By David McEwen
Friday 28th February 2003
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But fix it it must. Survey after survey has revealed the poor regard in which its own customers, particularly in New Zealand, hold ANZ. But if its customers are complaining, its investors aren't. ANZ is a superb business with a long record for increasing returns to shareholders, driven by an unbroken record of earnings growth. Its earnings per share have doubled in the last five years to 147.3c. And since 1993, earnings per share have increased 1100% from 13.5c, while its after-tax profit rose from $460 million in 1993 to $2.3 billion in 2002. Almost every measure of productivity you apply to ANZ is strong and improving, whether it be return on equity (21.6% and rising) or cost to income (46% and falling).
It has achieved this through the virtuous cycle of raising revenues while lowering costs its cost-to-income ratio has been slashed by a third in the past six years. Not surprising when you consider that in 1993 ANZ had 40,277 employees, compared with 22,482 today, generating almost twice the revenue.
Why would a bank that rates poorly in consumer surveys be so successful at increasing revenue? First, not all parts of ANZ suffer from poor perception. For example, market research among medium-sized companies and large institutions has rated ANZ number one among the major Australian banks. And second, research shows personal banking customers in general will not change their banks no matter how unhappy they are because they feel locked into the relationship.
Nevertheless, unhappy customers tend to erode the bank's ability to cross-sell other products and so it must be dealt with. During the year, ANZ began a programme called Restoring Customer Faith in Victoria and New Zealand. CEO John McFarlane says the results so far are encouraging.
In the meantime, ANZ continues to make money hand over fist. In the latest year to end September 2002, it lifted after tax profit by 24% to a record $2.3 billion.
Last week the governments of New Zealand and Australia announced they expect to introduce legislation in May to help relieve the double taxation on dividends. This applies to Australian and New Zealand companies that operate in both countries. For ANZ, this will enable its New Zealand shareholders to gain some imputation credits with the dividends they receive. Just how much this will increase the yield available on ANZ shares is uncertain. But it does make for a more attractive investment.
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