Bank of Queensland today announced a record headline profit after tax of $129.8 million for the 2006/07 financial year, an increase of 40% on last year, and breaking the $100 million profit mark for the first time.
Included in this record result is a one-off after-tax profit of $29.1 million on the sale of BOQ’s credit card portfolio to Citigroup Pty Ltd this year.
Normalised cash Net Profit After Tax was $106.1 million, an increase of 22% on last year which flowed through to growth in normalised cash diluted Earnings Per Share of 17%.
The result, at the upper end of analyst forecasts, comes on the back of growth in loans under management of 27% and retail deposits of 33% compared to last year.
“Our success is based on giving customers what they want – good customer service combined with great access and product range,” BOQ Managing Director David Liddy said today.
“Bank of Queensland has exceeded its expected growth over the year and is setting a market-leading benchmark in lending and deposit growth which puts it in a very strong position in these volatile times,” Mr Liddy said.
Bank of Queensland’s Board also announced an ordinary dividend for the second half of FY2007 of 37 cents per share, up from 32 cents in the first half, bringing the full year dividend to 69 cents per share, an increase of 12 cents per share or 21% on last year.
Key indicators for the 2006/07 year include:
- Loans Under Management growth of 27% (1.7 times the banking system);
- Housing lending growth of 31% (2.5 times system);
- Deposit growth of 33% (3.7 times system);
- Diluted Earnings Per Share (cash normalised) growth of 17%;
- Improvement in the cost-to-income ratio from 64.5% to 62.6%; and,
- Maintenance of high credit quality.
“To produce record earnings while achieving market-leading business growth, coupled with a reduction in our cost-to-income ratio has been particularly satisfying,” Mr Liddy said.
“Bank of Queensland’s powerful organic growth, combined with key mergers with retail-funded, customer-friendly financial institutions like Pioneer Building Society, and Home and Mackay Building Societies in the coming year, place us in a very good position for the future.
“With the current international financial market instability and issues around funding availability Bank of Queensland is well-placed with our growth in deposits through the continued expansion of our retail network and key mergers,” he said.
“The Bank's strategy has always been to maintain diverse funding sources through securitisation and wholesale funding in both domestic and offshore markets.”
The single most significant funding source for the Bank remains the domestic retail market. BOQ currently maintains a liquidity ratio in excess of 12.5% and the Bank's liquid asset portfolio is of a very high grade with 85% of total liquidity held in cash or in securities eligible for repurchase agreements with the RBA.
“BOQ remains well placed in managing the global liquidity crunch,” Mr Liddy said.
BOQ also announced today a Hybrid Capital issue of approximately $150m, which will be underwritten, with the ability to accept oversubscriptions. The form of the capital raising is a perpetual non-cumulative preference share paying fully franked dividends and would be issued via a prospectus expected to be lodged in the next few weeks. Existing BOQ shareholders and holders of existing S1RPS and RePS will be given priority in allocation in the issue which is designed to be included in the Bank's capital ratio as Non-innovative Tier 1 Capital.
“This capital raising is to fund our strong future growth and meet requirements around changes in regulatory rules,” Mr Liddy said.
BOQ’s strategy of opening new branches, converting corporate branches and expanding its business banking capability will continue to drive performance.
“We have now converted a total of 18 Queensland BOQ branches from corporate branches to franchised Owner-Managed Branches (OMBs), as well as one former Pioneer branch, and we are seeing a significant increase in performance from these branches,” Mr Liddy said. "In addition we have opened 11 new Owner-Managed branches and one corporate branch during the year."
BOQ’s network is growing, with:
- 237 full-service branches, of which 187 are franchised OMBs (as of today);
- 15 successful conversions of corporate branches to OMBs in FY2007; and,
- 16 business banking centres and 11 equipment finance centres.
“We are targeting 12 new Owner-Managed Branches to open in FY2008 including OMBs in all Australian states and Territories and will continue with the conversion of Queensland corporate branches to OMBs,” Mr Liddy said.
Mr Liddy said business banking, particularly in the equipment finance, debtor finance and SME sectors, had continued to outperform the market.
“We have had 26% growth in the business loans portfolio compared to last year. Our growth has been exceptional in the key SME-focused areas of equipment and debtor finance. Our equipment finance business achieved more than $1 billion in settlements for the year.”
BOQ completed the purchase of the Pioneer Permanent Building Society during the financial year with full integration over to the BOQ platform expected by the end of November.
Shareholders in both Mackay Permanent Building Society and Home Building Society will vote in November on their mergers with Bank of Queensland.
Mr Liddy said the addition of Pioneer along with Home and Mackay, if the scheme votes are successful, will dramatically increase Bank of Queensland’s scale, reach and customer base.
“Importantly, it will give us a significant footprint in the two fastest growing states in Australia – Queensland and Western Australia,” he said. “The merger with Home, our largest, will bring 29 new branches to our network and, combined with the five BOQ branches in W.A., give us a great springboard for further growth in that state.
“This Home merger will, in particular, change the dynamic of BOQ’s national network, bringing our network to almost 300 by the end of 2008 and giving us considerable competitive strength in key markets across the country.”
Queensland 2007 Full Year Result Snapshot
Change on 2006 (pcp)
Headline NPAT (Statutory Profit)
Net Profit After Tax (normalised cash)
Loans Under Management
Assets Under Management
Cost to Income Ratio (normalised cash)
Diluted Earnings Per Share (normalised cash)
Dividend per Share
* Decrease due to sale of credit card portfolio.
Statutory Profit up 40% to $129.8 million: Includes one-off revenue from the sale of the Bank’s credit card portfolio and costs associated with the Pioneer Permanent Building Society merger and the formerly proposed Bendigo Bank merger.
Normalised cash Net Profit After Tax up 22%: NPAT of $106.1 million continues strong growth in profit over the last five years and breaks the key $100m mark for the first time.
Interest Margin on track: The Bank’s margin has decreased only 2 basis points to 1.81% in an extremely volatile and competitive market.
Cost-to-income reduced: Reduction of 1.9 basis points in a year of significant growth is a major achievement.
Asset quality still strong: Impaired assets to non-securitised lending rises only 0.02% to 0.09%.
Mergers: Market-building mergers with Pioneer, and those proposed with Mackay and Home building societies will further strengthen BOQ’s growing retail branch network and build our retail deposit base.
Credit Card portfolio outsourcing: Bank of Queensland’s outsourcing of its credit card business to Citigroup netted the Bank an after-tax profit of $29.1 million and will allow BOQ to expand its offering to customers through new BOQ-branded cards and products, better processing and more efficient manufacture.
Owner-Managed Branch growth: BOQ opened 11 new OMBs and one corporate branch and converted 15 Queensland corporate branches to OMBs during the year, not including the 25 branches and agencies acquired through the Pioneer merger.
Shareholder value increases: Market cap reaching approximately $2.1 billion (at close of trade August 31, 2007) and Total Shareholder Return (TSR) of 25% (5 year average).