Record 56% profit increase built off strong fundamentals and people power banking

Bank of Queensland today announced a record profit for the 2003 financial year at the top end of analyst expectations, built on strong growth in the Bank’s fundamentals and the success of its “people power” model in retail and business banking.


Net profit after tax increased 56% for the year to $44.7 million off the back of a 54% boost in lending to $5.7 billion, a 29% jump in deposit growth to $3.8 billion and a 32% growth in assets under management to $8.7 billion.


Bank of Queensland Chairman Neil Roberts praised the record profit result and said it flowed through to direct benefits for shareholders with Earnings Per Share (EPS) growth of 46% and a final 2003 dividend to shareholders of 20 cents.


“This brings the total annual dividend for BOQ shareholders to 37 cents, up from 29 cents for the 2002 financial year, and is just reward for the strong support we have received from Bank of Queensland shareholders,” Mr Roberts said.


“The Board is very happy with the achievements of the Bank over the last 12 months, and, in particular, the fact that management has met or exceeded all the targets laid out to shareholders at last year’s Annual General Meeting,” he said.


Managing Director David Liddy said that, while the record profit was extremely gratifying, the strengthening and growth of the Bank’s fundamentals was the most important aspect of the Bank’s performance over the last 12 months.


“The growth in assets under management of more than $2 billion from $6.6 billion to $8.7 billion puts us in a powerful position for future geographical expansion, infrastructure development and product and channel growth in the coming year,” Mr Liddy said.


Total assets under management at August 31, 2003 do not include the October 8, 2003, acquisition of UFJ Finance Australia, which has total assets under management of approximately $1 billion. As of today, Bank of Queensland’s total assets under management now exceed $10 billion.


“Bank of Queensland’s growth of 23% in total income to $214.3 million has been achieved through a 22% increase in net interest income and a 26% increase in non-interest income,” Mr Liddy said.


"At last year’s Annual General Meeting we outlined a number of key goals for the 2003 financial year. They included achieving double-digit EPS growth, cutting our cost-to-income ratio to 68%, lifting ROE to 14% and expanding our branch network to 120 branches.


"We have worked very hard to do what we promised, to achieve what we set out to achieve. It is a powerful endorsement of the Bank’s strategy that we have met or exceeded all those goals, with 46% EPS growth, a cost-to-income ratio of 64.9%, a ROE of 15.4% and 120 branches open as of August 31, “ he said.


“The Bank’s cost-to-income ratio only two years ago, in 2001, was 76%, so it is a great achievement to have managed such strong growth while keeping expenses so low. Expenses grew only 12% in the last financial year compared with revenue growth of 23%, fuelled by growth in lending of 54% to $5.7 billion and growth of total loans under management over the year of 26% to $7.3 billion.


“This success in managing expenses can be directly attributed to the Bank’s Performance Enhancement Program (PEP) which has achieved benefits of $30 million, up from the announced $24 million target at the half-year results.”


Mr Liddy said the Bank had also announced two significant acquisitions in the 2003 financial year, both of which have since settled after the end of the 2003 reporting period.


“The purchases of ATM Solutions Australasia and UFJ Finance Australia have dramatically improved the Bank’s reach, both geographically through an expanded ATM network and equipment finance offices in every State, and also by supplementing the Bank’s existing ATM fleet, and equipment finance division," he said.


Mr Liddy said that, while the Bank had benefited from a strong housing market with increased lending, it was only part of the success story.


“Total retail deposits have grown 29% to $3.8 billion over the year. Continued growth in our retail deposits will be a key focus point for the Bank over the next 12 months as well.


“Both lending and deposit growth have obviously benefited from the Bank’s roll-out of 22 new branches in the financial year to August 31, 2003.


“This increased footprint, combined with the roll-out of a new ATM fleet, a positive response to our new branding and massive acceptance of our face-to-face community-focused banking model has proved a potent mix in the competitive financial services market,” Mr Liddy said.


“Bank of Queensland’s unique branch model has given it a significant advantage with a win-win on both cost and revenue. While the variable cost model allows the Bank to expand its branch network rapidly at a relatively low cost, the local manager and community focus of each new branch has been a revelation when it comes to revenue generation in local markets.


“We are more than just competing on a branch-by-branch level, we are taking marketshare from our larger opponents. Our “historic” marketshare for home loans in Queensland was between five and six per cent, but that has grown to 7.4 per cent according to the ABA, and we have written between 13 and 14 per cent of all Queensland home loans for the last six months,” he said.


“This is significant growth in our home market, particularly over such a short time.


“Bank of Queensland’s growth has resulted from genuine people power banking. It is more than just a branch-based model, it has proved extremely successful in our business banking as well where we have focused on face-to-face banking instead of call-centre client management like our larger competitors.


“Our business banking assets have grown 32% in the last 12 months to $1.8 billion while improving overall asset quality, and this has added very strongly to our bottom line. Our success in business banking mirrors our success in home lending and deposits and comes from a focus on face-to-face banking and genuine personal service,” Mr Liddy said.


“If a small bank like the Bank of Queensland can match the big banks in the provision of the “new basics” of internet banking, phone banking, modern ATMs and flexible products, and still open branches and develop a genuine customer-focused approach, it must be successful. That is why we say we want to be a big small bank, not a small big bank.


“The 2003 financial year results for the Bank of Queensland have, we believe, justified our strategy,” he said.


2003 Bank of Queensland Achievements At A Glance

Financial achievements for 2003

  • Net profit after tax up 56% to $44.7 million – doubling net profit after tax in three years ($22.2 million in the year 2000.)
  • EPS growth (fully diluted) of 46%.
  • Fully-franked dividend of 37 cents declared, an increase of 8 cents on 2001/02.
  • Cost-to-income ratio of 64.9%, well ahead of target of 68%.
  • Bad debts – impaired assets as a percentage of average total assets declined from 0.13% to 0.07%, reinforcing the Bank’s strategy of growing strongly without impairing asset quality.
  • Revenue up 23%, expenses up only 12%
  • Performance Enhancement Program – Increased benefits from $24 million to $30 million of combined cost savings and revenue improvements.
  • Retail Deposit growth of 29% to $3.8 billion over the year.
  • Increase in Business Banking loan book of 32% compared to last year.
  • Assets under management up 32% over the past year to $8.7 billion with new lending approvals up 54% to $5.7 billion and total loans under management for the year up 26% to 7.3 billion.
  • Bank of Queensland now one of Australia’s top 150 listed companies.

Operational achievements for 2003

  • Branch openings – opened 22 new branches taking the total number of branches to 120 at August 31, 2003, with a revised target of 130 by Christmas 2003.
  • Business Banking Centres - Opened new BBCs on the Gold and Sunshine Coasts, Townsville, Toowoomba and at Stones Corner, bringing the total number of Business Banking Centres to 10.
  • Launched new Business Excellence program including the $40 million Core System Migration project, replacing the Bank’s computer engine room.
  • Launched major staff training programs for Financial Services Reform Act, Core System Migration, Trade Practices Act and Code of Banking Practice.
  • Rolled-out fleet of 120 new ATMs in the branch ATM fleet replacement program.
  • Announced acquisition of UFJ Finance Australia Limited, a national equipment leasing company.
  • Announced acquisition of ATM Solutions Australasia Limited, the second largest third-party ATM deployer in Australia with more than 1000 ATM machines nationally.
  • Completed refit and re-branding of branch and ATM network.
  • Launched new products including BPay Biller, Reds Visa Card, and Amex Business Card.
  • Upgraded and enhanced Sunshine Rewards Credit Card program.