David Gonski, AC

I am pleased to introduce our first Annual Review, which brings together reporting on our financial performance as well as a broader story about the benefits we bring to our stakeholders and the wider community.

This reflects our first steps towards comprehensively describing how our strategy creates value, and the challenges and opportunities we face in the short, medium and longer term. In 2017 ANZ produced good results for shareholders, our customers and the communities in which we operate.

Financial Outcomes

Our statutory profit was $6.4 billion, up 12%. Cash profit (which excludes non-core items from statutory profit) was $6.9 billion, up 18%. The final dividend of 80 cents per share brought the total dividend for the year to 160 cents per share fully franked, unchanged compared to 2016. This reflects a dividend payout ratio of 68% of cash profit with $4.6 billion in dividends paid to shareholders, moving ANZ closer to our target fully franked payout ratio of 60-65% of cash profit.

Rapid economic, technological and social changes are a hallmark of the world we live in. As one of the region’s major banks, we have a clear strategy, which is being supported by bold action, to make sure ANZ is fit and ready for this future.

In 2017 we made good progress to becoming a better balanced, better capitalised and more efficient bank. This has seen the new shape of ANZ emerge. Our retail and commercial businesses in Australia and New Zealand now account for 53% of our capital, up from 44% at the end of 2015. Our Common Equity Tier One capital ratio reached 10.6% at the end of the year and our cost base has reduced in absolute terms with annual costs down for the first time since 1999.

Community Engagement

Banks are facing significant challenges to re-establish the trust of the community. We need to own up to our mistakes and swiftly make things right. We have been slower than the community expects to be more transparent, to listen and to treat our customers fairly and responsibly.

What is particularly pleasing about 2017 is we have not only delivered better outcomes for shareholders, we are also making genuine progress in delivering better outcomes for customers and in rebuilding community trust.

This has been supported by the establishment of the Responsible Business Committee, led by the Chief Executive Shayne Elliott, and the revision of the charter for the Environment, Sustainability and Governance Board Committee (ESG). The aim of both Committees is to advance ANZ’s core purpose and increase focus on ESG issues.

We have committed to support the Australian Bankers’ Association Better Banking initiatives and to implementing the 21 recommendations from Stephen Sedgwick’s independent review of product sales commissions and product-based payments in Australian retail banking. The Board and the CEO are overseeing the implementation of the recommendations, with management providing regular program updates to the Board Human Resources Committee.

All recommendations are expected to be met within intended timeframes, with progress this year including; Branch and Contact Centre staff incentive plans being changed to balanced scorecard plans, creating a strong alignment between performance management and incentive rewards. All roles in the scope of the Sedgwick review are on track to have the financial objective weighting in scorecards at less than 33% for FY18 and staff recognition programs that were focused on recognising and rewarding sales outcomes have also been changed or closed. We are also working actively with the industry as part of the Combined Industry Forum in relation to responding to the Sedgwick recommendations for third parties and ASIC’s proposals for mortgage broking.

We have also delivered a range of initiatives for customers to make banking fairer and simpler. For example, in Australia we have introduced a lower interest rate credit card and removed ATM fees. We still have much to do to rebuild community trust, however we know we need to change and we are changing.

Outlook

We expect the revenue growth environment for banking will continue to be constrained as a result of intense competition and the effect of regulation, including the full impact of the major bank levy in Australia.

This environment is not new to us and our strategy is ensuring we focus only on those areas where we can deliver exceptional customer outcomes, solve real customer needs and, in doing so, make a decent return for our shareholders.

As a result, ANZ’s capital position has improved significantly and we already meet APRA’s ‘unquestionably strong’ 2020 capital target. In 2018, as we receive the proceeds from the already announced divestment of non-core businesses, we will have the flexibility to consider capital management initiatives.

As we continue to deliver the benefits of our strategy, we are well positioned to create value for our shareholders, customers, employees and the community in 2018 and beyond.

The Board is pleased with what has been achieved in 2017 and takes this opportunity to thank all of the employees of ANZ for their hard work and dedication.

David Gonski's Signature

David Gonski, AC
Chairman

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