

2019 Interim financial results
Introduction

 

This Interim Financial Results Announcement has been prepared for distribution in the United States.

 

Our interim period refers to the six months ended 31 March 2019 (First Half 2019). Throughout this Interim Financial Results Announcement, we also refer to the six months ended 31 March 2018 (First Half 2018) and the six months ended 30 September 2018 (Second Half 2018).

 

The selected financial information for First Half 2019, First Half 2018 and Second Half 2018 contained in this Interim Financial Results Announcement is based on the financial statements contained in the unaudited consolidated Interim Financial Report for Westpac Banking Corporation (Westpac) and its controlled entities (Group) for the six months ended 31 March 2019. The Interim Financial Report has been prepared and presented in accordance with Australian Accounting Standards (AAS) as they relate to interim financial reports. The Interim Financial Report also complies with International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB) as they relate to interim financial reports.

 

All dollar values in this Interim Financial Results Announcement are in Australian dollars unless otherwise noted. References to ‘dollars’, ‘dollar amounts’, ‘$’, ‘AUD’ or ‘A$’ are to Australian dollars, references to ‘US$’, ‘USD’ or ‘US dollars’ are to United States dollars and references to ‘NZ$’, ‘NZD’ or ‘NZ dollars’ are to New Zealand dollars. Solely for the convenience of the reader, certain Australian dollar amounts have been translated into US dollars at a specified rate. These translations should not be construed as representations that the Australian dollar amounts actually represent such US dollar amounts or have been or could be converted into US dollars at the rate indicated. Unless otherwise stated, the translation of Australian dollar amounts into US dollar amounts has been made at the rate of A$1 = US$0.7104, the noon buying rate in New York City for cable transfers in Australian dollars as certified for customs purposes by the Federal Reserve Bank of New York (the noon buying rate) on 30 March 2019. Refer to Section 5.5 for information regarding the rates of exchange between the Australian dollar and the US dollar applied by the Group as part of its operating activities for First Half 2019, Second Half 2018 and First Half 2018.

 

In addition to discussing the AAS financial information in this Interim Financial Results Announcement, we also discuss the following non-AAS financial information:

 

Cash earnings policy

 

In assessing financial performance, including divisional results, Westpac Group uses a measure of performance referred to as ‘cash earnings’. Cash earnings is viewed as a measure of the level of profit that is generated by ongoing operations and is therefore considered in assessing distributions, including dividends. Cash earnings is neither a measure of cash flow nor net profit determined on a cash accounting basis, as it includes both cash and non-cash adjustments to statutory net profit.

 

Management believes this allows the Group to more effectively assess performance for the current period against prior periods and to compare performance across business divisions and across peer companies.

 

To determine cash earnings, three categories of adjustments are made to reported results:

 

·      Material items that key decision makers at the Westpac Group believe do not reflect the Group’s operating performance;

 

·      Items that are not considered when dividends are recommended, such as the amortisation of intangibles, impact of Treasury shares and economic hedging impacts; and

 

·      Accounting reclassifications between individual line items that do not impact reported results.

 

Outlined in Section 6.1 are the cash earnings adjustments to the reported result.

 

Average Ordinary Equity

 

Average ordinary equity is calculated as the daily average of total equity less average non-controlling interests. Management believes this measure of average ordinary equity is useful in the calculation of return on equity as it removes the impact of equity attributable to non-controlling interests.

 

Other companies may use different methodologies to calculate average ordinary equity or similar non-AAS financial measures.

 

 

 

 

 

 

 

 

 

 

 

 

 

ii |  Westpac Group 2019 Interim Financial Results Announcement

 

 

2019 Interim financial results
Introduction

 

Disclosure regarding forward-looking statements

 

This Interim Financial Results Announcement (Results Announcement) contains statements that constitute ‘forward-looking statements’ within the meaning of Section 21E of the US Securities Exchange Act of 1934.

 

Forward-looking statements are statements about matters that are not historical facts. Forward-looking statements appear in a number of places in this Results Announcement and include statements regarding Westpac’s intent, belief or current expectations with respect to its business and operations, market conditions, results of operations and financial condition, including, without limitation, future loan loss provisions and financial support to certain borrowers. Words such as ‘will’, ‘may’, ‘expect’, ‘intend’, ‘seek’, ‘would’, ‘should’, ‘could’, ‘continue’, ‘plan’, ‘estimate’, ‘anticipate’, ‘believe’, ‘probability’, ‘risk’, ‘aim’ or other similar words are used to identify forward-looking statements. These forward-looking statements reflect Westpac’s current views with respect to future events and are subject to change, certain risks, uncertainties and assumptions which are, in many instances, beyond Westpac’s control, and have been made based upon management’s expectations and beliefs concerning future developments and their potential effect upon Westpac. There can be no assurance that future developments will be in accordance with Westpac’s expectations or that the effect of future developments on Westpac will be those anticipated. Actual results could differ materially from those expected, depending on the outcome of various factors, including, but not limited to:

 

·      the effect of, and changes in, laws, regulations, taxation or accounting standards or practices and government policy, particularly changes to liquidity, leverage and capital requirements;

 

·      regulatory investigations and other actions, inquiries, litigation, fines, penalties, restrictions or other regulator imposed conditions, including as a result of our actual or alleged failure to comply with laws (such as financial crime laws), regulations or regulatory policy;

 

·      internal and external events which may adversely impact Westpac’s reputation;

 

·      information security breaches, including cyberattacks;

 

·      reliability and security of Westpac’s technology and risks associated with changes to technology systems;

 

·      the stability of Australian and international financial systems and disruptions to financial markets and any losses or business impacts Westpac or its customers or counterparties may experience as a result;

 

·      market volatility, including uncertain conditions in funding, equity and asset markets;

 

·      an increase in defaults in credit exposures because of a deterioration in economic conditions;

 

·      adverse asset, credit or capital market conditions;

 

·      the conduct, behaviour or practices of Westpac or its staff;

 

·      changes to Westpac’s credit ratings or the methodology used by credit rating agencies;

 

·      levels of inflation, interest rates, exchange rates and market and monetary fluctuations;

 

·      market liquidity and investor confidence;

 

·      changes in economic conditions, consumer spending, saving and borrowing habits in Australia, New Zealand and other countries in which Westpac or its customers or counterparties conduct their operations and Westpac’s ability to maintain or to increase market share, margins and fees, and control expenses;

 

·      the effects of competition, including from established providers of financial services and from non-financial services entities, in the geographic and business areas in which Westpac conducts its operations;

 

·      the timely development and acceptance of new products and services and the perceived overall value of these products and services by customers;

 

·      the effectiveness of Westpac’s risk management policies, including internal processes, systems and employees;

 

·      the incidence or severity of Westpac-insured events;

 

·      the occurrence of environmental change (including as a result of climate change) or external events in countries in which Westpac or its customers or counterparties conduct their operations;

 

·      changes to the value of Westpac’s intangible assets;

 

·      changes in political, social or economic conditions in any of the major markets in which Westpac or its customers or counterparties operate;

 

·      the success of strategic decisions involving diversification or innovation, in addition to business expansion activity, business acquisitions and the integration of businesses; and

 

·      various other factors beyond Westpac’s control.

 

 

Westpac Group 2019 Interim Financial Results Announcement | iii

 

 

2019 Interim financial results
Introduction

 

The above list is not exhaustive. For certain other factors that may impact on forward-looking statements made by Westpac, refer to ‘Risk factors’ in the Directors’ report in this Results Announcement. When relying on forward-looking statements to make decisions with respect to Westpac, investors and others should carefully consider the foregoing factors and other uncertainties and events.

 

Westpac is under no obligation to update any forward-looking statements contained in this Results Announcement, whether as a result of new information, future events or otherwise, after the date of this Interim Financial Results Announcement.

 

References to websites

 

Information contained in or accessible through the websites mentioned in this Results Announcement does not form part of this Results Announcement unless we specifically state that it is incorporated by reference and forms part of this Results Announcement. All references in this Results Announcement to websites are inactive textual references and are for information only.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

iv | Westpac Group 2019 Interim Financial Results Announcement

 

 

2019 Interim financial results
Table of contents

 

Index

 

1.0	Group results		2
	1.1	Reported results	2
	1.2	Key financial information	4
	1.3	Market share and system multiple metrics	6
2.0	Review of Group operations		7
	2.1	Performance overview	7
	2.2	Review of reported results	15
	2.3	Credit quality	31
	2.4	Balance sheet and funding	34
	2.5	Capital and dividends	39
	2.6	Sustainability performance	45
3.0	Divisional results		50
	3.1	Consumer Bank	52
	3.2	Business Bank	55
	3.3	BT Financial Group (Australia)	57
	3.4	Westpac Institutional Bank	62
	3.5	Westpac New Zealand	65
	3.6	Group Businesses	68
4.0	2019 Interim Financial Report
	4.1	Directors’ report	71
	4.2	Consolidated income statement	99
	4.3	Consolidated statement of comprehensive income	100
	4.4	Consolidated balance sheet	101
	4.5	Consolidated statement of changes in equity	102
	4.6	Consolidated cash flow statement	103
	4.7	Notes to the consolidated financial statements	104
	4.8	Statutory statements	147
5.0	Other information		150
	5.1	Credit ratings	150
	5.2	Dividend reinvestment plan	150
	5.3	Changes in control of Group entities	150
	5.4	Financial calendar and Share Registry details	151
	5.5	Exchange rates	154
	5.6	Group earnings reconciliation	155
6.0	Cash earnings supplementary information		158
	6.1	Cash earnings adjustments	158
7.0	Glossary		160

 

In this Interim Financial Results Announcement (Results Announcement) references to ‘Westpac’, ‘WBC’, ‘Westpac Group’, ‘the Group’, ‘we’, ‘us’ and ‘our’ are to Westpac Banking Corporation and its controlled entities, unless it clearly means just Westpac Banking Corporation.

 

All references to $ in this Results Announcement are to Australian dollars unless otherwise stated.

 

Financial calendar

 

Interim Results Announcement	6 May 2019
Ex-dividend date for interim dividend	16 May 2019
Record date for interim dividend (Sydney)	17 May 2019
Interim dividend payable	24 June 2019
Final Results Announcement (scheduled)	4 November 2019

 

 

Westpac Group 2019 Interim Financial Results Announcement | 1

 

 

2019 Interim financial results
Group results

 

1.0      Group results

 

1.1       Reported results 1

 

Reported net profit attributable to owners of Westpac Banking Corporation is prepared in accordance with the requirements of Australian Accounting Standards (AAS) and regulations applicable to Australian Authorised Deposit-taking Institutions (ADIs). During First Half 2019, Westpac adopted AASB 9 Financial Instruments (AASB 9) and AASB 15 Revenue from Contracts with Customers (AASB 15). As the Group chose to apply the standards prospectively, comparatives have not been restated.

 

Adopting the new standards has resulted in measurement and classification differences between First Half 2019 and prior periods.  The significant differences are:

 

·     the measurement of credit loss provision and impairment charges are now on an expected loss basis;

 

·     line fees (mainly Business Bank) are now recognised in net interest income, previously recognised in net fee income;

 

·     interest on performing loans is now measured on the gross loan value. Previously, interest was recognised on the loan balance net of impairment provision; and

 

·     certain items previously netted are now presented on a gross basis, including payments from credit card schemes which were previously netted against related expenditure.

 

The changes have little impact on net profit but do impact individual line items.  As these changes have only been applied from 1 October 2018, it is difficult to compare line items across periods.  These changes are discussed further in Note 1 of the 2019 Interim Financial Report.

 

		Half Year		Half Year		Half Year		Half Year		% Mov’t 2		% Mov’t 2
		March 19		March 19		Sept 18		March 18		Mar 19 -		Mar 19 -
$m		US$		A$		A$		A$		Sept 18		Mar 18
Net interest income		5,870		8,263		8,227		8,278		-		-
Net fee income		587		826		1,146		1,278		(28)		(35)
Net wealth management and insurance income		232		326		1,110		951		(71)		(66)
Trading income		310		437		458		487		(5)		(10)
Other income		90		127		(17)		89		large		43
Net operating income before operating expenses
and impairment charges		7,089		9,979		10,924		11,083		(9)		(10)
Operating expenses		(3,616)		(5,091)		(4,911)		(4,655)		4		9
Net profit before impairment charges and
income tax expense		3,473		4,888		6,013		6,428		(19)		(24)
Impairment charges		(237)		(333)		(317)		(393)		5		(15)
Profit before income tax		3,236		4,555		5,696		6,035		(20)		(25)
Income tax expense		(980)		(1,379)		(1,797)		(1,835)		(23)		(25)
Net profit for the period		2,256		3,176		3,899		4,200		(19)		(24)
Net profit attributable to non-controlling interests		(2)		(3)		(2)		(2)		50		50
Net profit attributable to owners of Westpac
Banking Corporation		2,254		3,173		3,897		4,198		(19)		(24)
Effective tax rate		30.3%		30.3%		31.5%		30.4%		(128bps)		(14bps)

 

 

 

 

 

 

 

 

 

1       The Group has adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 October 2018. Statutory comparatives have not been restated. Refer to Note 1 in Section 4 for further detail. In addition, during First Half 2019, the Group has made a number of presentational changes to the Balance Sheet and Income Statement. Both statutory and cash earnings comparatives have been restated. Refer to Note 1 in Section 4 for further detail.

2      Percentage movement represents an increase / (decrease) to the relevant comparative period.

 

2 | Westpac Group 2019 Interim Financial Results Announcement

 

 

2019 Interim financial results
Group results

 

Net profit attributable to owners of Westpac Banking Corporation for First Half 2019 was $3,173 million, a decrease of $1,025 million or 24% compared to First Half 2018. First Half 2019 included significant provisions for estimated customer refunds, payments and associated costs, and costs associated with the restructuring of the Wealth business, which together reduced net profit after tax by $753 million. These items are discussed further in Section 2.1 and in Note 14 of the 2019 Interim Financial Report.

 

Net interest income decreased $15 million compared to First Half 2018. Average interest-earning assets grew 4% mostly from total loan growth but this was more than offset by a net interest margin decrease of 7 basis points to 2.09%. The movement in net interest income included:

 

·      $212 million of provisions for estimated customer refunds and payments;

 

·      a net reduction from economic hedges of $123 million; and

 

·      lower revenue from our Treasury division outweighed the growth in other divisions; offset by

 

·      an increase of $330 million due to the reclassification of line fees from net fee income to interest income.

 

Net interest income, loans, deposits and other borrowings and net interest margin are discussed further in Sections 2.2.1 to 2.2.4.

 

Net fee income decreased $452 million or 35% compared to First Half 2018 primarily due to the reclassification of line fees to net interest income and a $165 million impact of provisions for estimated customer refunds and payments.

 

Net wealth management and insurance income decreased $625 million or 66% compared to First Half 2018 primarily due to additional provisions for estimated customer refunds and payments of $435 million, higher general insurance claims and lower wealth management income due to changes in pricing structure, the cessation of grandfathered commissions and the exit of Hastings in Second Half 2018.

 

Trading income decreased $50 million or 10% due to lower income in the markets business.

 

Other income increased $38 million or 43% mainly due to the profit on sale of an associate.

 

Net fee income, net wealth management and insurance income, trading income and other income are discussed further in Section 2.2.5.

 

Operating expenses increased $436 million or 9% compared to First Half 2018. The rise was mainly due to:

 

·      $84 million of provisions for estimated costs associated with implementing customer refunds and payments;

 

·      $190 million of provisions for the restructuring of the Wealth business; and

 

·      $162 million increase in other costs including $97 million of higher costs associated with the Group’s investment program, largely across banking and wealth platforms.

 

Operating expenses are discussed further in Section 2.2.8.

 

Impairment charges were $60 million or 15% lower compared to First Half 2018. Asset quality remained sound, with stressed exposures as a percentage of total committed exposures at 1.10%, up 1 basis point compared to First Half 2018. Impairment charges are discussed further in Section 2.2.9.

 

The effective tax rate of 30.3% was lower than the First Half 2018 effective tax rate of 30.4%. Income tax expense is discussed further in Section 2.2.10.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Westpac Group 2019 Interim Financial Results Announcement | 3

 

 

2019 Interim financial results
Group results

 

1.2                     Key financial information 1

 

		Half Year		Half Year		Half Year		Half Year		% Mov’t		% Mov’t
		March 19		March 19		Sept 18		March 18		Mar 19 -		Mar 19 -
		US$		A$		A$		A$		Sept 18		Mar 18
Shareholder value
Earnings per ordinary share (cents) 2		65.6		92.3		113.8		123.7		(19)		(25)
Weighted average ordinary shares (millions) 3		3,436		3,436		3,421		3,392		-		1
Fully franked dividends per ordinary share (cents)		67		94		94		94		-		-
Return on average ordinary equity 4		10.05%		10.05%		12.34%		13.79%		(229bps)		(374bps)
Average ordinary equity ($m) 5		45,002		63,348		62,978		61,051		1		4
Average total equity ($m) 6		45,039		63,400		63,026		61,065		1		4
Net tangible asset per ordinary share ($) 7		10.74		15.12		15.39		15.00		(2)		1
Business performance
Interest spread 8		1.89%		1.89%		1.92%		2.00%		(3bps)		(11bps)
Benefit of net non-interest bearing assets,
liabilities and equity 9		0.20%		0.20%		0.18%		0.16%		2bps		4bps
Net interest margin 10		2.09%		2.09%		2.10%		2.16%		(1bps)		(7bps)
Average interest-earning assets ($m)		564,526		794,660		782,834		767,011		2		4
Expense to income ratio 11		51.01%		51.02%		44.96%		42.00%		large		large
Capital, funding and liquidity
Common equity Tier 1 capital ratio
- APRA Basel III		10.64%		10.64%		10.63%		10.50%		1bps		14bps
- Internationally comparable 12		16.17%		16.17%		16.14%		16.13%		3bps		4bps
Credit risk weighted assets (credit RWA) ($m)		257,706		362,762		362,749		361,391		-		-
Total risk weighted assets (RWA) ($m)		298,239		419,819		425,384		415,744		(1)		1
Liquidity coverage ratio (LCR)		138%		138%		133%		134%		large		351bps
Net stable funding ratio (NSFR)		113%		113%		114%		112%		(54bps)		81bps
Asset quality
Gross impaired exposures to gross loans				0.24%		0.20%		0.22%		4bps		2bps
Gross impaired exposures to equity and
total provisions				2.57%		2.09%		2.33%		48bps		24bps
Gross impaired exposures provisions to
gross impaired exposures 13				45.74%		46.12%		45.54%		(38bps)		20bps
Total committed exposures (TCE) ($m)				1,046,776		1,038,006		1,023,017		1		2
Total stressed exposures as a % of TCE				1.10%		1.08%		1.09%		2bps		1bps
Total loan provisions to gross loans				56bps		43bps		45bps		13bps		11bps
Mortgages 90+ day delinquencies				0.75%		0.67%		0.65%		8bps		10bps
Other consumer loans 90+ day delinquencies				1.80%		1.64%		1.64%		16bps		16bps
Collectively assessed provisions to credit RWA				98bps		73bps		75bps		25bps		23bps
Balance sheet ($m) 14
Loans		507,437		714,297		709,690		701,393		1		2
Total assets		633,010		891,062		879,592		871,855		1		2
Deposits and other borrowings		394,277		555,007		559,285		547,736		(1)		1
Total liabilities		587,591		827,127		815,019		809,190		1		2
Total equity		45,419		63,935		64,573		62,665		(1)		2
Wealth Management
Average Group funds ($bn) 15		147.3		207.3		217.3		217.3		(5)		(5)
Life insurance in-force premiums (Australia) ($m)		894		1,259		1,277		1,276		(1)		(1)
General insurance gross written premiums
(Australia) ($m)		184		259		252		251		3		3

 

 

 

 

 

 

4 | Westpac Group 2019 Interim Financial Results Announcement

 

 

2019 Interim financial results
Group results

 

1		The Group has adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 October 2018. Statutory comparatives have not been restated. Refer to Note 1 in Section 4 for further detail. In addition, during First Half 2019, the Group has made a number of presentational changes to the Balance Sheet and Income Statement. Both statutory and cash earnings comparatives have been restated. Refer to Note 1 in Section 4 for further details
2		Based on the weighted average number of fully paid ordinary shares outstanding for the relevant six month period. Earnings are calculated as net profit attributable to owners of WBC.
3		Weighted average number of fully paid ordinary shares listed on the ASX for the relevant period less Westpac shares held by the Group (“Treasury shares”).
4		Calculated as net profit attributable to owners of WBC divided by average ordinary equity (annualised).
5		Calculated as average total equity less average non-controlling interests.
6		Average total equity is the average balance of shareholders’ equity, including non-controlling interests.
7		Total equity attributable to owners of WBC after deducting intangible assets divided by the number of ordinary shares outstanding, less Treasury shares held.
8		Calculated as the difference between the average yield on all interest earning assets and the average rate paid on all interest bearing liabilities.
9		Calculated as the difference between net interest margin and interest spread, and represents benefits derived from holdings of the net non-interest bearing component of the balance sheet (including equity).
10		Calculated by dividing net interest income by average interest earning assets (annualised).
11		Calculated as Group operating expenses excluding impairment charges divided by Group net operating income before operating expenses and impairment charges.
12		Refer to Glossary for definition.
13		Impairment provisions relating to impaired loans include individually assessed provisions plus the proportion of the collectively assessed provisions that relate to impaired exposures.
14		Spot balances.
15		Averages are based on a six month period.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Westpac Group 2019 Interim Financial Results Announcement | 5

 

 

2019 Interim financial results
Group results

 

1.3                     Market share and system multiple metrics

 

1.3.1     Market share

 

						As at		As at		As at
						31 March		30 Sept		31 March
						2019		2018		2018
Australia
Banking system (APRA) 1
Housing credit 2						24%		24%		25%
Cards						23%		23%		23%
Household deposits						23%		23%		23%
Business deposits						20%		20%		20%
Financial system (RBA) 3
Housing credit 2						23%		23%		23%
Business credit						18%		19%		19%
Retail deposits 4						21%		22%		21%
New Zealand (RBNZ) 5,6
Consumer lending						18%		19%		19%
Deposits						19%		18%		19%
Business lending						17%		16%		16%
Australian Wealth Management 7
Platforms (includes Wrap and Corporate Super)						18%		19%		18%
Retail (excludes Cash)						17%		18%		18%
Corporate Super						13%		13%		13%
1.3.2    System multiples
						Half Year		Half Year		Half Year
						March 19		Sept 18		March 18
Australia
Banking system (APRA) 1
Housing credit 2						0.5		0.9		1.0
Cards 8						n/a		n/a		n/a
Household deposits						0.1		1.1		0.8
Business deposits 8						0.1		n/a		0.9
Financial system (RBA) 3
Housing credit 2						0.5		0.8		0.9
Business credit 8						n/a		0.6		0.9
Retail deposits 4,8						n/a		1.3		0.6
New Zealand (RBNZ) 5,6
Consumer lending						0.4		0.6		0.7
Deposits						1.4		0.1		1.2

 

 

 

 

 

 

 

 

1           Source: Australian Prudential Regulation Authority (APRA). 2           Includes securitised loans. 3           Source: Reserve Bank of Australia (RBA). 4           Retail deposits as measured by the RBA, financial system includes financial corporations’ deposits. 5           New Zealand comprises New Zealand banking operations. 6           Source: Reserve Bank of New Zealand (RBNZ). 7           Market Share Funds under Management / Funds under Administration based on published market share statistics from Strategic Insight as at 31 December 2018 (for First Half 2019), as at 30 June 2018 (for Second Half 2018) and as at 31 December 2017 (for First Half 2018) and represents the BT Wealth business market share reported at these times. 8           n/a indicates that system growth or Westpac growth was negative.

 

6 | Westpac Group 2019 Interim Financial Results Announcement

 

 

 

2019 Interim financial results
Review of Group operations

 

2.0         Review of Group operations

 

Section 2 ‘Review of Group operations’ focuses on our Group results and key drivers for movements, with reference to our significant divisions. For more commentary at the divisional level, refer to Section 3 ‘Divisional results’.

 

2.1         Performance overview 1

 

Overview

 

		Half Year		Half Year		Half Year		Half Year		% Mov’t		% Mov’t
		March 19		March 19		Sept 18		March 18		Mar 19 -		Mar 19 -
$m		US$		A$		A$		A$		Sept 18		Mar 18
Net interest income		5,870		8,263		8,227		8,278		-		-
Net fee income		587		826		1,146		1,278		(28)		(35)
Net wealth management and insurance income		232		326		1,110		951		(71)		(66)
Trading income		310		437		458		487		(5)		(10)
Other income		90		127		(17)		89		large		43
Net operating income before operating expenses
and impairment charges		7,089		9,979		10,924		11,083		(9)		(10)
Operating expenses		(3,616)		(5,091)		(4,911)		(4,655)		4		9
Profit before impairment charges and
income tax expense		3,473		4,888		6,013		6,428		(19)		(24)
Impairment charges		(237)		(333)		(317)		(393)		5		(15)
Profit before income tax		3,236		4,555		5,696		6,035		(20)		(25)
Income tax expense		(980)		(1,379)		(1,797)		(1,835)		(23)		(25)
Net profit for the period		2,256		3,176		3,899		4,200		(19)		(24)
Net profit attributable to non-controlling interests		(2)		(3)		(2)		(2)		50		50
Net profit attributable to owners of Westpac
Banking Corporation		2,254		3,173		3,897		4,198		(19)		(24)

 

First Half 2019 has been another challenging period for financial services companies, including Westpac. In particular, the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Royal Commission), brought to light confronting stories and examples of poor behaviour affecting customers. This in turn has eroded public sentiment and trust in the financial services industry. Across the industry, firms such as Westpac are now working to respond to the findings of the Royal Commission’s final report (released 1 February 2019), as well as to remediate customer issues. These efforts will strengthen the focus on leadership, governance and culture, and create better outcomes for customers and shareholders. Westpac’s response to the Royal Commission is summarised later in this overview.

 

At the same time, the economic environment has softened over the last six months, with lower economic growth, subdued inflation and lower business and consumer sentiment. For financial services, this has contributed to more cautious demand for lending, a decline in deposit growth, and lower house prices. Although growth has slowed, competition has remained intense across the sector including from domestic and international banks and from non-bank operators.

 

With this backdrop, the reported net profit attributable to owners of WBC was $3,173 million in First Half 2019, a reduction of $724 million (or 19%) compared to Second Half 2018 and down $1,025 million (or 24%) from First Half 2018. The Group’s performance in First Half 2019 was impacted by two notable items: provisions for estimated customer refunds and payments (and associated costs) of $617 million (after tax); and provisions for costs associated with the reset of Westpac’s wealth strategy announced on 19 March 2019 ($136 million after tax). In First Half 2019, the majority of these items were recorded in BT Financial Group (BTFG) and the Business Bank. These notable items are explained in more detail later in this overview. For more information see Note 14 of the 2019 Interim Financial Report.

 

Excluding movements in notable items, net profit attributable to owners of WBC in First Half 2019 was $252 million lower, down 6% compared to Second Half 2018. Excluding notable items, the Business Bank, Westpac New Zealand, and Westpac Institutional Bank all increased cash earnings over the half. These increases were more than offset by a lower contribution from the Group’s Treasury operations, and higher insurance claims (from severe weather events) contributing to a lower BTFG result. Before notable items, the Consumer Bank result was relatively flat (down $7 million).

 

 

1           The Group has adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 October 2018. Statutory comparatives have not been restated. Refer to Note 1 in Section 4 for further detail. In addition, during First Half 2019, the Group has made a number of presentational changes to the Balance Sheet and Income Statement. Both statutory and cash earnings comparatives have been restated. Refer to Note 1 in Section 4 for further detail.

 

Westpac Group 2019 Interim Financial Results Announcement | 7