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Westpac Banking Corporation (NYSE:WBK)

Australian Financial Services Divisional Update Conference

March 25, 2013 7:00 pm ET

Executives

Gail Patricia Kelly - Chief Executive Officer, Managing Director, Executive Director and Member of Technology Committee

Brian C. Hartzer - Chief Executive Officer of Australian Financial Services

Dirk McLeish

Rachel Slade

Jason Yetton - Group Executive of Westpac Retail & Business Banking

Bradley John Cooper - Chief Executive Officer of BT Financial Group

George Frazis - Chief Executive Officer of St.George Banking Group

Andrew Bowden - Head of Investor Relations

David Lindberg

Gary Thursby

Analysts

Michael Wiblin - Macquarie Research

Craig Williams - Citigroup Inc, Research Division

Victor German - Nomura Securities Co. Ltd., Research Division

Jonathan Mott - UBS Investment Bank, Research Division

Jarrod Martin - Crédit Suisse AG, Research Division

Brian D. Johnson - CLSA Asia-Pacific Markets, Research Division

Richard E. Wiles - Morgan Stanley, Research Division

Andrew Lyons - Goldman Sachs Group Inc., Research Division

James Wang - Deutsche Bank AG, Research Division

Gail Patricia Kelly

Good morning, everyone. Good morning, good morning. Well, thank you all very much for joining us this morning, those of you that are here in person and those of you that are connecting in via the webcast or the telephone. Thank you for joining us on our inaugural Australian Financial Services strategy presentation, which, of course, is going to be led by the CEO of the division, Brian Hartzer, and by his team.

Largely, it goes back to mid-2011 where I started to give some thought to creating a new organizational model. At that point, as you'll recall, I had Westpac Retail & Business Bank reporting to me, I had St.George reporting to me, BT reporting to me and the product and operations area, run by Peter Clare, reporting to me. And it seemed to me that the time had come to look for enhanced coordination from across the businesses that they had, for prioritized decision-making, for optimized performance management and indeed, optimized portfolio management across those businesses. Essentially, what I was looking to do is to get after the synergies that are possible, the revenue synergies between and across business units, but also the efficiencies that were possible between and across those business units.

So then in November 2011, I actually announced this new organizational model, which was a creation of our Australian Financial Services division and, of course, our Group Services division as well. And in that construct, brought together Westpac Retail & Business Banking, St.George, BT, retail products and marketing, and then appointed Brian Hartzer to the important role of CEO of this division, and as you know, really handpicked Brian for that important role.

So here we are now some 16 months down the track. And I have to say that I'm really very happy that we're getting after those synergies, that we are beginning to evidence that the whole is greater than the sum of the parts. And I think what you're going to hear today is firstly, the strength of the position that we have. Secondly, you're going to see, hopefully, in person the strength of the team that we have, how stable this team is that we have, and most importantly of all, the opportunities that [indiscernible] lie in front of us to actually harness and optimize our performance further.

So with that, I'm going to hand over to Brian, and Brian is going to take charge of the presentation from here on, and no doubt, introduce you to his team as well. So thanks very much again for coming.

Brian C. Hartzer

Thank you, Gail. Good morning, everybody. It's great to be here, and thank you all for coming. I am very excited to be here, and it's great to be able to share with you where we're up to on the AFS journey.

Now I've been here for a little over 6 months, and so we felt that it was time to give the market an update on how the strategy is going and where we see the opportunities. I think the first thing to say, though, is we are not announcing a new strategy for AFS today. The strategy is actually really pretty well understood. What we wanted to do was use this time to give you an update on the momentum that we've got in that strategy, how we're seeing things play out, and try to bring it to life for you in a way so that you can see that this is a very strong business, a very strong franchise, as Gail said, and we do have good momentum.

Now I thought it was useful to give you a sense of how I'm seeing the business overall and some of the themes that we're bringing into the business, but also to try to bring this to life for you through case studies. And if you think about the components of AFS, Westpac RBB, BT, the St.George group, these are all really big businesses in their own right. And so rather than try to go through the details and the strategies of each of those businesses, we wanted to try to talk about the overall themes that are binding AFS together and illustrate those, and have some of our key team members talk you through case studies that illustrate those themes and how we're actually delivering on them.

Now the way that the day's going to run is I'm going to present an overall picture of AFS over the next 20, 30 minutes. I'll then ask a series of my executives to take you through some of these case studies, and then we'll finish up with a panel session, where the rest of the execs can get involved. And we'll open it up for Q&A. And hopefully, we'll be -- have you out of here in about 90 minutes. So that's the plan.

So first let me give you a sense of the overall picture. I'm really pleased with the quality of the franchise that I've inherited here. I'm really pleased with the quality of the team. I think we've got good momentum. We've got a good focus on delivery. We've got a plan for how we're going to execute on the opportunities that we see. And one of the things I thought I'd start with is, over the last couple of years, I've learned quite a lot about what it takes to be successful in retail and commercial banking, and a lot of that really comes down to the basics. You could argue that most of the banks are trying to do broadly the same things. We're trying to grow our share of transactional business. We're trying to deepen our relationships with customers. We're trying to retain the best customers that we've got, make sure they stay with us. We're trying to deliver good service quality to underpin all of that. And of course, we need to be very professional in how we manage our margins, how we manage our risk, how we manage our cost to serve. And I think when you look at the AFS business across the portfolio, we stack up really well on each of those dimensions, both in terms of how we're doing but also in the opportunities that still lie in front of us within each of those dimensions as well.

So let me give you a sense of the summary of our business. It's a very strong franchise. I think we've got a track record of performing well. I'm very excited about the position that we have in various product areas and various geographies. I think that the suite of complementary brands that I've inherited gives us an opportunity for growth that not all of our competitors have, and we'll talk a little bit about how we see that working. We're beginning to deliver good productivity improvements across the business, and we'll talk a bit about how we're doing that. And we're investing to benefit from some of the structural changes that we see flowing through the economy, which means that we're in line with the group strategy, putting ourselves in front of some of the areas that we think are going to deliver very solid growth. And that's quite important, because one of the underlying themes we want you to take out of this discussion is our recognition that the overall Westpac Group strategy is dependent on the success of the AFS strategy. And so we were very conscious of making sure there's a total alignment between what we're trying to do in the group priorities and making sure that we're delivering both within our own priorities, but also, and more importantly, to the group priorities as well, because this is a big part of the group, as you know.

Now before I get into talking about our performance and strategies, I want introduce my team. And it's, for me, not a small element of what I've inherited, that I've got, I think, a terrific team. And I'll go as far as to say, I think this is by far the strongest team in the market and certainly the team that I'm happy to go on to the playing field with. I'll just ask them to stand up and introduce themselves. Starting on my left, Brad Cooper, who runs BT; we've got Jason Yetton, who runs Westpac RBB; Ross Miller is the Head of HR; we've got Gary Thursby, who's the CFO; got Dirk McLeish, who's just -- have you started yet, Dirk?

Dirk McLeish

Yes.

Brian C. Hartzer

Dirk's just moving in as Head of Risk within AFS; George Frazis, you all know, runs the St.George group; we've got Rachel Slade, who's running our business improvement areas and the productivity agenda; David Lindberg has recently joined us in charge of Products and now Digital; Melanie Evans is the Chief of Staff; and John keeps me on track, and John Harries has also joined us not that long ago to look after marketing and customer service.

It's a very strong team. I did the math last night. If you add up the number of years of experience in this business, it's over 200 -- I think it's over 225 years of relevant financial services experience in this team. That means we've got people who've been through a variety of cycles. It means that we've got a balanced view on some of the things that come and go in our market. It means we know how to deal with some of the issues that can arise in difficulty, but also that we have a bunch of people who have a really good sense of the levers of performance of the business. And I certainly believe that retail and commercial banking are businesses where you kind of need to know what you're doing. And it really -- it certainly fills me with a lot of confidence, to have a bunch of people who know their space, know what they're doing. And as we -- as the team goes through our business opportunities in more detail, we're just -- it seems like every day we're finding new things that we can do better, that we're excited about, so that's quite good.

Now in addition to inheriting a good team, we've inherited, I think, a really good franchise. And now you guys know the franchise pretty well, so I don't want to go through the details of it. Just want to draw out a couple of aspects of our franchise that have been quite formative for me and my thinking about the strategy for the business.

First of all, we've got a strong starting position in the key product areas, but we are below our natural share in a couple of areas. I think, we feel, relative to our share mortgages, we've got room to grow on household deposits. On business credit, we're below where we think we could be naturally, given our share of the customer base. And in particular in SME, we see that as a big opportunity, which George will talk about a bit later on this morning.

The second thing I wanted to point out is, on the top right-hand side of the slide, you can see our share in the 2 biggest states, New South Wales and Victoria. It's easy to forget how important in the scheme of things New South Wales and Victoria are in the Australian market, and we've got very strong market positions both in housing and in deposits, particularly in New South Wales, and also a strong position in Victoria. Although, as you can see on the deposit side, we think we're underweight on deposits in Victoria, and we'll talk about what we're doing about that a bit later.

And then finally, just drawing out the momentum we have on wealth penetration. If you look at our brands, Westpac RBB is by far the strongest performer on wealth penetration in the market. And St.George is, I think it's right to say, the fastest-growing in that as well. So we've got real momentum on wealth penetration, which is not easy to do. And we know all the banks have been talking about this for a long time. We think we've got this reasonably well figured out, and yet there's still a long way to go, because when you look at that penetration, there's still a number of product categories where we've got real opportunities. And so we're really excited about that momentum and about the opportunity that's still there in front of us.

So if you combine the strong team and a strong franchise, all things going well, you should have strong results. And I think -- although, of course, our half-year results are coming in the beginning of May, so I won't be talking about that in any detail. If you look at our annual results, you can see strong cash earnings growth, good momentum on the balance sheet, and also those results represented the fact that we've been managing our margins very carefully and really trying to have a balanced approach to managing growth, margin, cost to deliver good, solid ongoing earnings. We've had good improvements on some of the areas we've prioritized, particularly on deposit funding, and I'll come back to that theme a little later.

And the other thing that's worth pointing out is the progress we're making on our stressed asset book, and the quality -- the credit quality of this business is certainly something that I think is well understood in the market. And something which attracted me to the Westpac Group is that this is a bank that really takes credit quality seriously, and has been working very assiduously to drive down stressed assets. And you can see that we've now got stressed assets down below where they were in 2009. Over $1.2 billion in stressed assets have been run off during that period, and the trends on delinquencies continue to look pretty good.

So that's, in a nutshell, how we've been performing. Where to from here? And the way we thought we'd talk about this was this notion of balance that Gail and Phil have talked about at a group level, but we really think about trying to deliver strong long-term results. And as a team, we believe, and we'll talk about why we believe this as we go, that we can deliver sector-leading performance in this business, keep that level of performance going. And we'll do that by balancing the need for growth with the need for return, continue to focus on productivity, but not at the expense of the strength of our business.

So we think about growth, it's -- we feel we've got a good, clear understanding where the opportunities are. And importantly, we've got the disciplines that we need to actually execute against those opportunities.

On the return side, we had at the full year a return on tangible equity of around 23%. It's a very solid return, and we're conscious that, that return is an important part of the overall group average. And so given the group's objective for 15% as a line in the sand, I think is the phrase that's been drummed into us, then we're clear that AFS, from an ROE point of view, ROTE point of view, needs to be dragging that up, needs to be contributing. And so we're balancing that very carefully.

Productivity we think is something that, clearly having the lowest cost to income ratio of any of the big banks, it's a strength for the group. We think there are, however, still a number of productivity opportunities ahead of us in the AFS businesses, and Rachel in particular will talk about how we're thinking about that a bit later. But suffice it to say that we think the focus on simplicity is really the key to unlocking that. We've already got some good evidence that, that's going to payoff for us.

And finally on strength, we don't want to achieve return or growth at the expense of strength. We've made some conscious choices to prioritize our balance sheet, particularly on funding but also on credit quality. And so the challenge that we have as a management team is to continue to balance these 4 things to deliver those strong overall returns, and that's what we believe we're going to do.

Now Gail touched on this in her introduction. And in terms of moving from what we want to do to the how we're going to do it, I wanted to say that, for me, I approach all these problems starting with shareholder value and how we're actually going to create long-term sustainable shareholder value out of the business. And so applying that lens to this role in AFS, the challenge becomes, well, how do we make the value, as Gail put it, how do we make the value of AFS greater than the sum of its parts? And so we spent a lot of time over the last 6 months thinking about that aspect. How do we make sure the individual businesses are performing well, that make sure, that collectively, they perform even better? And we've essentially landed on 3 areas where we are seeing benefits come through. And I just thought I'd give you a sense of that. You can read it in more detail on the slide.

But essentially, there's 3 areas here, are about, number one, driving performance. And I would highlight in particular the ability to compare and contrast performance within our businesses, across our brands, across like functions in the same geographies. So what we're doing is things like imposing very consistent measurement across the brands that allows us to identify where a performance issue is actually a performance issue and where it's, say, a geographic or an opportunity issue. And that's something that, having the approach we've got with the multiple brands allows us to do, that is harder to do if you haven't got that approach.

In addition, we've got just, across the board, various things where we probably haven't focused the same level of execution disciplines that we would have liked. So I'll just pick the area of, say, consumer finance. Personal loans and credit cards is an area where we've done reasonably well and have lately been doing quite well, particularly in St.George. But as we get fresh eyes on the business, we see things that we know we can tweak, we know we can execute a bit better, that are going to give us lifts in performance.

The second area here is what we're calling optimizing the portfolio. And the way I would say this in English is that it's about thinking about our business as a series of investments. And we have a series of constraints in terms of the quality of talent that we've got, how many people we can devote to things, our appetite for expense growth, our appetite for capital. And so by analyzing our business as a suite of portfolio investments in a way, we can begin to tilt our resources to those things which are going to generate better long-term sustainable returns. And so whether it's looking at our credit portfolio, looking at our capital usage, looking at our discretionary investment spending, we're being a lot more thoughtful about how we make those allocation decisions across our portfolio of businesses.

And the final area is capturing synergies. Now you would obviously think here about economies of scale, and there are certainly examples of that. And we'll hear a bit later about some of the benefits we've gotten out of call center consolidation as an example of that. But there's more to this as well, and it's what I'm calling economies of scale, I think is one of the exciting ones, where one of the realities of the Australian market, and I think this is something that's different here than some of the other markets that I'm familiar with, is that the talent pool for really skilled people in particular disciplines is kind of limited. And so the people who've got real skills want to work in an area where they're going to be able to deploy those skills and, frankly, have a lot of fun doing what it is they like to do. And so by having our mix of businesses, our mix of brands, we're actually able to create critical mass, so that high-quality people want to come and work here because they see lots of opportunities to do things better. So we can invest in things like customer databases, in credit analysis, in some of our consumer finance activities, in wealth management, in some of the specialty areas there. We're able to invest on an AFS level in things, which perhaps those individual businesses wouldn't be able to do on their own. And so we're beginning to see real momentum as we drive consistency in approach, particularly on the use of customer information across our businesses.

So that's a general sense of the role of AFS. What I want to do now is turn to the strategic agenda. And this should be reasonably familiar to you all because it mirrors the group agenda. And we've essentially said there are 5 themes, 5 elements of our strategy that we're pursuing. And the first of these is the continuing to strengthen our balance sheet, and I'll go through each of these in a bit of detail. We then, are focusing on taking advantage of high-growth segments and geographies and then growing what we call MyBank relationships, which is -- which actually I'll explain in a minute as well. And then the productivity focuses around simplification and digital enablement of our business, which we think has a lot of opportunity. And then the one team approach, as we call it internally. And this is about the culture of collaboration, which we think is actually really important to our ability to execute well and deliver, and we want to try to bring that to life for you a bit as well.

Now let me start with strengthening the balance sheet. And here, I guess, my reflection would be that if there's one lesson out of the GFC, it's that balance sheet strength is really important. Let's -- so we want to continue to strengthen our balance sheet. It's a very conscious deliberate choice, and that has 3 elements to it. First of all, it's about continuing to grow our deposits ahead of market. Deposit funding, we think, is really important. It's important to just ensuring that you can deal with whatever the financial markets might throw at you. It's also important from a standpoint of a sustainable franchise, because we certainly believe that a strong transaction and deposit-based franchise is the key to long-term sustainable relationships. And so that will continue to be an important focus for us.

On the credit side, we've already talked about how we have strong credit disciplines. And we're continuing to invest in this, training our people up, making sure that we're getting our analytical capability as strong as it can be, to understand where potential downside risks are. But it's also about managing the numerator as well and making sure that we're taking on good risks where we can find it, to drive up the overall returns.

And then finally, it's about this focus on return on equity and capital usage and just being much more surgical, much more disciplined about understanding where capital is being used, where we're getting returns, thinking at a customer level about the overall returns that we're getting, investing in our customer profitability, infrastructure, so that we can really understand the trade-offs that we're making on pricing individual deals and pricing customers. So strengthening the balance sheet is just the fundamental starting point, I think, for running a good bank in the long term and that will stay a focus.

On the growth side, we all know and we've talked about a lot before about the structural changes affecting the economy. We think that's creating a lot of pressures and opportunities for our customer base. And what we're trying to do is, say, how do we make sure we get in front of those changes so that we can help customers through that, both to defend themselves if it threatens their business model, and also to help them grow where opportunities emerge? And we think off the back of that, that should allow us to grow disproportionately. And I'll just call out 3 particular examples of things that we're focusing on right now. The first is what we call our Tier 1 industries. And these are things like agri, mining and health services. And what we're trying to do there is understand how economic change, structural change, regulatory change is affecting the dynamics of those businesses, making sure that our relationship management force is skilled up in having those conversations, and that they can really work with customers to help them through this. And we're tilting our relationship management and calling force capabilities in that direction.

The second one is what we call Prime of Life. And we have lots of internal debates about what the definition is of Prime of Life. It usually depends on how old you are as to what your perspective on this definition is. But the definition that we've chosen for political correctness, for this audience, is that it's people over the age of 45. And basically, what this is recognizing is that there is a massive demographic wave beginning to flow through the economy. And you're going to have people who have been focusing on asset accumulation beginning to actually confront the reality of looming retirement. And that's going to affect how they spend their money, where they want to live, how they invest, how they think about insurance, how they think about their estate planning, lots of different aspects. And we think we're very well positioned to help with that, particularly because of the strength we have in BT, in superannuation and investment products, and in private banking and financial planning. And so we're really working through both the wealth side and the banking side to make sure that we capture that opportunity as that customer base goes through that change.

The third area that we'll call out today, and as I said before George will spend more time on this, is SME. As we've analyzed the business, we've realized that we are well below our natural share in SME within the St.George group. We have a strong position in Westpac, but we can do more. We haven't been promoting it as much in terms of customer acquisitions, so that will be a focus in Westpac. But particularly in the St.George brand, we have an enormous number of SME customers walking through our doors every day. And yet, we're not converting that into a relationship. And the research tells us, those customers are actually very favorably inclined to St.George as a business banking provider. So we just need, frankly, to get our act together, and George is going to talk a bit more about that.

So a couple of examples there of how, even though the overall picture for the economy might be high-growth and credit demand remains relatively low, we still think there are some good opportunities for growth if you slice and dice the opportunities a bit and get in front of them.

Okay, the third aspect of our strategy is what we describe as growing our MyBank relationship base. And just to explain what we mean by this, we've been on a journey around cross-sell and deepening relationships for quite a while. And you would have historically heard us talk about customers with 4 or more products as being a real focus.

As we've continued to look at that and think about the issue, what we're finding is we really want to move to something that's more customer-centric, that's more the way customers think about it rather than the way the bank would think about it. And so we've hit on something, which actually George led in New Zealand and is consistent with the experience that I and some of the others have had in other banks, which is this primacy of the core transaction relationship and then the rest of the product relationships around that. And so we're describing it as, and the phrase we use internally is MyBank, which, in simple terms, is we want customers, when asked, to say "Westpac is my bank. St.George is my bank. Bank of Melbourne is my bank." And so we're organizing ourselves from a staff training point of view, from a customer proposition point of view, from a target-setting point of view, around increasing the portion of our customer base who views us in that way.

Now this is, in a certain sense, an evolution of what we've already been doing. The 2 things I would point out around that are that one of the things, which is probably a little different for us, and it takes advantage of the strengths that we already have, is how we have embedded the wealth side of that as absolutely critical and equal to the banking side. So we want the banking relationship, yes, but we also want customers and our staff to be thinking holistically about the wealth side, the insurance side, superannuation as well. And so in all of our metrics, we treat those aspects of the relationship in the same way as we treat the banking product piece. So in a sense, it's a slightly higher bar and it takes a little longer for our staff and our customers to get their mind around it. But it's a terrific focusing device for us on what we're focusing on to drive these deeper and enduring relationships.

Now supporting that is a real focus on service quality, and here's an area where I think we've done a good job on the relationship side, but there's a lot more we can do on some of the basics in service. I think we are going well on this. I mean, in fact, it will be announced today at 11:30 that Westpac has won the award for having the most satisfied customers of any major bank by Cannex, so that's coming out shortly after we're done, so it's a good indication that we're on the right track. But I think if you would ask any of us privately, we all feel that there's a lot more we still have to do, particularly around the basics in service, and that's well underway.

The benefits of this, I guess, you guys are familiar with some of these sort of metrics. These are our own measures on the right. We're finding, when we get that MyBank relationship as we've defined it, we're getting retention levels that are 8x higher than a typical customer. The balances in -- for those relationships were over 5x higher; revenues, 4x higher. So there's a huge business case for focusing on this migration of customers into a thorough MyBank relationship.

Now one of the ways that I think about growth in this business is, I use a simple analogy of a really big spreadsheet. So the rows in the spreadsheet are essentially every potential customer in the country, be it consumer or business. And the columns are essentially all the financial needs that we could potentially serve. And so our job, as a business, is to fill in as many of those cells as possible, assuming you do it in a profitable way.

And so with that analogy in mind, that the brands become really important, because we know from research that there's a good chunk of the population who, for whatever reason, doesn't want to bank with a big bank. And so, if by -- I guess, our view is by having alternate brands available to us, we're able to put an offer in front of a bigger portion of the potential profit pool than we would if we were limited to just the one brand. Now the trick is to make sure that, as much as possible, those brands are complementing each other rather than just competing head-to-head with each other. And so we've had a lot of work underway for the last few months about tightening up the positioning of each of those brands so that, over time, customers are clearly attracted to one brand over another. That isn't to say there won't be a little bit of competition and a little bit of overlap between the 2. It's probably healthy if there is. But on balance net-net, we think that approach means we should be able to grow our customer base faster.

So you're seeing investments we've made, starting with the Westpac brand with the Proudly Supporting Australia tagline, and that's really been about clarifying the full service nature and the helping nature of the Westpac brand and using our heritage to demonstrate the commitment to creating Australia's future and helping our customers through that. That's resonating very, very well, and we're already seeing, even though the campaign's only a couple of months old, we're seeing big pickup in transaction account acquisition and so forth, off the back of that.

We -- also next month, we're doing a lot of work on the St.George brand. We will -- we're giving you a little sneak peak here in the top left. We will be relaunching the St.George brand next month with a new campaign, a new positioning. We're very excited about that. So just a little teaser, look out for what's coming in the St.George brand. We've been doing some great work in Bank of Melbourne. And BankSA is also -- now we're turning our attention to BankSA. RAMS has been going very well as well. And the other big one, of course, is BT. BT has this really interesting historical legacy of awareness as a credible investment manager. But the research told us that consumers often felt that BT was more of a business-to-business brand and not necessarily a consumer-friendly brand. So they were aware of it, but they weren't sure it was relevant. And so we came to the conclusion we needed to sharpen up and relaunch the BT brand, which we've done in -- at the end of January. And that's going also quite well, and we're moving into the next stage of that. And you'll see in the next few weeks, some sharper offers that are really designed to begin to bring people in from a BT point of view on the wealth side.

Now the reason I think that's important is one of my conclusions, we've all talked for many years about this issue of why is it banks struggle in wealth. And one of my conclusions is that they struggle because, for an important segment of the population, bank brands aren't necessarily credible as providers of investment management. And so I think one of the advantages we have going for us is a strong investment management brand, well coordinated with the bank brand, I think can really be a winning formula. And so we see those things as not separate. We see them as complementary and very closely linked. And Brad will talk, in the case study later, about how we actually get that wealth and banking relationship working really well.

Now been a lot of talk and attention on Bank of Melbourne, which is obviously one of our headline things that we did around this multibrand approach. And so I thought I'd give you a bit of an update on Bank of Melbourne as well. And -- but I'll reframe this by saying it's really not about Bank of Melbourne; it's about Victoria. I said earlier on that we see a big opportunity to grow deposits in Victoria in particular. And so Bank of Melbourne is part of our approach to growing our share of deposits in Victoria. And so this is working really well. We're growing the total number of customers. And just to give you a flavor for that, the number of new customers across both brands in aggregate has more than doubled with the introduction of Bank of Melbourne. And importantly, we're growing new customers in both brands. It's not just Bank of Melbourne. It's not Bank of Melbourne at the expense of Westpac. We're working on both brands, and we're growing the number of customers very, very well. We're also growing our overall size and share of deposits, again, across both brands. So that's working very, very well. And within Bank of Melbourne itself, the results are really great. Scott Tanner is doing a terrific job with his team down there. Household deposits, in the 12 months to December of 2012, were growing 4.5x market, and household credit, 2.7x market. So very strong growth in Bank of Melbourne, but importantly, not at the expense of Westpac. And in fact, the Westpac brand, I think it's right, you said, Jason, that Victoria was actually the best-performing state for the Westpac brand as well. So that's working quite well. And we -- there's always more we can do. We're continuing to tweak the positioning of the Bank of Melbourne brand, but we're really happy with how that combination of brands is allowing us to attack the market.

The other thing about having the brands that's worth explaining, is that we're doing the planning at a geographic basis across all the brands. So we're now looking at specific geographies and saying, "What's the right mix of brands and locations, branches, ATMs and the like, that we want to have to best serve that local area?" So it's not about independent brands competing with each other. It's about us looking coherently at individual geographies and deciding what the right mix is that we want.

The other thing that the -- having different brands allows us to do is to compete selectively in particular markets and against particular competitors or particular opportunities. So we're able to use pricing, we're able to use product, we're able to use promotion, tactically, in a particular area, to give us a better overall result without cannibalizing our backbook, if you want to think about it that way. And that doesn't mean it's always about the regional brands. It can sometimes be about the big brand. You saw some of the work we did recently with the Westpac brand on the 4.99% fixed rate loan offer, and that worked really, really well. That was a tactic that we used, and we used it in contrast to some of our other brands, which we're doing other things on. So we've got more to do on this. I wouldn't want to suggest that we've got it totally figured out. But the AFS approach is giving us these levers to play with, to drive performance and drive share, and we're really happy with how that's working out.

So I guess you can say that what I've talked to you now about is some of the opportunities on the revenue side. But, of course, with a cost base that, in AFS, is over $5.5 billion, we need to be thinking about productivity as well. And so I want to talk at a high level about the productivity question. And the key insight for us here is this thing about simplification. It's about simplification and digital enablement of our channel experience, whether that's in the branches, online, on mobile, making it easier for customers to bank with us. And by thinking about things from a customer's point of view, we're finding we can actually drive simplification that makes it better for the customer and makes it more efficient for us and cheaper to deliver.

But it's also, and I think this is perhaps one of the key aspects of the simplification and the productivity journey, is focusing on the products. So my belief is if you swim upstream from lots of the cost challenges that banks face, what you'll find is complexity, and particularly complexity in the product set. So one of David Lindberg's main challenges that I've given him is to drive a dramatic simplification in our product set, because we know that most of the value comes from a smaller set of products. But also simplification allows you all sorts of benefit in terms of staff understanding it better. Therefore, your sales are better, so you actually drive better revenue outcomes. You make fewer mistakes. Your systems are cheaper. You have less regulatory impulse [ph] . So simplification is a really big idea and something that we're well on the way to driving, and which we think will help unlock a lot of the productivity benefits.

If you get the products right, you can then make lots of improvements on process, simplification, and Rachel will give you some examples of that. And then ultimately, you can simplify your IT platforms as well. We happen to think that's the right way to think about it, and we can talk more about that a bit later.

On the right-hand side, what you're seeing here is that we're increasingly setting metrics to measure our progress on productivity. This is just a sampling of metrics. We have a whole bunch of different things we're looking at. But we're trying to start from the customer's perspective, in that what is going to make the customer experience better and how do we actually, by focusing on that, how do we make our product and our processes easier and then grab the productivity benefits out. So -- but a good starting point from just managing cost well over the last few years, what you see in our cost-to-income ratio, but we think there's a lot more to be done as we drive simplification through the business.

Now the final couple of slides, I wanted to talk about how we're executing against these priorities. And here I want to talk a little bit about culture. Now culture is the sort of thing that sounds easy to talk about what you put on a slide. My experience, I've worked in great cultures. I've worked in cultures that have not been as effective. And what I found is that culture is actually a lot harder to get right in practice than it might have first seemed. And also, and I know it's difficult on the outside, when you're just looking at the numbers on a business. But I can assure you that culture makes an enormous difference to how well you're able to execute on the opportunities that you have. And I think it was one of the things that attracted me to come to work at Westpac Group and it's certainly something I found here that I'm really delighted about, and that is the collaborative one team approach that we take within the group. And I've seen this manifest itself in a couple of ways that are worth calling out.

Within AFS, we've been able to bring a centralized approach to marketing, to product design, the call centers. We have a single credit chain. That works really, really well across the brands and across the businesses. We're getting great collaboration in sharing of best practices across our different businesses. We're running what we call one team meetings in each state. So I go around and share these meetings with the heads of the business in each state from all of our brands, and they're increasingly working well together and moving people back and forth between their businesses and stealing good ideas from each other. And so that's creating a real sense of energy and momentum in the performance at a local level.

We also have a really nice collaboration that the AFS structure has created with Group Services. So I think in the old structure, it made it much harder to set priorities and coordinate across end-to-end processes. The structure we have now, with John Arthur and myself, works really, really well. And we've actually got Rachel, who reports jointly to John Arthur and me, which means that our simplification and productivity agenda is kind of seamless across both the front end of the business and the operations and technology side of the business. So that's making a really big difference as well.

And the other one which has been surprising, pleasantly surprising for me, has been the coordination with our Institutional Bank. So I can say, having worked in a number of big banks, the coordination between the retail and commercial businesses and the institutional business here is remarkable. And we see that in the level of revenue that we're generating. I think last year, we generated over $500 million of revenue in cross with AFS business opportunities. And we've now appointed a full-time executive, who reports jointly to Rob Whitfield and myself, whose entire focus is identifying and driving through those cross-business opportunities. And we're really -- the more we look at it, the more excited we get about that. But it's interesting because someone said when we were frankly preparing for this session, someone made the observation that it isn't the structure that creates the culture. Our structure actually reflects the culture. So the thing is -- one of the things that's been really nice is we don't seem to let structure get in the way of people working together. And I've been amazed at some of the conversations I've had, where people have come to me and said, "Hey, we just think you guys should manage this," or "We think we should do that for you." We're not particularly worried about where we book it. It just seems the right thing to do, so let's do it. And it's -- I can tell you, it's pretty rare and it's really exciting.

Now the other aspect of execution is how you manage the program of work. And these are enormous businesses. We have a huge slate of initiatives sitting -- specific projects sitting under each of those 5 themes of the strategy. And my experience is that you have to actually run that like a big project. And so that's what we've done. We have a very clear set of outcomes, owners and metrics that we're tracking against. And so just to give you a flavor for that, we run a balanced scorecard across AFS, where we track, every month, metrics on customer; our financial metrics, of course; but also the people side, making sure that things are working well culturally; and then the specific projects, the milestones that we track, and so on. So, I guess, I just wanted to illustrate that this is not just, here's a sense of direction and trust us, it will be okay. This is actually something that we're managing very thoroughly, very mechanically, to make sure that we deliver the outcomes we need to get good results this year, good results next year and good results in the runup to 2017.

So as a summary of my section, I'm very lucky Peter Hanlon and Gail have gifted me a very strong franchise and more importantly, an incredibly strong management team. We've got a very clear strategy. We've got a clear sense of what we need to achieve, where the opportunities are. We've got good momentum in the business, and building. We see lots of opportunity to drive performance improvements. We recognize that the external market is challenging, but nevertheless, there's a lot of opportunity that's within our gift and we're certainly going to be hard at the ball.

The team I keep talking about, again, this is one of those things that might make sense on paper. But I can tell you from my experience, having a bunch of people who really know what they're doing and who enjoy working together and who are excited about the opportunity, makes an enormous difference, and I feel very, very lucky to be in that situation.

So that's the summary of AFS. What I'd like to do now is begin to talk about the themes by handing it over to Rachel Slade, who will take you through the first of our case studies. And the thing that I'd like you to look for here is how we're illustrating the strategies and our priorities through things we're already doing. So this isn't about stuff we're going to do. This is stuff we've already done or are already doing, and trying to give you a window into a moving train rather than just tell you how great it's going to be down the road.

The other thing I think you'll see here is, and I'll -- it was going to be implicit, but I'll make it explicit. By having our executives talk about themes, we're illustrating how we're actually working together. This is not a silo-ed set of businesses. We actually -- sure, people have their individual responsibilities, but they are also conscious that they need to work together across the business to deliver on these opportunities. So that's what I hope you'll see. I'm sure you will. Rachel, over to you.

Rachel Slade

Thanks, Brian, and good morning, everyone. In case you didn't get it, simplification is really core to both the group strategy and the AFS strategy. Unlocking the inherent complexity in the business is really key to the service quality aspirations that Brian talked about, understanding the customer experience and delivering on our structural productivity aspirations.

What you'll see here is a very well articulated set of streams that we're driving. We've designed a program, it's a significant effort across the company. It's a program that's made up of about 80 projects. We're well underway, 20 out of those projects are in flight [ph] . There are over 200 people working with me and our teams on those projects. And there are KPIs, as you saw earlier, that cascade through the company, right down from Gail's scorecard through the key executives. So we're very disciplined about this.

I'm going to show you some of what we've already delivered, and I think you'll get a sense that there's real momentum in what we're doing. This is not new for us. This is a journey we've been on for a long time, but there's plenty of opportunity to come. I'm going to talk about contact centers, which is a real success story for us, and also the product simplification agenda.

The contact center opportunity is one where we really celebrate success for 2 reasons. One, the magnitude of the benefits that we've delivered, but also the speed. And this is one that was really catalyzed by the formation of AFS. So before we formed AFS, we had our customer contact centers being run independently in our brands. We've brought those together, consolidated the leadership, centralized the off-the-phone activities, the operational activities that support them, and also began very quickly to inculcate our own best practice among how we were managing those contact centers.

The results, you can see here, are quite astounding, if you think about the time we've had to deliver them. So material costs and FTE benefits, over $10 million of productivity benefits in just over a year; increased revenue, so true productivity, revenue and cost; material improvements in our employee experience, our contact center people are one of the happiest and most engaged teams in the business. But for us, perhaps the most important proof point on what we've done in customer contact centers is the growth in NPS, which is our bellwether about the customer experience. And you'll see here, the size of the change of end customer experience measured by NPS in every single one of our brands. So it's a really important proof point for us around how you can create benefits from consolidation and productivity, while not compromising on that brand differentiation. And perhaps one of the best examples of that is in our Bank of Melbourne, where our calls for our Bank of Melbourne customers are answered by Victorians in Melbourne, really important to maintaining our brand position.

As we look forward in the contact center space, we're not done here, plenty more opportunity. Opportunity in technology, so while we've brought together our operational technology, there's still opportunity in telephony and infrastructure. In operations, more to do on best practice, more to do on role design, more to do on load sharing and workforce management, more to do on footprint consolidation. And we're already seeing that in terms of getting that number of sites right, while maintaining geographic presence to support our local strategy. We're part way through a consolidation in Sydney at the moment, consolidating 250 seats from one site to another site, and that gives us benefits both in property but also in management. There's another $4 million associated with that opportunity.

And finally service quality. To give you a sense of the upside there, up to 50% of the calls that we're taking in our contact centers today, we could consider to be non-value-add calls from a customer perspective. So either they're calling to do something that they could have done in sales, through one of our other channels, or from a service or a process failure that we've created, driving them through to the contact center. So plenty more upside there.

As Brian highlighted earlier, the size and complexity of the product portfolio really weaves its way through the business, right from the customer experience through our front line experience, our credit processes, our service and operations processes, and ultimately our technology landscape. So we think if we start pulling that product thread, it's really the key to unraveling the complexity in the business. Now the opportunity here is stark, you can see it. But it's not simply about less products. Less products is key, we need to de-clutter the experience for our front line, but it's also about simplifying price and features. So really aligning our offers with what customer's need, making them easy to understand, and process improvement, whether that's about streamlining, automation, removing obsolete steps. If we do all of that together, we think there's plenty more opportunity in the product space.

A couple of examples that I'll talk you through there, the cards example. We've started our card simplification journey post-merger, through process and platform. So we brought together the cards platform, followed by moving to a single transactional switch, and then aligning our credit processes. And you can see the benefits that we delivered through that, both in terms of customer experience but also the cost saving. Then over the last couple of years, we've moved to more standardization, moving to a single plastic supplier. There's no brand differentiation in the company that prints our cards for us, and that delivers cost benefits but also speed to market, so that we can keep up with customer needs. We've standardized our fee structures. And just this week, we've launched a new premium product. And what we're seeing there, that cards, plastic arrangement, we'll see $10 million of expense benefits flowing through next year, through that. And through looking at process, we've seen customer compliance come down by 40%. And we know that cards is a high-volume area of customer complaints, critical to the customer experience.

Again, as we look forward, much more opportunity. We still offer 24 different cards products today. That's very challenging for our customer at the front line to work through. When in reality, if we look at it through the eyes of the customer, we think we need 3 types of card products: a low-rate product, a low-fee product and a rewards product, where essentially the color of the card is dictated by customer spend patterns, the type of limit they're comfortable with.

And finally, onto wealth. BT Super for Life is a really good example of a journey we've been on, where we continue to lift the bar and take it to the next level in terms of product design and customer experience. When we put this into the market in 2007, it was revolutionary at that time in its simplicity and design, and in its straight-through-ness. So we launched it online, and then we took into the branches to align to our local strategy, a really important proof point around bank wealth integration. By the end of 2010, we had almost 90% of our sales driven through the branches. I don't think it's a surprise that we're leading the market in terms of wealth penetration. We've been on this journey for a long time.

A couple of years ago, we applied our customer-centered design methodology to really take another look at the customer experience, and the business outcomes we were driving through Super for Life. And what we did was we redesigned the sales process. We simplified the sales conversation and we also made it much easier for customers to understand, by taking actions like short form disclosures, speeding up what we needed to do with the customer to get them active. And the business benefits there and the customer experience are quite powerful. So activation rates from less than 35% to more like 65%, so that's after I've opened an account, opened a superannuation account, have I got regular contributions coming into the account. Really pushed up the insurance rate take-up through making very simple changes, like having insurance opt-out rather than opt-in, and reducing the sale time.

But because our customer needs keep changing and the opportunity in the market keeps changing and we want to move to digital as our customers are moving to digital, we've just done that all again. And on Saturday, 3 days ago, we've launched our express online application for Super for Life, which is now taking really a step change in the customer experience. So from a 10-minute online completion time down to 60 seconds, just a couple of clicks instead of 9 pages. And what we expect to see from that is a material uplift in sales, doubling in online sales over time.

So we've delivered a lot already in simplification, but being a big complex organization comes with lots of opportunity. I think continuing the theme of excitement, I've got one of the best jobs because a big part of my job is making things easier for customers and easier for our people, and that is something that's pretty easy to get our people excited about. And simplification really resonates with our culture. Our people find that very easy to engage with and easy to get their arms around. And I think we've got a real sense of momentum and buzz in the organization about that.

One of the other key points [ph] in simplification and our agenda is obviously the digital strategy, and how we move with our customers as the world moves to more digital. And Jason is going to talk us through that now.

Jason Yetton

Well, thank you, Rachel, and good morning, everyone. Good to see a lot of familiar faces in the audience. So I think Rachel has given a very good summary of the 6 key focus areas, for AFS and the Westpac Group, on our radical simplification and productivity agenda. What I wanted to do is talk to you about digitization and its implications for the changing face of banking in Australia. And, I guess, the key point from the takeout is that we believe we've well and surely passed the digital tipping point in Australian Financial Services, and we passed this digital tipping point because of our customers, because of their attitudes and their adoption of smartphones and tablet devices.

Now in doing so, when I talk about digitization, I want to make clear this isn't an adjunct to our customer service strategy. It isn't an adjunct to our channel strategy. As Brian has outlined in our 5 strategic areas, it's a core essential part of our overall business strategy.

What I'll do, for me, often [ph] the future is now, and I'm going to showcase to you 2 examples of how AFS is taking the lead in the market around mobile banking experience, as well as retail branch experience.

Let me start with kind of 5 key themes that's underpinning our thought process around digitization. The first thing is that digitization is placing customers in control, and it's changing how they interact with banks. In doing so, customer expectations have changed around speed, around convenience, around ease, around availability, personalization, security and trust. In short, our customers want to be able to bank wherever and whenever they are 24/7.

The second key theme is that this change is happening very, very fast. In our experience, the adoption of smartphones and tablets, is that they're carrying [ph] at least 3x the speed of which online banking was adopted by customers. So if you go back to the mid-1990s, when Westpac launched online banking, it took about 6.5 years to reach 1 million active online customers. With mobile banking for Westpac, it took 2.5 years to reach the same level, so it's growing [ph] very quickly.

The third key theme is that it's the customer experience on the device of their choice that's really key to success. This isn't about technology for technology's sake and it's not about concept branches for concept branches' sake. This digitalization trend is really transforming the customer experience, and we call it, that it's virtualizing the transaction experience across retail banking. And as it virtualizes the transaction experience, that has major implications for branch and channel design, it has major implications for technology and product processes, and it also has major implications for your workforce composition, the mix and their capabilities.

I guess the final theme in all of this is that, to be successful in this environment, it does take long-term executional prowess, and that's really the key to realizing benefits. Let me start by putting some context around channel usage in Australia. And this data is from Roy Morgan, and it talks about how customers are using their bank across all channels.

Now it might surprise some in the room to learn that customers are using their banks more and more frequently. Indeed, over the past decade, the average number of customer interactions across all channels per month has gone up by about 5% per annum, and now averages somewhere around 16 interactions per month. I'm sure it's not going to surprise anyone in this room that nearly all that growth in the past decade has come from Internet banking adoption. But you'll also see, that top black box, that in the last 2 years, mobile banking has clearly emerged as a major channel. And at 2.2 average interactions per customer per month, and this was last year, that was already more than the average interactions across branch and phone banking combined.

If we look out going forward for our own digital strategy, what do we expect over the next 5 years? Well, first of all, we expect our customers to continue embracing mobile and online technologies around the transaction experience. Currently, about 85% of our transactions are done through these devices. By 2017, we expect that to be nearly ubiquitous, and certainly more than 95%. It's not just the transaction, though, we expect most service interactions to be done, either through online or mobile devices. Currently, around 75% of our service transactions are done in those devices. We expect that to be -- sorry, 65% are done in those devices. We expect that to be more than 75% by 2017. And what does that mean? Well, that means that we see fewer people are calling our call centers or visiting a branch to check an account balance, to reorder a credit card if it's lost, to go through a face-to-face or phone-based customer ID verification processes. In short, a lot more of our customers will be doing those service interactions themselves, online or through mobile.

The third key part of our digital strategy is around sales. Now we already know that most of our customers conduct research online or through mobile before they make a major purchase. But at present, relatively few make a product purchase completely through the cycle online or mobile. Where we do see that is in less complex, lower involvement or lower value transactions from a customer perspective. So particularly, around credit cards, personal loans, transaction and savings accounts. And we see that growing over the next 5 years. Currently, about 7% of our total sales are done through online and mobile, and we expect that to triple to around 20% of total sales by 2017, particularly in those categories.

Perhaps one area where we differ to some is that we still think face-to-face is going to be really important, and that people are at the heart of a really successful banking franchise. We're still a big believer that deep customer relationships across all their needs is really, really important. And why is that? Well, that is because when you talk to customers about what they often consider the big decisions in their life, the complex decisions in their life, the emotionally involved decisions where they're worried about getting it wrong, most customers still say, they want to talk to an expert, a professional who can give them the advice and help to see them through. What am I talking about in that? If you're buying your first time, if you're buying an investment property, if you're setting up self-managed super fund, if you're setting up a business, if you're growing your business, if you want to protect your assets, protect your life, or if you want to prepare for retirement. Those kind of things people want to talk to an expert around, and they're typically high-value transactions from our perspective.

Let me put some context around Australian Financial Services and the customer adoption of mobile and online banking for you. This goes to data as of December 2012, and if you look across Westpac and St.George brands, we have 3.5 million active online and mobile banking customers. That number is up about 8% on December 2011. What it means is that 39% of AFS customers are now digitally active, 39% of the 9 million customer base. When you talk about active mobile banking customers, that's now 1.7 million across the brands. That is up 50% on December 2011. Our customers, in the last 12 months, performed 534 million online or mobile banking sessions. That was up 21% on the same period in 2011, but if you take the mobile component of that, mobile banking sessions were up nearly 100% across our brands. And if you look at what they're doing, well, the number of payments on average per month last year was about 43 million payments. When you take this out 5 years, your guess, perhaps, is as good as mine, but what we see is that online and mobile active customer usage will continue to grow. We expect that will be over 5 million in both online and mobile. That would probably be about 50% of our customer base at that time, and we see the number of payments growing to 83 million. Now why do I say that? Well, I say that because this is the reason that we've placed a lot of importance and a lot of investment in AFS on our online and mobile strategic investment.

I guess, when you invest a lot of money and you expect that growth, one of the key points that we make, as I said earlier, is it's the customer experience that's key here. It's the experience on the device that a customer uses, and that's why we're really pleased with the fact that, in a recent survey by RFI, of all mobile banking providers in Australia, that Westpac and St.George, had the highest percentage of main bank customers that were highly satisfied with our mobile banking solutions. Indeed for Westpac, it was 49% of MFI customers were highly satisfied. And in St.George, it was 44% MFI customers highly satisfied, and that was materially above our peers. Now those results are also echoed with our internal channel survey results, where we measure advocacy and satisfaction. And so that's pleasing, and we think there are a couple of reasons for that high advocacy. One reason is that we have an integrated approach to digital across all our brands. We have 1 team that runs that, which is led by Harry Wendt, towards the back there, and Harry Wendt's team runs digital online across all our brands. The second reason, perhaps, this is more important than just 1 team, is that Harry's team adopts the customer-centric design approach, and that, combined with a rapid prototyping and regular release schedule, means that what we focus on is the features and the experience that our customers tell us they want on the devices which they are using.

Let me give you a sense of how that's playing out with our integrated approach to digital. I think one of the real advantages of the AFS business is that we can take the best ideas and the best innovations, pilot them in the brand and if they really work, roll them out across the group. And that's exactly what we've done in AFS. So let me give you a couple of examples in practice of how this has worked. The first example I will give you is St.George, which I think, over the past few years, has really established a position as the leader in mobile banking innovation in the banking market in Australia. Now St.George was the first bank in Australia to allow customers to open term deposits on their mobile device, which is in December 2011. It's the first bank in Australia to allow customers to open and fund the savings and transaction account, and most recently, it is the first bank in Australia to allow our customers to open a credit card on their mobile device. All of those innovations came from customer feedback, and I should point out that all those developments are available to St.George customers in a realtime banking sense.

If I look at what experience St.George has had on the transaction and savings front, about 30% of St.George's online transaction and savings account sales are now being done by mobile, and mobile represents over 5% of total savings and transaction account product sales in the St.George group. Now that's not all St.George has done. In recent times, it's also launched its Budget Planner, its MoneyMeter application, and it's PropertyMate application. Some of those have been replicated in the Westpac brand, for example, the Westpac phone finder application, and some are going to find their way into future releases. So I'll give you an example of one that has found its way into Westpac, I mentioned the savings and transaction accounts, we rolled that out on mobile for Westpac in December of 2012, right now we're opening about 1,000 accounts per week on average through mobile devices.

It's not just St.George, I'm pretty proud of Westpac, too. And we've put a lot of effort into innovating around our iPad banking solution, which isn't about putting a mobile banking solution and double-sizing it on the iPad. We purpose-built our iPad banking solution to take advantage of the swipe experience that customers want, and we also partnered with Microsoft as a global partner in their Windows 8 launch in October. So we're the only bank with an application on that. Is it working? Well, let me give you some stats on the iPad. Since we launched that in 2000 -- in July 2012, we have 227,000 customers that have downloaded the iPad application, they've done 4.7 million sessions and we processed around 1.9 billion.

So digitalization and this virtualization of the customer experience is having profound implications for a retail branch network. If a branch was about the transaction, if that's what it was all about, now it has to all be about the customer interaction, the customer interaction. And this is a core part of what we're calling our Bank Now strategy. And Bank Now is about actually integrating the digital world with the physical world for our customers. So Bank Now branches have a very open and flexible format, they've maximized the front-of-house area in our branches, so that we can have better quality conversations with customers. But it's not just that level, we've also integrated the latest digital technologies, so that we can make it easier for customers to do transactions and importantly, we can allow them to do it whenever and wherever they want. So Bank Now branches are open 24/7. They've got a self service lobby which lets customers use smart ATMs, coin-counting machines and cash-dispensing machines whenever they want in a secure location. Within the branch, we've also made use of iPads, videoconferencing facilities, digital marketing, teller cash recyclers and Wi-Fi to make sure our customers can make it easy to do their transactions.

Now the first Bank Now branches were actually rolled out in the Bank of Melbourne brand, and they were the first to adopt this flexible format. But over the past 6 months, Westpac has 6 Bank Now branches across the country. And I have all these facilities that I've outlined for you there. This will be the core marker of our future branch rollout strategy, and that does take time because you've got to be disciplined around when your leases are coming up. We have 45 open-plan branches and we have about plans for another 40 over the next 12 months.

I mentioned that disciplined long-term execution is really the key to realizing success. When you're talking about a banking franchise, the size of the St.George group and the size of the Westpac Group, you really have to be disciplined and focused in how you execute that across all the channels if you're going to be successful. Now this is one of the reasons within AFS why we have 1 team, under Rachel Slade, that's responsible for network operations and property optimization. So Rachel's team is responsible for setting the property strategy, for working out what are the right locations that we'll be in, and then ultimately, interfacing in our Westpac Group property team to go and execute on that, ensure we've got the right branch with the right bankers in the right geographies for the opportunity. That team is responsible for coordinating lease negotiations, they're also responsible for sourcing all the componentry of branches, which you can get a lot of savings on. But importantly, in doing that, we want to maintain the customer experience and the distinctive brand propositions for Westpac and St.George, in how they look and feel.

If you look ahead, our view is the branch and ATM numbers will be relatively flat for the next 5 years for AFS. Now we do have 1,300 branches in AFS, we have 110 business banking centers and some 3,000 ATMs, so it is a big network. Where are we growing? Well, you're obviously aware that we will and we'll continue to invest in Bank of Melbourne. So we will be investing in more branches in Victoria, and you can also expect us to grow branches in high-growth areas in Queensland and Western Australia. Now some of that investment will be funded by reductions in branches that are in really low growth and declining areas. Some of it is going to be funded by efficiency areas. So as the branches get smaller, as lease costs come down, as paper gets reduced in the digital age, as rework gets reduced by digital, as fewer people are calling our call centers and as fewer service-only roles are demanded in the branches, and in particular they're talking about fewer tellers, all of those will be a source of funds for investments in our Bank Now growth in the future in those markets.

I wanted to give you an example of how this is playing out, this retail banking strategy around Bank Now is playing out in practice. And the example I'm going to give you is the Westpac branch at Wanneroo in WA. Now I was at the Westpac branch in Wanneroo, WA, last week, and spent a good bit of time with the team and customers, and also visited all our major competitors in Wanneroo. And I can tell you, it was noticeably different, the vibe and enthusiasm that I felt in the Westpac branch, by our customers compared to our competitors. If you don't know where Wanneroo is, Wanneroo is about 28 kilometers north of Perth. It takes about 40 minutes to drive up the highway there. It's actually the fastest-growing locality in WA, the population in Wanneroo is about 167,000 and it's expected to be 300,000 by 2013, so it's an example of the shifting growth geographies in this country. Karina Martin is our Bank Manager there, and her and her team, look after about 13,500 customers. Now what they know of Wanneroo was is that we moved an old branch that was poorly located in Wanneroo into a new branch in the Wanneroo Central Shopping Center. In doing that, we reduced the branch square meterage from 316 square meters to 208. So we reduced it by 34%. At the same time, we reduced the number of staff in that branch. We reduced it from 10 to 8, and the 2 that left were 2 tellers because that role was no longer needed. It's interesting when I talked to Karina and the team about their success financially, their new sales plan, if I talk about that, they're 114% of plan and their net customer growth since opening, on the same period last year, is up 40%. Importantly, the customer experience has been phenomenal. The branch Net Promoter Score is now averaging 77 for the last 6 months, and the last 4 months' spots scores have all been over 80. Now if you're wondering what does that mean, that means of the customers that have experienced the service in the Wanneroo branch, 8 out of 10 of them have said they would recommend Westpac and the team in Wanneroo to their family and friends, 8 out of 10. If I look at that and compare that to the retail banking network across Westpac, on average, that score is around 60, so it's noticeably higher. From a self-service perspective, this has been a huge revelation. As our staff show our customers how to use the devices, they've embraced them. Indeed, 65% of transactions in that branch now are being done on self-service devices.

Deposits have increased to 70% -- 17% through the smart ATMs, and in the old design, there were none. That was all being done at the teller line, so a big shift on space, people, customer experience, sales revenue and service interactions.

I hope what I've done is I've given you a good sense of how digital is actually a core component to the AFS business strategy. In doing so, I hopefully have shown you this isn't about technology. What it's actually about is the customer experience and how we're fitting into our customers lives, whether they're doing things on mobile or tablet, or whether they're still using the branch. Importantly, it's not just about the technology, but for us, it's about our investment in people and our Best Banker program, to make sure that we upskill, recruit and develop more bankers that can help small business and affluent customers with all their banking and wealth needs.

Now I'm going to hand it over to Brad Cooper, the Chief Executive of BT. He's going to talk about how we'll extend our lead in wealth, particularly by leveraging the St.George and Westpac Bank franchises, and also how we target Prime of Life customers. Okay. Thank you.

Bradley John Cooper

Thanks, Jason. Okay. Thank you very much, Jason, and good morning, everybody. It's terrific to be here to get an opportunity to talk through these 2 case studies. Brian shared with you earlier a slide that illustrated the momentum that we've got in earning all of our customers' wealth business. That is the extent to which our customers are choosing us for their superannuation, their general insurance, life insurance, or their advice needs. And you'll recall from that slide, we had some 21% of our Westpac customers, having one of those products with us and nearly 15% of our St.George customers having at least one of those products with us today. What I thought you might find interesting is why that's important to us, how we are going about achieving those results, and despite being the market leader on that measure, why we're dissatisfied with that and we still think there's a lot more we can be doing. The other area is this segment we call, Prime of Life. And I think Brian said earlier, it was a politically correct title for that segment. I think I recall Gail was, back in our strategy session we had with the board, when we're talking about the baby boomers and the opportunities as they transition to retirement, and it was our chairman, Lindsay, who turned around and said, "Look these people are in the prime of their life." I think that's something to do with him being firmly within that segment. But I want to take you through is why we think that's a big opportunity for us, and we think it's a segment that's been relatively ignored by major banks and what we are now doing about that. So clearly, a lot of you have seen this information before. The superannuation system in Australia is our third or fourth largest retirement savings pool in the world. It's just past $1.5 trillion. We think it will reach equilibrium at around 2030-odd, in about 20 years' time, at about $6 trillion. And that's a point where the total contributions, that is a 12% of everybody's salaries, will be roughly equal to what's been paid out in pensions each year. $6 trillion is a lot of money, and we think Australians are going to need a lot of help in managing what will be, for many, their largest single asset, and for most, it will surpass the value of their family home, so Australians will need a lot of help with that. If you convert that into the available profit pools, you can see about 7.5% growth rate within superannuation through to 2017. And we think as the underinsurance problem is resolved within Australia, particularly around life insurance, you can see the profit pool growing there by a similar 7.5% as well.

When you look at the illustration on the bottom left, you can see the sort of opportunity that's in front of us. I think banks traditionally have been focused very much on that dotted blue line, and that is very much around the credit growth that's happened within Australia over the last 20 years. And typically, what we've done is, we've gone after the first home buyer, and we've worked with them through 3 or 4 upgrades through their family home, until they've reached about the age of 45 and they paid the mortgage down and the kids are leaving home, and they're thinking more about retirement. And they typically go off then with wealth products, typically to a monoline, and start to get superannuation investments and insurance needs satisfied somewhere else. There's other structural issues going on here. If you look at the regulatory framework, the regulators tend to think about this in its form of basic banking and credit and wealth. And there's different obligations you have around product design, disclosures, accreditation of who you can talk to, which customer, about what type of product. And traditionally, in banking and wealth, there have been cultural clashes, if you like, between the banking culture and the wealth culture and have been very, very difficult to get the 2 to work together. What we've done is we've looked at this very much from the customer's perspective. And customers don't care about the regulatory framework, they don't care about the cultural differences between banking and wealth. Typically, what customers want to do is save a little bit of money, pay the bills, hopefully buy a home one day, educate the children, get some insurance for protecting their assets and their life and save a little bit of money for superannuation. And so for us, particularly within AFS, it's how do we bring the distribution capability, the product capability, the expertise together, to help customers navigate those needs. You can see on the right-hand side here, the size of the opportunity that's in front of us. So whilst 21% of our Westpac customers and 15% of St.George have at least one of these products with us today, you can see each of the products individually, we've got single-digit penetration into our customer base. The most exciting thing about this for me, is that our competition here is typically monolines. If you look at superannuation, it's industry funds or insurance, that's monoline insurance providers. And by definition, they can't have the whole relationship that a customer is looking for in this regard, and it's why we can really leverage the banking relationship to start to bundle these offers around trusted brands and trusted products with these customers. So we see a huge opportunity here.

In terms of how we've gone after this opportunity, it is certainly about product and having great product and having good technology, but it's not just about that. I think most of you would know, we launched BT Super for Life back in 2007 and since then, others have copied that product, but with nowhere near the momentum that we've got within fund growth and sales growth. And it's because I don't think they've really focused on all of the cultural elements that are required to make a success of this. If you look at the marketing piece, Brian spoke earlier about the importance of getting clarity of each of these brands, of having a wealth provider that's got real credibility around the investment advice that customers are looking for, and how do you marry that with a banking brand with a trusted relationship. And so that's critically important to us. But not just in the above-the-line advertising, in things like John Harries is now leading with an essential marketing team, really understanding our customers and what their needs are and thinking about what's the next best offer that we put in front of those customers. And with things like MyBank, in many cases, that will be superannuation or insurance or financial advice. So it's really bringing the power of that together.

Distribution is clearly very, very important. We talk about the experience of our team, and I'm not just talking about the people who will be on stage today, but the people who report to us. We've got something like 40% of that whole cohort who have had relevant experience in both banking and wealth, and that gives us an enormous head-start in breaking down some of these cultural barriers. But it's also how we think about distribution for some key segments. So for a high net worth segment, our private banking customers, the private banks of St.George, Bank of Melbourne and Westpac sit within the BT Group. The reason I do that, these are great customers, anybody would do their banking for them. The importance here, though, is how do you look after their wealth needs. How do you look after their investment needs, their superannuation needs? And you can see on the bottom right, with Jane Watts and her team, and the wealth expertise they're bringing in, we've increased our wealth revenue by 17% year-on-year, having the private banks here sitting within wealth. Capability is clearly important. All of our regional general managers now within the Westpac Group are RG146 certified, and through the best banking program, we're now training up all of our banks managers as well, to ensure that this capacity that's being created, in what's becoming these advice hubs that are our branches, have the right capabilities to have a whole of great [ph] relationship discussion with all of our customers. The final thing I think is, probably to me, the most important, and that's the advocacy of our own people. And those of you who have been involved in retail in any sense, would know, the first thing you've got to do if you want to win new business of your customers, is to win the hearts and minds of your own staff, so that they can have natural conversations with their customers about our products. In this respect, all of our staff now within the Westpac Group have their superannuation with BT Super for Life, and so we're having a very natural conversation with our customer about the same product that our staff have. Also, what our staff see is how we respond with our general insurance to issues like the floods up in Queensland or the bushfires in Victoria, and what we do very much on the ground in the local communities, with customers who are affected by those events, with our insurance coverage. And so it's a very easy conversation for them to then have with customers about why they should be insured with us. So it's very, very powerful for us, and you can see some of the results, I spoke about the wealth result. In financial advice, we've had a 21% increase in the number of interviews that we're now having with our customers, over the last 18 months. And at the same time, we've had a net promoter score increase from positive 8, to positive 18 over that time. We've had a 23% increase in the general insurance sales and 18% increase in the life insurance net written premium as well. And over this period, we've had 260,000 BT Super for Life accounts opened within the Westpac Group, and some 80,000 accounts opened through St.George. So real momentum, but as I say, we've got a long way to go with single-digit penetration into the base.

Within the Prime of Life opportunity, as we say, this is customers who are 45 years and over, who are now thinking about life in retirement. There's 15-odd years left to go for some, and they're starting to think, "Well, the kids have left home and the mortgage is getting smaller, and do I have enough put aside for the exploration of life I'd like to live?" And people's attention really start to turn to this. You can see the size of the profit pool here, $6.2 billion, very highly concentrated into superannuation and deposits. Obviously, then critically important to us, not only from superannuation, but also a big opportunity from the bank funding perspective as well, to satisfy the needs of these customers. This really is a natural space for us. And I think the only reason we haven't owned this space in the past, is because we haven't focused on it. We've been very focused on that credit growth, the first home buyer and so forth. But when you look at the demographics, 4.5 million of our customers are over age of 45, almost 1 million of those customers have a household income of greater than $100,000. The most interesting thing here is the depth of the relationships, on average, 16 years with the group. So it really is ours to win if we can focus all of our efforts into this segment. And when you think about how we're going after this, it really is about understanding the customer needs. It, principally, is around advice. When people hit 45 years of age and you start to worry about this, it's this "Ah-hah!" moment, when you start to get engaged with your superannuation or your investments. And I do put those 2 together in this "prepare for the best," because it is going to be about how you invest for when you retire. You can't save for retirement because inflation will catch up to you, and while superannuation, I think, is the most tax-effective way, obviously, to invest those savings, not everyone's going to be able to put enough money into superannuation at that age because of the caps. And so they will be about your investments within Super and outside Super and how you're constructing that, so financial advice is going to be critical to these people as will great product, and that's where BT and Westpac or Bank of Melbourne and St.George really come together to help satisfy the needs of the customers. How we deliver the products and services will be important, advice will need to come in many different forms. It could be general advice, which is obviously why we're building out the capability of our branch network. It could be very specific advice about insurance or superannuation, and depending on people's level of sophistication, how complex their needs are, it obviously could still be full holistic advice. All of the product development, I think, in the industry up until now, has been through the accumulation phase, much more of the product development now is in transition and into pension. And that's why we have been focused on products like capital protection, stable income and so forth. Everybody's talking about self-managed super funds. That's obviously a very important area. For us, I would say, but what are product solutions that you can develop for people who have the self-managed super fund? And so we're obviously very focused on that as well. So it's clearly about making sure that our financial planners are domiciled in the branches, in geographies where there's a much higher proportion of these affluent pre-retirees, and we've absolutely done that. But it's also thinking about how do we bundle these products and services together? Because if you're thinking about the bundling now, you typically are bundling credit cards and mortgages and so forth together, but these customers are much more thinking about their insurance and their wealth needs. And then how do we bring together the service proposition around that, to make sure that when these people have the need, they're talking to well-trained people, with the right life experiences, who can help these customers think about the challenges that they have through transition and then post into retirement.

So that's a great opportunity for us. Hopefully, what you got from that is that we are the market leader in the proportion of our customers with the wealth product, but we're very dissatisfied with that. We still think there's a hell of a lot more to do given our single-product penetration. So we're going to be going very, very hard after that. And then obviously, this Prime of Life segment, and we'll see if this segment naming catches on now into the marketplace, but it's a real opportunity for us in superannuation and deposits and so we'll be continuing to chase that down. I'll hand over to George for SME.

George Frazis

Thanks. Thanks, Brad. Good morning, everyone. We're actually on the home stretch. So what I'm going to be talking to you today about is business banking across AFS, an area that I'm extremely passionate about. And now a quick definition on business banking. Within St.George, we go up to lending of about $150 million, and within Westpac RBB, we go up to lending of about $30 million. Now I've been with the group for, now, just over 4 years, initially running Westpac in New Zealand and now absolutely thrilled to be the CEO of the St.George Banking Group. Now what you're going to see is that, business banking for us, across AFS, is a substantial part of our business. It's one that's performing well, and when you look at our different brands, it's one that provides us some really unique opportunities for growth. And there's a number of things that underpin the advantages of the business bank. Importantly, firstly is the strong risk management culture that's within the Westpac Group. The second thing that underpins it is the fact that we've got the #1 and the #2 brand in terms of business banking. So the St.George an absolute leader, and now with Westpac RBB leading the majors. And finally, what that enables us to do is, number one, deploy all of our resources across the bank, both in BT and the Institutional Bank, to service those customers. And secondly, it also enables us to go to market in a differentiated way. So that's what underpins the advantages of our business bank. Now just to give you some dimensions of the size of the bank, we've got -- on the business bank, we've got over 800,000 business banking customers. We service those through 110 business banking centers with over 800 -- close to 800 business banking relationship managers. As you can see, we've got close to $78 billion in business lending, and $83 billion in business deposits, so this is a very attractive deposit-to-loan ratio and a part of our business. And in addition to that, there's also the personal needs that we do with the business bank. So going to the key things that underpin the advantage of the business bank, and the first one I've talked about was our strong risk management. Well, I have to say, this is something that we're extremely proud of in Westpac. We've got a strong culture of risk management and that has manifested itself within the business bank. You can see, and Brian initially talked about our stressed exposures, are now below 2% at a total AFS level. A big part of that improvement has also been, how we've improved our management of the business bank. And you can see a big focus for us has been on the commercial property side. Now although our exposure on commercial property has stayed steady, the stressed component of that has decreased quite well, which means that we've also been doing a lot of business with our existing customers and new good customers on the commercial property side. What this enables us to do is it places us in a very good position for growth going forward. Now from a customer's perspective, we have got the 2 leading brands in terms of customer NPS in business banking. As you can see, St.George is a clear leader, not only in business banking overall but also in that very important SME segment. And pleasingly, when I look at Jason's business in terms of Westpac RBB, it now leads both overall and on SME, the majors. So this is a big part of the advantage we have.

Why don't I just touch on the performance in the first quarter and some of the things we've focused on. So the first thing that we've really been focused on, particularly in a low-growth environment when it comes to business banking, is the productivity of the business bank. And you can see quarter-on-quarter, PCP, the productivity of our business bankers is improved 5%, but -- so this is a revenue per banker measure. But this is not just about productivity, it is also about growth and pleasingly, we've seen a growth in our customer numbers of 4%. Another key focus has been on improving steadily, the return of our business bank. Now that has included being disciplined in terms of our pricing, it also is a reflection of our good risk and improving position, and in addition, our thrust in terms of acting as one team and improving our cross sell.

Now there's been some net growth in lending, but that has been subdued, which again, is a reflection of the market. But when you go underneath that, really what that's made up of, is it's quite good growth in terms of our good customers and new customers, but then we've also had run-off in terms of our stressed assets. And as I've already discussed, we've got a very attractive deposit-to-loan ratio in this segment. So it is a key reason on why we want to grow our business bank further.

Now I want to talk a little bit about how we work as one team across the group to provide a full, complete service to our business banking customers. And the 2 key areas that we leverage is BT and our Institutional Bank. And now within BT, Brad talked about the strong culture that we've got between our BT planners and our other specialists and our retail bank. What we're doing is actually translating that strong culture into the business bank to provide the services that a business requires, in terms of self-managed super and insurance as an example. And you can see the focus on productivity of our plan has got some real results. Activity levels over the last 2 years have substantially improved, and pleasingly, also the revenue per planner has improved.

Now on the institutional side in terms of our WIB business, we've got a very strong and good working relationship with the product specialists, outside of WIB, inside of WIB, supporting the business bank. Traditionally, that's been strong in terms of financial markets, a very important component in terms of what services we deliver to the business bank. But importantly, as you know, our Institutional Bank has got one of the leading capabilities in transaction banking. So what we're doing is using that capability to come up with industry solutions that target the specialty industries, that both St.George is after and Westpac RBB is after. And as you know, what that does is it enables us, number one, to cement the relationship with our business customers and also grow our deposits. So the one-team approach is well and truly alive within our business bank and creating some real value for our customers.

And now I want to sort of move on to the SME opportunity. I have to say, this is something that I'm really, really excited about. And as you probably know, within Westpac RBB, this is a journey that we went on -- we've been on for about 2 years, focusing on the SME segment, and what we've done in Westpac RBB is leveraged the local operator. So Jason's leveraged the local operating model, and effectively, what we've got is business bankers in our key branches supporting our SMEs. Now on the St.George side, Brian mentioned that we're actually under our natural market share, and this is not just about the numbers in terms of footings between consumer and SME, and this is the example of St.George in New South Wales, which is our core market, which is an obvious difference. But what underpins the fact that we're under our natural market share, is firstly, as I said, within the SME segment, St.George is the leading brand on NPS. So this is a brand that really appeals to SMEs. The second thing is the strength of our retail branch means that we've got a huge number of SMEs that flow through our branches every day. So something in the order of 2,500 SMEs go through our branches each month, so this is just an opportunity that's just waiting to be captured, and we don't have an overly compelling service offering at this stage. So what we've done is actually, 2 weeks ago, we launched a new business model within St.George called Business Connect. And now the challenge when we're thinking about SMEs is, as many of us know, one is, what an SME is after is the relationship, but at the same time you've got to make the economics work, you've got to make the cost to serve work. So when we launched Business Connect, there was a number of things that we took into the design of this. The first thing is that, what's happening with SMEs at the moment is the strong and good adoption of technology. They're really comfortable with smartphones, they've all got smartphones. They Skype on the net at home, so they are very comfortable with technology. And what does enable us to do is really be quite innovative in terms of the model we come out with. The second key component is that these SMEs tend to be on the move, so they operate more in more than one location, and they require banking that's flexible in terms of timing and also location. The third thing that underpins the model here is the fact that SMEs require a relationship. What they're demanding from their banks is a relationship, an experienced banker that understands their needs, understands their business and is able to help them, not just someone that's out there to sell them products. And then finally, as I said, a key thing that we're leveraging in this model is the fact that we've got 2,500 SME customers going through our branches every month. So what we've done is developed a centralized specialist group, which is made of very experienced business bankers, credit people and product specialists. We've housed these guys in Kogarah, and what we've got at the branch level is an experienced retail banker, that knows how to open up the initial transaction account and then assist the SME customer to actually link him with the experienced banker on Business Connect live video.

At the branch level view, we're also going to be rolling out 24/7 lobbies, which are all about having coin machines that dispense coins and you can deposit coins, and thermal imaging of checks, because that's all about making sure that what we're trying to attract is SMEs that are rich in cash and transaction banking, and this provides the convenience that these customers require. We are pleasingly -- as I said, we've launched this 2 weeks ago, we've rolled it out in 6 branches to date and obviously, we've got a program to roll it out more extensively over the next 12 months. What we've achieved in the first 2 weeks is a pipeline of $47 million in lending and we've actually settled on $9 million. So -- and the customer feedback that we're getting from this service has been extremely strong. So we're very, very excited about what this new Business Connect opportunity can provide for us, in SME for the St.George brand, which is really, a brand that resonates with SMEs.

So in summary, our business bank is a substantial part of our business, it's performed well, the brands mean [ph] we've got some really unique opportunities for growth. We work really well as one team to make sure we are providing a full service to our business customers, both in wealth and the Institutional Bank. And then the 2 key things that really underpin our advantage is our strong risk management, and secondly, the fact that we've got the #1 and the #2 business banking brands. Thank you very much, and I'll pass it over now to Brian to sum up.

Brian C. Hartzer

Thank you, George. As you could see, we've got an executive team who's pretty excited about the opportunity and when we get going on it, we tend to keep going, because we're excited about it. So we'll try and move now to the Q&A, I'll ask Andrew to come and administer that, and we'll get some chairs up, and get the rest of the exec team up here, and you can get stuck into us.

Question-and-Answer Session

Andrew Bowden

Okay, I'll just -- I'll get Gary to come up as well, of course, Jason as well, David, John, please, come on up. David? Okay. So we'll open up for questions, is there microphones there? Alison [ph], why don't we just start with Michael at the front, please. If you could please just keep your questions to one at a time, please, for the time being, and we'll go through [indiscernible] the usual deal, thanks. Michael?

Michael Wiblin - Macquarie Research

Michael Wiblin from Macquarie. A very simple question, Brian, I think. New structure, new opportunity, you've got a lot of brands, how are you managing brand conflicts and cannibalization? Can you just talk us through that, and how that actually is going to work in a practical sense?

Brian C. Hartzer

Sure. Well, as I indicated in the first bit of my presentation, what we've done is spend quite a lot of time in the last few months, looking at customer research, understanding how the attitudes of different customer groups vary. And so we've then developed a strategy for how we want to position each brand that reflects those differences in attitude. And the way I describe it internally is that, because we've grown the brands historically through acquisition, we probably had brands that were a bit more overlapping. What the research has allowed us to do is get much clearer, that actually, we can make these things complement each other. And so in John Harries' team, we're running an integrated approach to marketing that allows us to think about how we prioritize the service improvements, the pricing strategies we want to use, and so we're coordinating that from a central point of view. I don't mind if there's a little bit of cannibalization as long as the net improvement is positive, and then you want to have a little bit of competitive friction. The point is that it not get silly, and so we manage that through the one-team meetings at a state level, we manage it through the clarity of the marketing positioning. And so we're learning as we go, but so far, so good.

Michael Wiblin - Macquarie Research

So, is there -- there's a reasonably clear demarcation, is it, in terms of who runs who?

Brian C. Hartzer

Yes. There is a reasonably clear demarcation, and you'll see, particularly, as for example, we'll relaunch the St.George brand next month, you'll begin to see more clarity in that distinction, so it's not that it's necessarily true exactly today, but we have a really clear idea in our minds of where we're headed with that, and you'll see that evolve over the next 1.5 years.

Jason Yetton

Perhaps, if I can just -- am I on? If I can just quickly comment, as Brian said, yes, we are developing a fairly clear segmentation and brand map, which is therefore about clarity of those positions. Brian, pretty well summed up how we deploy those brands. In the end, it will be predominantly data-driven. There’s the odd intuitive call, and we're working to a series of operating principles and practices, which I'm happy to chat to that over lunch to give you a bit more detail.

Craig Williams - Citigroup Inc, Research Division

Craig Williams from Citi. There appeared to be some more opportunities for merger synergies, from the St.George merger, technology seems to be a large opportunity, and core banking, you're still running disparate systems, for example. So does Westpac, sort of view core banking overhauls as a grudge purchase and does it see better return on investment elsewhere?

Brian C. Hartzer

Well, I'll have a crack at that. The way that we think about technology is that each bank has its priority investment for technology as a function of what its starting point is. In our case, our starting point is pretty good. We've had good solid operating platforms that deliver the product functionality and features that we need, and that's allowed us to focus our priority investments on customer experience improvements. And so we've felt that, as Jason went through I think quite comprehensively, getting it right in mobile, getting it right in the branch experience, putting a new teller platform in, getting a better experience in our call centers, getting better experience online. We've got our biggest single investment is our online platform, and you'll see a new platform coming later this year, which is going to bring us a whole bunch of new capability. We feel that, that's an advantage that we've been able to concentrate our efforts on that. There's been a lot of talk about the back-end piece. I guess, the way I'm thinking about that -- I'm always reminded there was an ad that was done about 20 years ago for Nike shoes, with Michael Jordan and I don't know if any of you remember Mars Blackmon, but he kept going, "It's got to be about the shoes, it's got to be about the shoes," and Michael Jordan sits there and goes, "It's not about the shoes, Mars." So for us, the technology thing, it's not about the shoes. As Jason, I think, pointed out, it's really about the customer experience, and technology is an enabler of that, getting the products simplified, getting the customer experience right. Sure over time, we'll look to upgrade more of our platforms, but when we get to that point, we think it will actually be a lot easier for us to do it and we'll have a reasonably straightforward pathway, that will give us some more benefits, that will be good business cases, but that's not our primary driver. And I guess the other thing I'd say on technology is, most of you guys has been around as long as I have in this industry here. How many sources of genuine competitive advantage from technology have you seen any big bank create in the last 20 years? I can't think of many. I don't think that's a coincidence.

Victor German - Nomura Securities Co. Ltd., Research Division

Victor German from Nomura. Just looking at the -- being your presentation, Brian, you're talking probably, the 2 key bullet points there is on delivering productivity but also investing. And throughout the presentation we've heard a number of themes around what you need to do to get ultimately to where you want to get to. Can you perhaps, give us a sense for how you are thinking about those 2 items in terms of, are you able to deliver productivity benefits kind of from today onwards? Or, do you need to invest in the business over the next couple of years, and the timeframe perhaps to deliver those ultimate productivity benefits?

Brian C. Hartzer

Well, we're trying to deliver strong, steady performance improvement, and that means that we've got to be thinking about the long term and we've got to be delivering for the near term. So I guess our priority is around strong earnings growth, but we want to make that earnings growth sustainable, and therefore, we're balancing what we can afford to do with still delivering a good result. So in a way, the answer to your question is we're doing both. We think there's plenty of opportunity, you've heard some examples today already of where we can deliver real productivity growth right now, and that's helping to fund the investments in some of the things that we want to do. So we're not talking about making a dramatic change and creating a new hockey stick. We're talking about continuing to deliver good results. We think that's something that should be expected of us. And at the same time, therefore, we've got to find pathways to fund the investments we want to make, to position ourselves where we need to be. I guess, we see it as a balance, we're trying to balance all these things. That's our challenge as management, but we think there's plenty of opportunity for us to do that.

Victor German - Nomura Securities Co. Ltd., Research Division

I guess, in the short term, we should expect that you will reinvest most of the benefits into the business, the productivity benefits?

Brian C. Hartzer

Well, I don't want to talk about what you're going to see in the short term, but I think if you look at our results last year, what you saw was, we've continued to invest in our business and we've continued to deliver pretty good performance, and that's what we're going to try to keep doing.

Jonathan Mott - UBS Investment Bank, Research Division

Jon Mott from UBS. So just a question on MyBank, which Jason has been talking about over in New Zealand for a while, and then brought back in St.George and been rolling that out. I just want to get a feeling for how that's now going through the Westpac RBB side of it, that whole ride through that process. What percentage of your customers actually you'd say are the MyBank customers? Is there really a difference between the main financial institution customer and a MyBank customer? And is this really the next avenue that you're trying to grow, or how does that compare to winning new customers?

Jason Yetton

Thanks, Jon. So we are certainly leveraging George's experience from New Zealand, and there's a common program to MyBank, as you would expect, across Australian Financial Services. Probably the good thing from my perspective, is that Gai McGrath, who is the General Manager, who runs Retail Banking for Westpac, obviously, was the head of retail in New Zealand through a lot of this MyBank transition as well. So she is really been leading this charge based on her experience and based on the overall program. To put some dimensions on it, about 19% of Westpac customers are currently MyBank, so a bit over 1.1 million, 1.2 million. So when you're talking about 6.1 million customers, you kind of go, yes, look, that's still a big opportunity for us. There is a difference, I think, with the MFI piece, and that is that, in MyBank, we're also including the superannuation, the investment and the protection needs. Whereas most of my MFI measures in banking terms, are focused on the banking part of banking. What we know is that when customers have their super and insurance and investment business with us, those retention rates that George spoke about are even higher, their revenue is even higher, their stickiness and our engagement with you is a lot higher, so still a big opportunity. I think perhaps, the interesting step back to what I talked about with digital, with 39% of our customers being digitally active, that's the core foundation, I think of the transaction account. You've got to have a good digital online and mobile capability. What you then want, either through a digital channel or a physical channel, a banker, is the right conversation from someone whose skills, across consumer, business, banking, wealth, insurance, super, that can really deepen that relationship, and that's the journey we've been on for some time now, Jonathan as you know.

Andrew Bowden

Jarrod?

Jarrod Martin - Crédit Suisse AG, Research Division

Jarrod Martin from Crédit Suisse. Perhaps, a question for George. I think the group has done a pretty good job in articulating how the regional brands fit in from a retail perspective, and there's customers that just don't want to bank with a major bank. Could you articulate what the proposition from the business banking perspective of using St.George is, and how you can actually close that gap? Because from my perspective, I suppose a business person is probably a bit more ambivalent on the branding side of things and whether that -- closing that gap from the 8 to 12 in terms of natural market share is really just a pipe dream because more business -- businesses would like to use a stronger balance sheet?

George Frazis

If you look at the segment that St.George is dealing with, so for $150 million of lending and under, and particularly the focus on SME, these are customers that want to be sold [ph] backed [ph], so they do make a choice on the bank. Then if you then say, well actually attitudinally, what type of customer is attracted to St.George. It is the customer that actually finds banking a little scary, to be frank. And they're after, actually, a service and a culture that takes away that scariness. Now their dimensions of what they look like could be exactly the same, it is all about their attitude to banking. And again, if you go back to the SME opportunity, this is not a pipeline, or a pipe dream opportunity. This is SME customers coming into St.George branches because they have an affinity with that branch, right? So they've flown through our branches. So this is all about providing the service to customers that are already visiting the branch. So actually, there is quite a distinctiveness in terms of the type of customer that will go to Westpac versus the type of customer that will go to St.George on the business side.

Andrew Bowden

Brian?

Brian D. Johnson - CLSA Asia-Pacific Markets, Research Division

Brian Johnson, CLSA. Brian, just a question that I'd like to understand whether there is in fact a mechanical headwind going forward. If we go back to December 2009, the National Australia Bank basically priced their home lines quite aggressively, Westpac less so. But every anecdote, piece of evidence that I've ever seen, would suggest that both organizations just offer different discount rates, which meant effectively Westpac and NAB priced down the entire back book, whereas Westpac were competing quite aggressively on the front book. If you look at where we are now, rates have basically harmonized, which means the front book becomes the back book, this sounds way too complicated, but does that create a relative headwind for Westpac in your business going forward? Just the fact that there is a bigger embedded discount across your housing products relative to your peers, at a time when the headline rates are actually harmonizing?

Brian C. Hartzer

Thanks, Brian. Well, we manage all the variables around our margin very carefully. And so if you look at what's happening, the margins that we're writing things now are not significantly different than what we've written in the past. And when I think about how we approach this, we've tried to be very, very disciplined about managing our overall margin. And that has a variety of components to it, it has headline rates, it has discounts, it has funding, it has promotions, and we are very carefully, in product mix, use of different channels, we're very carefully managing all of those things to give us an overall margin outcome. And we feel pretty confident about where we are, and we think the results speak for themselves. We're certainly not concerned about some fundamental problem in the balance sheet. I don't know if David, if you want to add to that?

David Lindberg

No. I mean, I think, we're very, very disciplined about how we think by brand, about the front book margin is flowing into the portfolio within the portfolio margins, and so we manage that closely. And we don't see there being some discount that's going to come through and ultimately, affect the profitability of our portfolio, and we'll do everything we can to make sure that, that doesn't happen. One of the really interesting bits about having the multi-brand is, you'd see -- we've said that we wanted to be above market on deposits, we said that we wanted to be at or a little bit below for the last period on mortgages. But we did that in very, very different ways by brand, so we got to that outcome. Part of that is that we were able to manage volume and margin at the same time. Whereas, if you have 1 brand, what you really have to think about is making a very specific and explicit trade-off between the 2. So there's a sense of, a, we're quite disciplined about managing the front book versus portfolio. But b, we have the opportunity to be managing volume margin trade-offs in a far more sophisticated way than our competitors do.

Andrew Bowden

Richard?

Richard E. Wiles - Morgan Stanley, Research Division

Richard Wiles, Morgan Stanley. Brian, you said the strategy isn't a new one, but it seems you've killed the Westpac local strategy, it didn't get a mention today. Can you outline why you're deemphasizing it? Can you also let us know if you're taking some of the autonomy away from the branches that was the feature of that strategy?

Brian C. Hartzer

No. Well, that was just a matter of we've got lots of other things to talk about, so we thought we talked already plenty about local. Local is very much part of what we're doing, and Jason is rightly very proud of it, and it's something that I think gives us a real advantage. So there is no deemphasizing of local at all. It's just these are the things that we're focusing on for the future, local is really well embedded. I don't know, Jason, do you want to add anything to that?

Jason Yetton

No, thanks. Richard, not dead at all. And I think for us, it's a great foundation. We've spent a lot of time over the past 4 years, 2008 to 2012, talking about local and probably bringing back the bank manager and upskilling our banking capability around wealth, around small business, around home finance, around all those elements, but it's certainly very strong indeed. George in New Zealand, rolled out a version of local and there's an element of local for St.George, because people want to know the people that they are dealing with at the bank. They want to know the local bank manager, they want to know the local banker, they want them to know who they are, that's still a really key part of this. Hopefully, in my slides, that kind of notion that if you think it's all digital and it's all disappearing, that's certainly not playing out, in particularly, the value segments, around value, financial services interactions.

Brian C. Hartzer

I'll just actually add one more thing to that, which is that one of the things that I noticed coming here, I think historically, when I heard about local, it sounded like a copy of something else I was familiar with. But actually, what I found out coming here, is that there is a difference, and that is the caliber of the bank managers, is it's demonstrably different. And you'll really feel it when you spend time in the branches about, just the level of maturity and perspective and skill set that our bank managers bring to what they're doing, I think it's terrific.

Andrew Bowden

Andrew?

Andrew Lyons - Goldman Sachs Group Inc., Research Division

Andrew Lyons from Goldman Sachs. Brian, a big focus today around returns and how that division strategy fits within the broader group's targets. You've talked a lot about the numerator of the equation. I'll just be interested in any comments around opportunities on capital efficiency within the group, and how that will affect the denominator of the returns equation, particularly, obviously, the wealth business and perhaps, any optimization opportunities beyond what's already been done?

Brian C. Hartzer

Well, we're managing our returns carefully, as I indicated, and that does have a numerator and denominator aspects. So we are looking at where we're using capital and where we're getting good returns, and Gary, from a finance point of view, has brought more sophistication to that. On the wealth thing, we see that as an opportunity, if anything for us, Gary, maybe you can comment on that?

Gary Thursby

Yes. Specifically on the wealth side, there are some potential opportunities. We've looked at both the corporate structure we have in wealth and opportunities to bring capital to the right level. There are some differences between our wealth business and a couple of the other major banks at the moment, and there's a bit of regulator focus on that. We see either opportunity for us to leverage some of the structures that other banks have used, or the potential that the other banks have to actually come back in line with us. That's on the specific wealth side. I would say that, across our businesses, one of the important things that we've been doing, and Philip Coffey talked about this in a profit announcement a while ago, was fully allocating out the group's equity amount around our businesses. And we've been more disciplined across the AFS business, both from a customer segment and a product portfolio, to look at the way we've allocated that equity and to look for the right returns and the right potential growth in returns across the different aspects of our portfolio. And one important thing that I've focused on, is not just shuffling equity to somewhere else in the group, but getting a genuine improvement in return on the equity that were allocated and the future equity that we believe we'll need to adopt.

James Wang - Deutsche Bank AG, Research Division

It's James Wang from Deutsche Bank. Just a question on deposit-to-loan ratio, are you -- is 59% what you would consider optimal, and when lending growth does return, do you think this will impede the asset -- your aspiration for above systematic growth?

Brian C. Hartzer

Why don't you have a go at that one Gary?

Gary Thursby

59% -- is this mic on? Yes, 59% is -- it's a good part on our journey. One of the things that we've focused on heavily and we've talked about a lot in external market presentations is our focus on strength, and the deposit-to-loan ratio, both in aggregate number, we've continued to grow and we think we will continue to grow into the future. The other aspect that we're quite focused on within that deposit-to-loan ratio is actually the quality of the deposits, and that's an important factor that the regulator is considering at the moment. And so we've got one eye, again, on the future of regulation and the quality of deposits within that deposit-to-loan ratio. So it's been a good measure to bring us from the position of the past to what we consider a good, stable strong position today. We will continue to focus on it into the future and continue to improve the quality of deposit-to-loan ratio.

Andrew Bowden

Okay, with that, I think we're done with questions, so I'd like to hand it back to Brian.

Brian C. Hartzer

Well, thank you, all very much for coming. If you think -- I just wanted to round up by going back to something we said at the beginning. If you think about what banks are trying to do, we're trying to grow our core transactional MyBank customer base. And we feel really excited about the opportunities we have that's created by the brands, created by better performance management, created by better marketing and use of customer information to grow that customer base. We're trying to deepen relationships, and we're really excited about the culture and momentum we have on the wealth side, but again, the opportunities we see to achieve natural share in a number of product areas, use our data better. On retention, we've already got very strong customer net promoter scores and we've got strong retention scores and we actually, quite honestly, haven't focused mechanically as much on retention as we think we need to, so if anything we see that as a further opportunity. And then on the service quality side, we've done a great job on relationship, there's more to be done on the basics. And on the cost to serve side, we've seen how simplification is going to help us drive ongoing productivity improvements, both that will generate more revenue and reduce cost. So we feel really good about the position that we're in. As a team, I think, you see we are working really well together, we're really excited about the momentum we've created in the business and we're really excited about the opportunities we have still ahead of us, to deliver sector leading returns. So thank you all for your time. I hope you feel as excited about this business as we do.

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Source: Westpac Banking's CEO Hosts Australian Financial Services Divisional Update Conference (Transcript)

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