Australia and New Zealand
Banking Group Limited
ABN 11 005 357 522

Consolidated Financial Report
Dividend Announcement andAppendix 4D

Half Year
31 March 2005

This Financial Report on the consolidated Group constitutes the Appendix 4D required by the Australian Stock
Exchange, and should be read in conjunction with the September 2004 Annual and Financial Reports and is lodged
with the Australian Stock Exchange under listing rule 4.2A

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITEDABN 11 005 357 522

CONSOLIDATED FINANCIAL REPORT, DIVIDEND ANNOUNCEMENT and APPENDIX 4D
Half year ended 31 March 2005

CONTENTSPAGEHIGHLIGHTS

1

FINANCIAL HIGHLIGHTS

5

Net Profit
Significant items and NBNZ incremental integration costs in the profit and loss
Profit excluding significant items and NBNZ incremental integration costs in the profit and loss
Earnings per share
Net profit by business unit
Net profit by geography
Statement of Financial Position
Financial Ratios

RESULTS COMMENTARYMarch 2005 half year compared to September 2004 half year
March 2005 half year compared to March 2004 half year
Significant items and NBNZ incremental integration costs
Income and expenses
Earnings per share
Dividends
EVA Reconciliation
Credit Risk
Market Risk
Statement of Financial Position
Capital Management
National Bank of New Zealand - Integration
Impact of NBNZ on March 2004 results
Critical Accounting Policies

5
5
5
6
6
6
7
8

11
11
12
12
13
19
19
20
21
23
24
26
27
28
29

BUSINESS PERFORMANCE REVIEW33

GEOGRAPHIC SEGMENT PERFORMANCE

47

FOUR YEAR SUMMARY BY HALF YEAR

53

CONSOLIDATED FINANCIAL STATEMENTS – TABLE OF CONTENTS

56

DIRECTORS’ DECLARATION

93

AUDITORS’ REVIEW REPORT AND INDEPENDENCE DECLARATION

94

DEFINITIONS

95

ALPHABETICAL INDEX

97

All amounts are in Australian dollars unless otherwise stated. The information on which this announcement is based has
been reviewed by the Group’s auditors, KPMG. The Company has a formally constituted Audit Committee of the Board of
Directors. This report was approved by resolution of a Committee of the Board of Directors on 26 April, 2005.
When used in this Results Announcement the words “estimate”, “project”, “intend”, anticipate”, “believe”, “expect”, “should”
and similar expressions, as they relate to the ANZ Group and its management, are intended to identify forward-looking
statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as ofthe date hereof. Such statements constitute “forward-looking statements” for the purposes of the United States Private
Securities Litigation Reform Act of 1995. The ANZ Group does not undertake any obligation to publicly release the result of
any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect theoccurrence of unanticipated events.

HIGHLIGHTSFor Release: 27 April 2005

ANZ interim cash earnings per share up 8.9%
Profit after tax•$1,475 million - up 5.7%•

$1,492 million - up 13.7% (excl. non-core items)

Shareholder return•EPS 79.8 cents - up 7.8% (excl. non-core items)•

Cash EPS 85.9 cents - up 8.9% (excl. non-core items and goodwill
amortisation)•

Interim dividend 51 cents - up 8.5%•

Total Shareholder Return 15% (year to 31 March 2005)

Ratios•Adjusted Common Equity Ratio 5.1% - down from 5.2%•

Cost-income ratio 45.8% - up from 45.1% (excl. non-core items)•

Cash return on equity 18.7% - down from 19.6% (excl. non-core items)

Business Comment•

Strong performance in Australia. Subdued results in NZ.

•

Robust asset and liability growth offset by lower margins.

•

Good cost and risk outcomes - net specific provisions down 23% to$151 million and net non-accrual loans down 37%.

•

Respectable performance in the first half and a favourable outlook
help underpin a solid result for the year as a whole.

Note: Comparisons with first half 2004
Non-core items are significant items and NBNZ incremental integration costs

1

HIGHLIGHTS (continued)

For Release: 27 April 2005

ANZ interim cash earnings per share up 8.9%
Australia and New Zealand Banking Group Limited (ANZ) today announced an operating profit after
tax of $1,492 million for the half-year ended 31 March 2005, and cash earnings per share of
85.9 cents, up 8.9%*. (All excluding non-core items*.)
The Interim Dividend was increased by 8.5% to 51 cents in line with ANZ’s policy to increase
dividends at the rate of cash earnings per share growth. Total Shareholder return over the year to
31 March 2005 was 15%.
ANZ Chief Executive Officer Mr John McFarlane said: “This is a respectable result in a rising rateenvironment and a highly competitive market. We are ahead of market expectations but there ismore to do on the revenue side.
“Eight years ago we set out to change the face of ANZ. The results are now clear. We arecontinuing to move forward with commitment, energy and a sense of confidence in our future.
“In the half, asset and liability growth were very strong across the Group but this was substantially
offset by a decline in margins.
“Advances grew by 14%. Net interest margins fell 13 basis points, as a result of a higher
concentration of lower risk, lower yielding assets, together with intense competition in Institutional
and in New Zealand mortgages, lower Treasury earnings, and a greater reliance on wholesalefunding as a result of higher than expected asset levels.
“The highlight was Australia with earnings up 15% (excluding non-core items) and lending also up
15%. Personal Banking was particularly strong, reflecting the benefits of a distinctive strategy andstrong execution over a number of years. ING Australia also performed well. Institutional,
Corporate and Esanda performed broadly in line with plan.
“New Zealand was flat overall but this should be seen in the context of the need to prioritise themajor integration and a very tight-deadline for the regulatory compliance program. The Asia Pacificbusiness did not have the benefit of one-off earnings in Panin in 2004.
“We continued to invest in our people and in building our franchise, particularly in retail banking inAustralia and New Zealand. Staff numbers rose by 6.7% to 1,861, and this contributed to expense
growth of 8.0%. Our cost to income ratio rose slightly in the half but we would expect this tocontinue to trend downwards.
“Risks were reduced substantially and portfolio quality improved over the year resulting in amodestly lower Economic Loss Provision and a substantially lower Specific Provision”, Mr McFarlane
said.

*

Comparisons with first half 2004. Non-core items are significant items and NBNZ incremental integration costs.

2

HIGHLIGHTS (continued)
Business Commentary
Commenting on each of ANZ’s business divisions, Mr McFarlane said:“In Personal Banking Australia our Mortgages and Deposit Products business each recorded market
share gains. Strong growth was also seen in Regional Australia and in Consumer Finance where ourlow rate card product has been very successful.
“During the half, ANZ opened six new retail points of representation including new style retail
outlets, and completed 42 refurbishments. Staff numbers grew by 4%. We would have liked tohave expanded faster but were constrained by the availability of quality branch sites and skilled
staff. Ten retail openings are planned in the second half with a pipeline of openings established for2006.
“We have come a long way in Personal Banking and are now among the best performing retailbanks in Australia with market leading products and the highest customer satisfaction of the majorbanks. This gives us the platform to take this business to a new level.
“In Institutional, very strong loan growth was offset by margin pressure, partly reflecting a cyclicalcontraction in global credit spreads. During the half, we restructured our Markets business bymerging the Capital Markets and Foreign Exchange business units, which will deliver improved
efficiency and an enhanced customer proposition. Trade and Transaction Services continued toperform well.
“Corporate performed well financially, despite a modest slowdown in system loan growth in the SME
segment. In Small Business, we have employed 54 new relationship managers, as we leverage thesuccess NBNZ has achieved in this segment in New Zealand.
“In New Zealand, a subdued overall result masked stronger performance in NBNZ Retail, Corporate
and Rural, offset by subdued performance in ANZ Retail, where fees were reduced to build longer
term market share, in Institutional and in UDC. Price competition was particularly intense.
“It was also a period where the priority was on completing integration, and on the major technology
and operational changes required by the Reserve Bank of New Zealand. We are well advanced withintegration and with the demanding regulatory agenda, and are confident they will be completed in
2005. This will enable management to refocus on building the business and enhancing financial
performance, rather than on integration and regulatory matters, and we expect New Zealand to
improve in the second half.
Sustainability“At ANZ, we are committed to improve the sustainability of returns and of building a base for longer
term growth and return. Central to this, are our responsibilities to our broader stakeholder group,
including customers, government, the community, and staff, as well as shareholders.
“In Australia, we have systematically increased market share and are the best regarded major bankin retail banking. We continue to consolidate our strong position in corporate banking. We are now
the largest bank in New Zealand and in the South-Pacific, and probably have the largest Australian
direct investment into Asia-Pacific.
“We have focussed on advancing our cultural change agenda and the development of enlightenedvalues among our people. ANZ is becoming recognised globally for our achievements in this area.
Staff satisfaction is at 85% and staff engagement improved from 53% to 60%. This is ahead of all
major Australian companies similarly surveyed, and ahead of other major banks. We have also
made good progress on staff safety. We measure ANZ values annually and are pleased that our top
values across the Group are now ‘customer focus’ and ‘community involvement’.

3

HIGHLIGHTS (continued)“Our people are increasingly involved in community activities which was evidenced in the admirable
response by staff to the Boxing Day Tsunami Appeal. This, together with our innovative Group
programs to create greater financial inclusion particularly for low-income earners and indigenous
Australians have helped raise the regard in which we are held.
Outlook“The economic environment in Australia, New Zealand and internationally remains supportive ofgood earnings growth in the medium term future. We are likely to see some softening as interest
rates continue to rise and the economic cycle comes off its peak. System credit growth isnevertheless likely to remain double digit for the year, including housing, but it would be prudent toremain cautious about margins.
“Our respectable performance in the first half and a favourable outlook will help underpin a solid
result for the year as a whole,” Mr McFarlane said.

For media enquiries, contact:

For analyst enquiries, contact:

Paul Edwards
Head of Group Media Relations
Tel: 03-9273 6955 or 0409-655 550
Email: paul.edwards@anz.com

Stephen Higgins
Head of Investor Relations
Tel: 03-9273 4185 or 0417-379 170
Email: higgins@anz.com

4FINANCIAL HIGHLIGHTSNet Profit
Half
year
Mar 05
$M

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Mar 05v. Sep 04%

Movt
Mar 05v. Mar 04%

Net interest income

2,853

2,745

2,509

4%

14%

Other operating income

1,704

1,708

1,683

0%

1%

Operating income

4,557

4,453

4,192

2%

9%
16%

Operating expenses(2,200)(2,124)(1,902)

4%

Profit before debt provision

2,357

2,329

2,290

1%

3%

Provision for doubtful debts

(284)

(319)

(313)

-11%

-9%

Profit before income tax

2,073

2,010

1,977

3%

5%

Income tax expense

(597)

(590)

(578)

1%

3%

Outside equity interests
Net profit attributable to shareholders of the Company

(1)

(1)

(3)

0%

-67%

1,475

1,419

1,396

4%

6%

Significant items1 and NBNZ incremental integration costs2 in the profit and loss
Half
year
Mar 05
$M

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Mar 05v. Sep 04%

Movt
Mar 05v. Mar 04%

Swap income

-

-

110

n/a

-100%

Interest

-

-

2

n/a

-100%

Income tax expense

-

-

(28)

n/a

-100%

Cash dividends

n/aSignificant items
TrUEPrS

-

-

-

n/a

Gain on finalising INGA completion accounts after tax1,4

-

14

-

-100%

n/a

Total significant items

-

14

84

-100%

-100%

(17)

(14)

-

21%

n/a

(17)

-

84

n/a

large

3

NBNZ incremental integration costs after tax2,5Profit excluding significant items1 and NBNZ incremental integration costs2 in the profit and loss
Half
year
Mar 05
$M

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Mar 05v. Sep 04%

Movt
Mar 05v. Mar 04%

Net interest income

2,853

2,745

2,507

4%

14%

Other operating income

1,704

1,694

1,573

1%

8%

Operating income

4,557

4,439

4,080

3%

12%

Operating expenses(2,175)(2,103)(1,902)

3%

14%

Profit before debt provision

2,382

2,336

2,178

2%

9%

Provision for doubtful debts

(284)

(319)

(313)

-11%

-9%

Profit before income tax

2,098

2,017

1,865

4%

12%

Income tax expense

(605)

(597)

(550)

1%

10%

(1)

(1)

(3)

0%

-67%

1,492

1,419

1,312

5%

14%

Outside equity interests
Net profit excluding significant items
and NBNZ incremental integration costs
1.

2.
3.
4.
5.

In the September 2004 half ANZ has classified the $14 million profit after tax on settlement of the INGA completion accounts as significant items. In the March
2004 half $84 million net profit after tax arising from the TrUEPrS transaction has been classified as significant items. ANZ excludes significant items to eliminate
the distorting effect of one-off transactions on the results of its core business (refer page 12)
In the March 2005 half ANZ has incurred $17 million after tax NBNZ incremental integration costs (Sep 2004: $14 million). NBNZ incremental integration costs
are excluded to enable analysis of the cost base following completion of the integration (refer page 12)
Dividends on TrUEPrS preference shares treated as significant items (Mar 2005: $nil; Sep 2004: $1 million; Mar 2004: $35 million) do not impact net profit, but
do impact earnings per shareTax on gain on INGA completion accounts: $nil
Tax on incremental NBNZ integration costs: $8 million (Sep 2004: $7 million)

5

FINANCIAL HIGHLIGHTS (continued)
Earnings per share3
Half
year
Mar 05
$M

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Mar 05v. Sep 04%

Movt
Mar 05v. Mar 04%

Earnings per ordinary share (cents)
Earnings per ordinary share (basic)

78.8

76.4

76.8

3%

3%

Earnings per ordinary share (diluted)

76.9

74.4

75.3

3%

2%

79.8

76.4

74.0

4%

8%

85.9

82.1

78.9

5%

9%

Earnings per ordinary share (basic) excluding significant items1and NBNZ incremental integration costs2
Earnings per ordinary share (basic) excluding significant items1 and
NBNZ incremental integration costs2 and goodwill amortisation
1.

2.
3.

In the September 2004 half ANZ has classified the $14 million profit after tax on settlement of the INGA completion accounts and $1 million dividends arising fromthe TrUEPrS transaction as significant items. In the March 2004 half $84 million net profit after tax and $35 million dividends arising from the TrUEPrS transaction
has been classified as significant items. ANZ excludes significant items to eliminate the distorting effect of one-off transactions on the results of its core business(refer page 12)
In the March 2005 half ANZ has incurred $17 million after tax NBNZ incremental integration costs (Sep 2004: $14 million). NBNZ incremental integration costs
are excluded to enable analysis of the cost base following completion of the integration
Refer page 69 for details of calculation

Net profit by business unit
Half
year
Mar 05
$M

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Mar 05v. Sep 04%

Movt
Mar 05v. Mar 04%

Net profit after income tax
Personal Banking Australia

442

417

384

6%

15%

Institutional

455

436

427

4%

7%

New Zealand Businesses

306

291

219

5%

40%

Corporate Australia

182

172

164

6%

11%

Esanda and UDC

77

74

69

4%

12%

Asia Pacific

48

60

51

-20%

-6%

63

61

47

3%

34%

(81)

(92)

(49)

-12%

65%

1,492

1,419

1,312

5%

14%

(17)

-

84

n/a

large

1,475

1,419

1,396

4%

6%

Half
year
Mar 05
$M

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Mar 05v. Sep 04%

Movt
Mar 05v. Mar 04%

ING Australia
Group Centre

1

Net profit (excl significant items2 and NBNZ
incremental integration costs3)
Significant items2 and NBNZ incremental integration costs3
Net profit

Net profit by geography

1,051

970

916

8%

15%

New Zealand 3

286

282

227

1%

26%

Asia Pacific

84

99

92

-15%

-9%

Other

71

68

77

4%

-8%

1,492

1,419

1,312

5%

14%

(17)

-

84

n/a

large

1,475

1,419

1,396

4%

6%

Australia 2

Net profit excluding significant items 2 and NBNZ
incremental integration costs 3
Significant items 2 and NBNZ incremental integration costs 3
Net profit
1.
2.

3.

Group Centre includes the operations of Treasury
In the September 2004 half ANZ has classified the $14 million profit after tax on settlement of the INGA completion accounts as significant items. In the March
2004 half $84 million net profit after tax arising from the TrUEPrS transaction has been classified as significant items. ANZ excludes significant items to eliminate
the distorting effect of one-off transactions on the results of its core business (refer page 12)
In the March 2005 half ANZ has incurred $17 million after tax NBNZ incremental integration costs (Sep 2004: $14 million). NBNZ incremental integration costs
are excluded to enable analysis of the cost base following completion of the integration

6

FINANCIAL HIGHLIGHTS (continued)
Statement of Financial Position
As at
Mar 05As at
Sep 04As at
Mar 04

$M

$M

8,855

6,363

$M

Movt
Mar 05v. Sep 04%

Movt
Mar 05v. Mar 04
%

5,732

39%

54%
-9%

AssetsLiquid assets
Due from other financial institutions

6,428

4,781

7,093

34%

Trading and investment securities

12,853

13,224

13,062-3%-2%231,480

217,428202,216

6%

14%

Net loans and advances including acceptances
Other
Total assets

18,233

17,54919,1854%-5%277,849

259,345

247,288

7%

12%

Liabilities
Due to other financial institutions

10,056

7,349

7,143

37%

41%

Deposits and other borrowings

180,410

168,557

163,208

7%

11%

Liability for acceptances

12,922

12,466

13,3584%-3%

Bonds and notes

32,321

27,602

21,245

17%

52%

Other

23,13225,44625,586-9%-10%258,841

241,420

230,540

7%

12%

19,00817,925

16,748

6%

13%

As at
Mar 05As at
Sep 04As at
Mar 04

$M

$M

$M

Movt
Mar 05v. Sep 04%

Movt
Mar 05v. Mar 04%

Personal Banking Australia

97,807

91,18384,886

7%

15%

Institutional

46,69742,52540,90610%

14%

Total liabilities
Total shareholders' equity

Net loans and advances including acceptances by business unit

New Zealand Businesses

51,99649,892

44,4894%

17%

Corporate Australia

19,31818,45017,2155%

12%Esanda and UDC

13,813

13,58813,043

2%

6%

Asia Pacific

1,644

1,557

1,373

6%

20%

205

233

304

-12%

-33%

231,480

217,428202,216

6%

14%

Other
Net advances

7

FINANCIAL HIGHLIGHTS (continued)
Financial Ratios

EVA TM1

Halfyear
Mar 05
$M

Half
year
Sep 04
$M

Half
year
Mar 04
$M

926

880

870

17.2%

17.3%

19.1%

17.4%

17.3%

18.4%

Profitability ratios
Return on:
Average ordinary shareholders' equity2,3
Average ordinary shareholders' equity2,3 (excluding significant items4 and NBNZ
incremental integration costs5)
Average ordinary shareholders' equity2,3 (excluding goodwill amortisation, notional
goodwill, significant items4 and NBNZ incremental integration costs5)

18.7%

18.6%

19.6%

Average assets

1.10%

1.11%

1.21%

Average risk weighted assets

1.46%

1.48%

1.60%

Total income3

14.4%

14.9%

16.2%

Net interest average margin

2.40%

2.45%

2.53%

Profit per average FTE ($)

50,426

49,84453,226

Efficiency ratios6
Operating expenses to operating income (excluding significant items4 and NBNZ
incremental integration costs5)

45.8%

45.5%

45.1%

Operating expenses to operating income

46.3%

45.8%

43.9%

Operating expenses (excluding significant items and NBNZ incremental integration4

costs5) to average assets

1.55%

1.58%

1.60%

1.57%

1.59%

1.60%

Economic loss provisioning ($M)

284

319

313

Net specific provisions ($M)

151

247

196

Interim - 100% franked (Mar 04: 100% franked)

51

n/a

47

Final - 100% franked (Sep 04: 100% franked)

n/a

54

n/a

64.7%

71.0%

63.8%

59.4%

66.0%

62.1%

38

34

64

Operating expenses to average assets
Debt provisioning

Ordinary share dividends (cents)

Ordinary share dividend payout ratio7
Ordinary share dividend payout ratio7 excluding goodwill, significant items4 and NBNZ
incremental integration costs5
Preference share dividend
Dividend paid ($M)
1.
2.
3.
4.

5.
6.
7.

TM

TM

EVA refers to Economic Value Added, a measure of shareholder value. See page 20 for a reconciliation of EVA to reported net profit and a discussion of EVATM
and an explanation of its usefulness as a performance measure
Average ordinary shareholders’ equity excludes outside equity interests
Excludes preference share dividend
In the September 2004 half ANZ has classified the $14 million profit after tax on settlement of the INGA completion accounts and $1 million dividends arising fromthe TrUEPrS transaction as significant items. In the March 2004 half $84 million net profit after tax and $35 million dividends arising from the TrUEPrS transaction
has been classified as significant items. ANZ excludes significant items to eliminate the distorting effect of one-off transactions on the results of its core businessIn the March 2005 half ANZ has incurred $17 million after tax NBNZ incremental integration costs (Sep 2004: $14 million). NBNZ incremental integration costs
are excluded to enable analysis of the cost base following completion of the integration
Excludes goodwill amortisation
Dividend payout ratio is calculated using the proposed dividend as at 31 March 2005 and the 30 September 2004 and 31 March 2004 dividends

8FINANCIAL HIGHLIGHTS (continued)
Financial Ratios, cont’d
As at
Mar 05As at
Sep 04As at
Mar 04Movt
Movt
Mar 05
Mar 05v. Sep 04 v. Mar 04%%

Net Assets
Net tangible assets1 per ordinary share ($)

7.69

7.51

6.94

2%

11%

Net tangible assets1 attributable to ordinary shareholders ($M)

14,014

13,651

12,542

3%

12%

Total number of ordinary shares (M)1,822.7

1,818.4

1,808.2

0%1%

Tier 1

7.0%

6.9%

7.0%

Tier 2

3.6%

4.0%

3.7%

Total capital ratio

10.3%

10.4%

10.2%

Adjusted common equity ratio2

5.1%

5.1%

5.2%

General provision ($M)

2,080

1,992

1,828

4%

14%

General provision as a % of risk weighted assets

0.99%

1.01%

0.98%

Capital adequacy ratio (%)

Impaired assets

Gross non-accrual loans ($M)

640

829

931

-23%

-31%

Specific provisions on non-accrual loans3 ($M)

(314)

(378)

(414)

-17%

-24%

-28%

-37%

326

451

517

Specific provision3 as a % of total non-accrual loans

Net non-accrual loans

49.1%

45.6%

44.5%

Gross non-accrual loans as % of net advances

0.28%

0.38%

0.46%

Net non-accrual loans as a % of net advances

0.14%

0.21%

0.26%

Net non-accrual loans as a % of shareholders' equity4

1.7%

2.5%

3.1%

29,83228,75527,971

4%

7%

9.3

9.0

8.8

3%

6%

37,584

34,58634,284

9%

10%

Other information
Full time equivalent staff (FTE's)
Assets per FTE ($M)
Market capitalisation of ordinary shares ($M)
1.
2.
3.
4.

Equals Shareholders’ equity less preference share capital, outside equity interest and unamortised goodwill
Adjusted common equity is calculated as Tier 1 capital less preference shares at current rates and deductions from total capital. This measure is commonly used
to assess the adequacy of common equity held. See page 26 for a reconciliation to Tier 1 capital
Excludes specific provision on unproductive facilities
Includes outside equity interest

9This page has been left blank intentionally

10

RESULTS COMMENTARYMarch 2005 half year compared to September 2004 half year
Australia and New Zealand Banking Group Limited (ANZ, or the Group) recorded a profit after tax of $1,475 million
for the half year ended 31 March 2005, an increase of 4% over the September 2004 half year. After excluding thesignificant items and National Bank of New Zealand (NBNZ) incremental integration costs referred to on page 12,
profit increased 5% to $1,492 million.

Earnings per share
Basic earnings per share (EPS) increased 3.1% (2.4 cents) to 78.8 cents, whilst EPS excluding significant items and
NBNZ incremental integration costs and goodwill amortisation increased 4.6% (3.8 cents) to 85.9 cents as a result of:Profit growth (+4.1 cents).
The issuance of shares under the dividend reinvestment and bonus option plans and employee share option
schemes net of shares bought back (-0.3 cents).

Profit growthProfit in Australia increased 7% with pleasing growth in Personal Banking Australia (6%), Corporate Australia (6%),
Esanda (11%), the Australian component of Institutional (4%) and a lower charge for doubtful debts. Profit in New
Zealand was flat including a 3% appreciation in the average NZD exchange rate. Growth in the New Zealand Retail,Corporate and Rural businesses was offset by reduced profit in UDC and the New Zealand Institutional businesses andhigher capital funding costs. Profit in Asia Pacific reduced 15% reflecting the cost of building partner relationships in
Asia and lower Treasury earnings in Singapore.

Profit drivers
Significant influences on the result include:
Net interest increased by 4% with 6% lending growth, particularly in Mortgages (7%), and deposit growth in
Personal Banking Australia (4%) and Corporate Australia (6%). Volume growth was offset by a 5 basis point
decline in margin. The investment of the proceeds from the December 2004 Euro hybrid issue increased net
interest by $7 million ($5 million after tax) but is EPS neutral.
Other income was flat with volume driven growth in fees, higher foreign exchange income and increased private
equity earnings offset by fee discounting in Institutional Banking and New Zealand Mortgages, the impact of thesale of the London headquartered project finance business and reduced profit on trading securities with a higher
proportion of profit booked as interest.
Operating expenses increased 4% driven by a 4% increase in staff numbers with investment in growth initiatives,
an increasing compliance spend and increased non-lending losses.
Income tax expense increased 1%. The effective tax rate was moderately lower, principally due to higher
non-taxable income and employee share issues.
The appreciation of the AUD has resulted in a $10 million reduction in the contribution from earnings denominatedin foreign currencies (net of a $14 million reduction in profit after tax income on contracts put in place to hedge
USD and NZD revenues).
Total assets increased $18.5 billion (7%) to $277.8 billion. Net advances grew by $14.1 billion (6%) to $231.5 billion
with growth in Personal Banking Australia of 7% (principally mortgages), Institutional (10%), Corporate Australia(5%) and New Zealand businesses (4%).

Asset quality
Asset quality continued to improve:
Net specific provisions reduced 39% to $151 million with the reduction principally in Institutional.
Net non-accrual loans reduced 28% to $326 million with lower levels of new non-accrual loans and the realisationof two large power exposures in the US.
The ELP rate reduced 5 basis points driven by the growth in low risk domestic assets, continued de-risking offshore
facilitating a reduction in the Group Centre charge (2 basis points) and a revision of loss factors of the former
NBNZ businesses following further analysis of loss history.

11

RESULTS COMMENTARY (continued)
March 2005 half year compared to March 2004 half year
Australia and New Zealand Banking Group Limited recorded a profit after tax of $1,475 million for the half year ended
31 March 2005, an increase of 6% over the March 2004 half. Profit excluding significant items and NBNZ incremental
integration costs increased 14% to $1,492 million.
Basic earnings per share increased 2.6% (2.0 cents) to 78.8 cents. Earnings per share excluding significant items
and NBNZ incremental integration costs and goodwill amortisation increased 8.9% (7.0 cents) to 85.9 cents.
Profit in Australia increased 5%, or 15% after excluding significant items driven by 15% growth in Personal Banking
Australia and Esanda and 11% growth in Corporate Australia. Profit in New Zealand increased 19%, or 26% after
excluding NBNZ incremental integration costs, due largely to the additional two months contribution from the NBNZ
which was purchased on 1 December 2003. Profit in the Asia Pacific geographies reduced 9% and other geographies
reduced 8%.
After adjusting the March 2004 half for an additional two months contribution from NBNZ ($38 million, refer page 28),
profit excluding significant items and NBNZ incremental integration costs increased 10% driven by the following:
Net interest increased by 8% with solid lending growth particularly in Mortgages and deposit growth in Personal
Banking Australia and Corporate Australia suppressed by a 11 basis point reduction in margin.
Other operating income increased 5% driven by volume growth in fees, growth in private equity earnings and anincreased contribution from INGA.
Operating expenses increased 8% driven by a 7% increase in staff numbers, largely in the front-line.
Asset quality improved with gross non-accrual loans reducing 31% to $640 million, net specific provisions reducing
23% to $151 million and ELP reducing 8 basis points to 25 basis points driven by growth in low risk domestic assets,continued de-risking offshore facilitating a reduction in the Group Centre charge (2 basis points).

Significant items and NBNZ incremental integration costs
Significant items
Significant items in the profit and loss are those items that management believe do not form part of the corebusiness, and as such, should be removed from profit when analysing the core business performance. The
following are considered significant items:- INGA completion account profit (September 2004 half year)
In the September 2004 half ANZ finalised the completion accounts on the sale of ANZ funds management andinsurance businesses to INGA. This sale occurred in 2002. The final settlement of this transaction resulted in a
$14 million after tax profit.
- TrUEPrS (March 2004 half year)
During the March 2004 half, the Group bought back TrUEPrS, a hybrid Tier 1 instrument. Previously deferredincome that was earned on close out of interest rate swaps that had been hedging the TrUEPrS distributions wasrecognised in profit. The impact of TrUEPrS, being the release of deferred swap income of $108 million before
tax and $2 million other swap income in the March 2004 half year, the periodic and final cash dividends paid toholders of TrUEPrS (Sep 2004: $1 million; Mar 2004: $35 million), and the funding benefit from holding TrUEPrS
for part of the March 2004 half year, have been classified as significant items.
NBNZ incremental integration costs
Expenditure on the integration of ANZ National Bank includes both the reallocation of existing resources tointegration and incremental integration costs. Incremental costs are those costs that will not recur once
integration is complete, and thus do not form part of the core ongoing cost base. During the March 2005 half
$17 million (Sep 2004: $14 million; Mar 2004: $nil) after tax of incremental integration costs were incurred.

12

RESULTS COMMENTARY (continued)
Income and expenses
Net Interest
Half

Half

Half

Movt

Movt

year

year

year

Mar 05

Mar 05

Mar 05

Sep 04

Mar 04v. Sep 04

v.Mar 04%%

Net interest income ($M)

2,853

2,745

2,509

4%

14%

Net interest average margin (%)

2.40

2.45

2.53

n/a

n/a

239,959

225,220

199,086

7%

21%

Average interest earning assets ($M)

March 2005 half year compared to September 2004 half year
Net interest income at $2,853 million was 4% ($108 million) higher than the September 2004 half year.
VolumeAverage net loans and advances grew by $15.3 billion (8%) with growth attributable to Personal Banking Australia($6.3 billion or 7% with $5.5 billion in Mortgages), Institutional Australia ($3.9 billion or 18%), Corporate Australia($1.1 billion or 8%) and New Zealand ($4.2 billion or 8%) including exchange rate impacts from a stronger New
Zealand dollar ($1.6 billion). Average net loans and advances reduced by $0.6 billion (6%) in overseas markets asa result of the strategy to reduce higher risk exposures ($0.3 billion) and the exchange rate impact of anappreciating Australian dollar ($0.5 billion).
Average deposits and other borrowings grew $8.2 billion (5%), with growth from Treasury ($3.0 billion) to fundasset growth, Personal Banking Australia ($2.1 billion or 6%), Institutional Australia ($1.2 billion or 7%), andCorporate Australia ($1.0 billion or 6%). Average deposits and other borrowings increased in New Zealand($2.6 billion or 5%), resulting from Treasury ($0.8 billion) and exchange rate impacts ($1.5 billion). Averagedeposits and other borrowings declined ($2.2 billion or 10%) in overseas markets, resulting from substitution of
offshore commercial paper issuance with domestic certificates of deposit, and a $1.3 billion reduction resulting
from exchange rate movements.
MarginNet interest average margin contracted by 5 basis points from the September half:- Changes in the funding mix with substitution of wholesale funding for customer deposits reduced margins by
3 basis points.
- Other changes in the composition of the portfolio negatively impacted the net interest margin by 1 basis point,with the positive impact of declining average liquid asset volumes (1 basis point) offset by growth in lower
yielding Mortgage and Institutional assets (1 basis point) and the migration of customers to lower yielding credit
cards and New Zealand fixed rate mortgages (1 basis point).
- Competitive pressures reduced margins by 3 basis points with this impact arising mainly from Mortgages(particularly in New Zealand), Institutional and higher yielding customer deposits.
- Wholesale rate movements increased the net interest margin by 2 basis points, with a lower basis risk invariable rate mortgages (1 basis point) and increased earnings from the investment of capital and rateinsensitive deposits (3 basis points) offset by reduced mismatch earnings and lower Treasury earnings in
Singapore (2 basis points).
- Other items include:▪

increases in retail broker payments (-1 basis point).

▪

decreases as a result of reduced earnings from foreign exchange revenue hedging (2 basis points).

▪

funding costs associated with unrealised trading gains decreased as a result of movements in the AUD. This
increase (2 basis points) is reflected in the net interest margin, however it is directly offset by an equivalent
reduction in trading income.

▪

change in Group capital from the Euro hybrid issuance of preference share capital in December 2004 partly
offset by the buy-back of ordinary shares during the half increased margins by 1 basis point.

13

RESULTS COMMENTARY (continued)
Income and expenses, cont’d
Net Interest, cont’dMarch 2005 half year compared to March 2004 half year
Net interest increased $344 million (14%).
VolumeAverage net loans and advances grew by $38.1 billion (22%) with growth in Australia attributable to Personal
Banking ($13.1 billion or 16% with Mortgages contributing $11.4 billion), Institutional ($5.0 billion) and Corporate
Australia ($2.2 billion). New Zealand’s average net loans and advances increased by $17.3 billion (42%) due
mainly to the acquisition of the NBNZ and a $2.2 billion (5%) increase from an appreciation of the New Zealanddollar. Volumes in overseas markets were flat.
Average deposits and other borrowings increased $26.9 billion (18%), with growth in Australia in Treasury($6.1 billion) to fund asset growth, Personal Banking ($3.8 billion), Institutional ($2.0 billion) and Corporate
Australia ($1.6 billion). Average deposits and other borrowings increased in New Zealand ($14.8 billion or 38%)
following the acquisition of the NBNZ and exchange rate benefits ($2.1 billion or 5%) from an appreciation of the
New Zealand dollar. Average deposits and other borrowings decreased $2.6 billion (12%) in overseas markets asa result of reductions in time deposits and commercial paper in UK and Europe and Americas ($3.1 billion) withminimal impacts from exchange rate movements.
MarginNet interest average margin contracted by 13 basis points:- Higher proportions of lower yielding assets in Mortgages and Institutional reduced the net interest margin(2 basis points).
- Higher proportions of more expensive wholesale and customer liabilities within the portfolio reduced the netinterest margin (4 basis points).
- Wholesale rate impacts from the funding of variable rate mortgages were unchanged during the half to March
2005 due to a relatively stable short end of the yield curve.
- Competitive pressures reduced margins by 4 basis points with this impact arising mainly in Mortgages(particularly in New Zealand) and Institutional assets and higher yielding customer deposits.
- Lower mismatch earnings, from a flatter yield curve and limited investment opportunities in the current interest
rate environment and lower Treasury earnings in Singapore impacted margins (6 basis points), with offsetting
impacts on the investment of capital and rate insensitive deposits including the investment of the Euro hybrid
issue (5 basis points).
- The acquisition of NBNZ resulted in a 2 basis point decline in the Group’s interest margin.

14

RESULTS COMMENTARY (continued)
Income and expenses, cont’d
Other Operating Income
Movt
Mar 05v. Mar 04
%

Half
year
Mar 05
$M

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Mar 05v. Sep 04
%

1,262

1,260

1,161

0%

9%

221

213

198

4%

12%

Other operating income
Total fee income
Foreign exchange earnings
Profit on trading instruments

40

71

80

-44%

-50%

Other

181

150

134

21%

35%

1,704

1,694

1,573

1%

8%

Total other income excluding significant items
Significant items

1

Total other income
1.

-

14

110

-100%

-100%

1,704

1,708

1,683

0%

1%

Refer page 12

March 2005 half year compared to September 2004 half year
Other operating income, at $1,704 million, was $4 million lower than the September 2004 half. Excluding$14 million significant items (refer page 12 for details) and the classification between net interest and otherincome (refer profit on trading securities below), other operating income increased $29 million (2%).
The following explanations exclude significant items (for explanation of significant items refer to page 12).
- Fee income was flat.
▪

Lending fee income increased $2 million:- New Zealand Businesses decreased $6 million (11%) with loan approval fees negatively impacted by the“mortgage price war” where significant fee discounting was driven by competitors’ and honour fees reducedwith a change in price structure.
- Personal Banking Australia increased $5 million (6%) with volume related increases in Consumer Financeand increased package registration and honour fees in Banking Products.

▪

Non-lending fee income was flat:- Institutional decreased $8 million (5%). Institutional Banking reduced with increased competition in New
Zealand leading to volume reductions and reduced pricing. Trade and Transaction Services reduced largelyin trade finance, as a result of weaker USD and narrowing credit spreads, while Corporate and Structured
Financing was impacted by the sale of project finance activities in London.
- Personal Banking Australia increased $7 million (2%) primarily due to an increase in income generated byfinancial planners and increased income from the sale of general insurance products through the branch
network.
- Esanda and UDC grew $2 million (9%) with an emphasis on generating revenue through the provision ofvalue-added fleet management services.

The impact of movements in exchange rates on fee income was immaterial.
- Foreign exchange earnings increased $8 million (4%) with an increased number of customers entering into
hedging transactions with increased volatility in exchange rates.
- Profit on trading instruments decreased $31 million▪

Institutional decreased $27 million largely in Markets where a higher proportion ($19 million) of revenue wasbooked as interest due to lower funding costs associated with unrealised trading gains. Total income inMarkets increased $14 million.

▪

Reduced income on the hedge of capital investment earnings in INGA ($5 million) reflected stronger equity
markets in 2005. This is offset in equity accounted income from INGA which is reported in other operating
income.

- Other operating income increased $31 million (21%)▪

Institutional increased $20 million with Corporate and Structuring Financing private equity and infrastructure
trust earnings increasing $10 million and Markets making a $10 million gain on sale of Sydney Futures
Exchange shares in the March 2005 half.

▪

Personal Banking Australia other income increased $6 million reflecting strong performance by E*Trade,
Diners Card and our Mortgage LMI business.

▪

INGA equity accounted income increased $2 million with increased capital investment earnings, resulting
from continued strong equity markets, increased insurance sales through the ANZ network and a favourable
insurance claims experience.

15

RESULTS COMMENTARY (continued)
Income and expenses, cont’d
Other Operating Income, cont’dMarch 2005 half year compared to March 2004 half year

Other operating income increased $21 million (1%) or $131 million (8%) after excluding significant items (referpage 12), with an additional two months from NBNZ in the March 2005 half contributing $53 million (referpage 28). The following explanations exclude significant items:- Fee income increased $101 million (9%) including $37 million from the additional two months contribution from
NBNZ.
▪

Lending fee income increased $12 million (2%) due to:- The additional two months contribution from NBNZ ($10 million).
- Institutional decreased $16 million (7%) with a $11 million reduction in Corporate and Structured Financing
following the sale of the London headquartered project finance business and a $6 million reduction in
Institutional Banking reflecting lower commercial bill fees as a result of increased competition reducing
volumes and margins.
- Corporate Australia increased $6 million (6%) driven by increased lending volumes.
- Personal increased $3 million (3%) driven by increased lending volumes being partly offset by acompetition driven increase in fee discounting in Mortgages.

▪

Non-lending fee income increased $89 million (13%):- The additional two months contribution from NBNZ was $27 million.
- Personal Banking Australia increased $35 million (12%), of which $13 million was due to an increase inincome generated by financial planners. Consumer Finance increased $13 million (7%) driven by volume
growth. Banking Products increased $8 million with higher other bank ATM fees and dishonour fees.
- Esanda and UDC increased $7 million due primarily to changes in the fee structure for business lending in
February 2004 and increased fees from value-added fleet management services.
- Institutional increased $12 million in Corporate and Structured Financing with increased fee income fromstructured leasing.

- Foreign exchange earnings increased $23 million (12%) due to the additional two months contribution from
NBNZ ($11 million) and improved volumes and spreads in Trade and Transaction Services.
- Profit on trading instruments decreased $40 million (50%), with the additional two months contribution from
NBNZ ($2 million). Institutional decreased $30 million where a higher proportion of revenue was booked asinterest ($17 million) due to lower funding costs associated with unrealised trading gains in Markets. The loss
on the hedge of capital investment earnings in INGA increased $7 million, reflecting stronger equity markets in2005.
- Other operating income increased $47 million (35%), including the additional two months contribution from
NBNZ ($3 million).
▪

Institutional other operating income increased $19 million driven by increased private equity andinfrastructure trust earnings and a $10 million gain on sale of Sydney Futures Exchange shares in the March
2005 half.

▪

Profit from INGA increased $19 million reflecting stronger equity markets, growth in funds undermanagement, increased insurance sales through the ANZ network and a favourable claims experience.

▪

Corporate Australia increased $4 million due to earnings from private equity investments reflecting the
success of the “Wall St to Main St” strategy.

- Movements in the AUD exchange rate over the first half of 2004 increased total other income growth by$15 million.

16

RESULTS COMMENTARY (continued)
Income and expenses, cont’dExpenses
Halfyear
Mar 05
$M

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Mar 05v. Sep 04%

Movt
Mar 05v. Mar 04
%

1,167

1,110

1,012

5%

15%

Operating expenses
Personnel expenses
Premises expenses

193

186

167

4%

16%

Computer expenses

260

278

274

-6%

-5%

Goodwill amortisation

89

83

63

7%

41%

Other expenses

439

417

355

5%

24%

Restructuring costs

27

29

31

-7%

-13%

NBNZ incremental integration costs1

25

21

-

19%

n/a

Total operating expenses

2,200

2,124

1,902

4%

16%

Total employees

29,83228,75527,971

4%

7%

1.

These costs are personnel costs of $13 million (Sep 2004 half: $9 million), computers costs of $2 million (Sep 2004 half: $1 million), and other costs of$10 million (Sep 2004 half: $11 million). Refer page 12 for details

March 2005 half year compared to September 2004 half year

Operating expenses increased $76 million (4%) over the September 2004 half year.
- Personnel expenses increased $57 million (5%) as a result of annual salary increases together with a 4%
increase in staff mainly in the following business units:▪

Personal Banking Australia increased by 4% with 3% due to increased front line staff. Consumer Financeincreased by 14% to deal with increased volumes and cross sell activity and higher staffing levels reflecting
higher card acquisition activity, including white labelled card initiatives. Regional Commercial andAgribusiness increased 4% to support the “take a fresh look” campaign and deal with increased volumes inthe back office.

▪

New Zealand Businesses increased by 5% due to increased investment in front-line staff. The cost of these
additional staff was partly offset by seasonally lower staff leave costs.

▪

Corporate Australia increased 7% driven by a significant investment in frontline staff in Small BusinessBanking and continued investment in Corporate and Business Banking.

▪

Group Centre up 4% with Operations, Technology and Shared Services increasing 2% due to technology
project related activity. Central Functions staff number increases were driven principally by the escalating
focus on risk management and compliance, including the transition to IFRS and the US Sarbanes Oxley
legislation.

▪

Asia Pacific up 3% due largely to an increased focus on trade in Singapore, business volume related growth
in Indonesian Cards, increased Risk staffing in the Pacific and rural banking initiatives in Fiji.

- Premises costs increased 4% largely in rental expense reflecting additional space requirements, market
increases and the sale and lease back of certain properties.
- Computer costs decreased $18 million (6%):▪

Personal Banking Australia decreased $10 million due to lower merchant acquiring line costs, the fullamortisation of some branch banking software and a higher level of project related technology spend in the
September half.

▪

Group Centre decreased $3 million as a result of savings arising from the contract re-negotiation relating torentals and repairs of computer equipment.

- Goodwill amortisation increased $6 million with the September half including an adjustment to align theamortisation term of goodwill on NBNZ’s balance sheet and reduce NBNZ goodwill following the completionaccount settlement with Lloyds TSB.
- Other expenses increased $22 million (5%):▪

Non-lending losses increased $15 million mainly as a result of cheque conversion losses.

▪

Advertising spend increased $6 million including expenditure on the “ANZ NOW” advertising campaign.

- Restructuring expenses reduced $2 million, with the main component being a $16 million write-down in thevalue of the Sales and Service Platform (SSP) in the branch network. The September 2004 half included thewrite-down of hardware and software being developed for ATM’s.
- NBNZ incremental integration costs increased $4 million. Refer page 27 for details on integration.
- Movements in exchange rates increased cost growth by $9 million.

17

RESULTS COMMENTARY (continued)
Income and expenses, cont’dMarch 2005 half year compared to March 2004 half year

Operating expenses increased $298 million (16%) partly due to the inclusion of a full six month contribution from
NBNZ ($111 million including additional goodwill amortisation of $26 million. Refer page 28) and $25 million
NBNZ incremental integration costs booked in the March 2005 half. Excluding NBNZ incremental integration costs
operating expenses increased $273 million (14%).
- Personnel costs were up $155 million due largely to the additional two months contribution from NBNZ($50 million). Adjusting for this personnel costs increased 10% due to annual salary increases and a 7%
increase in staff numbers mainly in the following business units:▪

Personal Banking increased 6% with 5% of the increase reflecting continuing investment in our branch
network including additional financial planners, an increase in Consumer Finance to service increased
customer activity levels and an increase in Regional Commercial and Agribusiness due to investment infrontline staff associated with increasing business revenue generating capacity, including the “take a freshlook” campaign.

▪

New Zealand Businesses increased by 8% due to an increased investment in front line staff.

▪

Group Centre increased 7% with an additional 5% staff in Operations, Technology and Shared Services,largely due to technology project related activity. Central Functions staff numbers increased by 99 driven
largely by the escalating focus on risk management and compliance.

- Premises costs increased $26 million (16%) with the additional two months contribution from NBNZ ($7 million),with rent increasing $6 million as a result of increased space requirements driven by higher staffing levels andmarket increases and increased maintenance and security costs.
- Computer costs reduced $14 million (5%) despite the additional two months contribution from NBNZ($9 million). The reduction was mainly due to an $10 million reduction in rentals and repairs including a$5 million reduction due to savings from contract re-negotiation and a reduction in repairs to older front line
telling machines.
- Goodwill amortisation increased $26 million (41%) as a result of the additional two months NBNZ goodwill
amortisation.
- Other expenses were $84 million (24%) higher with the additional two months contribution from NBNZ($18 million). Adjusting for this other expenses increased $66 million. The increase in other costs reflected theinvestment in revenue growth with a $16 million increase in advertising spend including the “ANZ NOW”
advertising campaign, a $15 million increase in non-lending losses mainly as a result of a cheque conversion
losses, as well as increased expenditure on travel and consultants. Outsource costs increased by $6 million
driven by the ANZ Careers initiative which is leveraging ANZ’s strong employment brand.
- Movements in exchange rates increased cost growth by $23 million or 1%.
Income Tax Expense
Half
year
Mar 05$M
Total income tax expense on profit
Effective tax rate

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Mar 05v. Sep 04%

Movt
Mar 05v. Mar 04
%

1%

3%

597

590

578

28.8%

29.4%

29.2%

March 2005 half year compared to September 2004 half year

The Group’s income tax expense increased by $7 million to $597 million resulting in an effective tax rate of 28.8%,
a decrease of 0.6% from the September 2004 half year. The decrease in the effective tax rate reflects the net
effect of several small items including a tax benefit from the issue of shares under the employee share scheme,
which occurred in the current half, and the non-taxability of profit on sale of Sydney Futures Exchange shares.
March 2005 half year compared to March 2004 half year

The Group’s effective tax rate for the half year ending 31 March 2005 reduced 0.4% from March 2004 to 28.8%.
An increase in goodwill amortisation, which is non-deductible, and increased earnings in New Zealand, (which has
a 33% corporate tax rate) as a result of an additional two months contribution from NBNZ were offset by the net
effect of several small items including the non-taxability of profit on sale of Sydney Futures Exchange shares andan increase in non-taxable equity accounted income in the March 2005 half.

18

RESULTS COMMENTARY (continued)
Earnings per share
EPS excluding goodwill, significant items and NBNZ incremental integration costs for the Group increased to85.9 cents, up 4.6% or 3.8 cents on the September 2004 half year and increased 8.9% or 7.0 cents on the March
2004 half.
Half
year
Mar 05
$M

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Mar 05v. Sep 04%

Movt
Mar 05v. Mar 04
%

78.8

76.4

76.8

3%

3%

85.9

82.1

78.9

5%

9%

Earnings per share
Basic
Basic (excluding goodwill, significant items1 and NBNZ
incremental integration costs2)

Dilution effect of US Stapled Trust Security Issue

The US Stapled Trust securities issued on 27 November 2003 mandatorily convert to ordinary shares in 2053 unlessredeemed or bought back prior to that date. The US Stapled Trust Security issue can be de-stapled and the investor
left with coupon paying preference shares at ANZ’s discretion at any time, or at the investor’s discretion under certain
circumstances.
AASB 1027 requires that potential ordinary shares for which conversion to ordinary share capital is mandatory must
be included in the calculation of diluted EPS. The inclusion of this issue in EPS increased the diluted number of sharesby 69.1 million and reduced diluted EPS by 1.6 cents.

Dividends
Halfyear
Mar 05

Halfyear
Sep 04Halfyear
Mar 04Movt
Mar 05v. Sep 04%

Movt
Mar 05v. Mar 04%

Dividend per ordinary share (cents)
Interim (fully franked)

51

n/a

47

n/a

9%

Final (fully franked)

n/a

54

n/a

n/a

n/a

Ordinary share dividend payout ratio (%)

64.7%

71.0%

63.8%

Dividend payout ratio excluding goodwill, significant
items1 and NBNZ incremental integration costs2 (%)

59.4%

66.0%

62.1%

1.

2.

In the September 2004 half ANZ has classified the $14 million profit after tax on settlement of the INGA completion accounts and $1 million dividends arising fromthe TrUEPrS transaction as significant items. In the March 2004 half $84 million net profit after tax and $35 million dividends arising from the TrUEPrS transaction
has been classified as significant items. ANZ excludes significant items to eliminate the distorting effect of one-off transactions on the results of its core business(refer page 12)
In the March 2005 half ANZ has incurred $17 million after tax NBNZ incremental integration costs (Sep 2004: $14 million). NBNZ incremental integration costs
are excluded to enable analysis of the cost base following completion of the integration

The Directors propose that an interim dividend of 51 cents be paid on each ordinary share, up 4 cents (8.5%) on the2004 interim dividend in line with the growth in EPS excluding goodwill, significant items and NBNZ incremental
integration costs of 8.9%. The proposed dividend will be fully franked.
The Group has a dividend reinvestment plan and a bonus option plan. Participation in these plans is limited to 50,000
shares in each plan. Election notices for these plans must be received by 20 May 2005. It is proposed that theinterim dividend will be payable on 1 July 2005. Dividends payable to shareholders resident in the United Kingdom,
Channel Islands, The Isle of Man and New Zealand will be converted to their local currency at ANZ’s daily forward
exchange rate at the close of business on the record date for value on the payment date.
Proposed amendments to New Zealand thin capitalisation rules from July 2005 will require some internal debt funding
to that country to be replaced with equity funding. The franking impact will be limited by redirecting United Kingdom
capital to New Zealand. In addition, the change in the geographic mix of the Group’s earnings following theacquisition of the National Bank of New Zealand Group further limits the Group’s franking capacity. However, theGroup expects current timing differences will generate future franking credits and therefore the Group expects it will
be able to maintain full franking for the foreseeable future.

19

RESULTS COMMENTARY (continued)
EVA Reconciliation
One measure of shareholder value is EVATM (Economic Value Added) growth relative to prior periods. EVATM for thehalf year ended 31 March 2005 at $926 million was up $46 million from $880 million from the September 2004 halfyear and up $56 million from $870 million in the March 2004 half.
Half
year
Mar 05
$M

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Mar 05v. Sep 04%

Movt
Mar 05v. Mar 04
%

1,475

1,419

1,396

4%

6%

EVATM
Net profit after tax
Goodwill amortisation - NBNZ

81

75

54

8%

50%

Goodwill amortisation (excluding NBNZ)1

30

29

31

3%

-3%

2

Significant items and NBNZ incremental integration costs

17

-

(84)

n/a

large

Imputation credits

281

271

269

4%

4%

Risk adjusted profit

1,884

1,794

1,666

5%

13%

Cost of ordinary capital

(920)

(881)

(767)

4%

20%

3

Cost of preference share capital

(38)

(33)

(29)

15%

31%

EVATM

926

880

870

5%

6%

1.
2.

3.

Includes notional amortisation of goodwill relating to INGA
In the September 2004 half ANZ has classified the $14 million profit after tax on settlement of the INGA completion accounts and $1 million dividends arising fromthe TrUEPrS transaction as significant items. In the March 2004 half $84 million net profit after tax and $35 million dividends arising from the TrUEPrS transaction
has been classified as significant items. ANZ excludes significant items to eliminate the distorting effect of one-off transactions on the results of its core business(refer page 12)
In the March 2005 half ANZ has incurred $17 million after tax NBNZ incremental integration costs (Sep 2004: $14 million). NBNZ incremental integration costs
are excluded to enable analysis of the cost base following completion of the integration

EVATM is a measure of risk adjusted accounting profit. It is based on operating profit after tax, adjusted for significant
items, the cost of capital, and imputation credits (measured at 70% of Australian tax). Of these, the major
component is the cost of capital, which is calculated on the risk adjusted or economic capital at a rate of 11%. At theGroup level, total capital is used so the cost of capital reflects the full resources provided by shareholders.
At ANZ, economic capital is the equity allocated according to a business unit’s inherent risk profile. It is allocated forseveral risk categories including: credit risk, operating risk, interest rate risk, basis risk, mismatch risk, investment
risk, trading risk and other risk. The methodology used to allocate capital to business units for risk is designed tohelp drive appropriate risk management and business strategies.
At ANZ, EVATM is a key measure for evaluating business unit performance and correspondingly is a key factor in
determining the variable component of remuneration packages. Business unit results are equity standardised byeliminating the impact of earnings on each business unit’s book capital and attributing earnings on the business unit’s
risk adjusted or economic capital.

20

RESULTS COMMENTARY (continued)
Credit Risk
Economic loss provisions (ELP)The Group economic loss provision charge (ELP) was $284 million in the March 2005 half, a reduction of $35 million(11%) over the September 2004 half. This improvement is due largely to the cessation of the Group Centre charge(September 2004 half $20 million) following de-risking of the offshore portfolios and lower risk in the operating
segments, which decreased $15 million (5%).
The ELP rate decreased 5 basis points over the September 2004 half year in line with the Group’s improving risk
profile:Personal Banking Australia reduced 1 basis point with growth in low risk mortgage lending and lower credit card
losses.
Institutional reduced 4 basis points reflecting de-risking offshore and strong growth in investment grade lending.
New Zealand businesses reduced 4 basis points with growth in low risk assets and the revision of loss factors of
the former NBNZ businesses following further analysis of loss history.
Group Centre reduced following the de-risking of the offshore portfolios.
% ofGroup N etAdvances

H alf
year
M ar 05

Halfyear
Sep 04

H alf
year
M ar 04

ELP rates by segm ent 1
Personal Banking Australia

42%

0.20%

0.21%

0.22%

Institutional

20%

0.30%

0.34%

0.41%

New Zealand Businesses

23%

0.18%

0.22%

0.26%

Corporate Australia

8%

0.33%

0.34%

0.33%

Esanda and UD C

6%

0.44%

0.51%

0.52%

Asia PacificOperating segm ents total
Group Centre
Total

1%

1.39%

1.65%

1.55%

100%

0.25%

0.28%

0.31%

0%

0.00%

0.02%

0.02%

100%

0.25%

0.30%

0.33%

284

319

313

ELP charge ($m illion)
1.

ELP rate = Annualised economic loss provisioning divided by average net lending assets

Net specific provisions

Net specific provisions were $151 million, down $96 million from the half year to September 2004. The reduction is
primarily the result of lower losses in Australia, principally Reach which was booked in the September 2004 half, andstrong recoveries in the Institutional portfolio in the Americas. On a geographic basis net specific provisions reducedin Australia by 48% and 23% in Overseas Markets and were up by 16% in New Zealand. As a percentage of average
net lending assets, net specific provisions reduced from 23 basis points (annualised) in September 2004 half to
13 basis points in the March 2005 half.
Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Mar 05v. Sep 04%

Movt
Mar 05v. Mar 04%

Net specific provisions

Half
year
Mar 05$M

Personal Banking Australia

60

65

71

-8%

-15%

Institutional

1

106

61

-99%

-98%

New Zealand Businesses

26

22

13

18%

100%

Corporate Australia

23

24

20

-4%

15%

Esanda and UDC

24

23

24

4%

0%

Asia Pacific

17

7

7

large

large

Total net specific provisions

151

247

196

-39%

-23%

General provision balance

The general provision balance at 31 March 2005 was $2,080 million (0.99% of risk weighted assets) an increase of$88 million from $1,992 million (1.01% of risk weighted assets) at 30 September 2004. This represents a surplus of$512 million over the APRA minimum guideline.

21

RESULTS COMMENTARY (continued)
Credit Risk, cont’dGross non-accrual loans

Gross non-accrual loans decreased to $640 million, down from $829 million as at 30 September 2004. The reduction
is primarily due to the realisation of two large power exposures in the Americas and lower levels of new non-accruals
in the March 2005 half.
The default rate (new non accruals/average gross lending assets) has decreased by 11 basis points since theSeptember 2004 half to 34 basis points. This improvement is largely the result of lower new non-accrual loans in theInstitutional and New Zealand businesses.

Gross non-accrual loans

As at
Mar 05As at
Sep 04As at
Mar 04

$M

$M

$M

Movt
Mar 05v. Sep 04%

Movt
Mar 05v. Mar 04%

Personal Banking Australia

37

40

43

-8%

-14%

Institutional

288

479

575

-40%

-50%

New Zealand Businesses

81

86

80

-6%

1%

Corporate Australia

119

112

94

6%

27%

Esanda and UDC

78

73

93

7%

-16%

Asia Pacific

37

39

44

-5%

-16%

Operating segments total

640

829

929

-23%

-31%

-

-

2

n/a

-100%

640

829

931

-23%

-31%

Group Centre
Total gross non-accrual loans

Net non-accrual loans

Net non-accruals are $326 million (Sep 2004: $451 million; Mar 2004: $517 million) representing 1.7% ofshareholders’ equity as at March 2005 (Sep 2004: 2.5%; Mar 2004: 3.1%). The Group has a specific provision
coverage ratio of 49%.
As at
Mar 05As at
Sep 04As at
Mar 04Movt
Mar 05v. Mar 04%

Net non-accrual loans

$M

$M

$M

Movt
Mar 05v. Sep 04%

Personal Banking Australia

15

17

14

-12%

7%

Institutional

169

299

359

-43%

-53%

New Zealand Businesses

28

30

26

-7%

8%

Corporate Australia

56

51

42

10%

33%

Esanda and UDC

43

37

59

16%

-27%

Asia Pacific

15

17

17

-12%

-12%

Operating segments total

326

451

517

-28%

-37%

-

-

-

n/a

n/a

Total net non-accrual loans

326

451

517

-28%

-37%

Specific provision coverage

49%

46%

44%

7%

11%

Group Centre

22

RESULTS COMMENTARY (continued)
Market Risk
Below are aggregate VaR exposures at 97.5% and 99% confidence levels covering both physical and derivatives
trading positions for the Bank’s principal trading centres. Figures are converted from USD at closing exchange rates.

97.5% confidence level 1 day holding period
As at
Mar 05

Low forperiodMar 05$M

Ave forperiodMar 05$M

As at
Sep 041$M

High for
periodMar 05$M$M

High for
period
Sep 041$M

Low forperiod
Sep 041$M

Ave forperiod
Sep 041$M

Foreign exchange

0.8

1.6

0.4

Interest rate

2.0

2.5

0.7

0.8

0.5

1.4

0.4

0.7

1.4

1.5

2.1

0.6

Diversification benefit

(1.3)

n/a

1.1

n/a

(0.7)

(0.7)

n/a

n/a

(0.4)

1.5

3.0

0.9

1.5

1.3

2.2

0.9

1.4

High for
periodMar 05$M

Low forperiodMar 05$M

Ave forperiodMar 05$M

As at
Sep 041

High for
period
Sep 041$M

Low forperiod
Sep 041$M

Ave forperiod
Sep 041$M

Value at risk at 97.5% confidence

Total VaR

99% confidence level 1 day holding period
As at
Mar 05$M$M

Value at risk at 99% confidence
Foreign exchange

1.1

1.8

0.5

1.0

0.9

1.8

0.5

1.0

Interest rate

3.0

3.3

1.2

2.1

1.8

2.7

0.8

1.4

Diversification benefit

(1.4)

n/a

n/a

(1.0)

(0.9)

n/a

n/a

(0.5)

2.7

4.0

1.2

2.1

1.8

2.8

1.2

1.9

Total VaR
1.

Numbers are based on half year period to September 2004

The table below shows all outstanding revenue hedges, interest income earned and fair value of these hedges.
Revenue related hedges
31 March 2005
Notional Amount taken to
Principal Amount
Income30 September 2004
Unrealised
Gains/(Losses)

Notional Amount taken to
Principal Amount
IncomeUnrealised
Gains/(Losses)

$M

$M

$M

$M

$M

$M

USD Revenue Hedges

17

7

8

36

16

14

NZD Revenue Hedges

3,891

(11)

3

3,450

-

(58)

Total

3,908

(4)

11

3,486

16

(44)

The Group uses a variety of derivative instruments to hedge against the adverse impact on future offshore revenue
streams from exchange rate movements. As at 31 March 2005 ANZ had $3.9 billion (Sep 2004: $3.5 billion; Mar
2004: $1.2 billion) NZD and USD contracts in place.
Movements in average exchange rates resulted in an increase of $4 million in the Group’s profit after tax. Earnings
from revenue hedges reduced by $20 million (before tax) from the September 2004 half. Hedge revenue is booked in
the Group Centre as interest income.

23

RESULTS COMMENTARY (continued)
Statement of Financial Position
Total assets increased by $18.5 billion (7%) since 30 September 2004 to $277.8 billion. Exchange rate movements
accounted for a net reduction of $2.2 billion consisting of a reduction of $1.3 billion in New Zealand and $0.9 billion inoverseas markets. Excluding the impact of exchange rate movements, total assets increased $15.0 billion (9%) in
Australia, $5.0 billion (7%) in New Zealand and $0.7 billion (4%) in overseas markets.
The explanations in the table below describe movements in the major asset classes.

Liquid assets

39%

Excl Exchange Rates
43%

Due from otherfinancial institutions
34%

Liquid assets increased by $2.5 billion (39%) to $8.9 billion at 31 March 2005.
Australia increased $0.8 billion due largely to an increase in customer related trading activities
in Institutional. New Zealand increased $0.7 billion to meet customers’ short term funding
requirements. Overseas markets increased $1.0 billion due to increase in letters of credit andbills receivable from other banks.
Due from other financial institutions increased by $1.6 billion to $6.4 billion at 31 March 2005
due largely to increase in volume of accounts by major banks and securities borrowing
volumes in Trade and Transaction Services Australia.

Excl Exchange Rates
38%

Trading securities
12%

Trading securities volumes increased $0.6 billion (12%) to $6.1 billion at 31 March 2005 duelargely to more active trading.

Excl Exchange Rates
12%

Investment
securities 13%

Investment security volumes decreased $1.0 billion to $6.7 billion at 31 March 2005 reflecting
increased liquidity held in liquid assets and trading security volumes.

Excl Exchange Rates
11%

Net loans andadvances 7%

Net loans and advances increased 7% ($13.6 billion) since September 2004.

Excl Exchange Rates
7%

Growth in Australia of 9% ($12.1 billion) was largely the result of increases in the following
businesses:- Personal Banking ($6.6 billion), predominantly in Mortgages ($5.8 billion) as a result ofgrowth in housing and equity loans. Consumer Finance increased $0.4 billion reflecting the
success of the low rate MasterCard product. Regional Commercial and Agribusiness grew
$0.3 billion and Banking Products grew $0.1 billion.
- Institutional Financial Services ($4.4 billion) largely in Institutional Banking ($3.4 billion)
driven by increased consumer demand for funding of mergers and acquisition activity.
Growth in Trade and Transaction Services ($1.0 billion) was driven by greater activity inoverdrafts facilities by corporate customers.
- Corporate Australia ($0.8 billion) in Business Banking ($0.5 billion) and Corporate Banking($0.3 billion) driven by increased investment in frontline staff, the industry specialisation
approach to customers and very competitive customer service proposition.
- Esanda ($0.4 billion) driven by new business writings, particularly in the Broker channel.
New Zealand grew by $2.8 billion excluding the impact of exchange rate movements.
Increases were achieved in NBNZ Retail ($1.3 billion), ANZ Retail ($0.9 billion), Corporate
Banking ($0.5 billion), Institutional Financial Services ($1.0 billion) and Regional Commercialand Agribusiness ($0.3 billion) but partially offset by a weaker New Zealand dollar($1.0 billion).
Overseas markets declined by $1.4 billion largely due to the sale of the London headquarteredof project finance business and the impact of exchange rate movements ($0.5 billion).

Customers liability
Customer liability for acceptance increased by $0.5 billion to $12.9 billion at 31 March 2005
for acceptance 4% with growth predominantly in Institutional Banking ($0.3 billion) and Corporate Banking($0.1 billion).
Excl Exchange Rates
4%

Other Assets

15%

Excl Exchange Rates
16%

Other assets increased $1.3 billion (15%) to $10.5 billion as at 31 March 2005 due mainly toincreased trade dated asset volumes ($0.8 billion).

Shares in Associates The $0.2 billion reduction is due to $245 million capital repatriation from INGA, partly offset byequity accounted earnings retained in associates and joint ventures.
and Joint Venture
Entities 10%

24

RESULTS COMMENTARY (continued)
Statement of Financial Position, cont’d
Total liabilities increased by $17.4 billion (7%) from 30 September 2004. Exchange rate movements accounted for a
net reduction of $2.6 billion consisting of a $1.1 billion reduction in New Zealand and a $1.5 billion reduction inoverseas markets.
The explanations in the table below describe movements in the major liability classes.
Due to other financial
institutions 37%
Excl Exchange Rates

40%

Due to other financial institutions increased $2.7 billion (37%) to $10.1 billion at 31 March
2005. Volumes in Australia increased $2.5 billion.
The increase was mainly driven by the increase in volumes of clearing and custody accounts
in Trade and Transaction Services in Australia. Increased borrowing on the wholesalemarket by Group Treasury to meet the daily funding needs was also a factor.
New Zealand increased $0.7 billion, whilst overseas markets reduced $0.5 billion largely in
Asia.

Deposits and otherborrowings 7%
Excl Exchange Rates

8%

Deposits and other borrowings increased $11.9 billion (7%) to $180.4 billion, at 31 March
2005. Exchange rate movements reduced deposits and other borrowings by $2.2 billion
with a $0.9 billion reduction in New Zealand and a $1.3 billion reduction in overseas
markets. Excluding exchange rate movements:
Australia increased $9.0 billion (9.3%) largely as a result of increases in the following
businesses:-

Treasury funding increasing $4.0 billion with higher certificates of deposit volumes tomeet the Group’s increased short term funding requirements.

-

Institutional increased $2.2 billion largely due to several corporate deposits in Trade andTransaction Services over balance date.

-

Personal Banking increased $1.5 billion mainly due to high yielding term deposit and cash
management account products.

-

Corporate Australia increased by $0.9 billion.

New Zealand increased $4.8 billion, largely in Treasury ($3.2 billion) with an increase incommercial paper and certificate of deposit issuance to help fund the growing New Zealandbalance sheet. Deposits grew in ANZ Retail and NBNZ Retail by $0.8 billion.
Overseas Markets increased $0.3 billion. Reduced funding resulting from the Euro Hybrid
issue has been offset by additional funding requirement given increased asset volumes.
Payables and other liabilities decreased $1.8 billion (13%) to $12.4 billion as at 31 March
2005 with a reduction in securities lending volumes and lower unrealised losses on
Excl Exchange Rates 12% revaluation of derivative instruments.
Payables and otherliabilities 13%

Bonds and notes increased $4.7 billion (17%) to $32.3 billion, at 31 March 2005. Excluding
exchange rate movements, bonds and notes increased by $5.8 billion (22%) in response toincreased term funding requirements.

Bonds and
Notes 17%

Loan Capital

4%

Loan capital decreased $0.4 billion (4%) to $8.1 billion, at 31 March 2005 due entirely to
movements in exchange rates.

25

RESULTS COMMENTARY (continued)
Capital Management
As at
Mar 05As at
Sep 04As at
Mar 04Movt
Mar 05v. Sep 04

Movt
Mar 05v. Mar 04

Tier 1

7.0%

6.9%

7.0%

1%

0%

Tier 2

3.6%

4.0%

3.7%

-10%

-3%

Deductions(0.3%)(0.5%)(0.5%)

-40%

-40%

Total

10.3%

10.4%

10.2%

-1%

1%

ACE
RWA $m

5.1%

5.1%

5.2%

0%

-2%

209,524

196,664

186,157

7%

13%

ACE Ratio

The ACE ratio, at 5.1%, remains above the Group’s targeted capital range with only $117 million of the planned$350 million buy-back having been completed. During the period, ACE capital (and the ACE ratio), excluding theimpact of movements in exchange rates, increased by $0.8 billion principally due to:Current period earnings, before goodwill amortisation and after preference share dividends, of $1.5 billion(+79 basis points)
Ordinary share dividend commitments of $0.9 billion (-47 basis points)
Capital repatriation from INGA, net of profit retained and completion account adjustments, of $0.2 billion(+10 basis points)
Buy-back of ordinary equity of $117 million (-6 basis points) being offset by share issues of $159 million (+8 basis
points) through the Bonus Option Plan, Dividend Reinvestment Plan, option conversions and issues to staff.
Risk Weighted Asset (RWA) growth was $12.9 billion, however excluding the impact of exchange rate movements,
was $15.0 billion, resulting in a 36 basis points reduction in the ACE ratio.
The impact of exchange rate movements on the ACE ratio was minimal with the reduction in capital levels being offset
by a reduction in RWA volumes and goodwill.
Hybrid Capital and Tier 1 Capital

The Group raises hybrid capital to supplement the Group’s ACE capital to further strengthen the Group’s capital baseand ensure compliance with APRA’s prudential capital requirements, principally its Tier 1 capital requirements.
In December 2004 the Group raised $871 million (+44 basis points) through the issuance of a €500 million hybrid
capital instrument (Euro Hybrid) into the European market. The instrument is similar in structure to the Group’s
existing Australian (ANZ StEPS) and US Stapled Trust Security issuances, with a coupon paying note issued by a UK
subsidiary (ANZ Jackson Funding PLC) being stapled to a fully paid up €1,000 preference share issued by the Australia
and New Zealand Banking Group Limited (“the company”). Coupons are paid quarterly based upon 3 month EURIBOR
plus 66 basis points. On the business day prior to 15 December 2053, a “conversion event” will occur and the note
will be detached and transferred to the Paris branch of the company, at which time the fully paid preference share will
become coupon paying. A conversion event can occur earlier than 15 December 2053 under certain circumstances
outlined in the offering circular dated 9 December 2004.
The Euro Hybrid issue, coupled with the items identified within the ACE Capital discussion, resulted in the Group’s
Tier 1 ratio increasing by 11 basis points over the half year. The Tier 1 ratio remains solid even after allowing for thecompletion of the buy-back of ordinary equity.
Hybrid Capital details
ANZ StEPS

US Stapled Trust Security

Euro Hybrid

Amount (in issue currency)$1,000 million

USD1,100 million€500 million

Accounting classification

EquityDebt

EquityMaturity date

14 September 2053

15 December 2053

15 December 2053

March 2005 balance (net of issue costs)$987 million$1,425 million$871 million

Interest rate

BBSW +1.00%

Tranche 1 Coupon: 4.48%
Tranche 2 Coupon: 5.36%

Euribor +0.66%

Buy-Back of Ordinary Equity

The Group commenced an on-market buy-back of $350 million of ordinary equity on 10 January 2005. Up until
15 March 2005, when ANZ went into a voluntary black-out period for buying back shares due to the forthcoming halfyear profit announcement, the Group had repurchased 5.6 million shares at an average cost of $20.74 per share for a
total of $117 million.

26

RESULTS COMMENTARY (continued)
National Bank of New Zealand - Integration
ANZ National Bank became the largest provider of banking services in New Zealand following the acquisition of The
National Bank of New Zealand Limited in December 2003. Integration is focussed on maximising the value of ANZ
National Bank by harnessing the complementary strengths of the two banks while improving the customer experience.
The overall integration programme involves:maintaining separately branded retail, corporate and commercial banking businesses;
strengthening our Rural banking business under The National Bank brand;
growing our Institutional banking businesses under the ANZ brand;
merging and rationalising head office and support functions;aligning of technology systems; andthe realisation of integration synergies.
Significant progress in 2004 included legal amalgamation and reorganisation into a single management structure.
During this time the overall integration strategy was confirmed, the brand strategy agreed and plans were finalised
for the integrated technology solution. As part of amalgamation, the Reserve Bank of New Zealand (‘RBNZ’)
implemented new Conditions of Registration which require, inter alia, that by 31 December 2005 ANZ National Bank ismanaged in, and has systems located and operated in, New Zealand. The reorganisation of management andoperational structures, to integrate the two heritage banks, has been completed. The additional work required todeliver the integrated technology solution is well underway.
The key features of the technology solution are:the location in New Zealand of the domestic technology systems supporting ANZ Retail Banking, General Ledger,
Procurement and HR/Payroll;
the migration of the international technology systems supporting the Corporate, Wholesale and Payments businessto the ANZ Group global systems; andthe establishment in New Zealand of a special purpose capability to provide the Bank with the ability to locate,manage and control the International Systems in New Zealand in the event of a failure of ANZ or ANZ NationalBank.
The primary focus of the integration programme in 2005 is the delivery of the integrated technology solution. An
important part of the design and implementation planning is to ensure that customer levels are maintained or
improved, operational risk is minimised and the transition for staff is seamless.
In the current half year the Bank has:
Agreed with the RBNZ that the technology systems migration plans are a reasonable basis to satisfy the Conditionsof Registration.
Commenced the migration of target systems in Institutional, Corporate and Commercial and Support Units.
Commenced new IT infrastructure establishment in New Zealand to support the systems migrating from Australia
to New Zealand.
Completed the Rural integration programme while maintaining its number one market share in this segment.
The integration programme remains on track for practical completion by the end of the calendar year 2005.
The total cost of integration is estimated to be NZD220 million. To date integration costs of NZD98 million have been
incurred in line with expectations. However, as the full impact of the RBNZ requirements has been clarified over thehalf, there is a risk that the RBNZ Conditions of Registration compliance costs may increase modestly.
In the first half of 2005, revenue attrition relating to integration activities continues to track favourably against
expectations, with little attrition evident. The cost synergies expected in 2005 are tracking slightly ahead of
expectations, and estimated benefits forecast for 2007 remain on track.

27

RESULTS COMMENTARY (continued)
Impact of NBNZ on March 2004 results
The March 2004 half year only included four months contribution from The National Bank of New Zealand (NBNZ)
following its acquisition from Lloyds TSB on 1 December 2003, hence, management believe that a comparison of
profit and loss data between the March 2005 and the March 2004 halves does not reflect the core businessperformance.
The following table has been provided to assist readers in understanding the impact of the contribution from NBNZ on
the March 2004 half, had it been consolidated for the entire half. Commentary comparing the results for the first halfof 2005 with the prior comparative period (first half of 2004), has been adjusted, where noted in the commentary, toimprove the reader’s ability to analyse the income and expense trends by notionally adjusting for NBNZ.
Fourm o n th s to
Mar 04$M

H a lf o f fo u r
m o n th s to
Mar 04$M

N et interest incom e

273

137

O ther operating incom e

106

53

O perating incom e

379

190

O perating expenses(2 2 2 )(1 1 1 )Profit before debt provision

157

79

Provision for doubtful debts(2 7 )(1 4 )P ro fit b efo re in co m e ta x

130

65

Incom e tax expense & O utside equity interest(5 4 )(2 7 )N et p ro fit

76

38

The following table gives the internal funding1 of the New Zealand operations.
As at 31 March 2005

NZD M

Debt
Debt Funding - Australia

1,765

Debt Funding - United Kingdom

1,129
2,894

Subordinated debt

516

EquityOrdinary Share Capital

1,450

Redeemable Preference Share Capital

2,210

Retained Earnings

1,040
4,700

Unamortised goodwill
1.

3,285

Includes structural funding provided to New Zealand from the Group. Short term internal funding is excluded from this table

28

RESULTS COMMENTARY (continued)
Critical Accounting Policies
The Group prepares its consolidated financial statements in accordance with Australian Accounting Standards andother authoritative accounting pronouncements. However, notwithstanding the existence of relevant accounting
standards, there are a number of critical accounting treatments, which include complex or subjective decisions orassessments. The Group requires all such applications of judgement to be reviewed and agreed by Group Finance,
and where the impact is material, the accounting treatment be reviewed during the audit process by the Group’s
external auditors. All material changes to accounting policy are approved by the Audit Committee of the Board.
Details of all critical accounting policies are provided in the 30 September 2004 Financial Report. There has been nomaterial changes to the Group’s critical accounting policies or their related methodologies since September 2004.
A brief discussion of critical accounting policies, and their impact on the Group, follows:a)Economic Loss Provisioning

Each month the Group recognises an expense for credit losses (provision for doubtful debts) reflecting historicalloss experience for each part of the loan portfolio. The provision for doubtful debts is booked to the General
Provision which is maintained to cover the losses inherent in the Group’s existing loan portfolio. The method usedby the Group for determining the expense charge is referred to as Economic Loss Provisioning (ELP). The Group
uses economic loss provisioning models to calculate the expected loss by considering:- the size, composition and risk profile of the current loan portfolio; and- the history of credit losses for each type and risk of lending.
The average charge to profit for ELP was 0.25% of average net lending assets or $284 million (Sep 2004 half:
0.30% or $319 million; Mar 2004 half: 0.33% or $313 million).
As at March 2005, the balance of the General Provision of $2,080 million (Sep 2004: $1,992 million; Mar 2004:$1,828 million) represents 0.99% (Sep 2004: 1.01%; Mar 2004: 0.98%) of risk weighted assets.
b)

Specific provisioning

A specific provision is maintained to cover identified Non Accrual Loans. When a specific debt loss is identified as
being probable, its value is transferred from the General Provision to the Specific Provision. Specific Provision isapplied when the full recovery of one of the Group’s exposures is identified as being doubtful resulting in thecreation of a specific charge equal to the full amount of the expected loss plus any enforcement/recovery
expenses.
Recoveries resulting from proceeds received from accounts which were written off in prior years are transferredback to the General Provision.
The recognition of losses has an impact on the size of the General Provision rather than directly impacting profit.
However, to the extent that the General Provision is drawn down beyond a prudent amount it will be restored
through a transfer from the current year’s earnings. The amount of net transfer from the General Provision to theSpecific Provision, net of recoveries, during the March 2005 half year was $151 million (Sep 2004 half:$247 million; Mar 2004: $196 million).
c)Deferred acquisition costs and deferred income

ANZ Group recognise assets that represent deferred acquisition costs relating to the acquisition of interest
earning assets, and liabilities that represent deferred income relating to income received in advance of services
performed.
Deferred acquisition costs - at 31 March 2005 the Group’s assets included $492 million (Sep 2004: $465 million;
Mar 2004: $401 million) in relation to costs incurred in acquiring interest earning assets. During the March 2005
half year, amortisation of $123 million (Sep 2004 half: $112 million; Mar 2004 half: $106 million) was recognised
as an adjustment to the yield earned on interest earning assets.
Deferred income - at 31 March 2005, the Group’s liabilities included $94 million (Sep 2004: $149 million; Mar
2004: $135 million) in relation to income received in advance.
The balances of deferred acquisition costs and deferred income at period end were:
Deferred Acquisition Costs1

Deferred Income

Mar-05$m

Sep-04$m

Mar-04$m

Mar-05$m

Sep-04$m

Mar-04$m

Personal Banking Australia

151

145

127

15

31

19

Esanda and UDC

260

250

236

-

-

-

New Zealand Businesses

49

36

24

28

44

45

Institutional

10

10

14

4

3

2

Other2

22

24

-

47

71

69

Total

492

465

401

94

149

135

1.
2.

Deferred acquisition costs largely include the amounts of brokerage capitalised and amortised in the three Business segments: Personal Banking Australia,
Esanda and UDC and the New Zealand Business. Deferred acquisition costs also include capitalised debt raising expenses
Includes Group Centre, Corporate Australia, INGA and Asia Pacific29

RESULTS COMMENTARY (continued)
Critical Accounting Policies, cont’dc)Deferred acquisition costs and deferred income, cont’dDeferred acquisition costs analysis:
March 2005
Am ortised
Capitalised
Costs
Costs 1$m$m
Personal Banking Australia

32

38

27

45

Esanda and UDC

79

89

75

89

7

20

4

16

New Zealand Businesses
Institutional

2

2

4

-

Other 2

3

1

2

26

Total

123

150

112

176

1.
2.

d)

Septem ber 2004
Am ortised
Capitalised
Costs
Costs 1$m$m

Capitalised costs exclude brokerage trailer commissions paid, relating to the acquisition of mortgage assets of $41 million (Sep 2004 half: $49 million)
Includes Group Centre, Corporate Australia, INGA and Asia Pacific

Derivatives and Hedging

The Group buys and sells derivatives as part of its trading operations and to hedge its interest rate risk, foreignexchange risk and the equity risk in INGA. Derivative instruments entered into for the purpose of hedging are
accounted for on the same basis as the underlying exposures or risks. The Group classifies derivatives into two
types according to the purpose they are entered into: trading or hedging.
Income and loss relating to trading derivatives is reported in the statement of financial performance as trading
income. The fair value of trading derivatives is recorded on a gross basis as other assets or other liabilities asappropriate unless there is a legal right of set off. The fair value of a derivative financial instrument is the netpresent value of future expected cash flows arising from that instrument.
In order to be classified as a hedging derivative the hedging relationship must be expected to be effective.
Hedging derivatives are accounted for in the same manner as the underlying asset or liability they are hedging.
For example, if the hedged instrument is accounted for using the accrual method, the hedging instrument will also
be accounted for using the accrual method.
Movements in the value of foreign exchange contracts that are hedging overseas operations are not recognised asincome or expenses. Instead these movements are recognised in the Foreign Currency Translation Reserve
together with the net difference arising from the translation of the overseas operation.
Derivatives entered into as part of the Group’s trading operations are carried at their fair values with any change
in fair value being immediately recognised as part of trading income.
e)Special purpose and off balance sheet vehicles

The Group may invest in or establish special purpose entities or vehicles (SPEs), to enable it to undertake specifictypes of transactions. Where the Group controls such vehicles, they are consolidated into the Group financial
results.
Certain SPEs may be set up by the Group to facilitate Group strategic aims, or to assist with structured
transactions for clients. The Group has established certain SPEs controlled by the Group, which are consolidated
into the Group’s financial statements in order to facilitate transactions undertaken for Group purposes. These
SPEs have been established as part of the Group’s funding activities, for example, the StEPS structure, and as
part of lending activities undertaken in the normal course of business.
The table below summarises the main types of SPEs that are not consolidated into the Group, the reason for theirestablishment, and the key risks associated with them.

30

RESULTS COMMENTARY (continued)
Critical Accounting Policies, cont’de)Special purpose and off balance sheet vehicles, cont’dType of SPE

Reason for establishment

Key Risks

Securitisation
vehiclesAssets are transferred to an SPE,
which funds the purchase by issuing
securities.

ANZ may manage securitisation
vehicles, service assets in a vehicle orprovide liquidity or other support andretains the risks associated with theprovision of these services. Credit
and market risks associated with theunderlying assets are not retained orassumed by ANZ except to the limited
extent that ANZ provides arm’s length
services and facilities.

Enables ANZ or customers toincrease diversity of funding
sources.
The amount disclosed here is thetotal assets of SPEs managed or
arranged by ANZ. It includes SPEs
that purchase assets from sellers
other than ANZ.
Structured
financeentities

These entities are set up to assist
with the structuring of client
financing.

ANZ may retain liquidity risk, if itprovides liquidity support to thevehicle. ANZ may also manage thesevehicles.

SPE Assets$m
Mar 2005:
13,328
Sep 2004:
13,013
Mar 2004:
10,509Mar 2005:
1,924
Sep 2004:
1,993
Mar 2004:
1,730Managedfunds

These funds invest in specified
investments on behalf of clients.

INGA and ANZ National Bank Limited,as managers of the funds, expose
ANZ to operational and reputationalrisk.

Mar 2005:
35,183
Sep 2004:
32,174
Mar 2004:
30,889f)

Valuation of investment in INGA

The Group adopts the equity method of accounting for its 49% interest in INGA. As at 31 March 2005, theGroup’s carrying value is $1,513 million (Sep 2004: $1,697 million; Mar 2004: $1,688 million). During the March
2005 half, INGA made a capital return to shareholders of $500 million. ANZ’s 49% share of this was$245 million.
The carrying value is subject to a recoverable amount test, to ensure that this does not exceed its recoverable
amount at the reporting date. The Group obtained an independent valuation of INGA as at 31 March 2005 todetermine the current recoverable amount. Any excess of carrying value above recoverable amount is written off
to the Statement of Financial Performance. The independent valuation is based on a discounted cashflow
approach, with allowance for the cost of capital.
As at 31 March 2005, based on this review, no change is required to the carrying value of the investment (Sep
2004: Nil; Mar 2004: Nil)g)

Valuation of goodwill in ANZ National Bank Limited

Goodwill arising from the NBNZ acquisition is systematically amortised by way of a charge to the statement offinancial performance over the period of time during which the benefits of the acquisition are expected to arise,such period of benefit not exceeding 20 years.
The unamortised balance of goodwill is reviewed at each balance date and is written down to the extent that it is
no longer supported by probable future benefits.
The Group obtained an independent valuation of ANZ National Bank Limited as at 31 March 2005. The valuation
calculated the value of ANZ National Bank Limited from a New Zealand geographic and New Zealand business unit
perspective. The operations were valued using a capitalisation of earnings methodology. Based on the results ofthis valuation as at 31 March 2005, no change is required to the amortised carrying value of goodwill arising from
NBNZ.

31

RESULTS COMMENTARY (continued)
Critical Accounting Policies, cont’dh)Tax Consolidations

The Company, Australia and New Zealand Banking Group Limited, is the head entity in the tax-consolidated group
comprising all the Australian wholly-owned subsidiaries, trusts and partnerships. The implementation date for the
tax-consolidated group was 1 October 2003. Under tax consolidations, the head entity recognises all of thecurrent and deferred tax assets and liabilities of the tax-consolidated group, adjusted for the impact ofarrangements made with other members of the tax-consolidated group.
Members of the tax-consolidated group have entered into a tax sharing agreement which provides for the
allocation of income tax liabilities between the entities should the head entity default on its income tax payment
obligations.
The tax-consolidated group has also entered into a tax funding agreement that requires wholly-owned
subsidiaries to receive/make contributions from/to the head entity for:- deferred tax balances recognised by the head entity on implementation date, including the impact of any
relevant reset tax cost bases; and- current tax assets and liabilities and deferred tax balances which have been calculated as if the wholly-owned
subsidiaries were taxed on a stand-alone basis.
The contributions are payable as set out in the tax funding agreement and reflect the timing of the head entity’s
obligations to make payments for tax liabilities to the Australian Taxation Office. The assets and liabilities arisingunder the tax funding agreement are recognised as intercompany assets and liabilities which are equivalent todeferred tax balances.
Entry into tax consolidations resulted in no material adjustment to the consolidated tax expense or consolidated
deferred tax balances.
i)

Software capitalisation

At 31 March 2005, the Group’s fixed assets included $401 million (Sep 2004: $430 million; Mar 2004:$447 million) in relation to costs incurred in acquiring and developing software. During the March 2005 half year,
amortisation expense of $57 million (Sep 2004 half: $66 million; Mar 2004 half: $63 million) was recognised.
Half
year
Mar 05
$M

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Mar 05v. Sep 04%

Movt
Mar 05v. Mar 04%

Balance at start of period

430

447

465

-4%

-8%

Software capitalised during the period

45

55

59

-18%

-24%

Amortisation during the period

(57)

(66)

(63)

-14%

-10%

Software written-off

(16)

(10)

(31)

60%

-48%

Acquisitions

-

2

15

-100%

-100%

Other

(1)

2

2

large

large

Total software capitalisation

401

430

447

-7%

-10%

32

BUSINESS PERFORMANCE REVIEWProfit and Loss (including effect of movements in foreign currencies)
Half
year
Mar 05
$M

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Mar 05v. Sep 04%

Movt
Mar 05v. Mar 04%

Net profit after income tax
Personal Banking Australia

442

417

384

6%

15%

Institutional

455

436

427

4%

7%

New Zealand Businesses

306

291

219

5%

40%

Corporate Australia

182

172

164

6%

11%

Esanda and UDC

77

74

69

4%

12%

Asia Pacific

48

60

51

-20%

-6%

63

61

47

3%

34%

(81)

(92)

(49)

-12%

65%

1,492

1,419

1,312

5%

14%

(17)

-

84

n/a

large

1,475

1,419

1,396

4%

6%

ING Australia
Group Centre

1

Net profit (excl significant items2 and NBNZ
incremental integration costs3)
Significant items2 and NBNZ incremental integration costs3
Net profit

Profit and Loss (prior period figures adjusted to remove the impact of exchange rate movements4)
Half
year
Mar 05
$M

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Mar 05v. Sep 04%

Movt
Mar 05v. Mar 04%

Pers onal Banking Australia

442

417

384

6%

15%

Institutional

455

436

431

4%

6%

New Zealand Businesses

306

301

231

2%

32%

Corporate Australia

182

172

164

6%

11%

Esanda and UDC

77

74

71

4%

8%

Asia Pacific

48

59

51

-19%

-6%

N et profit after income tax

ING Australia

63

61

47

3%

34%

Group Centre 1

(81)

(111)

(76)

-27%

7%

1,492

1,409

1,303

6%

15%

(17)

-

84

n/a

large

1,475

1,409

1,387

5%

6%

Net profit (excl significant items and NBNZ
2

incremental integration costs 3)
Significant items 2 and NBNZ incremental integration costs 3
Net profit
FX impact on reported net profit

4

Reported net profit
1.
2.

3.
4.

-

10

9

-100%

-100%

1,475

1,419

1,396

4%

6%

Group Centre includes the operations of Treasury
In the September 2004 half ANZ has classified the $14 million profit after tax on settlement of the INGA completion accounts and $1 million dividends arising fromthe TrUEPrS transaction as significant items. In the March 2004 half $84 million net profit after tax and $35 million dividends arising from the TrUEPrS transaction
has been classified as significant items. ANZ excludes significant items to eliminate the distorting effect of one-off transactions on the results of its core businessIn the March 2005 half ANZ has incurred $17 million after tax NBNZ incremental integration costs (Sep 2004: $14 million). NBNZ incremental integration costs
are excluded to enable analysis of the cost base following completion of the integration
ANZ has removed the impact of exchange rate movements to provide investors with a better indication of the business unit performance in local currency terms.
Retranslation is net of revenue hedge earnings

The Group from time to time modifies the organisation of its businesses to enhance the focus on delivery of
specialised products or services to customers. Prior period numbers are adjusted for such organisational changes toallow comparability. During the half ended 31 March 2005 the significant changes were:Institutional now includes the NBNZ Institutional businesses which were previously reported in the New Zealandbusinesses.
New Zealand Businesses now excludes the NBNZ Institutional businesses which are reported in Institutional.
Within the New Zealand businesses sub-units have been reorganised to reflect the operating model.
Group Centre. A number of central support functions have been transferred to business units.
In addition, there were a number of minor restatements as a result of customer segmentation, changes to internaltransfer pricing methodologies and the realignment of support functions.

33

BUSINESS PERFORMANCE REVIEW (continued)
Personal Banking Australia
Brian Hartzer
Regional Commercialand Agribusiness1♦ Other♦

Banking Products
Consumer Finance♦ Mortgages♦♦

Net interest incom e
Other external operating incom e
Net inter business unit fees

Half
year
M ar 05
$M

Half
year
Sep 04
$M

Half
year
M ar 04$M

M ovt
M ar 05
v. Sep 04
%

1,019

980

931

4%

9%

445

427

405

4%

10%

61

59

59

3%

3%

M ovt
Mar 05v. Mar 04%

Operating incom e

1,525

1,466

1,395

4%

9%

External operating expenses

(671)

(644)

(625)

4%

7%

Net inter business unit expenses

(132)

(134)

(132)

-1%

0%

Operating expenses

(803)

(778)

(757)

3%

6%

P rofit before debt provision

722

688

638

5%

13%

Provision for doubtful debts

(94)

(94)

(89)

0%

6%

Profit before incom e tax

628

594

549

6%

14%

Incom e tax expense and outside equity interests

(186)

(177)

(165)

5%

13%

Net profit attributable to m em bers of the Com pany

442

417

384

6%

15%

Consisting of:Regional Com m erical and Agribusiness

57

54

53

6%

8%

Banking Products

113

108

100

5%

13%

Mortgages

149

138

137

8%

9%

Consum er Finance

118

104

85

13%

39%

5

13

9

-62%

-44%

442

417

384

6%

15%

97,807

91,18384,886

7%

15%

Other 1

Balance Sheet
Net loans & advances including acceptances
Other external assets

2,053

1,969

2,064

4%

-1%

External assets

99,86093,152

86,9507%15%

Deposits and other borrowings

39,471

38,00435,818

4%

10%

Other external liabilities

2,059

2,034

1,944

1%

6%

41,53040,03837,762

4%

10%

Ne t interest average m argin

2.17%

2.23%

2.30%

-3%

-6%

Return on assets

0.92%

0.93%

0.92%

-1%

0%

Re turn on risk weighted assets

1.67%

1.68%

1.67%

-1%

0%

O perating expenses to operating incom e

52.7%

53.1%

54.3%

-1%

-3%

Operating expenses to average assets

1.67%

1.73%

1.82%

-3%

-8%

(60)

(65)

(71)

-8%

-15%

0.13%

0.15%

0.17%

-13%

-24%

External liabilities
Ratios

Net specific provisions
Net specific provision as a % of average net advances
Net non-accrual loans

15

17

14

-12%

7%

Ne t non-accrual loans as a % of net advances

0.02%

0.02%

0.02%

0%

0%

Total em ployees

9,289

8,965

8,737

4%

6%

1.

Other includes the branch network, whose costs are fully recovered from product business units, Private Banking, Financial Planning and support costs

34

BUSINESS PERFORMANCE REVIEW (continued)
Personal Banking Australia
Brian Hartzer
March 2005 half year compared to September 2004 half year

Profit after tax increased by 6% with strong performances across all core businesses. Within Other, strong
performances in Private Banking and Financial Planning were offset by higher central support costs mainly related to
an increased marketing spend. Mortgage lending increased 7% and deposits grew 4%, delivering market share
increases. Staff satisfaction (as measured by Hewitt Best Employer survey) was at record levels and customer
satisfaction (as measured by Roy Morgan Research) was up 2.2% to 75.8%, the highest of the major Australianbanks. Underpinning this performance was our award-winning product range and the continuing re-investment in our
distribution network.
Significant factors affecting the result were:
Net interest income increased 4%.
Mortgage lending grew 7% over the period. Regional Commercial and Agribusiness volumes increased 6%
reflecting ANZ’s continuing focus on this market. Consumer Finance lending grew 8% in large part due to thesuccess of the low rate MasterCard product.
Deposit volumes increased 4% as a result of strong growth in savings accounts and steady growth in transaction
account balances.
Average net interest margin reduced by 6 basis points. Consumer Finance margin decreased by 20 basis points
due largely to growth in the low rate MasterCard product. Banking Products margin declined by 7 basis points
mainly due to higher growth in low margin cash management and term deposit products, the flat to falling yield
curve and competitive pressures. Mortgages margin was steady.
Other external operating income increased $18 million (4%).
Fee income increased by $12 million (3%). Banking Products fees increased by 6% due to growth in accountnumbers. Other increased with higher sales through our financial planners and increased general insurance sales
through the branch network. Regional Commercial and Agribusiness increased 11% with a seasonally stronger
March half. Consumer Finance fees saw a 1% increase, impacted by seasonality of annual fees and increased
competition in merchant acquiring.
Other operating income increased by $6 million with increased equity accounted income from E*Trade, profit
sharing arrangement with Diners and a strong performance from our lenders mortgage insurance business.
External operating costs increased 4%. Personnel costs were up 6% due to annual salary increments as well as
increased front line staff to handle higher business volumes and to service new points of representation.
Additional financial planners were also added during the half. Staff numbers were up in Consumer Finance tosupport increased acquisition (including white-labelled products) and cross sell activity. Computer expenses
decreased $10 million (10%) due to lower merchant acquiring line costs, a high level of technology spend in theprevious half and certain branch banking software now being fully amortised. Premises costs increased by$10 million reflecting the opening of new points of representation and investment in branch refurbishments. Other
costs increased $9 million reflecting increased marketing spend on ANZ NOW and Cards and Mortgages marketing
campaigns.
Provision for doubtful debts was flat with increased volumes offset by improved credit quality and higher
recoveries in Consumer Finance. Non-accrual loans remained low reflecting sound credit quality.
March 2005 half year compared to March 2004 half year

Profit after tax increased 15%. Consumer Finance grew 39% reflecting 11% revenue growth and 4% decline in costs.
Banking Products profit increased 13% driven by deposit growth. Mortgages grew 9% with strong volume growth
offset by margin contraction.
Operating income increased 9% driven by solid growth in all core businesses. Revenue growth in Mortgages (10%),Consumer Finance (11%) and Regional Commercial and Agribusiness (8%) related to volume growth partly offset by
margin contraction. Revenue in Banking Products grew 6% with increased deposit volumes following successful
campaigns to grow V2 Plus and term deposits in the second half of 2004.
Operating costs increased by 6%, driven by the impact of increased staff to service increased customer activity levels
and continuing investment in our branch network, including additional financial planners. Costs were further impacted
by an increased marketing spend.
Provision for doubtful debts increased 6% due largely to the 15% increase in lending volumes. Credit quality wasstable across all businesses.

35

BUSINESS PERFORMANCE REVIEW (continued)
Institutional
Steve Targett
Institutional Banking
Markets♦ Trade and Transaction Services♦ Corporate and Structured Financing
♦
♦

Half
year
M ar 05
$M

Half
year
Sep 04
$M

Half
year
Mar 04$M

M ovt
Mar 05v. Sep 04%

M ovt
Ma r 05
v. Mar 04%

Net interest incom e

394

369

346

7%

14%

Other external operating incom e

680

692

670

-2%

1%

Net inter business unit fees

(13)

(14)

(10)

-7%

30%

O p erating incom e

1,061

1,047

1,006

1%

5%

Ex ternal operating expenses

(305)

(301)

(276)

1%

11%

(76)

(72)

(72)

6%

6%

Op erating expenses

(381)

(373)

(348)

2%

9%

Net inter business unit expenses

Profit before debt provision

680

674

658

1%

3%

Pr ovision for doubtful debts

(71)

(75)

(87)

-5%

-18 %

Pr ofit before incom e tax

60 9

599

571

2%

7%

Incom e tax expense and outside equity interests

(154)

(163)

(144)

-6%

7%

N e t profit attributable to m em bers of the Com pany

455

436

427

4%

7%

145

149

152

-3%

-5%

Co nsisting of:Institutional Banking
Trade & Transaction Services
Markets
Corporate and Stuctured Financing

99

94

87

5%

14%

109

100

97

9%

12%

102

93

91

10%

12%

455

436

427

4%

7%

46,69742,52540,90610%

14%

Ba lance Sheet
Ne t loans & advances including acceptances
Ot her external assets

21,674

18,23220,01319%

8%

Ex ternal assets

68,37160,75760,91913%

12%

Deposits and other borrowings

30,16727,39526,283

10%

15%

Other external liabilities

21,87721,98322,1220%-1%E xternal liabilities

52,04449,37848,4055%

8%

Net interest average m argin

1.60%

1.59%

1.63%

1%

-2%

Return on assets

1.40%

1.40%

1.45%

0%

-3 %

Return on risk weighted assets

1.27%

1.27%

1.28%

0%

-1%

Operating expenses to operating incom e

35.9%

35.6%

34.6%

1%

4%

Operating expenses to average assets

1.17%

1.20%

1.18%

-3%

-1%

(1)

(106)

(61)

-99%

-98%

0.00%

0.50%

0.30%

-100%

-100%

Ratios

Net specific provisions
Ne t specific provision as a % of average net advances
Net non-accrual loans

169

299

359

-43%

-53%

Net non-accrual loans as a % of net a dvances

0.36%

0.70%

0.88%

-49%

-59%

T otal em ployees

2,927

2,946

2,892

-1%

1%

Institutional now includes the NBNZ Institutional business that was previously reported in the New Zealand businesses
segment. Comparatives have been adjusted.

36

BUSINESS PERFORMANCE REVIEW (continued)
Institutional
Steve Targett
March 2005 half year compared to September 2004 half year

Profit after tax increased by 4%. The impact of exchange rate movements was immaterial.
This result reflects the early benefits of strategic initiatives to return the business to sustainable growth after several
years of de-risking while, at the same time, tight credit spreads affected earnings in Institutional Banking. During thehalf, the sale of the London headquartered project finance business largely completed the withdrawal from non-core
activities. Earnings in Institutional Banking were 3% lower for the half with strong asset growth largely offset by
margin reduction. Profit increased in all other businesses, with Corporate and Structured Financing (10%) higher
reflecting strong deal flow, Trade & Transaction Services (5%) higher where margins have improved and Markets(9%) higher due to stronger foreign exchange customer activity and the sale of Sydney Futures Exchange shares.
The focus of the business is now on further key initiatives to deliver revenue growth, combined with efficient use ofcapital and continuing strong risk management.
Significant factors affecting the result were:
Net interest income increased $25 million (7%), largely due to an increase of $22 million in Markets. A higher
proportion of revenue was booked as interest due to funding costs associated with unrealised trading gains, offset
by an equivalent fall in other operating income. Total income in Markets increased $14 million. Trade andTransaction Services increased 11%, driven by increased lending and deposit volumes and improved margins.
Institutional Banking increased 1%, with lending growth of 14% being offset by a decline in margin due tocompetitive pressures. Corporate and Structured Financing decreased 10%, with lower lending assets following thesale of the London-headquartered project finance business.
Overall loan volumes increased 10%, deposit volumes increased 10% and net interest margin remained stable.
Lending volumes in Australia were 16% higher, and in New Zealand, where the integration of the NBNZ business isprogressing well, lending volumes were 21% higher in NZD terms.
Other operating income decreased $12 million (2%). Markets decreased $10 million largely due to the funding
costs associated with unrealised trading gains described above, partly offset by profit on the sale of Sydney
Futures Exchange shares. Corporate and Structured Financing increased 11%, reflecting a strong contribution
from the private equity portfolio, the sell down of the Energy Infrastructure Trust and a $4 million gain on the saleof the London headquartered project finance business. This was offset by a decrease of 6% in Institutional
Banking which experienced lower fee income.
Operating expenses have been tightly managed to be only 2% higher due to the successful execution of several
initiatives which have focused on delivering a more efficient platform for the business. These included theintegration of the Capital Markets and Foreign Exchange businesses, realignment of the segments in Institutional
Banking, reorganisation of the Institutional Banking model in Asia, reorganisation of London infrastructure
following the sale of the project finance activities, and a number of other infrastructure related efficiency
initiatives. Some of the savings from these initiatives have been reinvested in growth and capability
improvements, particularly in the Markets and Transaction Services businesses.
Provision for doubtful debts was 5% lower reflecting improved credit quality and lower offshore exposures,
including the London project finance assets. Net specific provisions were $105 million lower, with no individuallylarge new specific provisions in the current half. Net non-accrual loans have decreased by 43% due to continuing
improvements in the portfolio quality.
Income tax expense reduced $9 million as a result of increased non-taxable income, including the sale of equity
securities, the sale of the London headquartered project finance business, together with reduced profits in higher
tax jurisdictions, principally the US.
March 2005 half year compared to March 2004 half year

Profit after tax increased $28 million (7%), including an additional 2 months contribution from NBNZ of $16 million,(refer page 28). The impact of exchange rate movements on translation of offshore earnings was less than 1%.
Operating income increased 5%. Trade and Transaction Services revenue increased 13% with increased trade flows
through Asia, strong growth in Custody and increased international payments revenue. Markets increased 12% withstronger foreign exchange customer activity and volatility in the AUD. Institutional Banking reduced 3% with lower
net interest and fee income and reduced margins. Corporate and Structured Financing revenue increased 4%
reflecting a strong contribution from the private equity portfolio and the sell down of the Energy Infrastructure Trust.
Operating expenses increased 9%. Staff costs were higher due to an additional 2 months of NBNZ costs in thecurrent half, investment in growth in Trade and Transaction Services, and an increase in costs related to delivering
critical compliance initiatives.
Provision for doubtful debts reduced 18% due to a reduction in credit exposures offshore. Net specific provisions
decreased by $60 million, with no individually large new specific provisions booked in the current half.

37

BUSINESS PERFORMANCE REVIEW (continued)
New Zealand Businesses1
Sir John Anderson
ANZ Retail
Corporate Banking♦ Central Support(including Treasury)

NBNZ Retail
Rural Banking♦ Excludes Institutional, UDC,
integration and central funding

♦

♦

♦

♦

Movt
Mar 05v. Sep 04%

Movt
Mar 05v. Ma r 04
%

522

3%

37 %

204

-1%

20%

2

3

50%

0%

961

938

729

2%

32%

(462)

(448)

(354)

3%

3 1%

(1)

(7)

(10)

-86%

-90%

Op erating expenses

(463)

(455)

(364)

2%

27 %

Half
year
Mar 05
$M

Half
year
Sep 04
$M

Half
year
Mar 04$M

Net interest income

713

689

Other external operating income

245

247

3

Operating incom eExternal operating expenses

Net inter business unit fees

Ne t inter business unit expenses

Pr ofit before debt provision

498

483

365

3%

36%

Pr ovision for doubtful debts

(46)

(53)

(44)

-13%

5%

Profit before incom e tax

452

430

321

5%

41%

In come tax expense and outside equity interests

(146)

(139)

(102)

5%

43%

Ne t profit attributable to m em bers of the Com pany

306

291

219

5%

40%

ANZ Retail

103

105

93

-2%

11%

NBNZ Retail

116

104

62

12%

87%

Rural Banking

36

34

21

6%

71%

Corporate Banking

54

47

32

15%

69%

Central Support

(3)

1

11

large

large

306

291

219

5%

40%

51,99649,892

44,4894%

17%

Co nsisting of:Ba lance Sheet
Ne t loans & advances including acceptances
Other external assets

3,910

3,491

6,052

12%

-35%

Ex ternal assets

55,90653,38350,5415%

11%

De posits and other borrowings

46,47043,00342,750

8%

9%

Other external liabilities

4,870

4,244

3,160

15%

54%

51,34047,24745,9109%12%

Net interest average margin

2.67%

2.73%

2.73%

-2%

-2%

Return on assets

1.12%

1.10%

1.08%

2%

4%

Return on risk weighted assets

1.51%

1.54%

1.57%

-2%

-4%

Operating expenses to operating income

48.2%

48.5%

49.9%

-1%

-3%

Operating expenses to average assets

1.70%

1.72%

1.79%

-1%

-5%

(26)

(22)

(13)

18%

100%

0.10%

0.09%

0.08%

11%

25%

Ex ternal liabilities
Rat ios

Net specific provisions
Net specific provision as a % of average net advances
N et non-accrual loans

28

30

26

-7%

8%

Net non-accrual loans as a % of net advances

0.05%

0.06%

0.06%

-17%

-17 %

Total employees

8,434

8,066

7,905

5%

7%

1.

For a reconciliation of the New Zealand businesses results to the New Zealand Geographic results refer page 50

38

BUSINESS PERFORMANCE REVIEW (continued)
New Zealand businesses
Sir John Anderson
March 2005 half year compared to September 2004 half year

Profit after tax for the New Zealand businesses increased $15 million (5%). NBNZ Retail, Corporate Banking andRural Banking increased 12%, 15% and 6% respectively, with strong volume growth, partly offset by lower margins
in the case of NBNZ Retail. ANZ Retail profit after tax reduced by 2% driven by lower mortgage margins and reduced
fee income following restructuring of honour fees partly offset by lower expenses. After adjusting for the impact of a
3% strengthening in the average NZD exchange rate, which impacted all trends, profit after tax growth was 2%.
Key influences on the result excluding the impact of the 3% strengthening in the average NZD exchange rate include
the following:
Net interest income increased 1%.
Lending volumes increased 6% with growth in NBNZ Retail (7%), ANZ Retail (6%), Corporate Banking (7%) and
Rural (4%).
Deposit volumes increased 3% in customer businesses after adjusting for the exchange rate impact, with solid
deposit growth in ANZ Retail (4%), NBNZ Retail (3%), Corporate Banking (3%) and Rural (7%). Treasury funding
volumes increased by $3 billion to fund strong asset growth across the New Zealand businesses.
Net interest margins have reduced as a result of the ‘mortgage price war’ in the half which drove lower customer
rates and a switch by customers from variable rate mortgages to fixed rate mortgages; a change in deposit mix
with volume growth in lower margin call and term deposit products in ANZ Retail, partially offset by stronger
deposit margins in NBNZ Retail, and a $7 million reduction in Treasury interest due to lower mismatch income andfrom a rising funding rate environment. Lending margins in Corporate and Rural were relatively static.
Other operating income reduced 3%. Growth in loan approval fees in ANZ Retail and NBNZ Retail was impacted bysignificant competitor-driven fee discounting and waivers. Fees in ANZ Retail reduced $8 million with a change infee structures in response to customer demand. Rural Banking fees were seasonally lower with farm refinancing
traditionally occurring in the September half year. NBNZ Retail achieved growth in sales commissions and Life
Company profits.
Operating expenses reduced by 1% in NZD terms with salary increases and an increase in numbers of front-line
staff (5% higher) being offset by seasonally lower staff leave costs and flat discretionary spend growth.
Provision for doubtful debts reduced by $8 million with the main factors being increased lending volumes offset bya reduction in loss factors in NBNZ following further analysis of loss history, improved credit quality and anincreased proportion of low risk residential and rural lending. Net specific provisions increased, but are still lower
than economic loss provisions. Non-accrual loans remain at a low level.
March 2005 half year compared to March 2004 half year

Profit after tax increased $87 million (40%) due to revenue growth, the inclusion of an additional two months
contribution from NBNZ ($50 million) and the impact of a 5% appreciation in the average NZD exchange rate. After
adjusting for the additional 2 months contribution from NBNZ and the impact of a strengthening NZD, profit after tax
increased $25 million (9%).
Net interest income increased $191 million (37%) driven by the additional 2 months contribution from NBNZ($125 million), a 10% growth in NZD lending volumes and growth in deposits in NBNZ Retail and ANZ Retail of 7%
and 6% in NZD terms respectively. Interest margin has declined by 6 basis points reflecting the impact of the‘mortgage price war’ and product switch from floating to fixed rate loans, and a change in deposit product mix.
Other operating income increased $41 million (20%) due largely to the additional 2 months contribution from
NBNZ ($37 million). Volume growth in all segments was offset by reduced pricing, including increased discountingof mortgage loan approval fees.
Operating costs increased $99 million (27%) as a result of the additional 2 months contribution from NBNZ($79 million) and an increased investment in frontline staff.
Provision for doubtful debts increased $2 million (5%) with improved credit quality and a revision of loss factors in
NBNZ largely offsetting the additional 2 months contribution from NBNZ ($12 million).

39

BUSINESS PERFORMANCE REVIEW (continued)
Corporate Australia
Graham Hodges
Corporate Banking Australia
Business Banking Australia♦ Small Business Banking
♦
♦

Half
year
Mar 05
$M

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Mar 05v. Sep 04%

Movt
Ma r 05
v. Mar 04%

Net interest inco me

340

322

311

6%

9%

Other external operating income

142

140

131

1%

8%

Net inter business unit fees

(46)

(43)

(42)

7%

10%

O p erating incom e

436

419

400

4%

9%

E x ternal operating expenses

(113)

(108)

(103)

5%

10%

Ne t inter business unit expenses

(32)

(34)

(35)

-6%

-9%

O p erating expenses

(145)

(142)

(138)

2%

5%

Pr ofit before debt provision

291

277

262

5%

11%

Pr ovision for doubtful debts

(31)

(31)

(27)

0%

15%

Pr ofit before incom e tax

260

246

235

6%

11%

Income tax expense and outside equity interests

(78)

(74)

(71)

5%

10%

Ne t profit attributable to m em bers of the Com pany

182

172

164

6%

11%

Bu siness Banking Au stralia

92

88

84

5%

10%

Corporate Banking Australia

64

60

55

7%

16%

Co nsisting of:

S mall Business Banking

26

24

25

8%

4%

182

172

164

6%

11%

19,31818,45017,2155%

12%

Ba lance Sheet
Ne t loans & advances including acceptances
Other external assets

108

87

88

24%

23%

E xternal assets

19,426

18,537

17,3035%

12%

Deposits and other borrowings

16,63015,715

14,997

6%

11%

Other external liabilities
External liabilities

5,608

5,508

5,282

2%

6%

22,23821,223

20,2795%

10%

RatiosNe t interest average margin

3.97%

3.98%

4.01%

0%

- 1%

Re turn on assets

1.66%

1.65%

1.64%

1%

1%

Return on risk weighted assets

1.95%

1.95%

1.96%

0%

-1%

Op erating expenses to operating income

33.3%

33.9%

34.5%

-2%

-3%

Op erating expenses to average assets

1.33%

1.36%

1.38%

-2%

-4%

(23)

(24)

(20)

-4%

15%

0.24%

0.27%

0.24%

-11%

0%

56

51

42

10%

33%

N et non-accrual loans as a % of net advances

0.29%

0.28%

0.24%

4%

21%

Total employees

1,841

1,716

1,677

7%

10%

Net specific provisions
Net specific provision as a % of average net advances
Net non-accrual loans

40

BUSINESS PERFORMANCE REVIEW (continued)
Corporate Australia
Graham Hodges
March 2005 half year compared to September 2004 half year

Profit after tax increased by 6%. Significant influences on the result were:
Net interest income increased 6% driven by growth in both average lending (7%) and average deposits (6%).
The growth in average lending (Corporate Banking 6%, Business Banking 7%) and average deposit volumes(Corporate Banking 6%, Business Banking 5% and Small Business Banking 9%) resulted from increased activity
with existing customers and new customer acquisition. Key factors in achieving growth were the increased
investment in frontline staff, the industry specialisation approach to customers and ANZ’s very competitive
customer service proposition; offsetting this, lending volume growth slowed due to increased competition. Deposit
volume growth also reflected higher seasonal deposits over the December/January period.
The net interest margin remained stable, declining by 1 basis point. Portfolio mix changes largely offset anincreasing impact of competition in both Corporate and Business Banking markets. Competitive margin pressure
was more evident on the deposit side than the lending side of the balance sheet.
Other external operating income increased 1%, mainly driven by the success of the ‘Wall St to Main St’
proposition, including private equity. The modest growth reflected a slow down in volumes and a degree ofseasonality, which results in a cyclically stronger September half year.
Net inter-business unit fees, which represent the branch network costs, were 7% higher due to the increased
investment in the branch network, including new and refurbished branches.
Effective cost management saw operating expenses increase only 2% despite a significant investment in frontline
staff in Small Business Banking and ongoing investment in Corporate and Business Banking. Staff numbers
increased by 125. The cost to income ratio reduced to 33.3%.
Provision for doubtful debts remained flat despite the increase in lending volumes. Credit quality in both theBusiness Banking and Corporate segments remains sound.
Net specific provisions, at $23 million, are down 4% and significantly below expected loss levels. Non-accrualloans as a percentage of the portfolio continued to remain at a low level.
March 2005 half year compared to March 2004 half year

Profit after tax increased 11%, with growth in Corporate Banking of 16% and Business Banking of 10%. Net interest
income increased 9% from growth in both average lending and average deposit volumes (15% and 11%
respectively). Net interest margins declined 4 basis points due to changes in product mix, reflecting a combination offaster growth in lending than deposits and higher growth rates in lower margin products and growing competition inbusiness markets. Other operating income increased mainly due to the growth in ‘Wall St to Main St’ activity.
Operating costs increased by 5% driven by a 10% increase in staff numbers and annual salary increases, funded inpart through effective cost management.
Provision for doubtful debts increased by 15% reflecting growth in lending volumes.

41

BUSINESS PERFORMANCE REVIEW (continued)
Esanda and UDC
Elizabeth Proust
A leading provider of vehicle and equipment finance, rental
services and fixed and at call investments. Operates in Australia
as Esanda and Esanda FleetPartners and in New Zealand as UDC
and Esanda FleetPartners

Ne t interest incom e

Half
year
M ar 05
$M

Half
year
Sep 04
$M

Half
year
Mar 04$M

M ovt
Mar 05v. Sep 04%

M ovt
Mar 0 5v. M ar 04
%

183

182

179

1%

2%

O th er external operating incom e

57

56

48

2%

19%

Ne t inter business unit fees

(4)

(4)

(5)

0%

-20%

Op erating incom e

236

234

222

1%

6%

External operating expenses

(81)

(83)

(76)

-2%

7%

Ne t inter business unit expenses

(14)

(14)

(13)

0%

8%

Operating expenses

(95)

(97)

(89)

-2%

7%

Profit before debt provision

141

137

133

3%

6%

Pro vision for doubtful debts

(31)

(34)

(33)

-9%

-6%

Profit before incom e tax

110

103

100

7%

10%

In com e tax expense and outside equity interests

(33)

(29)

(31)

14%

6%

Net profit attributable to m em bers of the Com pany

77

74

69

4%

12%

40.3%

41.5%

40.1%

-3%

0%

(24)

(23)

(24)

4%

0%

Operating expenses to operating incom e
Ne t specific provisions
Ne t non-accrual loans
Total em ployees

43

37

59

16%

-27%

1,349

1,297

1,252

4%

8%

March 2005 half year compared to September 2004 half year

Profit after tax increased by 4%. Strong profit growth in Australia was partly offset by a weaker performance in New
Zealand, which was impacted by structural changes and competitive pressure. Significant influences on the result
were:
Net interest income grew by 1% with a 2% increase in lending volumes reflecting seasonal patterns in new
business writings in the first half and a very competitive market, particularly in New Zealand. A 6 basis point
decline in margins resulted from the cost of exiting franchisee arrangements in New Zealand and the run-off ofhigher yielding loans during the year which were increasingly replaced by new business from lower risk, lower
margin, higher return segments.
Other operating income grew by 2% due primarily to increased fees from value-added fleet management services.
Operating expenses decreased by 2% with the September 2004 half including increased indirect taxes. This
reduction was partly offset by annual salary increases and an increased investment in growth with additional
front-line staff and expenditure on the new Esanda Online Saver product. The continued control of expenses andgrowth in income has resulted in the cost to income ratio falling to 40.3% from 41.5% in the September 2004 half.
Provision for doubtful debts decreased by 9% despite the 2% increase in lending volumes with an improvement in
the credit quality of the loan book from an increased proportion of lower risk new business and assets.
March 2005 half year compared to March 2004 half year

Profit after tax grew by 12%. Net interest income grew 2% driven by a 6% increase in lending volumes while otheroperating income increased 19% due primarily to changes in the fee structure for business lending in February 2004
and increased fees from value-added fleet management services. Operating expenses increased by 7% as a result ofhigher staff numbers in frontline growth initiatives and call centres as well as annual salary increases. These wereoffset by lower software expenditure and amortisation charges. Provision for doubtful debts was 6% lower and net
non-accrual loans were $16 million lower than March 2004 reflecting the overall improvement in credit quality.

42

BUSINESS PERFORMANCE REVIEW (continued)
Asia Pacific
Elmer Funke Kupper
Provision of primarily retail banking services in the Pacific Region andAsia, including ANZ’s share of PT Panin Bank in Indonesia; thisbusiness unit excludes institutional and corporate transactions
conducted in the Asia Pacific geographies and included in Institutional
business unit results

Half
year
Mar 05
$M

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Mar 05v. Sep 04%

Movt
Mar 05v. Mar 04%

Net interest income

78

79

74

-1%

5%

Other external operating income

73

74

73

-1%

0%

Operating incom e

151

153

147

-1%

3%

External operating expenses

(81)

(74)

(70)

9%

16%

1

1

-

0%

n/a

Operating expenses

(80)

(73)

(70)

10%

14%

Profit before debt provision

71

80

77

-11%

-8%

Provision for doubtful debts

(11)

(12)

(11)

-8%

0%

Profit before incom e tax

60

68

66

-12%

-9%

Income tax expense and outside equity interests

(12)

(8)

(15)

50%

-20%

Net profit attributable to m em bers of the Com pany

48

60

51

-20%

-6%

Net inter business unit expenses

Operating expenses to operating income

53.0%

47.7%

47.6%

11%

11%

Net specific provisions

(17)

(7)

(7)

large

large

Net non-accrual loans

15

17

17

-12%

-12%

2,040

1,972

1,890

3%

8%

Total employees

March 2005 half year compared to September 2004 half year

Profit after tax decreased by 20%. Improved core business revenue was offset by lower adjustments ($8 million) of
provisions arising on adoption of equity accounting for PT Panin Bank in Indonesia and a strengthening of the AUD
which suppressed profit growth by 2%. Excluding exchange rate movements the main drivers of the results were:
Net interest income increased 3%. A 12% growth in lending volumes, mainly in Fiji, and 10% growth in deposits
were largely offset by the structural change in interest rate environment in PNG, with average Treasury Bill rates
falling by approximately 600 basis points between the two halves.
Other operating income increased 2%. Equity accounted income increased with improved core businessperformance in PT Panin Bank offset by lower adjustments of provisions created on adoption of equity accounting
for PT Panin Bank. The September 2004 half also included $2 million income from the sale of properties in the
Pacific, which was not repeated in the March 2005 half.
Operating expenses increased due to the set-up cost for the ANZ Royal Bank joint venture in Cambodia, costs
associated with building partner relationships in China and Vietnam and continued support for the centralisation ofregional operations in Fiji.
Credit quality remains sound with reduction in provision for doubtful debts by 4%. The increase in net specificprovisions is a result of provisioning for one account in Fiji.
Income tax expense increased $4 million largely as a result of a one off tax credit arising from the repayment offoreign currency loans upon the exercise of options in PT Panin in the September 2004 half.
March 2005 half year compared to March 2004 half year

Profit after tax reduced 6%. Operating income was flat with a 20% increase in lending volumes and strong corebusiness performance in PT Panin Bank was offset by the impact of the structural change in the interest rateenvironment in PNG and the cessation of provision write-backs mentioned above. Operating expenses increased 14%
as a result of set-up costs of the ANZ Royal Bank operations in Cambodia and costs associated with building partner
relationships in China and Vietnam. The impact of exchange rate movements was immaterial.

43

BUSINESS PERFORMANCE REVIEW (continued)
ING Australia
Paul Bedbrook
INGA, the joint venture between ANZ and ING Group, provides
integrated manufacture and distribution of wealth creation,
management and protection products and services aligned to ANZ
distribution and the open market

H a lfyear
Mar 05$M

H a lfy ea r
S ep 0 4$M

H a lfy ea rM ar 04$M

Movt
Mar 05v . S ep 0 4%

M ovt
M ar 05
v. M ar 04%

F un d s m anag e m en t in co m e

226

237

206

-5 %

10%

R isk inco m e

110

101

80

9%

38%

336

338

286

-1 %

17%

C o sts (ex cl g o o d w ill o n p urch ase o f A N Z b usine ss)(2 3 8 )(2 5 1 )(1 9 8 )

-5 %

20%

98

87

88

13%

11%

C ap ita l inv estm en t ea rnin g s

101

99

65

2%

55%

N et inco m e

199

186

153

7%

30%

Inco m e tax ex p ense

(3 5 )(3 0 )(2 7 )

17%30%

P ro fit a fte r ta x

164

156

126

5%

30%

A N Z share o f IN G A earning s @ 4 9 %

80

76

62

5%

29%

A N Z cap ital he d g es

(1 1 )

(7 )

(6 )

57%

83%

A N Z s h a re

N et fund ing co st

(6 )

(8 )

(9 )

-2 5 %-3 3 %

N e t re tu rn to A N Z 1

63

61

47

3%

34%

1.

Notional Goodwill amortisation of $21 million (Sep 04: $19 million; Mar 04: $22 million) is reported in the Group Centre. Lower amortisation in the September
2004 half reflects goodwill reduction of $25 million from finalisation of completion accounts

March 2005 half year compared to September 2004 half year

Net return to ANZ increased by 3%. Significant influences on the result were:Funds management income reduced by 5%, impacted by a one-off increase to the reserve supporting annuity
products, lower net income associated with a new franchise agreement, higher fee rebates payable to customers,
outsourcing charges for administration of the Wrap product and a write down in the value of a subsidiary business.
Total funds under management and inflows increased by $2.6 billion or 9%. INGA maintained its number 4
position in Retail Funds under Management as measured by ASSIRT.
Risk income increased by 9%, driven by continued favourable claims experience and increased sales of life
insurance products through the ANZ network.
Costs reduced 5% from the September half year mainly due to lower costs associated with process improvements.
Capital investment earnings increased by 2% in line with continued strong investment markets. ANZ continues topartially hedge against volatility in this income stream. As a result, gains in capital investment earnings wereoffset by hedge losses.
Tax expense increased due to the higher capital investment earnings and operating profit.
March 2005 half year compared to March 2004 half year

Net return to ANZ increased 34%. Funds management income increased by 10% due to continued strong investment
markets and higher funds under management. Life risk income increased driven by favourable claims experience andincreased insurance sales through the ANZ network. Costs increased by 20% due to the insourcing of investment
management services in the September half year, increased investment in product systems and process
improvements, and a write off of fixed assets. Capital investment earnings increased over the March 2004 half withhigher fixed interest and equity returns. These gains were partly offset by losses on ANZ’s hedges. Tax expense
increased due to higher capital investment earnings.

44

BUSINESS PERFORMANCE REVIEW (continued)
Group Centre
Group People Capital♦ Group Strategic Development
Group Risk Management ♦ Group Financial Management♦ Treasury♦ Operations, Technology andShared Services♦♦

N et interest incom e

H a lfy ea rM ar 0 5$M

H a lfy ea r
S ep 0 4$M

H a lfy ea rMar 04$M

M ov tMar 05v . S ep 0 4%

M ov tMar 05v. Mar 04
%

135

135

156

0%

-1 3 %O ther external operating incom e

(3 )

(5 )

(1 1 )-4 0 %-7 3 %N et inter business unit fees

(1 )

-

(5 )

n/a

-8 0 %

O p eratin g in co m e

131

130

140

1%

-6 %

External operating expenses(4 6 3 )(4 4 6 )(3 9 9 )4%

16%

N et inter business unit expenses

255

261

263

-2 %

-3 %

O p eratin g ex p en s es

(2 0 8 )(1 8 5 )(1 3 6 )12%53%(7 7 )(5 5 )

4

40%

large

Provision for do ubtful debts

P rofit b efo re d eb t p ro v isio n-(2 0 )(2 2 )-1 0 0 %-1 0 0 %P rofit b efo re in com e ta x

(7 7 )(7 5 )(1 8 )

3%

large

(4 )

(1 7 )(3 1 )-7 6 %-8 7 %(8 1 )(9 2 )(4 9 )-1 2 %

65%

9

16

37

-4 4 %-7 6 %

3 ,9 5 2

3 ,7 9 2

3 ,6 1 8

4%

9%

Incom e tax e xpense and outside equity interests
N et p rofit a ttrib u ta b le to m em b ers of th e C om p a n y
In clu d in g :Treasury
Total em ployees

March 2005 half year compared to September 2004 half year

The result for the Group Centre was a loss of $81 million compared with a loss of $92 million in the September 2004
half. Significant influences on the result were:
The strengthening of the average NZD exchange rate over the half resulted in a $12 million reduction in income oncontracts put in place to hedge NZD denominated earnings. These losses were offset in New Zealand Businesses,
and the New Zealand component of the Institutional and Esanda and UDC businesses. In addition the maturity ofcontracts put in place to hedge USD revenues resulted in a further decline of $9 million.
The investment of the Euro hybrid issue proceeds increased profit after tax by $5 million.
Group Treasury earnings reduced $7 million largely as a result of lower balance sheet management earnings in
Singapore and reduced short end mismatch earnings.
Other operating income increased $2 million with the September 2004 half including settlement of the INGA
warranties which enabled the release of provisions held against potential claims which was partly offset by aprovision for loss on the proposed sale of property.
Operating expenses increased $23 million with increased risk management and compliance costs including
Basel II, GST, International Accounting Standards and the US Sarbanes Oxley legislation, higher goodwill
amortisation with the September half including an adjustment to align the amortisation term of goodwill on NBNZ’sbalance sheet and reduce NBNZ goodwill following the final settlement with Lloyds TSB, and increased non-lending
losses charge mainly related to cheque conversion fraud.
The decrease in tax expense reflects mainly the issue of shares under the employee share scheme and the impactof the Euro hybrid. The September 2004 half includes non-taxable property write-downs. Goodwill amortisation isbooked in the Group Centre.
Provision for doubtful debts reduced $20 million with no additional charge in the Group Centre as a result of
reduced risk in the Institutional offshore business.
March 2005 half year compared to March 2004 half year

The half year loss of $81 million compared with a loss of $49 million in the March 2004 half. Revenue reduced 6% asa result of lower earnings in Treasury ($39 million). Operating costs increased largely as a result of an additional$26 million goodwill amortisation on the NBNZ acquisition, provisioning for cheque conversion fraud and increased
compliance and risk management costs. Economic loss provisioning reduced reflecting the reduced additional charge
taken in the Group Centre.

45This page has been left blank intentionally46

GEOGRAPHIC SEGMENT PERFORMANCE
Geographic performance
Half
year
Mar 05
$M

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Mar 05v. Sep 04%

Movt
Mar 05v. Mar 04
%

1,051

984

1,000

7%

5%

New Zealand

269

268

227

0%

19%

Asia Pacific

84

99

92

-15%

-9%

Net profit attributable to shareholders of the company
Australia

Other

71

68

77

4%

-8%

1,475

1,419

1,396

4%

6%

Net profit excluding significant items1 and NBNZ incremental
integration costs2
Australia

1,051

970

916

8%

15%

New Zealand

286

282

227

1%

26%

Asia Pacific

84

99

92

-15%

-9%

Other

71

68

77

4%

-8%

1,492

1,419

1,312

5%

14%

1.

2.

In the September 2004 half ANZ has classified the $14 million profit after tax on settlement of the INGA completion accounts as significant items. In the March
2004 half $84 million net profit after tax arising from the TrUEPrS transaction has been classified as significant items. ANZ excludes significant items to eliminate
the distorting effect of one-off transactions on the results of its core businessIn the March 2005 half ANZ has incurred $17 million after tax NBNZ incremental integration costs (Sep 2004: $14 million). NBNZ incremental integration costs
are excluded to enable analysis of the cost base following completion of the integration

Net profit after income tax
Australia

New
Zealand

Asia
Pacific

Other

Total

Personal

442

202

53

-

697

Institutional

277

101

18

31

427

Corporate

182

107

27

-

316

Esanda and UDC

60

17

-

-

77

March 2005 Half

ING Australia

63

-

-

-

63

Group Centre

27

(158)

(14)

40

(105)

1,051

269

84

71

1,475

Personal

417

194

41

-

652

Institutional

267

101

28

30

426

Corporate

172

96

30

-

298

Esanda and UDC

54

19

-

-

73

ING Australia

60

-

-

-

60

Group Centre

14

(142)

-

38

(90)

984

268

99

68

1,419

Personal

384

145

35

-

564

Institutional

254

85

30

47

416

Corporate

164

63

29

-

256

Esanda and UDC

52

18

-

-

70

ING Australia

47

-

-

-

47

September 2004 Half

March 2004 Half

Group Centre

47

99

(84)

(2)

30

43

1,000

227

92

77

1,396

GEOGRAPHIC SEGMENT PERFORMANCE (continued)
Australia
Halfyear
Mar 05
$M

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Mar 05v. Sep 04%

Movt
Mar 05v. Mar 04
%

1,859

1,749

1,701

6%

9%

Fee income

877

862

818

2%

7%

Other operating income

266

293

357

-9%

-25%

Net interest income

Operating income

3,002

2,904

2,876

3%

4%

Operating expenses(1,362)(1,305)(1,246)

4%

9%

Profit before debt provision

1,640

1,599

1,630

3%

1%

P rovision for doubtful debts

(200)

(224)

(220)

-11%

-9%

Income tax expense

(389)

(392)

(410)

-1%

-5%

-

1

-

-100%

n/a

Outside equity interest
Net profit attributable to m em bers of the Com pany

1,051

984

1,000

7%

5%

Net interest average margin

2.38%

2.43%

2.54%

-2%

-6%

Return on risk weighted assets

1.57%

1.56%

1.65%

1%

-5%

O perating expenses to operating income

45.2%

44.8%

43.2%

1%

5%

Operating expenses 1 to average assets

1.52%

1.54%

1.58%

-1%

-4%

1

Net specific provision

(101)

(196)

(165)

-48%

-39%

Net specific provision as a % of average net advances

0.13%

0.27%

0.24%

-52%

-46%

Net non-accrual loans
Net non-accrual loans as a % of net advances
T otal employees

220

213

275

3%

-20%

0.14%

0.14%

0.19%

0%

-26%

17,38916,815

16,411

3%

6%

Le nding growth

8.4%

6.2%

7.2%

External assets

185,434

170,455

161,542

9%

15%

Risk weighted assets

139,243

129,764

122,982

7%

13%

1.

This excludes goodwill amortisation of $4 million (Sep 2004 half: $4 million; Mar 2004 half: $4 million). Refer Note 15 on page 83

March 2005 half year compared to September 2004 half year

Profit after tax increased by 7%. Excluding the Australian component of significant items, (refer page 12) profit
increased by 8%. Significant influences on the result were:
Net interest income increased by 6%. Lending volumes increased 8%, driven by growth in Personal Banking 7%,
Institutional 19% and Corporate Australia 5%. Deposit and other borrowing volumes increased in Personal
Banking 4% and Institutional 12%. Net interest average margin decreased by 5 basis points with a change in thecomposition of the portfolio, with growth in lower margin mortgages, term deposit and cash management
accounts, and increased competition in Institutional. This was partly offset in Markets, where a higher proportionof revenue was booked as net interest ($19 million), offset by lower other operating income.
Fee income increased by 2% with a 3% increase in Personal Banking Australia, on higher lending volumes, higher
income from financial planners and higher sales of general insurance products in the branch network. Institutional
reduced 3% due largely to increased competition in Institutional Banking.
Other operating income decreased $27 million. The September 2004 half included $14 million profit fromsignificant items, (refer page 12) and Markets declined $19 million, offset by higher net interest income as a resultof lower funding costs on derivative positions. Excluding these impacts, other operating income increased 2% withhigher earnings from the sale of equity securities, (including Private Equity), in Institutional.
Operating expenses increased by 4% reflecting an increased investment in frontline staff and annual salary
increases, and increased compliance costs including the US Sarbanes Oxley legislation and International Financial
Reporting Standards.
Provision for doubtful debts decreased by 11% driven by a reduced charge in the Group Centre. The impact ofvolume growth was offset by improved credit quality in most portfolios. Net specific provisions decreased$95 million mainly in Institutional reflecting an improvement in overall credit quality and no new large credit
provisions during the half.
March 2005 half year compared to March 2004 half year

Profit after tax increased 5%. Excluding the Australian component of significant items, ($84 million profit in March
2004 half) profit increased by 15%. Net interest income increased 9% with higher lending volumes partly offset by
16 basis point margin contraction. Fee income increased 7% mainly due to increased transaction and lending
volumes in Personal Banking Australia. Operating expenses increased 9% mainly due to a $75 million increase inpersonnel costs.

48

GEOGRAPHIC SEGMENT PERFORMANCE (continued)
New Zealand
Half
year
M ar 05
$M

Half
year
Sep 04
$M

Half
year
M ar 04$M

M ovt
M ar 05
v. Sep 04%

M ovt
M ar 05
v. M ar 04%

Net interest incom e

789

771

600

2%

32%

Fee incom e

277

277

230

0%

20%

75

70

61

7%

23%

Other operating incom e
O perating incom e

1,141

1,118

891

2%

28%

Operating expenses

(661)

(640)

(488)

3%

35%

Profit before debt provision

480

478

403

0%

19%

Provision for doubtful debts

(57)

(63)

(55)

-10%

4%

(154)

(147)

(119)

5%

29%

Incom e tax expense
Outside equity interests

-

-

(2)

n/a

-100%

269

268

227

0%

19%

Net interest average m argin

2.43%

2.49%

2.52%

-2%

-4%

Return on risk w eighted assets

1.04%

1.11%

1.22%

-6%

-15%

Operating expenses 1 to operating incom e

50.6%

50.4%

48.3%

0%

5%

Operating expenses 1 to average assets

1.60%

1.66%

1.59%

-4%

1%

(29)

(25)

(19)

16%

53%

0.10%

0.09%

0.09%

11%

11%

42

47

41

-11%

2%

N et profit attributable to m em bers of the Com pany

Net specific provision
Net specific provision as a % of average net advances
Net non-accrual loans
Net non-accrual loans as a % of net advances

0.07%

0.08%

0.08%

-13%

-13%

Total em ployees

9,256

8,816

8,596

5%

8%

5.0%

10.7%

153.3%

Lending grow th (including FX im pact)
Lending grow th (excluding FX im pact)

6.9%

3.2%

154.1%

External assets

73,56669,801

67,921

5%

8%

Risk w eighted assets

53,472

49,863

46,900

7%

14%

M ovt
M ar 05
v. Sep 04%

M ovt
M ar 05
v. M ar 04%

1.

This excludes goodwill amortisation of $84 million (Sep 2004 half: $77 million; Mar 2004 half: $58 million). Refer Note 15 on page 83

The following table represents the New Zealand geography in local currency (NZD).
Half
year
M ar 05
NZD M

Half
year
Sep 04
N ZD M

Half
year
M ar 04
N ZD M

Net interest incom e

855

859

684

0%

25%

Fee incom e

300

308

263

-3%

14%
17%

Other operating incom e

81

78

69

4%

O perating incom e

1,236

1,245

1,016

-1%

22%

Operating expenses

(716)

(713)

(557)

0%

29%

Profit before debt provision

520

532

459

-2%

13%

Provision for doubtful debts

(62)

(71)

(62)

-13%

0%

(167)

(163)

(136)

2%

23%

-

-

(2)

n/a

-100%

Incom e tax expense
Outside equity interests

291

298

259

-2%

12%

External assets

N et profit attributable to m em bers of the Com pany

80,17974,68777,885

7%

3%

Risk w eighted assets

58,28053,35353,7819%

8%49

GEOGRAPHIC SEGMENT PERFORMANCE (continued)
New Zealand, cont’d
Reconciliation of Geographic result
Half
year
Mar 05
$M

Half
year
Sep 04
$M

Half
year
Mar 04
$M

306

291

17

19

101

Movt
Mar 05v. Sep 04%

Movt
Mar 05v. Mar 04
%

219

5%

40%

18

-11%

-6%

101

85

0%

19%

N Z Business
New Zealand Businesses
UDC
Institutional

424

411

322

3%

32%

Total integration costs

(21)

(23)

(5)

-9%

large

NBNZ goodwill

(81)

(75)

(54)

8%

50%

Acquisition and funding

(68)

(59)

(39)

15%

74%

Other

15

14

3

7%

large

New Zealand geography

269

268

227

0%

19%

March 2005 half year compared to September 2004 half year
Profit after tax was flat. After adjusting for the impact of a 3% strengthening in the average NZD exchange rate,
which impacted all trends, profit after tax reduced 2%. Increased profit (in NZD terms) in New Zealand Businesses(2%) was offset by reduced profit in Institutional (-3%) and UDC (-14%). The Institutional result includes a
reduction in profit of $3 million due to acquisition related revenue attrition. Profit on structured deals was $6 million
lower as a result of the planned roll off of structured transactions. Both reductions are in line with expectations. Key
influences on the result excluding the impact of exchange rates include:
Net interest income was constrained, partly due to higher costs of funding the NBNZ acquisition due to risinginterest rates ($9 million) and a $7 million reduction in Treasury earnings due to lower mismatch earnings from arising rate environment. Lending volumes increased 7% with growth in New Zealand businesses (6%), andInstitutional (21%, mainly in Institutional Banking and Structured Financing) offsetting a reduction in UDC (5%).
Customer deposit volumes increased 3% in New Zealand businesses. Net interest margins have reduced 6 basis
points as a result of the “mortgage price war” and product switch from floating to fixed rate loans, margin
reductions in Institutional Banking, higher funding costs, and a change in deposit mix with volume growth in lower
margin call and term deposit products.
Fee income reduced 3% with retail loan approval fees constrained as a result of competitive discounting, a decision
to restructure the honour fee in ANZ Retail, and seasonally lower lending fees in Rural Banking largely offsettingvolume driven increases in fees in Institutional.
Other operating income was higher, with increased income from private equity transactions being partly offset by
reduced profit on trading instruments with low interest rate volatility and a flat yield curve resulting in reduced
customer hedging activity.
Operating expenses were flat in NZD terms. Salary increases and an increased investment in front-line staff
increasing staff numbers by 5% have been offset by seasonally lower staff leave costs and constraints on
discretionary spend. The total integration spend was flat.
Provision for doubtful debts reduced by $8 million with increased lending volumes being offset by the revision ofloss factors in NBNZ following further analysis of loss history and an increased proportion of low risk residential
and rural lending. Non-accrual loans remain at a low level.
March 2005 half year compared to March 2004 half year
Profit after tax increased $42 million (19%) due largely to the inclusion of an additional two months contribution from
NBNZ ($29 million including acquisition and funding costs) and the impact of a 5% appreciation in the average NZD
exchange rate. The Institutional result includes a reduction in profit of $3 million due to acquisition related revenue
attrition. This reduction is in line with expectations. After adjusting for the additional 2 months contribution from
NBNZ and the impact of a strengthening NZD, profit after tax was flat.
Net interest increased 32% driven by an additional 2 months contribution from NBNZ ($127 million including
acquisition and funding costs) and a 10% growth in NZD lending volumes and NZD growth in deposits in NBNZ
Retail and ANZ Retail of 7% and 6% respectively. Interest margin has declined by 9 basis points reflecting theimpact of the “mortgage price war”, lending product switch from variable to fixed, and a change in deposit mix.
Fee income increased $47 million (20%) as a result of an additional 2 months contribution from NBNZ($38 million). Volume growth in New Zealand businesses and Institutional was partly offset by reduced pricing
and increased discounting of mortgage loan approval fees.
Other operating income increased $14 million (23%) as a result of an additional 2 months contribution from NBNZ($15 million) partly offset by lower revenue in UDC ($2 million) and current year losses in Treasury resulting fromconversion of foreign denominated funding into NZD ($3 million).
Operating costs increased $173 million (35%) as a result of an additional 2 months contribution from NBNZ($115 million including goodwill amortisation), integration costs and an increased investment in frontline staff.

50

GEOGRAPHIC SEGMENT PERFORMANCE (continued)
Asia Pacific
Half
year
Mar 05
$M

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Mar 05v. Sep 04%

Movt
Mar 05v. Mar 04%

Net interest income

102

115

109

-11%

-6%

Fee income

55

59

51

-7%

8%

Other operating income

79

70

80

13%

-1%

Operating income

236

244

240

-3%

-2%

Operating expenses

(114)

(107)

(102)

7%

12%

Profit before debt provision

122

137

138

-11%

-12%

Provision for doubtful debts

(15)

(16)

(18)

-6%

-17%

Income tax expense

(22)

(20)

(27)

10%

-19%

Outside equity interests

(1)

(2)

(1)

-50%

0%

Net profit attributable to members of the Company

84

99

92

-15%

-9%

47.9%

43.0%

42.1%

11%

14%

(15)

(9)

(10)

67%

50%

Operating expenses 1 to operating income
Net specific provision
Net non-accrual loans
Total employees
1.

21

22

24

-5%

-13%

2,275

2,221

2,131

2%

7%

This excludes goodwill amortisation of $1 million (Sep 2004 half: $2 million; Mar 2004 half: $1 million). Refer Note 15 on page 83

March 2005 half year compared to September 2004 half year

Profit after tax decreased 15%. The result was significantly impacted by lower adjustments of provisions arising on
adoption of equity accounting for PT Panin Bank ($8 million), lower interest earnings in the Treasury operations in
Singapore ($9 million after tax) and the impact of appreciation of the AUD which suppressed profit growth by 4%($4 million).
Excluding exchange rate movements other areas of the business improved with the main drivers of the results being:
Net interest reduced 7% with the impact of the structural change in the interest rate environment in PNG, withaverage Treasury Bill rates falling by approximately 600 basis points between the two halves, and reduced
Treasury earnings in Singapore offsetting volume driven increases in other regions in a competitive environment.
Other operating income increased 17% with stronger than expected growth in PT Panin Bank and increased foreignexchange earnings.
Operating expenses increased due to set-up costs for the ANZ Royal Bank joint venture in Cambodia, costs
associated with building partner relationships in China and Vietnam and the centralisation of regional operations inFiji.
Provision for doubtful debts reduced by 7%, which reflects a lower loss rate on credit cards in Indonesia. The
increase in net specific provisions is a result of provisioning for one account in Fiji.
Income tax expense increased, despite lower profit before tax, largely as a result of a one off tax credit arisingfrom the repayment of foreign currency loans upon the exercise of options in PT Panin in the September 2004 half.
March 2005 half year compared to March 2004 half year

Profit after tax reduced 9%. Operating income reduced 2% with the impact of the structural change in the interest
environment in PNG, and lower Treasury earnings offset by growth in tother areas. Operating expenses increased by
12% as a result of set-up cost of the ANZ Royal Bank operations in Cambodia and costs associated with building
partner relationships in China and Vietnam.

51

GEOGRAPHIC SEGMENT PERFORMANCE (continued)
Other
Half
year
Mar 05
$M

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Mar 05v. Sep 04%

Movt
Mar 05v. Mar 04%

Net interest income

103

110

99

-6%

4%

Fee income

53

62

62

-15%

-15%

Other operating income

22

15

24

47%

-8%

Operating income

178

187

185

-5%

-4%

Operating expenses

(63)

(72)

(66)

-13%

-5%

Profit before debt provision

115

115

119

0%

-3%

Provision for doubtful debts

(12)

(16)

(20)

-25%

-40%

Income tax expense

(32)

(31)

(22)

3%

45%

Net profit attributable to members of the Company

71

68

77

4%

-8%

35.4%

38.5%

35.7%

-8%

-1%

(6)

(17)

(2)

-65%

large

Operating expenses to operating income
Net specific provision
Net non-accrual loans

43

169

177

-75%

-76%

Total employees

912

903

833

1%

9%

March 2005 half year compared to September 2004 half year

Profit after tax increased by 4%. Excluding the impact of exchange rates profit increased by 10%. Significant
influences on the result excluding the impact of exchange rates were:
Net interest income decreased 2%. Higher earnings on capital following interest rates increases during the
September 2004 half and higher earnings on funds lent to New Zealand were offset by a decline in Institutional
following the sale of the London headquartered project finance business and the continued strategy to de-risk theoverseas portfolios.
Fee income reduced 10% following the sale of the project finance businesses.
Other operating income increased by $7 million mainly due to the profit on sale of the project finance activities anda $2 million increase in income in Markets.
Operating expenses decreased 7% as the sale of the project finance business resulted in a reorganisation in the
London infrastructure, which decreased personnel, computer and other expenses. Employee numbers increased
1% with additional technology staff in ANZIT in India.
Provision for doubtful debts decreased 24% reflecting the reduction in the exposure to the US and UK Power andTelecommunications sectors. Net specific provisions reduced with no significant new provisions in the half and therecovery of several bad debts previously provided for.
March 2005 half year compared to March 2004 half year

Profit after tax decreased 8%. After adjusting for the impact of exchange rate movements, profit decreased 6%. A
4% increase in net interest income was largely due to earnings on additional capital associated with funding the NBNZ
acquisition. Fee income reduced $9 million largely due to the sale of the project finance business. Foreign exchangeearnings reduced from the strong March 2004 half. Provision for doubtful debts decreased 40% driven by a 13%
reduction in loan volumes and the impact of the strategy to de-risk the offshore portfolios. Income tax expense
increased $10 million largely due to the March 2004 half including the release of a $7 million tax provision relating toprior year tax expense in the US.

52

FOUR YEAR SUMMARY BY HALF YEAR

Mar 05$M

Sep 04$M

Mar 04$M

Sep 03$M

Mar 03$M

Sep 02$M

Mar 02$M

Sep 01$M

Net interest income

2,853

2,745

2,509

2,171

2,140

2,053

1,965

1,954

Other operating income

1,704

1,708

1,683

1,456

1,352

1,561

1,409

1,333

Operating expense(1,553)

Statement of Financial Performance(2,200)(2,124)(1,902)(1,626)(1,602)(1,575)(1,330)

Provision for doubtful debts

(284)

(319)

(313)

(311)

(303)

(309)

(551)

(290)

Profit before income tax

2,073

2,010

1,977

1,690

1,587

1,730

1,493

1,444

Income tax expense

(597)

(590)

(578)

(482)

(444)

(457)

(441)

(468)

Outside equity interest

(1)

(1)

(3)

(1)

(2)

(1)

(2)

(1)

1,475

1,419

1,396

1,207

1,141

1,272

1,050

975

Assets277,849

259,345

247,288

195,591

190,518

183,105

176,589

185,493

Net assets

19,00817,925

16,74813,787

12,485

11,465

10,803

10,551

17.2%

17.3%

19.1%

20.9%

20.3%

24.8%

21.6%

20.9%

Net profit attributable
to members of the Company
Statement of Financial Position

RatiosReturn on average ordinary equity1
Return on average ordinary equity1 excluding significant
items2 and NBNZ incremental integration costs3

17.4%

17.3%

18.4%

20.9%

20.3%

21.4%

21.9%

20.9%

Return on average assets

1.1%

1.1%

1.2%

1.2%

1.2%

1.4%

1.2%

1.1%

Tier 1 capital ratio

7.0%

6.9%

7.0%

7.7%

7.7%

7.9%

7.8%

7.5%

46.3%

45.8%

43.9%

44.6%

45.6%

43.3%

39.1%

47.0%

45.8%

45.5%

45.1%

44.6%

45.6%

45.5%

46.5%

47.0%

Operating expenses to operating income
4

Operating expenses4 to operating income excluding significant
items2 and NBNZ incremental integration costs3
Shareholder value - ordinary shares
Total return to shareholders
11.3%

3.0%

13.6%

2.5%

4.1%

1.4%

13.7%

18.6%

Market capitalisation(share price movement plus dividends)

37,584

34,58634,28427,314

27,13526,544

26,57923,783

Dividend

51 cents

54 cents

47 cents

51 cents

44 cents

46 cents

39 cents

40 cents

100%

100%

100%

100%

100%

100%

100%

100%

- high

$22.02$19.44$19.40$18.45$18.19$19.70$17.90$16.71- low$19.02$17.45$15.94$16.66$15.01$16.18$15.23$12.85- closing$20.62$19.02$18.96$17.17$17.15$16.88$17.00$15.28Franked portion
Share price5

Share information (per fully paid
ordinary share)
Earnings per share - basic5

78.8c

76.4c

76.8c

73.3c

69.1c

77.7c

63.6c

59.1c

Dividend payout ratio

64.7%

71.0%

63.8%

67.0%

61.3%

57.0%

58.9%

65.0%

Net tangible assets

$7.69

$7.51

$6.94

$7.49

$7.32

$6.58

$6.14

$5.96

1,822.7

1,818.4

1,808.2

1,521.7

1,513.4

1,503.9

1,495.7

1,488.3

Permanent employees (FTE's)

28,38827,383

26,585

21,586

21,21821,38021,50821,403

Temporary employees (FTE's)

1,444

1,372

1,386

1,551

1,265

1,102

1,229

1,098

Number of fully paid ordinary shareson issue (millions)
Other information

Total employees

29,83228,75527,971

23,13722,48322,482

22,73722,501

Number of shareholders6

255,655

252,072

245,173

223,545

210,512

198,716

190,133

181,667

1.
2.

3.
4.
5.
6.

Average ordinary shareholders’ equity excludes outside equity interests
In the September 2004 half ANZ has classified the $14 million profit after tax on settlement of the INGA completion accounts and $1 million dividends arising fromthe TrUEPrS transaction as significant items. In the March 2004 half $84 million net profit after tax and $35 million dividends arising from the TrUEPrS transaction
has been classified as significant items. ANZ excludes significant items to eliminate the distorting effect of one-off transactions on the results of its core businessIn the March 2005 half ANZ has incurred $17 million after tax NBNZ incremental integration costs (Sep 2004: $14 million). NBNZ incremental integration costs
are excluded to enable analysis of the cost base following completion of the integration.
Operating expenses excludes goodwill amortisation of $89 million (Sep 2004: $83 million; Mar 2004: $63 million; Sep 2003: $9 million; Mar 2003: $9 million; Sep
2002: $10 million; Mar 2002: $10 million; Sep 2001: $8 million)
September 2003 and prior periods adjusted for the bonus element of the rights issue
Excludes employees whose only ANZ shares are held in trust under ANZ employee share schemes

53This page has been left blank intentionally54

Australia and New Zealand Banking Group Limited

CONSOLIDATED FINANCIAL STATEMENTS AND OTHER DISCLOSURES

Half year ended
31 March 2005

55

CONSOLIDATED FINANCIAL STATEMENTS – TABLE OF CONTENTS

PAGE

Directors’ Report

57

Consolidated Statement of Financial Performance

58

Consolidated Statement of Financial Position

59

Statement of Changes in Equity

60

Consolidated Statement of Cash Flows

61

Notes to the Financial Statements

62

1.

Accounting policies

62

2.

Income65

3.

Operating expenses

66

4.

Income tax expense

67

5.

Dividends

68

6.

Earnings per share

69

7.

Net loans and advances

70

8.

Impaired assets

71

9.

Provision for doubtful debts

74

10. Loan capital75

11. Share Capital75

12. Capital adequacy76

13. Average balance sheet and related interest78

14. Interest spreads and net interest average margins

81

15. Segment analysis

82

16. Derivative financial instruments

84

17. Contingent liabilities and contingent assets

86

18. Note to the Statement of Cash Flows88

19. Changes in composition of the Group90

20. Associates, joint venture entities and investments

90

21. US GAAP reconciliation

91

22. Exchange rates

92

23. Significant events since balance date92

Directors’ Declaration

93

Auditors’ Review Report and Independence Declaration

94

Definitions

95

Alphabetical Index

97

56

DIRECTORS’ REPORTThe directors present their report on the consolidated financial report for the half year ended 31 March 2005.
Directors

The names of the directors of the Company who held office during and since the end of the half year are:
Mr. CB Goode, AC - Chairman
Mr J McFarlane, OBE - Chief Executive Officer
Dr GJ Clark
Mr JC Dahlsen
Dr RS Deane
Mr JK Ellis
Mr DM Gonski, AO
Ms MA Jackson, AC
Mr DE Meiklejohn
Mr JP Morschel
Dr BW Scott, AO

Director since 24 July 1991, Chairman since 24 August 1995
CEO and director since 1 October 1997
Director since 1 February 2004
Director since 20 May 1985; retired 3 February 2005
Director since 28 September 1994
Director since 1 October 1995
Director since 7 February 2002
Director since 22 March 1994
Director since 1 October 2004
Director since 1 October 2004
Director since 21 August 1985; retired 23 April 2005

Result

The consolidated profit from ordinary activities after income tax attributable to shareholders of the Company was$1,475 million. Further details are contained in the Results Commentary and Business Performance Review on
pages 11 to 46 and in the financial report.
Review of operations

A review of the operations of the Group during the half year and the results of those operations are contained in the
Results commentary and Business Performance Review on pages 11 to 46.
Lead auditor’s independence declaration

The lead auditor’s independence declaration, as required under section 307C of the Corporations Act 2001 (asamended) is set out on page 94 and forms part of the Directors’ Report for the half year ended 31 March 2005.
Rounding of amounts

The Company is a company of the kind referred to in the Australian Securities and Investments Commission classorder 98/100 dated 10 July 1998 pursuant to section 341(1) of the Corporations Act 2001 (as amended).
Consequently, amounts in this report and the accompanying financial report have been rounded to the nearest million
dollars except where otherwise indicated.
Signed in accordance with a resolution of the directors.

Charles Goode
ChairmanJohn McFarlane
Director

26 April 2005

57

CONSOLIDATED STATEMENT OF FINANCIAL PERFORMANCE

Note

Total income

2

Half
year
Mar 05
$M

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Mar 05v. Sep 04%

Movt
Mar 05v. Mar 04
%

9,981

9,282

8,226

8%

2 1%

Interest incom e

8,277

7,574

6,543

9%

27%

Interest expense(5,424)(4,829)(4,034)12%

34%

Net interest income

2,853

2,745

2,509

4%

14%

Other operating income

2

Operating income
Operating expenses

3

Profit before debt provision
Prov ision for doubtful debts

9

Pro f it before incom e tax
Inco m e tax expe nse

4Prof it after income tax

1,704

1,708

1,683

0%

1%

4,557

4,453

4,192

2%

9%

(2,200)(2,124)(1,902)

4%

16%

2,357

2,329

2,290

1%

3%

(284)

(319)

(313)

-11%

-9 %

2,073

2,010

1,977

3%

5%

(597)

(590)

(578)

1%

3%

1,476

1,420

1,399

4%

6%

(1)

(1)

(3)

0%

-6 7%

1,475

1,419

1,396

4%

6%

(284)

487

(254)

large

1 2%

(284)

487

(254)

large

12%

1,191

1,906

1,142

-38%

4%

Net p rofit attributable to outside e quity interest
Net p rofit attribut ablet o shareholder s of the Com pany

Cur re ncy translation adjustments, net o f hedges after tax
Tot a l adjustm ents attribu table to shareholders
o f the com pany recognised directly into equity
Tot a l changes in equity other than thos e resulting
from transactions w ith shareholders as ow ners
Earnings per ordinary s hare (cents)
Basic

6

DilutedDividend per ordinary share (cents)

5

Net tangible assets per ord inary share ($)

78.8

76.4

76.8

3%

3%

76.9

74.4

75.3

3%

2%

51

54

47

-6%

9%

7.69

7.51

6.94

2%

11%

The notes appearing on pages 62 to 92 form an integral part of these financial statements

Equity instruments issued to employees
Under existing Australian Accounting Standards, certain equity instruments issued to employees are not required to
be expensed. The impact of expensing options, and shares issued under the $1,000 employee share plan, has been
calculated and is disclosed below.

Net profit attributable to sharehold ers of the Company

Half
year
Mar 05
$M

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Mar 05v. Sep 04%

Movt
Mar 05v. Mar 04
%

1,475

1,419

1,396

4%

6%

Expenses attributable to:
Options issued to Group Heads 1

(3)

(4)

(4)

-25%

-25%

Options issued to general management1

(11)

(11)

(12)

0%

-8%

Shares issued under $1,000 employee share plan

(23)

-

(22)

n/a

5%

1,438

1,404

1,358

2%

6%

Total
1.

Based on fair values estimated at grant date in accordance with the fair value measurement provisions of AASB 1046. Value of options amortised on a straightline basis over the vesting period.

58

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at
Mar 05As at
Sep 04As at
Mar 04$M$M

Liquid assets

8,855

Due from other financial institutions

6,428

Note

$M

Movt
Mar 05v. Sep 04%

Movt
Mar 05v. Mar 04
%

6,363

5,732

39%

54%

4,781

7,093

34%

-9%

AssetsTrading securities

1

Investment securities
Net loans and advances

7

Customer's liability for acceptances
Regulatory deposits

6,108

5,478

6,393

12%

-4%

6,745

7,746

6,6 69-13%

1%

218,558

204,962

18 8,8587%

16%12,922

12,466

13,358

4%

-3%

143

176

107

-19%

34%

Shares in associates and joint venture entities

1,764

1,960

1,905

-10%

-7%

D eferred tax assets

1,234

1,454

1,319

-15%

-6%

Goodwill2

3,118

3,269

3,202

-5%

-3%

Other assets3,4

10,493

9,158

11,11715%-6%Premises and equipment

1,481

1,532

1,535

-3%

-4%

277,849

259,345

247,2887%

12%

D ue to other financial institutions

10,056

7,349

7,143

37%

41%

Deposits and other borrow ings

180,410

168,557

163,208

7%

11%

Liability for acceptances

12,922

12,466

13,358

4%-3%

Income tax liabilities

1,715

1,914

1,454

-10%

18%

Payables and other liabilities4

12,431

14,212

15,918

-13%

-22%

865

845

857

2%

1%

32,321

27,602

21,245

17%

52%

8,121

8,475

7,357

-4%

10%

T otal liabilities

258,841

241,420

230,540

7%

12%

Net assets

19,00817,925

16,7486%

13%

Ordinary share capital

8,028

8,005

7,865

0%

2%

Preference share capital

1,858

987

987

88%

88%

295

579

106

-49%

large

8,809

8,336

7,773

6%

13%

18,99017,907

16,731

6%

14%

Total assets
Liabilities

Provisions
Bonds and notes
Loan capital5

10

Shareholders' equity

Reserves
R etained profits
S hare capital and reserves attributable toshareholders of the Company
O utside equity interests
Total shareholders' equity

Derivative financial instruments

16

Contingent liabilities and contingent assets

17

1.
2.
3.
4.
5.

18

18

17

0%

6%

19,00817,925

16,7486%

13%

Includes bills held in portfolio $1,395 million (Sep 2004: $1,875; Mar 2004: $1,387 million) which are part of net advances
Excludes notional goodwill in equity accounted entities, mainly $733 million included in the net carrying value of INGA (Sep 2004: $754 million; Mar 2004:$799 million)
Includes interest revenue receivable $1,520 million (Sep 2004: $1,568 million; Mar 2004: $1,310 million)
Other assets includes life insurance assets of $50 million (Sep 2004: $65 million; Mar 2004: $52 million). Payables and other liabilities includes policy holder
liabilities of $31 million (Sep 2004: $30 million; Mar 2004: $25 million)
Includes $1,425 million (Sep 2004: $1,535 million; Mar 2004: $1,450 million) hybrid loan capital that qualifies for Tier 1 capital as defined by the Australian
Prudential Regulation Authority

The notes appearing on pages 62 to 92 form an integral part of these financial statements

59

STATEMENT OF CHANGES IN EQUITY

Half
year
Mar 05
$M

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Mar 05v. Sep 04%

Movt
Mar 05v. Mar 04
%

8,992

8,852

6,387

2%

41%

-100%

Share capital
Balance at start of period
Ordinary shares
Rights issue

-

(10)

3,572

-100%

Dividend reinvestment plan 1

78

70

65

11%

20%

Group employee share acquisition scheme

14

23

24

-39%

-42%

Group share option scheme
Group Share Buyback

48

57

29

-16%

66%

(117)

-

-

n/a

n/a

871

-

-

n/a

n/a

-

-

(1,225)

n/a

-100%

9,886

8,992

8,852

10%

12%

218

(269)

(239)

large

large

(284)

487

(254)

large

12%

Preference shares
New preference share issues
Redemption of preference shares
Total share capital
Foreign currency translation reserve
Balance at start of period
Currency translation adjustments
net of hedges after tax
Transfer from general reserve

-

-

224

n/a

-100%

(66)

218

(269)

large

-75%

181

195

239

-7%

-24%

-

-

180

n/a

-100%

-

(14)

(224)

-100%

-100%

181

181

195

0%

-7%
0%

General reserve
Balance at start of period
TrUEPrs preference share gain on buy backTransfer (to) from retained profits/FCTR

Asset revaluation reserve

31

31

31

0%

Capital reserve

149

149

149

0%

0%

Total reserves

295

579

106

-49%

large

8,336

7,773

7,203

7%

16%

1,475

1,419

1,396

4%

6%

9,811

9,192

8,599

7%

14%

R etained profits
B alance at start of period
Net profit attributable
to shareholders of the Company
Total available for appropriation
Transfers from (to) reserves
Ordinary share dividends provided for or paid
Preference share dividends paid
Retained profits at end of period

-

14

-

-100%

n/a

(964)

(836)

(762)

15%

27%

(38)

(34)

(64)

12%

-41%

8,809

8,336

7,773

6%

13%

18,99017,907

16,731

6%

14%

Total shareholders' equity attributable toshareholders of the Company
1.

Ordinary shares are also issued under the ANZ Bonus Option Plan

The notes appearing on pages 62 to 92 form an integral part of these financial statements

60

CONSOLIDATED STATEMENT OF CASH FLOWSCash flows from operating activities
Interest received
Dividends received
Fees and other income received
Interest paid
Personnel expenses paid
Premises expenses paid
Other operating expenses paid
Income taxes paid
Australia
Overseas
Net GST paid
Net (increase) decrease in trading securities
Net cash provided by operating activities
Cash flows from investing activities
Net decrease(increase)
Liquid assets - greater than three months
Due from other financial institutions
Regulatory deposits
Loans and advances
Shares in associates and joint venture entities
Investment securities
Purchases
Proceeds from sale or maturity
Controlled entities and associates
Purchased (net of cash acquired)
Premises and equipment
Purchases
Proceeds from sale
Other
Net cash (used in) investing activities
Cash flows from financing activities
Net (decrease)increase
Due to other financial institutions
Deposits and other borrowings
Payables and other liabilities
Bonds and notes
Issue proceeds
Redemptions
Loan capital
Issue proceeds
Redemptions
Decrease in outside equity interests
Dividends paid
Share capital issues
Share capital buyback
Euro Hybrid preference share issue
Euro Hybrid issues costs
Preference share buyback
N et cash provided by financing activities
Net cash provided by operating activities
Net cash (used in) investing activities
Net cash provided by financing activities
Net (decrease)increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Foreign currency translation on opening balances
Cash and cash equivalents at end of period

Note

18

18

The notes appearing on pages 62 to 92 form an integral part of these financial statements

61

Half
year
Mar 05
Inflows(Outflows)
$M
8,699
38
1,095
(5,411)(1,213)(181)(1,050)

Half
year
Sep 04
Inflows(Outflows)
$M
7,783
2
2,022
(4,529)(1,120)(156)(1,141)

Halfyear
Mar 04
Inflows(Outflows)
$M
6,732
1
1,235
(3,729)
(990)
(156)
(952)

(278)
(195)
(6)
(638)
860

(50)
(164)
(8)
1,070
3,709

79
(112)
(11)
(556)
1,541

(370)
(13)
24
(15,423)
243

(7)
1,151
(63)
(12,201)
(14)

(318)
(629)
(13)
(10,556)(21)(9,585)
10,462(8,551)
7,664(5,860)
4,037

-

68

(3,292)(155)
5(1,975)(16,787)

(155)
23
593
(11,492)

(145)
30
1,142
(15,625)

2,892
14,054(687)(1,257)
3,167
(431)

985
8,049
(630)

8,319
(2,629)6,550(2,408)

7,631(1,692)

(924)
62
(117)
875
(4)
21,841860(16,787)
21,841
5,914
7,854(2,072)
11,696

685
(800)
70
5,576
3,709
(11,492)
5,576(2,207)
8,454
1,607
7,854

2,009
(368)
(1)
(761)
3,625
(1,045)17,802
1,541(15,62 5)17,802
3,718
7,315(2,579)8,454

NOTES TO THE FINANCIAL STATEMENTS
1.

Accounting policies

These consolidated financial statements comprise a general purpose financial report and:should be read in conjunction with the ANZ Financial Report and ANZ Annual Report for the year ended
30 September 2004 and any public announcements made by the Parent Entity and its controlled entities (theGroup) for the half year ended 31 March 2005 in accordance with the continuous disclosure obligations under the
Corporations Act 2001 (as amended).
are made out in accordance with the Corporations Act 2001 (as amended), ASX listing rules, applicable AccountingStandards, Urgent Issues Group Consensus Views, the Corporations Regulations 2001, and other mandatory
reporting requirements.
are condensed financial statements as defined in AASB1029: Interim Financial Reporting. This report does notinclude all notes of the type normally included in the annual financial report.
have been prepared in accordance with the historical cost convention, as modified by the revaluation of trading
instruments and the deemed cost of properties.
Where necessary, amounts shown for previous periods have been reclassified to facilitate comparison.
The accounting policies followed in preparing these consolidated financial statements are consistent with those appliedin the ANZ Financial report and Annual report for the year ended 30 September 2004. Details of critical accounting
policies are shown on pages 29 to 32. Details of the International Financial Reporting Standards that have been
identified as significant to the Group are detailed below.

International Financial Reporting Standards
For ANZ’s reporting period commencing 1 October 2005, the Group will be required to prepare financial statements
using Australian Standards that have been revised to satisfy the requirements of International Financial ReportingStandards (IFRS) as issued by the International Accounting Standards Board. The Group will report for the first timein compliance with Australian equivalents to IFRS when the results for the half-year ended 31 March 2006 and theyear ended 30 September 2006 are released.
The Group is required to prepare an opening balance sheet in accordance with Australian equivalents to IFRS as at
1 October 2004. Most accounting policy adjustments to retrospectively apply Australian equivalents to IFRS will bemade against retained earnings in this opening balance sheet. However, transitional adjustments relating to thosestandards for which comparatives are not required will only be made on 1 October 2005. Comparatives are notrequired for AASB 132: Financial Instruments: Disclosure and Presentation, AASB 139: Financial Instruments:
Recognition and Measurement and AASB 4: Insurance Contracts.
A Steering Committee is monitoring the adoption of IFRS as per the Group’s implementation plan. This Committee
has been following developments in IFRS and the likely impact that these standards will have on our products and ourcustomers, and on our own financial reports and accounting policies. Dedicated workstreams are responsible for
evaluating the impact of a specific group of accounting changes. Each workstream has completed its technicalevaluation phase and is progressing through the design, development and implementation phases for each
workstream. The Group is well progressed in ensuring it will comply with IFRS by 1 October 2005.
The following table describes the anticipated impact of the adoption of IFRS. The work to finalise the impact is still
continuing and the figures provided below are estimates only. The Group may make adjustments to the selection andapplication of its IFRS accounting policies to reflect changes in financial reporting requirements arising from new orrevised standards or interpretations issued by the Australian Accounting Standards Board subsequent to the
preparation of the Group’s half year financial report as at 31 March 2005. This table discusses future expectations
and is not a guarantee of future performance. It contains forward looking statements and is subject to thequalifications set out on the contents page.

62

NOTES TO THE FINANCIAL STATEMENTS (continued)
International Financial Reporting Standards, cont’dCredit Loss Provisioning
Initial impact on retained
earnings at 1 October 2005
Volatility in future earnings

Debt v Equity
classification
Initial impact on statementof financial position at
1 October 2005
New liabilities recognised
Fee Revenue
Initial impact on retained
earnings at 1 October 2005
for yield adjusted fees and1 October 2004 for otherfinancial service fees
Increased deferral of fee
incomeForeign Currencytransaction reserve
Initial impact on retained
earnings at 1 October 2004
Goodwill
Initial impact on retained
earnings at 1 October 2004
Volatility in future earnings

Hedging
Initial impact on retained
earnings at 1 October 2005
Volatility in future earnings
New assets/liabilities
recognised

IFRS adopts an approach known as ‘incurred losses’ for credit loss provisioning andprovides guidance on measurement of incurred losses. Provisions are raised forlosses that have already been incurred for exposures that are known to be impaired.
The estimated losses on these impaired exposures are then discounted to theirpresent value. As this discount unwinds, there is a resulting recognition of areduced specific provision in the statement of financial performance during theperiod between recognition of impairment and recovery of the written down
amount.
Exposures found not to be impaired are placed into pools of similar assets withsimilar risk characteristics to be collectively assessed for losses that have been
incurred, but not identified yet. The required provision is estimated on the basis ofhistorical loss experience for assets with credit risk characteristics similar to those in
the collective pool. The historical loss experience is adjusted based on current
observable data.
The current ELP charge to profit will be replaced, on adoption of IFRS, by a charge
for specific provisions on impaired exposures, plus a charge for movements in theprovision that is held for exposures that are being collectively assessed for
impairment.
It is expected that the proposed changes will have an impact on the overall level ofprovisioning which the bank holds against its credit exposures on initial adoption.
Subsequently it is likely there will be more volatility in the level of impairment
expense included in future earnings.
The Group has issued a number of hybrid tier one instruments. The ANZ StEPS
issue, which is currently treated as equity, will be reclassified as debt. The balanceof ANZ StEPS as at 1 October 2004 was $987 million. Distributions on ANZ StEPS(currently approximately $62 million per annum before tax) will be treated asinterest rather than dividends and issue costs of $13 million will be amortised tointerest (approximately $2.6 million per annum before tax).
Revised standards on the accounting for fee income will result in more fees being
deferred on initial payment, and recognised either as an adjustment to yield or overthe period of service. Fees required to be treated as an adjustment to yield will berecognised in interest income rather than fee income. Certain fees relating toservices performed that have previously been recognised in the statement offinancial performance will be deferred as at 1 October 2004, and other fees,
including loan establishment fees, will be deferred as at 1 October 2005. Whilst theamount of fees deferred is likely to be significant in both cases, it is not expected toresult in a material annual impact on net profit. These fees will be amortised toincome over the expected life of the loan or the period for which the service isprovided.
On transition, IFRS permits an entity to reset amounts recorded in the foreign
currency translation reserve to zero. It is likely that the Group will apply thisexemption.
The current Group policy of amortising goodwill over the expected period of benefit
will cease. Instead, goodwill will be subject to impairment testing annually, or more
frequently if events or circumstances indicate that it might be impaired. This change
in policy may result in increased volatility of future earnings where impairment
losses may occur. This change in accounting policy will reduce expenses byapproximately $220 million per annum before tax based on the Group’s financial
results for the March 2005 half year.
All derivatives contracts, whether used as hedging instruments or otherwise, will be
carried at fair value on the Group’s statement of financial position. IFRS recognise
fair value hedge accounting, cash flow hedge accounting, and hedges ofinvestments in foreign operations. Fair value and cash flow hedge accounting canonly be considered where effectiveness tests are met.
Ineffectiveness outside the prescribed range precludes the use of hedge accounting
and can result in significant volatility in the statement of financial performance. The
Group expects to predominantly use cash flow hedging in respect of its interest raterisk hedges, which will create volatility in equity reserve balances.
The hedging rules will impact the way the Group accounts for hedges of its funding
and for hedges of its statement of financial position. Customer trading, where allderivatives are currently marked to market, will not be impacted by the hedging
rules.

63

NOTES TO THE FINANCIAL STATEMENTS (continued)
International Financial Reporting Standards, cont’d
Post Employment
Benefits
Initial reduction in retained
earnings at 1 October 2004

The Group does not currently recognise an asset or liability for the net position of
the defined benefit superannuation schemes, including those which operate inAustralia, New Zealand and the United Kingdom. On adoption of AASB 119:
Employee Benefits, the Group will recognise the net position of each scheme on thestatement of financial position.
As at 1 October 2004, the aggregate value of the Group’s defined benefit schemes
calculated in accordance with AASB 119 reflected an overall deficit of approximately$250 million before tax. This initial adjustment will be made, retrospectively,
against opening retained earnings as at 1 October 2004.
IFRS permit three options for the recognition of actuarial gains and losses
associated with defined benefit schemes where the gains and losses are either:- wholly recognised in the statement of financial performance;- wholly recognised in retained earnings; or- proportionately recognised in the statement of financial performance over the
average service life of employees.
The Group is likely to recognise actuarial gains and losses in retained earnings.

Securitisation
New assets/liabilities
recognised

IFRS introduces new requirements for the recognition of financial assets, including
those transferred to a special purpose vehicle for securitisation. Existing
securitisations, both of our own assets and of our customers’ assets, require an
assessment of the accounting treatment that will be required under IFRS. Further,a different interpretation of the consolidation rules applicable to special purpose
vehicles will result in some vehicles, which were previously not consolidated, being
consolidated by the Group. This is likely to result in the recognition of
approximately $5.0 billion of assets and liabilities recorded on the statement offinancial position based on the assets of these vehicles as at 1 October 2004. The
impact on profit is expected to be immaterial.

Share-Based Payments

The Group currently recognises immediately an expense equal to the full fair valueof all deferred shares issued as part of the short and long term incentive
arrangements. The deferred shares vest over one to three years, and may be
forfeited under certain conditions. The Group does not currently recognise an
expense for options issued to staff, shares issued under the $1,000 employee shareplan, nor for the 5% discount applicable to the ANZ Share Save Scheme. On
adoption of AASB 2: Share-based Payment, the Group will recognise an expense forall share-based remuneration, including deferred shares and options, and willamortise those expenses over the relevant vesting periods.

Initial impact on retained
earnings at 1 October 2004
Higher expenses

Taxation
Initial impact on retained
earnings at 1 October 2004
New assets/liabilities
recognised

Under AASB 112: Income Taxes, a "balance sheet" approach will be adopted,
replacing the "statement of financial performance" approach currently used. Thismethod recognises deferred tax balances when there is a difference between the
carrying value of an asset (or liability) and its tax base.

Capital measurement - The Australian Prudential Regulation Authority (APRA) has proposed revisions to its capital
adequacy requirements to take account of the impact of IFRS. In February 2005, APRA released a discussion paper
on its proposed prudential approach to fair value and other issues, which is open for comment until 29 April 2005.
Following this comment period, APRA will make appropriate determinations around changes to the prudential andreporting standards.

64

NOTES TO THE FINANCIAL STATEMENTS (continued)
2.

IncomeNet interest income
Half

Half

Half

Movt

Movt

year

year

year

Mar 05

Mar 05

Mar 05

Sep 04

Mar 04v. Sep 04

v.Ma r 04

$M

$M

$M

%

%

27%

Interest income

8,277

7,574

6,543

9%

Interest expense(5,424)(4,829)(4,034)12%

34%

Net interest income

2,853

2,745

2,509

4%

14%

508

506

496

0%

2%

Fee income
Lending
Other

754

754

665

0%

13 %

1,262

1,260

1,161

0%

9%

Foreign exchange earnings

221

213

198

4%

12 %

Profit on trading instruments

40

71

80

-44%

-50%

Total fee income
Other income

Net profit befo re tax from the clos e out of the
TrUEPrs sw a p 1

-

-

108

n/a

-100%

Hedge of TrUEPrS cash flow s

-

-

2

n/a

-100 %INGA completion account profit1

-

14

-

-100%

n/a

Share of joint v enture: Profit fro m INGA joint venture

59

57

40

4%

4 8%

Share of associates' profit (net o f writeoffs)

25

20

27

25%

-7%

Private equity and infrastruct ur e earnings 2

17

7

4

large

large

Other

80

66

63

21%

27%
-15%

Total other income

442

448

522

-1%

Total other operating income

1,704

1,708

1,683

0%

1%

Total income

9,981

9,282

8,226

8%

21%

Profit before income tax as a % of t otal income

20.8%

21.7%

24.0%

-4%

-13%

1.
2.

Significant transaction, refer page 12
Includes earnings from private equity and infrastructure portfolios. Includes share of associates’ profit (Mar 2005: $1 million; Sep 2004: $1 million; Mar 2004:$nil) not included in share of associates’ profit above

Interest spread and net interest average margin (%)
Gross interest spread

1.93

2.03

2.14

n/a

n/a

Interest forgone on impaired assets(0.01)(0.02)(0.03)n/a

n/a

Net interest spread

1.92

2.01

2.11

n/a

n/a

Interest attributable to net non-interest bearing items

0.48

0.44

0.42

n/a

n/a

Net interest average margin

2.40

2.45

2.53

n/a

n/a

239,959

225,220

199,086

7%

21%

Average interest earning assets ($M)

65

NOTES TO THE FINANCIAL STATEMENTS (continued)
3.

Operating expenses
Movt
Mar 05v. Sep 04%

Movt
Mar 05v. Mar 04
%

69

5%

16%

71

11%

14%

684

7%

17%

45

4%

9%

176

143

-2%

20%

1,180

1,119

1,012

5%

17%

Amortisation & depreciation

13

13

12

0%

8%

Rent

105

101

96

4%

9%

Utilities and other outgoings

60

59

50

2%

20%

Other

16

13

9

23%

78%

194

186

167

4%

16%

19

15

10

27%

90%
-16%

Half
year
Mar 05
$M

Half
year
Sep 04
$M

Half
year
Mar 04$M

Pension fund80

76

Employee entitlements and taxes

81

73

Salaries and wages

798

747

Temporary staff

49

47

Other

172

Personnel

Total personnel expenses
Premises

Total premises expenses
ComputerComputer contractors
Data communications

31

32

37

-3%

Depreciation and amortisation

115

125

117

-8%

-2%

Rentals and repairs

23

27

32

-15%

-28%
-7%

Software purchased

57

54

61

6%

Other

18

26

17

-31%

6%

263

279

274

-6%

-4%

Total computer expenses
Other
Advertising and public relations

79

73

57

8%

39%

Amortisation of goodwill

89

83

63

7%

41%

Audit fees

2

2

2

0%

0%

Depreciation of furniture and equipment

23

25

19

-8%

21%

Freight and cartage

22

21

20

5%

10%

Non-lending losses, frauds and forgeries

40

25

24

60%

67%

Postage and stationery

56

61

50

-8%

12%

Professional fees

62

63

50

-2%

24%

Telephone

30

29

28

3%

7%

Travel

55

56

44

-2%

25%

Other

75

73

61

3%

23%

Total other expenses

533

511

418

4%

28%

Restructuring

30

29

31

3%

-3%

Operating expenses1

2,200

2,124

1,902

4%

16%

Employees (FTE) - Permanent

28,38827,383

26,585

4%

7%

Employees (FTE) - Temporary

1,444

1,372

1,386

5%

4%

Total employees

29,83228,75527,971

4%

7%

1.

Includes NBNZ incremental integration costs (Mar 2005: $25 million; Sep 2004: $21 million; Mar 2004: $Nil) refer page 12

66

NOTES TO THE FINANCIAL STATEMENTS (continued)
4.

Income tax expense
Half
year
Mar 05
$M

Half
year
Sep 04
$M

Half
year
Mar 04
$M

2,073

2,010

1,977

3%

5%

622

603

593

3%

5%

Overseas tax rate differential

10

11

9

-9%

11%

Rebateable and non-assessable dividends

(14)

(10)

(10)

40%

40%

Other non-assessable income

(15)

(17)

(15)

-12%

0%

Profit from associated entities and joint venture entities

(25)

(23)

(20)

9%

25%

Operating profit before income tax
Prima facie income tax at 30%

Movt
Mar 05v. Sep 04%

Movt
Mar 05v. Mar 04%

Tax effect of permanent differences

Life insurance accounting

(3)

(2)

(2)

50%

50%

Goodwill amortisation

28

27

19

4%

47%
large

Other

Income tax (over) under provided in prior years

(4)

2

5

large

599

591

579

1%

3%

(2)

(1)

(1)

100%

100%

Total income tax expense on profit

597

590

578

1%

3%

Australia

389

392

410

-1%

-5%

Overseas

208

198

168

5%

24%

597

590

578

1%

3%

28.8%

29.4%

29.2%

-2%

-1%

Effective tax rate

67

NOTES TO THE FINANCIAL STATEMENTS (continued)
5.

Dividends
Halfyear
Mar 05
$M

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Mar 05v. Sep 04%

Movt
Mar 05v. Mar 04%

Dividend per ordinary share1 (cents)
Interim (fully franked)

51

n/a

47

n/a

9%

Final (fully franked)

n/a

54

n/a

n/a

n/a

-

850

-

-100%

n/a

983

-

777

n/a

27%

Ordinary share dividend1,2Interim dividend paid
Final dividend paid
Bonus option plan adjustment3

(19)

(14)

(15)

36%

27%

964

836

762

15%

27%

Ordinary share dividend payout ratio4 (%)

64.7%

71.0%

63.8%

-9%

1%

Ordinary share dividend payout ratio excluding goodwill, andsignificant items5 and NBNZ incremental integration costs6

59.4%

66.0%

62.1%

-10%

-4%

Total

1.
2.
3.
4.

5.

6.

Excludes preference share dividend
Dividends recorded when determined
This relates to prior period dividend payments
Dividend payout ratio calculated using proposed interim dividend of $930 million not included in the above table. Dividend payout ratio for September 2004
calculated using $983 million dividends paid in the March 2005 half. Dividend payout ratio for March 2004 calculated using $850 million dividends paid in the
September 2004 half
In the September 2004 half ANZ has classified the $14 million profit after tax on settlement of the INGA completion accounts and $1 million dividends arising fromthe TrUEPrS transaction as significant items. In the March 2004 half $84 million net profit after tax and $35 million dividends arising from the TrUEPrS transaction
has been classified as significant items. ANZ excludes significant items to eliminate the distorting effect of one-off transactions on the results of its core businessIn the March 2005 half ANZ has incurred $17 million after tax NBNZ incremental integration costs (Sep 2004: $14 million). NBNZ incremental integration costs
are excluded to enable analysis of the cost base following completion of the integration

Half
year
Mar 05
$M

Half
year
Sep 04
$M

Half
Movt
Movt
year
Mar 05
Mar 05
Mar 04 v. Sep 04 v. Mar 04%%$M

Preference share dividend1
TrUEPrS2

-

1

35

-100%

-100%

ANZ StEPS

32

33

29

-3%

10%

Euro Hybrid

6

-

-

n/a

n/a

38

34

64

12%

-41%

Dividend per preference share
TrUEPrS (USD cents)

1.
2.

-

-

20.7

n/a

-100%

ANZ StEPS (AUD)

$3.18

$3.46

$2.94

-8%

8%

Euro Hybrid (EUR)€ 7.23

-

-

n/a

n/a

The US Stapled Trust Security issue, which was issued when TrUEPrS was bought back, is treated as debt, hence distributions are reported as an interest expenseand not included in this note.
The 2004 dividend on TrUEPrS is included in significant items. Refer page 12. The $1 million impact in the September 2004 half results from the retranslation of
the TrUEPrS dividend at the closing exchange rate.

68

NOTES TO THE FINANCIAL STATEMENTS (continued)
6.

Earnings per share
Half
year
Mar 05
$M

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Mar 05v. Sep 04%

Movt
Mar 05v. Mar 04%

1,822.7

1,818.4

1,808.2

0%

1%

1,475

1,419

1,396

4%

6%

38

34

64

1,437

1,385

1,332

Weighted average number of ordinary shares prior to rights issue (M)--1,521.8

n/a

-100%

Weighted average number of ordinary shares issued post rights issue (M)

-

-

4.7

n/a

-100%

Number of fully paid ordinary shares on issue (M)Basic
Net profit attributable to members of the Company ($M)
Preference Share dividends
Net profit excluding preference share dividends1

Weighted average number of ordinary shares issued under rights issue (M)

-

-

187.1

n/a

-100%

Weighted average number of shares prior to dilution for rights issue (M)--1,713.6

n/a

-100%

Discount factor based on Theoretical Rights2--

0.9866

Adjustment for the impact of rights issue (M)

-

-

20.7

1,822.7

1,813.9

1,734.3

78.8

76.4

76.8

3%

3%

1,460

1,411

1,350

3%

8%

1,822.7

1,813.9

1,734.3

0%

5%

7.7

5.4

6.6

43%

17%

Adjusted weighted average number of shares (M)Basic earnings per share3 (cents)
DilutedNet profit attributable to members of the company excluding interest
on US Hybrid securities4 ($M)
Adjusted weighted average number of shares on issue (M)Weighted average number of Options outstanding (M)Weighted average number of convertible US Hybrid securities
at current market price4 (M)Adjusted weighted average number of shares - diluted (M)Diluted earnings per share (cents)
3

69.1

76.1

52.2

-9%

32%

1,899.5

1,895.4

1,793.1

0%

6%

76.9

74.4

75.3

3%

2%

1,437

1,385

1,332

4%

8%

-

(14)

(84)

-100%

-100%
-100%

Adjusted Basic
Net profit attributable to members of the company1 ($M)
Significant items - included in profit after tax5
- preference dividend5 for TrUEPrS

-

1

35

-100%

17

14

-

21%

n/a

Earnings excluding significant items5 and NBNZ incremental integration costs6

1,454

1,386

1,283

5%

13%

Earnings per share (cents) excluding significant items5 and
NBNZ incremental integration costs6

79.8

76.4

74.0

4%

8%

Net profit attributable to members of the Company1 ($M)

1,437

1,385

1,332

4%

8%

-

(14)

(84)

-100%

-100%
-100%

NBNZ incremental integration costs6

Significant items - included in profit after tax- preference dividend5 for TrUEPrS

-

1

35

-100%

NBNZ incremental integration costs6

17

14

-

21%

n/a

Goodwill amortisation (excluding NBNZ)7

30

29

31

3%

-3%

Goodwill amortisation - NBNZ

81

75

54

8%

50%

1,565

1,490

1,368

5%

14%

85.9

82.1

78.9

5%

9%

Earnings excluding goodwill7, significant items5 and
NBNZ incremental integration costs6
Earnings per share (cents) excluding goodwill amortisation,
significant items5 and NBNZ incremental integration6 costs
1.
2.

Adjusted for preference share dividend
The EPS for March 2004 has been adjusted for the bonus element of the rights issue: two rights shares for eleven existing shares issued 28 November 2003 (lasttrading shares cum rights 28 October 2003). The calculation is as follows:
Market price (ex dividend) on 28 October 2003
Theoretical ex rights price
Discount factor prior to rights issue
Discount factor for reporting period of rights issue

3.
4.
5.

6.
7.

$17.63$16.920.95970.9866($17.63 x 5.5 + $13.00) / 6.5$16.92 / $17.63
1(1 / 0.9597) (59 / 183) + (124 / 183)

Discounted for rights issue in March 2004
Interest expense on US Hybrid securities was $35 million (Sep 2004: $37 million; Mar 2004: $26 million). Share price $20.62 at 31 March 2005. Refer Note 10
for details on US Hybrid
In the September 2004 half ANZ has classified the $14 million profit after tax on settlement of the INGA completion accounts and $1 million dividends arising fromthe TrUEPrS transaction as significant items. In the March 2004 half $84 million net profit after tax and $35 million dividends arising from the TrUEPrS transaction
has been classified as significant items. ANZ excludes significant items to eliminate the distorting effect of one-off transactions on the results of its core businessIn the March 2005 half ANZ has incurred $17 million after tax NBNZ incremental integration costs (Sep 2004: $14 million). NBNZ incremental integration costs
are excluded to enable analysis of the cost base following completion of the integration
Includes INGA notional goodwill amortisation

69

NOTES TO THE FINANCIAL STATEMENTS (continued)
7.

Net loans and advancesMovt
Mar 05v. Sep 04%

Movt
Mar 05v. Mar 04%

67,7457%

13%

44,186

11%

23%

As at
Mar 05As at
Sep 04As at
Mar 04$M$M$M

Term loans - housing1

76,41771,499Term loans - non housing2

54,46749,217

Lease finance / hire purchase10,248

9,760

9,178

5%

12%

Overdrafts

5,101

4,390

4,149

16%

23%

Australia

Credit cards outstanding

4,853

4,523

4,348

7%

12%

Other

1,607

1,091

1,018

47%

58%

152,693

140,480

130,624

9%

17%

New ZealandTerm loans - housing

33,12331,51928,243

5%

17%

Term loans - non housing2

23,54922,472

20,143

5%

17%

Lease finance / hire purchase

1,018

1,010

872

1%

17%

Overdrafts

1,683

1,604

1,540

5%

9%

Credit cards outstanding

1,043

1,032

983

1%

6%

640

584

827

10%

-23%

61,05658,22152,608

5%

16%

Other

Overseas markets
Term loans - housing
Term loans - non housing2

519

464

385

12%

35%

7,219

8,730

7,986

-17%

-10%

Lease finance / hire purchase

201

111

87

81%

large

Overdrafts

339

558

554

-39%

-39%

Credit cards outstanding

126

128

117

-2%

8%

Other

303

122

109

large

large

Total gross loans and advances1,3

8,707

10,113

9,238

-14%

-6%

222,456

208,814

192,4707%

16%(2,401)(2,376)(2,247)

1%

7%

Less:
Provision for doubtful debts
Income yet to mature
Total net loans and advances1,3
1.
2.
3.

(1,497)(1,476)(1,365)1%

10%

218,558

204,962

188,858

7%

16%

Securitised mortgages outstanding $1,921 million (Sep 2004: $2,272 million;Mar 2004: $1,066 million) not included in net loans and advances
Includes Equity Loans which are reported in Mortgages business
Bills held in portfolio, $1,395 million (Sep 2004: $1,875 million; Mar 2004: $1,387 million) are included in trading securities

70

NOTES TO THE FINANCIAL STATEMENTS (continued)
8.

Impaired assets

$M

Movt
Mar 05v. Sep 04%

Movt
Mar 05v. Mar 04
%

829

931

-23%

-31%

32

-

-6%

n/a

As at
Mar 05As at
Sep 04As at
Mar 04$M$M

Non-accrual loans

640

Restructured loans

30

Summary of impaired assets

Unproductive facilities

77

29

44

large

75%

Gross impaired assets

747

890

975

-16%

-23%

(314)

(378)

(414)

-17%

-24%

Less specific provisions:Non-accrual loans
Unproductive facilities

(7)

(6)

(5)

17%

40%

Net impaired assets

426

506

556

-16%

-23%

Non-accrual loans
Non-accrual loans

640

829

931

-23%

-31%

Specific provisions

(314)

(378)

(414)

-17%

-24%

Total net non-accrual loans

326

451

517

-28%

-37%

Australia

408

422

516

-3%

-21%

New Zealand

105

115

109

-9%

-4%

Overseas markets

127

292

306

-57%

-58%

Total non-accrual loans

640

829

931

-23%

-31%

Australia

220

213

275

3%

-20%

New Zealand

42

47

41

-11%

2%

Overseas markets

64

191

201

-66%

-68%

Total net non-accrual loans

326

451

517

-28%

-37%

Half
year
Mar 05
$M

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Mar 05v. Sep 04%

Movt
Mar 05v. Mar 04%

Australia

282

323

329

-13%

-14%

New Zealand

78

101

73

-23%

7%

Overseas markets

27

55

194

-51%

-86%

Total new non accrual loans

387

479

596

-19%

-35%

Before specific provisions

After specific provisions

New and increased non accrual loans

71

NOTES TO THE FINANCIAL STATEMENTS (continued)
8.

Impaired Assets, cont’d

Further analysis on non-accrual loans at 31 March 2005 and interest and/or other income received during the period
is as follows:

Gross balance
outstanding$M

Specific
Provision$M

Interest
and / orother income
received$M

1

Non-accrual loans
Without provisions
Australia

91-

New Zealand

3

-

-

Overseas markets

9

-

1

103

-

2

Australia

271

179

1

New Zealand

81

52

-

Overseas markets

118

63

1

470

294

2
1

With provisions and no, or partial, performance1

With provisions and full performance1
Australia

46

9

New Zealand

21

11

2

-

-

1

Overseas markets

67

20

4

Total non-accrual loans

640

314

8

Restructured loans

30

-

-

Unproductive facilities

77

7

-

Total

747

321

8

1.

A loan’s performance is assessed against its contractual repayment schedule

As at
Mar 05As at
Sep 04As at
Mar 04

$M

$M

$M

Movt
Mar 05v. Sep 04%

Movt
Mar 05v. Mar 04%

Australia

66

22

27

large

large

Overseas markets

11

7

17

57%

-35%

Gross unproductive facilities

77

29

44

large

75%

Unproductive facilities

Specific provision
Australia

3

-

-

n/a

n/a

Overseas markets

4

6

5

-33%

-20%

Specific provision

7

6

5

17%

40%

Net unproductive facilities

70

23

39

large

79%

The following amounts are not classified as impaired assets and therefore are not included within the summary on
page 71.
As at
Mar 05As at
Sep 04As at
Mar 04Movt
Mar 05v. Sep 04%

Movt
Mar 05v. Mar 04
%

$M

$M

$M

Australia

262

188

170

39%

54%

New Zealand

90

77

65

17%

38%

Accruing loans past due 90 days or more

Overseas markets

72

32

28

21

14%

52%

384

293

256

31%

50%

NOTES TO THE FINANCIAL STATEMENTS (continued)
8.

Impaired Assets, cont’dInterest and other income forgone on impaired assets

The following table shows the estimated amount of interest and other income forgone, net of interest recoveries, on
average impaired assets during the period.
Half
year
Mar 05
$M

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Mar 05v. Sep 04%

Movt
Mar 05v. Mar 04%

Australia

12

12

17

0%

-29%

New Zealand

4

4

4

0%

0%

Overseas markets

8

11

14

-27%

-43%

24

27

35

-11%

-31%

Australia

(3)

(3)

(3)

0%

0%

New Zealand

(2)

(1)

-

100%

n/a

Overseas markets

(3)

(4)

(8)

-25%

-63%

(8)

(8)

(11)

0%

-27%

Gross interest and other income receivable on non-accrualloans, restructured loans and unproductive facilities

Total gross interest and other income receivableon impaired assets
Interest and other income received

Total interest income and other income received
Net interest and other income forgone
Australia

9

9

14

0%

-36%

New Zealand

2

3

4

-33%

-50%

Overseas markets
Total net interest and other income forgone

5

7

6

-29%

-17%

16

19

24

-16%

-33%

In the event of customer default, any loan security is held as mortgagee in possession and therefore the Group does
not hold any other real estate owned assets.

73

NOTES TO THE FINANCIAL STATEMENTS (continued)
9.

Provision for doubtful debts
Half
year
Mar 05
$M

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Mar 05v. Sep 04
%

1,992

1,828

1,534

9%

30%

(13)

-

216

n/a

large

Movt
Mar 05v. Mar 04%

General provision
Balance at start of period
Acquisition (disposal) of provisions
Adjustment for exchange rate fluctuations

(32)

92

(39)

large

-18%

Charge to statement of financial performance

284

319

313

-11%

-9%

Transfer to specific provision

(205)

(297)

(228)

-31%

-10%

54

50

32

8%

69%

2,080

1,992

1,828

4%

14%

Balance at start of period

384

419

484

-8%

-21%

Acquisition of provisions

-

-

57

n/a

-100%

Recoveries
Total general provision
Specific provision

Adjustment for exchange rate fluctuations

(7)

9

(11)

large

-36%

Bad debts written off

(261)

(341)

(339)

-23%

-23%

Transfer from general provision

205

297

228

-31%

-10%

Total specific provision

321

384

419

-16%

-23%

2,401

2,376

2,247

1%

7%

Half
year
Mar 05
$M

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Mar 05v. Sep 04%

Movt
Mar 05v. Mar 04%

Australia

162

247

212

-34%

-24%

New Zealand

47

40

40

18%

18%

Overseas markets

43

51

35

-16%

23%

252

338

287

-25%

-12%

(47)

(41)

(59)

15%

-20%

Total provisions for doubtful debts

P rovision movement analysis
New and increased provisions

Provision releases

205

297

228

-31%

-10%

Recoveries of amounts previously written off

(54)

(50)

(32)

8%

69%

Net specific provisions

151

247

196

-39%

-23%

Net credit to general provision

133

72

117

85%

14%

Charge to statement of financial performance

284

319

313

-11%

-9%

As at
Mar 05As at
Sep 04As at
Mar 04

$M

$M

$M

Movt
Mar 05v. Sep 04%

Movt
Mar 05v. Mar 04
%

191

209

243

-9%

-21%

Specific provision balance
Australia
New Zealand

63

68

68

-7%

-7%

Domestic markets

254

277

311

-8%

-18%

Overseas markets

67

107

108

-37%

-38%

Total specific provision

321

384

419

-16%

-23%

74

NOTES TO THE FINANCIAL STATEMENTS (continued)
10. Loan capital
Half
year
Mar 05
$M

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Mar 05v. Sep 04%

Movt
Mar 05v. Mar 04
%

1,425

1,535

1,450

-7%

-2%

389

419

396

-7%

-2%

Hybrid loan capital
US stapled trust security issue1
Perpetual subordinated notes
Subordinated notes

6,307

6,521

5,511

-3%

14%

Total Loan Capital

8,121

8,475

7,357

-4%

10%

1.

Loan capital of USD1.1 billion is subordinated in right of payment to the claims of depositors and all other creditors of the parent entity and its controlled entities
which have issued the notes. Hybrid loan capital constitutes Tier 1 capital as defined by the Australian Prudential Regulation Authority for capital adequacy
purposes. For discussion of major movements refer page 26

11. Share Capital
Issued and quoted securities

Number quoted

Issue priceper share

Amount paid
up per share

Ordinary shares
As at 31 March 2005

1,822,738,662

Issued during the half year

9,959,304

Bought back during half year

5,622,449

Preference shares
As at 31 March 2005
ANZ StEPS

10,000,000

$100

$100

Euro Hybrid

500,000€ 1,000€ 1,000

500,000€ 1,000€ 1,000

Issued during half year
Euro Hybrid 1
1.

On 13 December 2004 the Group issued €500 million hybrid capital into the European market. The instruments consist of a coupon paying note issued by ANZ
Jackson Funding PLC stapled to a fully paid up €1,000 preference share issued by Australia and New Zealand Banking Group Limited

Half
year
Mar 05

Halfyear
Sep 04Halfyear
Mar 04Movt
Mar 05v. Sep 04

Movt
Mar 05v. Mar 04

15.6%

15.8%

16.7%

-1%

-7%

Net profit as a % of shareholders' equity
including preference shares at end of period

75

NOTES TO THE FINANCIAL STATEMENTS (continued)
12. Capital adequacyMovt
Mar 05v. Sep 04%

Movt
Mar 05v. Mar 04%

16,748

6%

13%

1,450

-7%

-2%

As at
Mar 05As at
Sep 04As at
Mar 04$M$M$M

Total shareholders' equity and outside equity interests

19,00817,925Hybrid loan capital1

1,425

1,535

Qualifying capital
Tier 1

Less:

Asset revaluation reserve

(31)

(31)

(31)

0%

0%

Dividend2

(930)

(983)

(850)

-5%

9%

Accumulated retained profits and reserves of insurance,
funds management and securitisation entities
Unamortised goodwill and other intangibles
Capitalised expenses

3

Investment in ANZ Lenders Mortgage Insurance
Tier 1 capital

(266)

(218)

(169)

22%

57%

(4,007)(4,170)(4,096)

-4%

-2%

(492)

(465)

-

6%

n/a

(27)

(27)

(27)

0%

0%

14,68013,566

13,025

8%

13%

31

31

31

0%

0%

Tier 2
Asset revaluation reserve
Perpetual subordinated notes
General provision for doubtful debts4

Subordinated notes

5

Tier 2 capital

389

419

396

-7%

-2%

1,390

1,342

1,232

4%

13%

1,810

1,792

1,659

1%

9%

5,769

6,052

5,198

-5%

11%

7,579

7,844

6,857

-3%

11%

Deductions
Investment in funds management and securitisation entities

106

107

78

-1%

36%

Investment in joint venture with INGA

478

708

708

-32%

-32%

Other

183

204

190

-10%

-4%

Total deductions

767

1,019

976

-25%

-21%

21,492

20,391

18,906

5%

14%

Tier 1 capital

14,68013,566

13,025

8%

13%

Less:

3,263

2,535

2,450

29%

33%

767

1,019

976

-25%

-21%

10,65010,012

9,599

6%

11%

7.0%

6.9%

7.0%

1%

0%

Total qualifying capital
Adjusted common equity

Preference share capital
Deductions

Adjusted common equity 6
Ratios (%)
Tier 1
Tier 2Less:

Deductions

3.6%

4.0%

3.7%

-10%

-3%

10.6%

10.9%

10.7%

-3%

-1%
-40%

(0.3%)(0.5%)(0.5%)

-40%

Total

10.3%

10.4%

10.2%

-1%

1%

Adjusted common equity

5.1%

5.1%

5.2%

0%

-2%

209,524

196,664

186,157

7%

13%

Risk weighted assets
1.
2.
3.
4.
5.
6.

Represents the US Stapled Trust Security Issue approved by APRA as qualifying for Tier 1 status. Refer Note 10
Relates to dividend not provided forFrom 1 July 2004, APRA requires certain capitalised expenses to be deducted from Tier 1 Capital
Net of attributable future income tax benefit
For capital adequacy calculation purposes, subordinated note issues are reduced by 20% of the original amount over the last four years to maturity
Tier 1 capital, less preference share capital (converted at 31 March 2005 rates), less deductions

76

NOTES TO THE FINANCIAL STATEMENTS (continued)
12. Capital adequacy, cont’dAssets
Mar
2005
$M

Sep
2004
$M

Risk Weighted Assets
Mar
2005
$M

Sep
2004
$M

Statement of financial position

Zero risk weighted assets

23,201

24,467--

Claims on approved banks and local governments

15,08812,593

3,018

2,519

Advances secured by mortgages eligible for 50% risk weighting

113,183

106,01356,59253,007

Other assets - credit risk

120,586

113,218

120,586

113,218

Total statement of financial position assets - credit risk

272,058

256,291

180,196

168,744

5,791

3,054

n/a

n/a

277,849

259,345

180,196

168,744

Trading assets - market risk
Total statement of financial position assets

Notional AmountCredit Equivalent

Risk Weighted Assets

Mar
2005
$M

Sep
2004
$M

Mar
2005
$M

Sep
2004
$M

Mar
2005
$M

Sep
2004
$M

Direct credit substitutes

10,486

10,262

10,486

10,262

8,166

8,173

Trade and performance related items

12,131

11,887

5,391

5,265

4,739

4,728

Commitments

82,821

78,914

13,661

12,385

11,450

10,239Off-balance sheet exposures

Foreign exchange, interest rate and other market
related transactions
Total off balance sheet exposures - credit risk

707,716

672,500

11,788

11,692

3,814

3,790

813,154773,563

41,326

39,604

28,16926,930208,365

195,674

Total risk weighted assets - credit risk
Risk weighted assets - market risk
Total risk weighted assets - credit risk

77

1,159

990

209,524

196,664

NOTES TO THE FINANCIAL STATEMENTS (continued)
13. Average balance sheet and related interest
Averages used in the following tables are predominantly daily averages. Interest income figures are presented on a
tax-equivalent basis. Non-accrual loans are included under the interest earning asset category, “loans, advances andbills discounted”. Intragroup interest earning assets and interest bearing liabilities are treated as external assets andliabilities for the geographic segments.
Half year Mar 05
Ave bal
Int
Rate
$M
%
$M

Half year Sep 04
Ave bal
Int
Rate
$M
$M
%

Ave bal$M

Half year Mar 04
Int
Rate
$M
%

Interest earning assets
Due from other financial institutions
733

19

5.2%

292

8

5.5%

864

21

4.9%

New ZealandAustralia

2,392

63

5.3%

2,486

63

5.1%

2,083

52

5.0%

Overseas markets

2,218

32

2.9%

2,665

23

1.7%

1,980

20

2.0%

Australia

7,835

210

5.4%

7,684

206

5.4%

6,778

183

5.4%

New Zealand

2,401

70

5.8%

2,944

78

5.3%

3,133

72

4.6%

Overseas markets

2,821

45

3.2%

3,461

49

2.8%

2,889

46

3.2%

Investments in public securities

Loans, advances and bills discounted
Australia

146,069

5,014

6.9%

134,313

4,658

6.9%

125,003

4,235

6.8%

New Zealand

59,230

2,453

8.3%

54,960

2,131

7.8%

41,731

1,570

7.5%

Overseas markets

9,352

217

4.6%

9,978

208

4.2%

9,642

213

4.4%

Australia

1,803

47

5.2%

2,014

59

5.9%

1,034

68

13.2%

New Zealand

2,481

41

3.3%

2,625

37

2.8%

1,878

21

2.2%

Overseas markets

2,624

82

6.3%

1,798

71

7.9%

2,071

56

5.4%

9,706

151

3.1%

10,281116

2.3%

11,059109

2.0%

249,6658,444

235,501

7,707

210,145

6,666

Other assets

Intragroup assets
Overseas markets
Intragroup elimination(9,706)(151)

239,959

8,293

6.9%

(10,281)(116)

225,220

7,591

6.7%

(11,059)(109)

199,086

6,557

Non-interest earning assets
Acceptances
Australia

13,073

13,16161

60

48

Premises and equipment

1,527

1,460

1,460

Other assets

17,307

18,512

17,936

Overseas markets

13,635

Provisions for doubtful debts
Australia(1,792)(1,742)(1,782)

New Zealand

(594)

(554)

(408)

Overseas markets

(32)

(57)

(75)

29,550269,50930,840
256,060

30,814229,900

Total assets

78

6.6%

NOTES TO THE FINANCIAL STATEMENTS (continued)
13. Average Balance Sheet and related interest, cont’d
Half year Mar 05
Ave bal
Int
Rate
$M
$M
%
Interest bearing liabilities
Time deposits
Australia
New ZealandOverseas markets
Savings deposits
Australia
New ZealandOverseas markets
Other demand deposits
Australia
New ZealandOverseas markets
Due to other financial institutions
Australia
New ZealandOverseas markets
Commercial paper
Australia
New ZealandOverseas markets
Borrowing corporations' debt
Australia
New Zealand
Loan capital, bonds and notes
Australia
New ZealandOverseas markets
Other liabilities1
Australia
New ZealandOverseas markets
Intragroup liabilities
Australia
New Zealand
Intragroup elimination

Non-interest bearing liabilities
Deposits
Australia
New ZealandOverseas markets
Acceptances
Australia
Overseas markets
Other liabilities
Total liabilities
1.

Half year Sep 04
Ave bal
Int
Rate
$M
$M
%

Half year Mar 04
Ave bal
Int
Rate
$M
$M
%

38,65025,626
10,965

1,020
782
173

5.3%
6.1%
3.2%

32,67623,524
12,577

857
657
156

5.2%
5.6%
2.5%

29,003
18,295
12,967

732
481
141

5.0%
5.3%
2.2%

13,699
7,155
415

199
140
1

2.9%
3.9%
0.5%

13,253
7,138
391

187
124
1

2.8%
3.5%
0.5%

12,782
5,788
381

165
88
2

2.6%
3.0%
1.0%

32,448
7,818
783

666
193
6

4.1%
4.9%
1.5%

30,117
7,288
690

616
152
4

4.1%
4.2%
1.2%

29,356
5,568
634

566
104
5

3.9%
3.7%
1.6%

1,397
1,793
4,209

39
45
64

5.6%
5.0%
3.0%

1,525
1,654
3,488

47
40
32

6.2%
4.8%
1.8%

1,379
1,562
3,984

38
36
45

5.5%
4.6%
2.3%

5,561
7,664
5,740

152
253
63

5.5%
6.6%
2.2%

6,724
8,157
6,391

184
238
39

5.5%
5.8%
1.2%

4,924
5,370
6,579

129
145
35

5.2%
5.4%
1.1%

7,239
1,981

196
62

5.4%
6.3%

7,148
1,979

191
58

5.3%
5.9%

7,036
1,871

180
52

5.1%
5.6%

35,312
3,601
139

965
124
2

5.5%
6.9%
2.9%

32,073
2,324
151

877
72
1

5.5%
6.2%
1.3%

27,189
1,694
149

698
49
1

5.1%
5.8%
1.3%

4,458
65
86

204
65
10

n/a
n/a
n/a

4,713
45
53

244
43
8

n/a
n/a
n/a

3,752
36
111

294
40
9

n/a
n/a
n/a

4,189
5,517
226,510(9,706)
216,804

(8)
159
5,575
(151)
5,424

-0.4%
5.8%

4,796
5,485
214,360(10,281)
204,079

(23)
139
4,944
(116)
4,828

-1.0%
5.1%

6,492
4,567
191,469(11,059)
180,410

4
105
4,144
(109)
4,035

0.1%
4.6%

5.0%

4.7%

4,121
3,298
881

3,910
3,097
908

4,006
2,141
826

13,073
61
12,972
34,406251,210

13,16160
13,82434,960239,039

13,63548
13,39834,054
214,464

Includes foreign exchange swap costs

79

4.5%

NOTES TO THE FINANCIAL STATEMENTS (continued)
13. Average Balance Sheet and related interest, cont’d
Half
year
Mar 05
$M

Half
year
Sep 04
$M

Half
year
Mar 04$M

Australia

178,814

168,841

157,048

New Zealand

72,41367,96454,089Overseas markets

27,98829,53629,822(9,706)(10,281)(11,059)

269,509

256,060

229,900

33.7%

34.1%

31.7%

Australia

156,440

144,305

133,679

New Zealand

66,50463,016

48,825

Overseas markets

26,721

28,18027,641(9,706)(10,281)(11,059)

239,959

225,220

199,086

Australia

168,808

159,956

147,897

New Zealand

68,16363,886

51,216

Overseas markets

23,94525,47826,410(9,706)(10,281)(11,059)

251,210

239,039

214,464

Ordinary share capital

16,79016,034

13,966Preference share capital

1,509

987

1,470

18,29917,021

15,436

269,509

256,060

229,900

34.5%

35.1%

34.1%

Total average assets

less intragroup elimination% of total average assets attributable
to overseas activities
Average interest earning assets

less intragroup elimination

Total average liabilities

less intragroup elimination

Total average shareholders' equity

Total average liabilities andshareholders' equity% of total average liabilities attributable
to overseas activities

80

NOTES TO THE FINANCIAL STATEMENTS (continued)
14. Interest spreads and net interest average margins
Intragroup interest earning assets and interest bearing liabilities are treated as external assets and liabilities for thegeographic segments.
Half
year
Mar 05%

Halfyear
Sep 04%Halfyear
Mar 04%Australia

6.78

6.83

6.74

New Zealand

7.92

7.33

7.03

Overseas markets

3.94

3.32

3.21

Total Group

6.93

6.74

6.59

Gross earnings rate1

Interest spread and net interest average margin may be analysed as follows:

Australia
Gross interest spread

1.98

2.06

2.16

Interest forgone on impaired assets(0.01)(0.01)(0.02)Net interest spread

1.97

2.05

2.14

Interest attributable to net non-interest bearing items

0.41

0.38

0.40

Net interest average margin - Australia

2.38

2.43

2.54

New ZealandGross interest spread

1.96

2.05

2.12

Interest forgone on impaired assets(0.01)(0.01)(0.01)Net interest spread

1.95

2.04

2.11

Interest attributable to net non-interest bearing items

0.48

0.45

0.41

Net interest average margin - New Zealand

2.43

2.49

2.52

Overseas markets
Gross interest spread

1.11

1.32

1.36

Interest forgone on impaired assets(0.04)(0.04)(0.05)Net interest spread

1.07

1.28

1.31

Interest attributable to net non-interest bearing items

0.47

0.32

0.19

Net interest average margin - Overseas markets

1.54

1.60

1.50

Gross interest spread

1.93

2.03

2.14

Interest forgone on impaired assets(0.01)(0.02)(0.03)

N e t interest spread

1.92

2.01

2.11

I nterest attributable to net non-interest bearing items

0.48

0.44

0.42

N et interest average margin

2.40

2.45

2.53

Group

1.

Average interest rate received on interest earning assets

81

NOTES TO THE FINANCIAL STATEMENTS (continued)
15. Segment analysis
The following analysis shows segment revenue, total assets and result for each business segment.
Industry
Halfyear
Mar 05
$M

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Mar 05v. Sep 04%

Movt
Mar 05v. Mar 04%

Income1,2
Personal Banking Australia

3,800

3,578

3,259

6%

17%

Institutional

2,494

2,501

2,244

0%

11%

New Zealand Businesses

2,440

2,054

1,496

19%

63%

Corporate Australia

768

732

682

5%

13%

Esanda and UDC

617

598

567

3%

9%

Asia Pacific

226

216

205

5%

10%

ING Australia

105

106

97

-1%

8%

Group Centre

1,499

1,416

1,270

6%

18%

-

15

113

-100%

-100%

(1,968)(1,934)(1,707)

2%

15%

9,981

9,282

8,226

8%

21%

Income from significant items3
Intragroup eliminations

Net profit after income tax2
Personal Banking Australia

442

417

384

6%

15%

Institutional

455

436

427

4%

7%

New Zealand Businesses

306

291

219

5%

40%

Corporate Australia

182

172

164

6%

11%

Esanda and UDC

77

74

69

4%

12%

Asia Pacific

48

60

51

-20%

-6%

ING Australia

63

61

47

3%

34%

Group Centre

(81)

(92)

(49)

-12%

65%

1,492

1,419

1,312

5%

14%

(17)

-

84

n/a

Large

1,475

1,419

1,396

4%

6%

Net profit (excl significant items3 and NBNZ incremental
integration costs4)
Significant items3 and NBNZ incremental integration costs4

Total assets
Personal Banking Australia

99,86093,152

86,9507%15%Institutional

68,37160,75760,919

13%

12%

New Zealand Businesses

55,90653,38350,541

5%

11%

Corporate Australia

19,426

18,537

17,3035%

12%Esanda and UDC

14,771

14,524

13,9382%

6%

Asia Pacific

2,524

2,445

2,178

3%

16%
-15%

ING Australia

1,519

1,777

1,790

-15%

Group Centre

15,472

14,77013,6695%

13%277,849

259,345

247,288

7%

12%

1.
2.
3.

4.

Refer definitions on pages 95 to 96
Equity standardised including intersegment income
In the September 2004 half ANZ has classified the $14 million profit after tax on settlement of the INGA completion accounts as significant items. In the March
2004 half $84 million net profit after tax arising from the TrUEPrS transaction has been classified as significant items. ANZ excludes significant items to eliminate
the distorting effect of one-off transactions on the results of its core businessIn the March 2005 half ANZ has incurred $17 million after tax NBNZ incremental integration costs (Sep 2004: $14 million). NBNZ incremental integration costs
are excluded to enable analysis of the cost base following completion of the integration

82

NOTES TO THE FINANCIAL STATEMENTS (continued)
15. Segment analysis, cont’d
Reconciliation of Cost to Income

Management believes that excluding goodwill amortisation from operating expenses in the operating expense tooperating income ratio provides a better indication of the operating efficiency of the Group.
The amount of goodwill amortisation excluded from the calculation, and the reduction in the operating expense tooperating income ratio as a result of excluding goodwill amortisation is shown in the tables below.

Operating expense to operating income ratio
Half
year
Mar 05%

Halfyear
Sep 04%Halfyear
Mar 04%Australia

45.2%

44.8%

43.2%

New Zealand

50.6%

50.4%

48.3%

Asia Pacific

47.9%

43.0%

42.1%

Group Total1

46.3%

45.8%

43.9%

Half
year
Mar 05
$M

Half
year
Sep 04
$M

Half
year
Mar 04$M

Geographic segment

1.

Includes significant items and incremental integration costs (refer footnote 5 and 6, page 69)

Goodwill amortisation excluded from operating expense to operating income ratio

Geographic segment
Australia

44

4

New Zealand

84

77

58

Asia Pacific

1

2

1

Group Total

89

83

63

Reduction in operating expenses to operating income ratio as a result of excluding goodwill amortisation
Half
year
Mar 05%

Halfyear
Sep 04%Halfyear
Mar 04%Australia

0.2%

0.1%

0.1%

New Zealand

7.3%

6.8%

6.5%

Asia Pacific

0.4%

0.9%

0.4%

Group Total

2.0%

1.9%

1.5%

Geographic segment

The results of INGA also include $21 million notional goodwill amortisation (Sep 2004: $19 million; Mar 2004:$22 million) in the derivation of the equity accounted income amount. This notional goodwill has not been excluded
from income in calculating the ratio of operating expenses to operating income.

83

NOTES TO THE FINANCIAL STATEMENTS (continued)
16. Derivative financial instruments
Derivatives

Derivative instruments are contracts whose value is derived from one or more underlying financial instruments orindices. They include swaps, forward rate agreements, futures, options and combinations of these instruments. The
use of derivatives and their sale to customers as risk management products is an integral part of the Group’s trading
activities. Derivatives are also used to manage the Group’s own exposure to fluctuations in exchange and interest
rates as part of its asset and liability management activities. Derivatives are subject to the same types of credit andmarket risk as other financial instruments, and the Group manages these risks in a consistent manner.
The following table provides an overview of the Group’s exchange rate and interest rate derivatives. It includes all
contracts, both trading and other than trading.
31 March 2005
Notional

CreditPrincipal

Equivalent

Amount$M

30 September 2004
Notional

CreditFair

Principal

Equivalent

Fair

AmountValue

AmountAmount

Value

$M

$M

$M

$M

$M

Foreign exchange and commodities contracts4
Spot and forward contracts

163,383

3,281

(856)

183,825

3,216(1,411)

Swap agreements

60,5493,580

258

51,437

3,095

(25)

Futures contracts1

328

n/a

5

251

n/a

2

Options purchased

9,779

357

213

13,288398

224

Options sold2

14,245n/a(219)

18,852n/a(226)

Other contracts

2,055

386

112

2,690

437

115

250,339

7,604

(487)

270,343

7,146(1,321)

Interest rate agreements
Forward rate agreements

51,3895(2)39,572

9

5

Swap agreements

356,803

3,121

287

321,581

3,681

424

Futures contracts1

35,095n/a

238,270n/a

4

Options purchased

17,697103

61

12,810111

64

Options sold2

15,279n/a(43)

15,214n/a(35)

476,263

3,229

305

427,447

3,801

462

13,432

3,323

24

11,7433,381

31740,034

14,156(158)

709,533

14,328(828)

Credit contracts
Credit default swaps3
Total
1.
2.
3.
4.

Credit equivalent amounts have not been included as there is minimal credit risk associated with the exchange traded futures, where the clearing house is thecounterparty
Options sold have no credit exposures as they represent obligations rather than assets
Credit default swaps include structured transactions that expose the Group to the performance of certain assets. The total investment of the Group in thesetransactions is USD 750 million (Sep 2004:USD 750 million)
The fair value of foreign exchange contracts includes a reduction of $299 million (Sep 2004: $519 million) in respect of cash collateral received under credit
support agreements

Notional principal amount is the face value of the contract and represents the volume of outstanding transactions.
Credit equivalent amount is calculated in accordance with the APRA capital adequacy guidelines and combines theaggregate value of all contracts in a positive market position plus an allowance for the potential increase in value over
the remaining term of the transaction. Fair value is the net position of contracts with positive market values andnegative market values.

84

NOTES TO THE FINANCIAL STATEMENTS (continued)
16. Derivative financial instruments, cont’d
Hedging

In addition to customer and trading activities, the Group uses derivatives to manage the risk associated with its
balance sheet and future revenue streams. Revenue related hedges are separately listed in the table below.
The table below shows the notional principal amount, credit equivalent amount and fair value of derivatives held by
the Group, split between those entered into for customer-related and trading purposes and those entered into forother than trading purposes.

31 March 2005
Notional

CreditPrincipal

Equivalent

Amount$M
Customer-related and trading purposes

186,596

Balance sheet hedging purposes

59,835

Revenue related hedging

30 September 2004
Notional

CreditFair

Principal

Equivalent

Fair

AmountValue

AmountAmount

Value

$M

$M

$M

$M

$M

4,492

1,441

210,818

4,512

94

3,062

(1,939)56,0392,585(1,371)

3,908

50

11

3,486

49

(44)

250,339

7,604

(487)

270,343

7,146(1,321)

Customer-related and trading purposes

365,836

2,560

184

340,104

3,162

166

Balance sheet hedging purposes

110,427669

121

87,343639

296

476,263

3,229

305

427,447

3,801

462

Foreign exchange and commodities contracts

Interest rate contracts

Credit derivatives
Customer-related and trading purposes

10,631

955

3

8,775

745

(5)

Balance sheet hedging purposes

2,801

2,368

21

2,968

2,636

36

Total

13,432

3,323

24

11,7433,381

31740,034

14,156(158)

709,533

14,328(828)

85

NOTES TO THE FINANCIAL STATEMENTS (continued)
17. Contingent liabilities and contingent assets
Contingent liabilities - general

There are outstanding court proceedings, claims and possible claims against the Group, the aggregate amount of
which cannot readily be quantified. Appropriate legal advice has been obtained and, in the light of such advice,provisions as deemed necessary have been made. We have in some instances not disclosed the estimated financial
impact as this may prejudice the interests of the Group.
Sale of Grindlays businesses

On 31 July 2000, ANZ completed the sale to Standard Chartered Bank (SCB) of ANZ Grindlays Bank Limited and theprivate banking business of ANZ in the United Kingdom and Jersey, together with ANZ Grindlays (Jersey) Holdings
Limited and its subsidiaries, for USD1.3 billion in cash. ANZ provided warranties and certain indemnities relating tothose businesses and, where it anticipated that payments would be likely under the warranties or indemnities, madeprovisions to cover the anticipated liability. The issues below have not impacted our reported results. All settlements
and costs have been covered within the provisions established at the time. ANZ may be held liable in relation to thefollowing:
FERA

In 1991 certain amounts were transferred from non-convertible Indian Rupee accounts maintained with Grindlays
in India. These transactions may not have complied with the provisions of the Foreign Exchange Regulation Act,
1973. Grindlays, on its own initiative, brought these transactions to the attention of the Reserve Bank of India.
The Indian authorities have served notices on Grindlays and certain of its officers in India that could lead topossible penalties. Criminal prosecutions have also been foreshadowed and, in the case of two former officers,
commenced. Grindlays has commenced proceedings in the court contesting the validity of these notices andprosecutions, which are currently stayed pending the outcome of the court proceedings.
Differential Cheques

In June 2003, Grindlays was successful in its appeal against orders to repay, with interest, two payments it
received from a stockbroker in 1991 in connection with securities transactions. These orders had directed
repayment of Indian Rupees 24 million (plus interest accruing at 24% since 1991). Since the appeal decision was
handed down, no further action has been taken against Grindlays in relation to a further twelve payments received
by it in 1991 in similar circumstances totalling Indian Rupees 277 million.
In addition, ANZ provided an indemnity relating to tax liabilities of Grindlays (and its subsidiaries) and the Jersey
Sub-Group to the extent to which such liabilities were not provided for in the Grindlays accounts as at 31 July 2000.
Claims have been made under this indemnity also, with no material impact on the Group expected.
Noga Claim

On 10 March 2005, leave was given by the High Court in London to certain parties to make a claim against ANZ overits role in 1996 as arranger and escrow agent in respect of a buyback of Nigerian Government bills of exchange (“theNoga claim”). The claim was disclosed by ANZ to the market on 11 March 2005 in view of its potential size (DEM
973 million [$833 million at 31 March 2005 exchange rates] plus interest). ANZ considers the Noga claim to beopportunistic and that the chances of it being successful are very remote. No provision has been made in respect of
this claim.
Contingent tax liability

The Group in Australia is being subjected to a client risk review by the Australian Taxation Office (ATO) across a broad
spectrum of matters as part of normal ATO procedures.
In addition, at the Company’s request the ATO is reviewing the taxation treatment of the sale of Grindlays in 2000.
During the period the Company and the ATO settled the remaining outstanding issues from the large case tax audit
which commenced in 1995. The settlement was within existing provisions.
The Group in New Zealand is being audited by the Inland Revenue Department (IRD) as part of normal revenue
authority procedures, with a particular focus on certain kinds of structured finance transactions. The Group in New
Zealand has received Notices of Proposed Adjustment (the ‘Notices’) in respect of some of those structured financetransactions. The Notices are not tax assessments and do not establish a tax liability, but are the first step in aformal disputes process. In addition, some tax assessments have been received. Should the same position be
adopted by the IRD on the remaining transactions of that kind as reflected in the Notices and tax assessments
received, the maximum potential tax liability would be approximately NZD388 million (including interest tax effected)
for the period to 31 March 2005. Of that maximum potential liability, approximately NZD120 million is subject to tax
indemnities provided by Lloyds TSB Bank PLC under the agreement by which ANZ acquired the National Bank of New
Zealand and which relate to transactions undertaken by the National Bank of New Zealand before December 2003.
The Company has assessed all taxation claims arising in Australia, New Zealand and elsewhere, including seeking
independent advice where appropriate, and believes that it holds appropriate provisions.

86

NOTES TO THE FINANCIAL STATEMENTS (continued)
17. Contingent liabilities and contingent assets, cont’dInterbank Deposit Agreement

ANZ has entered into an Interbank Deposit Agreement with the major banks in the payments system. Thisagreement is a payment system support facility certified by the Australian Prudential Regulation Authority, where theterms are such that if any bank is experiencing liquidity problems, the other participants are required to deposit equalamounts of up to $2 billion for a period of 30 days. At the end of 30 days the deposit holder has the option to repay
the deposit in cash or by way of assignment of mortgages to the value of the deposit.
Clearing and Settlement Obligations

In accordance with the clearing and settlement arrangements set out:in the Australian Payments Clearing Association Limited (APCA) Regulations for the Australian Paper Clearing
System, the Bulk Electronic Clearing System, the Consumer Electronic Clearing System and the High Value
Clearing System (HVCS), the Company has a commitment to rules which could result in a bilateral exposure andloss in the event of a failure to settle by a member institution; andin the Austraclear System Regulations, the Company has a commitment to participate in loss-sharing
arrangements in the event of a failure to settle by a member institution.
For both the APCA HVCS and Austraclear, the obligation arises only in limited circumstances.
Contingent asset matters
National Housing Bank

In 1992, Grindlays received a claim aggregating approximately Indian Rupees 5.06 billion from the National
Housing Bank (NHB) in India. The claim arose out of cheques drawn by NHB in favour of Grindlays, the proceedsof which were credited to the account of a Grindlays customer.
Grindlays won an arbitration award in March 1997, under which NHB paid Grindlays an award of Indian Rupees
9.12 billion. NHB subsequently won an appeal to the Special Court of Mumbai, after which Grindlays filed an
appeal with the Supreme Court of India. Grindlays paid the disputed money including interest into court.
Ultimately, the parties settled the matter and agreed to share the moneys paid into court which by then totalled
Indian Rupees 16.45 billion (AUD 661 million at 19 January 2002 exchange rates), with Grindlays receiving Indian
Rupees 6.20 billion (AUD 248 million at 19 January 2002 exchange rates) of the disputed monies. ANZ in turn
received a payment of USD124 million (USD equivalent of the Indian Rupees received by Grindlays) from Standard
Chartered Bank under the terms of an indemnity given in connection with the sale of Grindlays to Standard
Chartered Bank.
ANZ Claims
ANZ is pursuing two separate actions arising from the above.
(a) A $130 million plus compound interest claim against its insurers. $130 million is the balance of the limit ofindemnity under ANZs insurance arrangements for the 1991-92 policy year.
The proceedings, in the Victorian Supreme Court, are against ANZs captive insurance company ANZcoverInsurance Pty Ltd (ANZcover). ANZcover is an authorised general insurer restricted to insuring the interestsof ANZ and its subsidiaries. ANZcover in turn purchases reinsurance from global reinsurers, primarily in the
London reinsurance market. ANZcover has no retained exposure to the NHB claim, which is fully reinsured,
save for a small exposure arising from the insolvency of some reinsurers in the London market.
The insurers contest liability and the proceedings remain on foot.
(b) ANZ is entitled to share with NHB in the proceeds of any recovery from the estate of the customer whose
account was credited with the cheques drawn by NHB. However, the Indian Taxation Department is claiming
a statutory priority to all of the funds available for distribution to creditors of that customer.
No amounts receivable under either of these actions have been recognised in these accounts.

87

NOTES TO THE FINANCIAL STATEMENTS (continued)
18. Note to the Statement of Cash Flows(a)

Reconciliation of profit after income tax to net cash provided by operating activities

Profit after income tax
Adjustments to reconcile to net cash provided by operating activities
Provision for doubtful debts

Half
year
Mar 05
Inflows(Outflows)
$M

Half
year
Sep 04
Inflows(Outflows)
$M

Half
year
Mar 04
Inflows(Outflows)
$M

1,475

1,419

1,396

319

313

284

Depreciation and amortisation

240

244

211

Expense provisions

295

221

208

Payments from provisions

(280)

(245)

(150)

Provision for surplus lease space

-

7

-

(Profit) loss on property disposals

17

15

(10)

Decrease (increase) in interest receivable

21

(233)

(245)

(Decrease) increase in interest payable

12

301

304

(Increase) decrease in trading securities

(638)

1,070

(556)

(Increase) decrease in net tax assets

124

376

545

Unrealised (gain) loss on revaluation of treasury instruments

(635)

261

(430)

Other

(55)

(46)

(45)

860

3,709

1,541

7,180

4,998

4,427

Net cash provided by operating activities
Reconciliation of cash and cash equivalents
Cash at the end of the period as shown in the statement of cash flows
is reconciled to the related items in the balance sheet as follows
Liquid assets - less than 3 months
Due from other financial institutions - less than 3 months

4,516

2,856

4,027

11,696

7,854

8,454

78

70

65

Non-cash financing and investment activities
Share capital issues
Dividend reinvestment plan88

NOTES TO THE FINANCIAL STATEMENTS (continued)
18. Note to the Statement of Cash Flows, cont’d(b)Acquisition of National Bank of New ZealandMar 04$M

Consideration paid
Cash paid at 1 December 2003

4,910

Foreign exchange movement(77)

Consideration including acquisition costs at 31 March 2004 rates

4,833

Fair value of net assets acquired
AssetsLiquid assets

1,618

Trading securities

1,626

Investment securities

210

Net loans and advances

31,782Other assets

1,692

Premises and equipment

158

Total assets

37,086

Liabilities
Deposits and borrowings

32,363

Provisions

107

Creditor and other liabilities

2,414

Loan capital

480

Total liabilities

35,364

Net assets acquired at fair value

1,722

Goodwill on acquisition

3,111

Cash paid

4,910

Cash acquired

1,618

Cash outflow on acquisition

3,292

89

NOTES TO THE FINANCIAL STATEMENTS (continued)
19. Changes in composition of the GroupAcquisition of controlled entities

There were no material controlled entities acquired during the half year to 31 March 2005.
On 1 December 2003, the Company acquired NBNZ Holdings Limited and its controlled entities (NBNZ). The
contribution of these entities (excluding integration costs) to the Group's profit after tax for the 10 months to
30 September 2004 was NZD422 million (AUD375 million). Legal amalgamation of NBNZ into ANZ Banking Group(New Zealand) Limited was completed on 26 June 2004. ANZ Banking Group (New Zealand) Limited changed its
name to ANZ National Bank Limited on 28 June 2004.
Disposal of controlled entities

There were no material controlled entities disposed of during the half year to 31 March 2005, or the year to
30 September 2004.

20. Associates, joint venture entities and investments
Half
year
Mar 05
$M

Half
year
Sep 04
$M

Half
year
Mar 04$M

Operating profit

85

78

67

Profit after income tax

85

78

67

Aggregate associates and joint venture entities

Material contributions to profit
Contribution toGroup pre-tax profit
Half
year
Mar 05
$M

Half
year
Sep 04
$M

Half
year
Mar 04$M

PT Panin Indonesia Bank 1

21

18

E*Trade

2

1

59

57

Ownership interest
held by Group
As at
As at
As at
Mar 05
Sep 04
Mar 04
%

%

%

25

29

29

29

1

35

35

35

40

49

49

49

Associates

Joint ventures
ING Australia Limited 2
1.
2.

The Group exercised options over 18% of PT Panin in 2004
After charging notional goodwill of $21 million (Sep 2004 half: $19 million; Mar 2004 half: $22 million).

90

NOTES TO THE FINANCIAL STATEMENTS (continued)
21. US GAAP reconciliation
The consolidated financial statements of the Group are prepared in accordance with Generally Accepted Accounting
Principles applicable in Australia (Australian GAAP) which differ in some respects from Generally Accepted Accounting
Principles in the United States (US GAAP).
The following is a reconciliation of the profit from ordinary activities after income tax applying US GAAP instead ofAustralian GAAP.
Half
year
Mar 05
$M

Half
year
Sep 04
$M

Half
year
Mar 04$M

Movt
Mar 05v. Sep 04%

Movt
Mar 05v. Mar 04
%

1,475

1,419

1,396

4%

6%

Employee share issue and options

(44)

3

(46)

large

-4%

Amortisation of goodwill

111

104

85

7%

31%

Amortisation of core deposit intangible1

(66)

-

-

n/a

n/a

Pension expense adjustment and deficit amortisation

(8)

(6)

(10)

33%

-20%

Mark to market of non compliant derivative hedges (under SFAS 133)

(53)

62

(151)

large

-65%

Interest on reclassified preference shares and amortisation of costs

(33)

(34)

(30)

-3%

10%

Guarantee fee obligation

(4)

(12)

(11)

-67%

-64%

Acquisition cost of NBNZ adjustment

-

-

(37)

n/a

-100%

Adjustment on INGA entering joint venture

-

(14)

-

-100%

n/a

Operating profit after income tax according toAustralian GAAP
Items having the effect of increasing(decreasing)reported income:

Other adjustments

8

13

17

-38%

-53%

Taxation on the above adjustments

42

(12)

52

large

-19%

1,428

1,523

1,265

-6%

13%

(284)

487

(254)

large

12%

12

2

5

large

large

(7)

-

-

n/a

n/a

38

(91)

(3)

large

large

(14)

(17)

3

-18%

large

1,173

1,904

1,016

-38%

15%

Net income according to US GAAP
Adjustments to determine other comprehensive income for US GAAP
Currency translation adjustments, net of hedges after tax. Tax is:(HY Mar 2005: $19m; HY Sep 2004: -$12m; HY Mar 2004: $21m)
Unrealised profit(loss) on available for sale securities net of tax. Tax is:(HY Mar 2005: $5m; HY Sep 2004: $1m; HY Mar 2004: $2m)
Realised gain on sale of available for sale securities (net of tax) transferred to net
income. Tax is: (HY Mar 2005: -$3m; HY Sep 2004: nil; HY Mar 2004: nil)Mark to market of cash flow hedges net of tax. Tax is: (HY Mar 2005: $16m;
HY Sep 2004: -$39m; HY Mar 2004:-$1m)
Pension plan deficit net of tax. Tax is: (HY Mar 2005: -$6m; HY Sep 2004: -$7m;
HY Mar 2004:$1m; )Total comprehensive income according to US GAAP
1.

A core deposit intangible of $316 million has been recognised on the acquisition of the National Bank of New Zealand on 1 December 2003. This intangible isamortised over approximately 4 years

91

NOTES TO THE FINANCIAL STATEMENTS (continued)
22. Exchange rates
Major exchange rates used in translation of results of offshore controlled entities and branches into the Groupaccounts for each reporting period were as follows:

Balance Sheet
As at
As at
Mar 05
Sep 04As at
Mar 04

Profit and Loss Average
Half
Half
Half
year
year
year
Mar 05
Sep 04
Mar 04Euro

0.59700.58140.61950.58830.58700.6066

Great British pound

0.41070.39830.41370.40850.39270.4179New Zealand dollar

1.08991.07001.14671.0832

1.11251.1401

United States dollar

0.77190.71650.75850.76710.71250.740323. Significant events since balance date
There have been no significant events from 31 March 2005 to the date of this report.

92

DIRECTORS’ DECLARATION

The directors of Australia and New Zealand Banking Group Limited declare that:1.

2.

in the directors’ opinion the financial statements and notes of the consolidated entity set out on pages 58 to 93
are in accordance with the Corporations Act 2001 (as amended), including:(a)that they comply with AASB Standards including AASB 1029 “Interim Financial Reporting”, other AASB
authoritative pronouncements, Urgent Issues Group Consensus Views, other mandatory reporting
requirements and the Corporations Regulations 2001, and(b)that they give a true and fair view of the financial position of the consolidated entity as at 31 March 2005
and of its performance for the half year ended on that date; andin the directors’ opinion at the date of this declaration there are reasonable grounds to believe that the Company
will be able to pay its debts as and when they become due and payable.

Signed in accordance with a resolution of the directors.

Charles Goode
ChairmanJohn McFarlane
Director

26 April 2005

93

AUDITORS’ REVIEW REPORT AND INDEPENDENCE DECLARATION
Independent review report to the members of Australia and New Zealand Banking Group Limited
Scope

We have reviewed the financial report of Australia and New Zealand Banking Group Limited (“the Company”) for thehalf year ended 31 March 2005, consisting of the consolidated statement of financial performance, consolidated
statement of financial position, statement of changes in equity and consolidated statement of cash flows,
accompanying notes and the Directors’ Declaration set out on pages 58 to 93. The financial report includes theconsolidated financial statements of the consolidated entity comprising the Company and the entities it controlled at
the end of the half-year or from time to time during the half-year. The Company’s directors are responsible for thefinancial report.
We have performed an independent review of the financial report in order to state whether, on the basis ofprocedures described, anything has come to our attention that would indicate that the financial report is notpresented fairly in accordance with Australian Accounting Standard AASB 1029 “Interim Financial Reporting” andother mandatory financial reporting requirements and statutory requirements in Australia so as to present a viewwhich is consistent with our understanding of the consolidated entity’s financial position, and performance as
represented by the results of its operations and its cash flows and in order for the Company to lodge the financial
report with the Australian Securities and Investments Commission.
Our review has been conducted in accordance with Australian Auditing Standards applicable to review engagements.
A review is limited primarily to inquiries of Company personnel and analytical procedures applied to the financial data.
Our review has not involved a study and evaluation of internal accounting controls, tests of accounting records or
tests of responses to inquiries by obtaining corroborative evidence from inspection, observation or confirmation. The
procedures do not provide all the evidence that would be required in an audit, thus the level of assurance is less thangiven in an audit. We have not performed an audit and, accordingly, we do not express an audit opinion.
Statement

Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that thehalf-year financial report of Australia and New Zealand Banking Group Limited is not in accordance with:
(a)

(b)

the Corporations Act 2001, including:(i)giving a true and fair view of the consolidated entity’s financial position as at 31 March 2005 and of its
performance for the half-year ended on that date; and(ii)

complying with Australian Accounting Standard AASB 1029 “Interim Financial Reporting” and the
Corporations Regulations 2001; andother mandatory professional reporting requirements in Australia.

KPMG
Melbourne

Mitch Craig
Partner

26 April 2005

Lead Auditor’s independence declaration under section 307C of the Corporations Act 2001 (as amended)

I declare that, to the best of my knowledge and belief, in relation to the review for the half year ended 31 March 2005
there have been:(a)no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 (asamended) in relation to the review; and(b)no contraventions of any applicable code of professional conduct in relation to the review.

Mitch Craig
Partner
Melbourne
26 April 2005

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DEFINITIONS
Adjusted common equity is Tier 1 capital less preference shares and other Hybrid Capital at current rates andregulatory deductions from total capital.
Business Unit description:
Personal Banking Australia-

Banking Products manufactures deposit, transaction account and margin lending products.

-

Consumer Finance provides consumer and commercial credit cards, ePayment products, personal loans, andmerchant payment and ATM facilities.

-

Mortgages provides mortgage finance secured by residential real estate in Australia.

-

Regional Commercial and Agribusiness provides a full range of banking services to personal customers acrossAustralia, and to small business and agricultural customers in rural Australia.

-

Other includes the branch network, whose costs are fully recovered from product business units, Private Banking,
Financial Planning and support costs

Institutional-

Corporate and Structured Financing provides complex financing and advisory services, structured financial
products, leasing, private equity, project and leveraged finance and infrastructure investment to ANZ’s
Institutional, Corporate and Small Business customers.

-

Institutional Banking manages customer relationships and develops financial services solutions and strategies
for large businesses with a turnover greater than $100 million in Australia and New Zealand and, throughcorporate clients where the Group has an existing customer relationship, in the United Kingdom, United States and
Asia.

-

Markets provides origination, underwriting, structuring, risk management, advice and sale of credit and derivative
products, foreign exchange and commodity trading and sales-related services globally.

-

Trade and Transaction Services provides cash management, trade finance, international payments, clearing
and custodian services principally to institutional and corporate customers.

New Zealand Businesses-

ANZ Retail operating under the ANZ brand in New Zealand, provides a full range of banking service to personaland business banking customers.

-

NBNZ Retail operating under the National Bank brand in New Zealand, provides a full range of banking services
to personal customers from youth through to private banking, and business banking customers with turnover up to
NZD5 million.

-

Corporate Banking in New Zealand incorporates the ANZ and NBNZ brands, and provides financial solutions
through a relationship management model for medium-sized businesses with a turnover of NZD2 million to
NZD100 million.

-

Rural Banking in New Zealand provides a full range of banking services to rural and agribusiness customers.

-

NBNZ refers to the operations of the National Bank of New Zealand Limited purchased on 1 December 2003.
These operations were amalgamated with ANZ Banking Group (New Zealand) Limited on 26 June 2004 to form
ANZ National Bank Limited. NBNZ was reported as a separate business unit until 30 September 2004.

Corporate Australia-

Business Banking in Australia provides a full range of banking services to metropolitan-based small to medium
businesses, with turnover up to $10 million and business banking funds under management of more than $50,000.

-

Corporate Banking Australia manages customer relationships and develops financial solutions for medium-sizedbusinesses with a turnover of $10 million to $150 million.

-

Small Business Banking in Australia provides business banking services to metropolitan-based small businesses,with business banking funds under management of up to $50,000.

Group Centre-

Treasury is the banker to all ANZ businesses charged with providing cashflow support, ensuring liquidity,
managing interest rate risk and providing capital to the businesses.

Economic loss provisioning (ELP) charge is determined based on the expected average annual loss of principal
over the economic cycle for the current risk profile of the lending portfolio.
Equity standardisation Economic Value Added (EVATM) principles are in use throughout the Group, whereby risk
adjusted capital is allocated and charged against business units. Equity standardised profit is determined byeliminating the impact of earnings on each business unit’s book capital and attributing earnings on the business unit’s
risk adjusted capital. This enhances comparability of business unit performance. Geographic results are not equity
standardised.

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DEFINITIONS (continued)
Impaired assets are loans or other credit facilities where there is reasonable doubt about the collectability ofinterest, fees (past and future) or principal outstanding, or where concessional terms have been provided because of
the financial difficulties of the customer.
Income includes external interest income, other external operating income, and if positive, net inter business unit fee
and net intersegment interest income.
Liquid assets are cash and cash equivalent assets. Cash equivalent assets are highly liquid investments with shortperiods to maturity, are readily convertible to cash at ANZ’s option and are subject to an insignificant risk of changes
in value.
Net advances include gross loans and advances and acceptances less income yet to mature and provisions (for bothas at and average volumes).
Net interest average margin is net interest income as a percentage of average interest earning assets.
Non-assessable interest income is grossed up to the equivalent before tax amount for the purpose of thesecalculations.
Net interest spread is the average interest rate received on interest earning assets less the average interest rate
paid on interest bearing liabilities. Non-assessable interest income is grossed up to the equivalent before tax amountfor the purpose of these calculations.
Net non-interest bearing items, referred to in the analysis of interest spread and net interest average margin,
includes shareholders’ equity, provisions for doubtful debts, and deposits not bearing interest and other liabilities notbearing interest, offset by premises and equipment and other non-interest earning assets. Non-accrual loans areincluded within interest bearing loans, advances and bills discounted.
Net specific provision is the transfer from the general provision to the specific provision (representing new andincreased specific provisions less specific provision releases) less recoveries.
Operating expenses exclude charge for doubtful debts
Overseas Markets includes all operations outside of Australia and New Zealand. The Group’s geographic segments
are Australia, New Zealand and Overseas Markets.
Service Transfer Pricing is used to allocate services that are provided by central areas to each of its business units.
The objective of service transfer pricing is to remove cross-subsidies between business units, and ensure eachbusiness accounts for the costs of the services it uses. Transfer pricing arrangements are reviewed periodically. The
basis of pricing for internal services varies from cost recovery, to market equivalent. Changes in transfer pricing
arrangements in current periods are, to the extent possible, reflected in prior period comparatives to assist
comparability.
The profit and loss statement of each business unit includes net inter business unit fees and net inter business unit
expenses. This treatment is consistent with the Group’s strategy of managing along specialist business lines. Net
inter business unit fees includes intra-group receipts or payments for sales commissions. A product business (forexample, Mortgages) will pay a distribution channel (for example, Personal Banking) for product sales. Both thepayment and receipt are shown as net inter business unit fees. Net inter business unit expenses consist of thecharges made to business units for the provision of support services. Examples of services provided include
technology and payments, risk management, finance and human resources management. Both payments bybusiness units and receipts by service providers are shown as net inter business unit expenses.
The results of segments may include business units and a support unit. The services provided by the support unit areallocated to the business units. As a result of this allocation, the sum of individual profit and loss line items of thebusiness units may not equal the corresponding line item in the profit and loss statement of the segment.
Return on asset ratios include net intra group assets which are risk weighted at 0% for return on risk weighted
assets calculations.
Revenue in business segments includes equity standardised net interest, other operating income and net interbusiness unit fees.
Total advances include gross loans and advances and acceptances less income yet to mature (for both as at andaverage volumes).
Unproductive facilities comprise facilities (such as standby letters of credit, bill endorsements, documentary lettersof credit, guarantees to third parties, undrawn facilities to which the Group is irrevocably committed and market
related exposures) where the customer status is non-accrual.

96

ALPHABETICAL INDEX
PAGE
Accounting policies ..................................................................................................................................................62
Associates, joint venture entities and investments.......................................................................................................90
Auditors’ Review Report and Independence Declaration ...............................................................................................94
Average balance sheet and related interest ................................................................................................................78
Business Performance Review ...................................................................................................................................33
Capital adequacy.....................................................................................................................................................76
Changes in the composition of the Group ...................................................................................................................90
Contingent liabilities and contingent assets.................................................................................................................86
Consolidated Statement of Cash Flows .......................................................................................................................61
Consolidated Statement of Financial Performance........................................................................................................58
Consolidated Statement of Financial Position ..............................................................................................................59
Definitions..............................................................................................................................................................95
Derivative financial instruments ................................................................................................................................84
Directors’ Declaration ..............................................................................................................................................93
Directors’ Report .....................................................................................................................................................57
Dividends ...............................................................................................................................................................68
Earnings per share ..................................................................................................................................................69
Exchange rates .......................................................................................................................................................92
Financial Highlights .................................................................................................................................................. 5
Four year summary by half year ...............................................................................................................................53
Geographic Segment Performance.............................................................................................................................47
Highlights................................................................................................................................................................ 1
Impaired assets ......................................................................................................................................................71
Income ..................................................................................................................................................................65
Income tax expense ................................................................................................................................................67
Interest spreads and net interest average margins ......................................................................................................81
Loan capital............................................................................................................................................................75
Net loans and advances ...........................................................................................................................................70
Note to the Statement of Cash Flows .........................................................................................................................88
Operating expenses .................................................................................................................................................66
Provisions for doubtful debts.....................................................................................................................................74
Results Commentary ...............................................................................................................................................11
Segment analysis ....................................................................................................................................................82
Share Capital..........................................................................................................................................................75
Significant events since balance date .........................................................................................................................92
Statement of Changes in Equity ................................................................................................................................60
US GAAP reconciliation.............................................................................................................................................91

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