UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
November 10, 2016
Commission File Number 1-10167
WESTPAC BANKING CORPORATION
(Translation of registrants name into English)
275 KENT STREET, SYDNEY, NEW SOUTH WALES 2000, AUSTRALIA
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F.
Form 20-F x Form 40-F
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
Index to Exhibits
Exhibit |
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2016 Westpac Group Annual Review & Sustainability Report |
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Westpac 2016 AGM Notice of Meeting |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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WESTPAC BANKING CORPORATION | ||
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(Registrant) | ||
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Date: November 10, 2016 |
By: |
/s/ Sean Crellin |
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Sean Crellin |
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Director Corporate, Legal and |
Exhibit 1
Proudly Supporting Australia 2016 Westpac Group Annual Review & Sustainability Report Bob Mac Smith. Fifth generation farmer and Westpac customer.
IN THIS REPORT 02 2016 HIGHLIGHTS 02 Supporting Customers 03 Supporting Shareholders 04 Supporting Employees 05 Supporting Communities 06 CHAIRMANS REPORT 12 CEOS LETTER 12 2016 financial performance 13 Profitability 14 Revenue performance 16 Expense performance and investment in growth 17 Credit costs and asset quality 18 Summary financial performance 19 Customer and market performance 19 Creating a workforce for the future 20 Bridging the trust gap 22 History and our future 22 Summary 24 SUSTAINABILITY LEADERSHIP 28 FIVE-YEAR SUMMARY 30 EXECUTIVE TEAM AND BOARD 32 REMUNERATION 33 FINANCIAL CALENDAR & CONTACT DETAILS 1851 GOLD FEVER AND NEW SETTLEMENTS LEAD TO THE BANKS EXPANSION AND GROWTH 1982 BANK OF NEW SOUTH WALES AND COMMERCIAL BANK OF AUSTRALIA MERGE TO CREATE WESTPAC 1817 GOVERNOR LACHLAN MACQUARIE ESTABLISHES THE BANK OF NEW SOUTH WALES 1861 FIRST NEW ZEALAND BRANCH OPENS IN AUCKLAND ON THE COVER Bob Mac Smith, fifth generation farmer and Westpac customer. Read Bobs story on page 23 and online via the website address below. THIS PAGE Bob Mac Smiths canola crop in the NSW Central Tablelands. 2016annualreport. westpacgroup.com.au Visit our website to read more online, including customer stories Westpac Banking Corporation ABN 33 007 457 141
For almost 200 years, Westpac has supported Australia and New Zealand. As Australias oldest company, weve been a constant thread, through the ups and downs of economic cycles as a partner in the countrys development. Our story is one of innovation, growth, resilience, and adaptation. Its why weve been in business for 200 years. As we approach our third century were continuing to transform. The community wants more from banks. And Westpac is responding: weve strengthened our balance sheet; were digitally transforming our operations and were reviewing our policies, processes and incentives to further drive our service culture. In doing so, customers can trust we have their interests at heart and if we make a mistake we will set things right. Its this attitude that will help us support customers, shareholders, employees and the community into the next 200 years. 1992 OFF THE BACK OF THE ECONOMIC DOWNTURN OF THE EARLY 1990S, WESTPAC DECLARES A LOSS OF $1.6BN, SPARKING A SIGNIFICANT RESTRUCTURE 2002 STRATEGIC RESHAPING WITH SALE OF AGC AND EXPANSION OF WEALTH MANAGEMENT, ACQUIRING ROTHSCHILD AUSTRALIA ASSET MANAGEMENT AND BT FINANCIAL GROUP 2017 8 APRIL MARKS WESTPACS 200TH ANNIVERSARY 1990s AUSTRALIAN AND NEW ZEALAND RETAIL FOOTPRINT EXPANDS WITH THE ACQUISITIONS OF CHALLENGE BANK, TRUST BANK (NZ) AND BANK OF MELBOURNE 2011 RELAUNCH BANK OF MELBOURNE 2008 WESTPAC MERGES WITH ST.GEORGE BANK To mark Westpacs 200th anniversary on 8 April, 2017 we are publishing The Westpac story, charting our history from 1817. It will be available to all shareholders online via e-book next year.
2 WESTPAC GROUP 2016 HIGHLIGHTS No.1 in Forresters 2016 Functionality Benchmark2 3 times as many across Australian 22% our expectations of what it means to deliver consistently 13 million changing customer needs Supporting Westpac Live ranking Customers1Global Mobile Banking CUSTOMER CUSTOMER COMPLIMENTS COMPLAINTS 3x 31% compliments as operations FOCUS ON GREAT SERVICE complaints3 Introduced Our Service Promise, a program of actions and commitments. Developed by our people, it defines MAKING BANKING EASIER great service in every customer interaction. of banking products sold online in Australia customersBranches redesigned to complement HELPING CUSTOMERS HELPING CUSTOMERS START OR GROW BUSINESSES ACHIEVE THEIR GOALS Our redesigned branches allow business From buying a home to starting and customers to connect with business growing a business, weve helped specialists via video conference customers achieve their goals $404bn in Australian home loans NZ$45bn in New Zealand home loans $150bn in Australian business loans NZ$29bn in New Zealand business loans $973m Life insurance in-force premiums Emily Hartmann from Bank of Melbournes Retail and Business Banking team. 1. All comparisons in this review are against results for the 12 months ended 30 September 2015 unless otherwise stated 2. Westpacs mobile banking app, Westpac Live, rated No.1 in the Forrester 2016 Global Mobile Banking Functionality Report 3. Across the Australian branch network in the second half of 2016
ANNUAL REVIEW & SUSTAINABILITY REPORT 3 8,012 $6.3bn paid in dividends in 20163 ,751 Prior year included some infrequent CASH RETURN EXPENSE TO Net Stable Funding Ratio > 100% Top quartile of banks globally for capital $99bn Westpac Group 7,820 ,063 Supporting Shareholders The Westpac Board. From left to right: Peter Hawkins, Elizabeth Bryan, Robert Elstone, Brian Hartzer, Peter Marriott, Lindsay Maxsted, Craig Dunn, Alison Deans and Ewen Crouch. Westpacs 620,0001 Shareholders BUILDING LONG-TERM VALUE comprise mainly Australian REPORTED PROFIT2 ($Millions) individuals and super funds. 7,445 7,561 ,936 Decreased by 7% on Full Year 2015. items which in aggregate increased net profit by $347 million (post tax). 14% 42% ON EQUITY INCOME RATIO ORDINARY DIVIDEND (Cents) 188 A LEADER IN STRENGTH 187 Enhanced liquidity position: 182 Liquidity Coverage Ratio 134%,20 4 166 Common equity Tier 1 capital ratio 9.48% Full Year 2016 dividends totalled 188 cents per share, up 1 cent on Full Year 2015. Gross impaired assets to gross loans 0.32% CASH EARNINGS ($Millions) 7,822 7,628 market capitalisation 6,564 A result in line with Full Year 2015. 1. 622,780 shareholders at 30 September 2016 2. Net profit attributable to the owners of Westpac Banking Corporation 3. 2016 calendar year 4. Special dividends 2016 2015 2014 2013 7 2012 2016 2015 2014 2013 174 2012 2016 2015 2014 2013 6 2012 5
4 WESTPAC GROUP 2016 HIGHLIGHTS we need the best people with a relentless focus customer service. 95% Creating an inclusive workplace that supports $4.59bn of employees use flexible work arrangements, up from 63% in 2014 WOMEN IN TARGET up to 48%, from 46% last year employees2 Supporting Employees BankSA employees Raquel Watson and Jessica Lendrum at the Noarlunga Branch in South Australia. WORKFORCE REVOLUTION EMPLOYEE ENGAGEMENT To deliver our vision,69% HIGH PERFORMER RETENTION RATE on delivering exceptional greater diversity, productivity and engagement among our people. 74% in employee payments1Women in leadership positions LEADERSHIP 50% 39,568 1. Cash earnings basis 2. 35,280 full time equivalent employees
ANNUAL REVIEW & SUSTAINABILITY REPORT 5 ,596 ARTICIPANTS IN FINANCIAL ACCESSED A ANCE PACKAGE tion will support perpetuity am launched to identify 200 promising businesses to receive business people CleanTech and environmental services sector Chief Executive Officer Chief Executive Officer of Message Stick Group; Andrew Bate, Chief Executive Officer Chief Executive Officer of Westpac Group; John Eales AM, former Australian rugby union by ears ontributions Supporting Communities P59 30 CUSTOMERS WHO FINANCIAL ASSIST Banks exist to support economic development and we have a $100m responsibility to play a positive Westpac Bicentennial Founda role in the communities in which 100 scholars every year in we operate. Businesses of Tomorrow progr direct support and intellectual ca some of Australias leading $6.2bn BRIAN HARTZER Total committed exposure to Westpac Group $1.05bn Lending to social and affordable housing sector Some of Westpacs 200 Businesses of Tomorrow mentors. Left to right: Michael McLeod, Issued $500m Westpac Climate and Managing Director of SwarmFarm Robotics; Steven Persson, Chief Executive Officer of The Big Issue; Pip Marlow, Managing Director of Microsoft Australia; Gail Kelly, former2,900 captain; Ita Buttrose AO OBE, journalist and businesswoman; and Carla Zampatti AC, Employment pathways and jobs Executive Chairman of Carla Zampatti. by social enterprises supported Westpac Foundation over two y $3.34bn income tax expens $148m community c 1. Cash earnings basis EDUCATION ,759 pital from Bond created e1
6 CHAIRMANS REPORT It has been another significant year for Westpac with the company making good progress on its strategy, materially strengthening its balance sheet and delivering sound returns. Statutory net profit was lower over the year, principally because 2015 included some positive infrequent items including asset sales. Cash earnings (our preferred measure of performance) for the year ended 30 September 2016 were little changed compared to 2015, with disciplined growth across the business contributing to 3% revenue growth. This increase was largely offset by higher impairment charges mostly related to a small number of larger companies being downgraded to impaired early in the year. While we have achieved much in 2016, the year has been somewhat overshadowed by increasing public criticism of Australias banks. It is fair to say there have been recent examples of poor behaviour in the industry and in some instances the industry has fallen short of community expectations.
ANNUAL REVIEW & SUSTAINABILITY REPORT 7 While we have achieved much in 2016, the year has been somewhat overshadowed by increasing public criticism of Australias banks Materially strengthening our balance sheet and delivering sound returns We work hard to win customers business and maintain returns for shareholders, and we must also continually work hard to maintain the trust of the community as a whole. That is why Australias banks are implementing a comprehensive suite of measures to further protect customer interests and increase transparency and accountability. These include ensuring there are no conflicts in the way staff are incentivised, further protecting whistleblowers and enhancing the handling of complaints. However, we also need to be proud of the important role banks play for Australians. The sector has not relied on capital from the government, nor has it weighed down economic activity in fact the reverse is true. It is regrettable that the debate and coverage around banks has not acknowledged these benefits and, at times, has comprised broad and ill-informed accusations. Before I share my observations on the year that has been, I would first like to offer some balance to this debate, so that shareholders are more fully informed and equipped to form their own views and contribute to the debate. As Westpacs Chairman, I see first-hand the overwhelming benefit Australian banks bring to the economy at a macro level, supporting Australias investment requirements and needs for foreign capital, and at a micro level, supporting customers to meet their financial goals. It has been globally acknowledged that Australia and New Zealand have been well served by their major banks, both during and since the GFC. You need only look at other global markets such as the UK, parts of Europe and the US to appreciate the devastating impact poorly performing banks can have on customers and economies over extended periods. Australias major banks have been well managed, have not relied on government support, and have overwhelmingly contributed positively to the nation. Here are some facts about the banking sector: The Australian banking sector was not bailed out during the GFC. Unlike many other developed nations, no taxpayer funds were injected into the Australian banks. In fact, the sector paid $4.5 billion in fees for a guarantee that was never called upon, and continued to lend and support the economy through the crisis. Australian banks pay the most income tax of any industry in Australia. With over $14 billion paid in taxes or levies in 2015, tax paid by banks accounted for nearly half of all income tax paid by companies in the ASX200. At Westpac, our effective tax rate this year was 29.9% it is clear that we pay our fair share of tax. Profitability of the Australian banks is consistent with a sector that needs to be seen as unquestionably strong. Australian banks need to be unquestionably strong to: Continue to support households and businesses through economic cycles; Support Australias current account deficit by raising funds offshore; and Invest in innovation and create a better experience for customers.
8 WESTPAC GROUP CHAIRMANS REPORT Suggestions that banks should accept lower returns or pay additional levies are misguided. These measures would only weaken the system and its ability to support the economy in economic downturns, as well as reducing the banks competitiveness in a global market. Indeed, healthy profitability is one of the key measures that international rating agencies look at when assessing a companys rating which in turn impacts the cost and availability of overseas funding to support the economy. Returns of Australian banks are in line with other leading banking systems and the market. The average return on equity (ROE) of the Australian major banks is currently around 12-15%, broadly similar to other high quality banking markets such as Canada or the Scandinavian countries. That return is above the return of the ASX200 of closer to 11% but below returns of other service industries. Australian major bank returns are above markets, such as the UK, parts of Europe and in the US. These markets are underperforming and in many respects are still recovering from the GFC, and as such are delivering performances to which we should not aspire. Separately, while Australian banks make large profits, they are in line with their size. Westpac has an asset base of around $840 billion and we make less than 1% return on those assets. Customers are paying less for their banking. There is a perception that Australian banks are charging customers more for lending and paying less for deposits today than prior to the GFC. The net interest margin is the best aggregate measure of the value banks generate from their lending and borrowing activities and that margin has been declining. For Westpac, the facts are that in 2000 our net interest margin was 3.10%, in 2006 it was 2.29% and in 2016 it was 2.13%. On 8 April 2017, Westpac will become the first company in Australia to celebrate 200 years. This is something that makes the Board, management and all our 40,000 employees incredibly proud. Westpac has supported Australia and New Zealand through the ups and downs of wars, depressions, crises and economic booms. Indeed our fortunes have mirrored those cycles. changed from the 2015 financial year. The Group uses cash earnings as a key metric for assessing performance, and is the basis on which executive performance is also determined. Westpacs success depends on the success of Australia and New Zealand. We have never lost sight of this. We work with this in mind by supporting the needs of customers, employees and communities as well as working in the long-term interests of shareholders. Building a service culture The Board plays an important role in building a deeper service culture across the organisation. It starts with our own behaviours and of course extends to holding the Group to account in how it supports customers and responds to issues. There is no doubt we have made significant progress in this respect. The 31% reduction in complaints across Australian operations over the year demonstrates our plans are working. The Board has closely monitored recent industry issues and, together with management, has sought to ensure that your company remains strongly placed. As an example, following some industry issues in financial planning and life insurance, we have asked external reviewers to look closely at our own operations; assessing our policies and practices, and our actions and responses. Not surprisingly, with a business of our size we have had a small number of examples of poor behaviour but these are isolated and, where problems have been found, the company has committed to put things right. 2016 performance Turning to performance, 2016 was a sound year in challenging circumstances. Westpac reported statutory net profit of $7,445 million, down 7% over the year. The decline in net profit was principally because 2015 included some positive infrequent items, including $665 million in gains (net of tax) associated with the partial sale of BT Investment Management. Because of the size and nature of these items, they were excluded from the calculation of cash earnings. Westpac reported cash earnings of $7,822 million for the year ended 30 September 2016, which was little The Group generated solid growth through the year, with lending rising 6% and customer deposits increasing 9%. These gains were however partially offset by a reduction in non-interest income, higher expenses, and a rise in impairment charges, or bad debts. The 3% rise in expenses through the year was principally related to an increase in investment and higher regulatory and compliance spending. Business-as-usual expenses were largely offset by productivity gains. Within expenses, I know there is much interest in our approach to executive remuneration. Similar to recent years, the Board has ensured that the starting salaries of new key management personnel are below that of the prior incumbents. Two new executives became key management personnel this year although as their start date was 1 October 2016, their salaries will not appear in our remuneration tables until next year. In addition, because of this years earnings performance, short-term incentives for the executive team are down, on average, 11% on the prior year. At the same time, long-term executive incentives did not vest this year as the hurdles set by the Board were not achieved. These long-term incentives make up around one third of each executives remuneration. Higher impairment charges principally related to a small number of larger companies being classified as impaired in the first half of the year. We monitor asset quality trends closely and Westpacs Board and management believe that the deterioration of these larger names is not indicative of a more widespread deterioration in asset quality. Where additional stress has emerged, it is principally related to those sectors and regions whose fortunes have been closely tied to the mining investment cycle. Additional stress has also emerged in New Zealand dairy, to which our exposure is modest.
ANNUAL REVIEW & SUSTAINABILITY REPORT 9 Reflecting this trend, we have increased provisioning levels and our provisioning ratios remain strong. For example, the ratio of gross impaired asset provisions to gross impaired assets is 49% and leads the sector. This means our individual provisions cover almost half of our total impaired assets. While on the topic of results, I must acknowledge the performance of the new management team and structure. Brian Hartzer has led Westpac as CEO for his first full year and our new operating structure and executive team have been in place for just over a year. The Board has been pleased with the teams performance. In particular there has undoubtedly been a further improvement in the Groups service culture and the digital transformation of the company is gaining traction. Importantly, the team has maintained the disciplines and strengths that are hallmarks of Westpac. This includes the effective management of capital, leading the market on changing pricing for more capital, appropriately provisioning for new impaired assets as well as proactively responding to community calls for change. EXPENSE TIER 1 Capital and dividends The 2016 year saw the further strengthening of our balance sheet through both additional capital and an enhanced liquidity position. After raising around $6 billion in capital in the 2015 calendar year, the Groups common equity Tier 1 capital ratio of 9.48% is above our preferred range. On an internationally comparable basis this comfortably puts us in the top quartile of banks globally. On liquidity, global regulators have been gradually introducing new measures to enhance banks ability to remain liquid in times of stress. The Australian regulator is seeking to be ahead of global trends, having already required compliance with the Liquidity Coverage Ratio in January 2015, and is looking for banks to meet the new Net Stable Funding Ratio from 1 January 2018. Today, based on current standards, Westpac is meeting both these requirements. CASH ON EQUITY (CENTS PER *special 2012 2013 2014 2015 2016 15.4 15.9 16.4 15.8 14.0 2012 2013 2014 2015 2016 2.17 2012 2013 2014 2015 2016 41.1 41.2 41.6 42.0 42.0 2012 2013 2014 2015 2016 2.17 2.15 2.08 2.08 2.13 1.60 1.24 0.99 1.20 14.0% 12.4% 11.8% 15.2% 2015 2016 121 134 2012 2013 2014 2015 2016 8.2 9.1 9.0 9.5 9.5 2012 2013 2014 2015 2016 214.8 227.8 245.4 248.2 235.5 20* RETURNS OF AUSTRALIAN BANKS IN LINE WITH ASX SEGMENTS (RETURN ON EQUITY) Westpac Market ex Resources Industrials Australian companies with international earnings Source: Macquarie Securities TOTAL SHAREHOLDER RETURN WESTPAC ASX ALL ORDINARIES 1 YEAR 6.3%14.0% 3 YEARS 7.8%20.5% 5 YEARS 90.5% 68.8% 10 YEARS 100.0% 65.6% Source: IRESS PERFORMANCE METRICS CASH EARNINGS BASIS EARNINGS CASH EARNINGS MARGINS PER NET ORDINARY INTEREST SHARE1 MARGIN (%) (CENTS) CAPITAL COMMON EFFICIENCY EQUITY TO INCOME CAPITAL RATIO (%) RATIO (%) ASSET QUALITY STRESSED ASSETS TO TOTAL COMMITTED LIQUIDITY EXPOSURES COVERAGE (%) RATIO (%) RETURNS DIVIDENDS RETURN SHARE) (%) dividend 1. Comparative information has been restated to incorporate bonus elements of the November 2015 capital raising in the weighted average number of ordinary shares 2014 182 2015 187 2016 188 2012 166 2013 174
10 WESTPAC GROUP CHAIRMANS REPORT $16.5bn interest paid, including to depositors Where Westpacs $37.7bn 2016 gross operating income1 As I indicated in last years report, this strengthening of our balance sheet has come at a cost, increasing our shareholders equity, lifting shares on issue and incurring additional costs associated with our strengthened liquidity. These changes have impacted earnings, and particularly Westpacs return on equity (ROE) and earnings per share. Reflecting the significant increase in shares on issue through the year, our cash earnings per share of 235.5 cents was down 5% over the year while the Groups ROE was 14.0%, down from 15.8% in 2015. The Groups earnings, combined with our strong capital position (the common equity Tier 1 ratio of 9.48% is some 23 basis points above the top of the Groups preferred range of 8.75 9.25%) has enabled the Board to determine a final ordinary dividend of 94 cents per share, fully franked. This dividend rate was unchanged from the 2016 interim ordinary dividend of 94 cents per share. Full year dividends totalled 188 cents per share up 1 cent or 0.5% relative to Full Year 2015. The final ordinary dividend represents a payout ratio of 80.3% (Full Year 2016 80.3%). Allowing for shares to be issued under the DRP, the percentage of second half 2016 cash earnings paid out is estimated to be around 72%. The 94 cent per share dividend represents a dividend yield of 6.4% based on the closing share price at 30 September 2016 of $29.51, or over 9% after adjusting for franking. dividend payments but we must continue to anchor our decision to a long-term sustainable position. Board composition The Board and management teams have been stable over the year. There were no changes to the Board, although subsequent to 30 September 2016, Elizabeth Bryan has decided that she will retire at the conclusion of our 2016 Annual General Meeting on 9 December 2016. The final ordinary dividend will be paid on 21 December 2016 with the record date of 15 November 2016. Elizabeth has been a great director making an outstanding contribution to the board over her 10 year tenure. She was a source of stability through the financial crisis, including serving on the important Board Risk Management Committee (now the Board Risk and Compliance Committee). Elizabeth has been an exceptional Chairman of this key committee since 2010. In addition to Elizabeths director experience, her deep understanding of the wealth management industry has also been a great asset to the Board. We recognise the importance of dividends for shareholders, and the franking credits attached to those dividends. Our approach is to continue to make dividend payments that are sustainable in the long-term; that is, ensuring we retain enough of our earnings to hold our capital levels while also retaining sufficient capital for growth. It is also about maximising the payment to distribute franking credits. We are prepared to wear some volatility in the payout ratio to give shareholders some consistency in SHARING RETURNS income goes $4.6bn employee payments $3.3bn income tax expense $6.3bn dividends to 620,000 shareholders $4.3bn other expenses, mainly suppliers $1.6bn retained for growth $1.1bn impairment charges, to cover bad debts 1. Gross operating income comprises total interest income and non-interest income on a cash earnings basis
ANNUAL REVIEW & SUSTAINABILITY REPORT 11 We approach our 200th anniversary in great shape Succession planning for new directors is continually discussed by the Board. We expect to be able to conclude discussions and announce the appointment of two non-executive directors in the first half of 2017, who will add further strength and diversity to your Board. These settings, combined with persistent low inflation and low interest rates, will likely lead to similar system lending and deposit activity in 2017 as in 2016. How growth evolves for banks will also depend on regulatory requirements including for capital and liquidity. working diligently to respond to community expectations and rebuild trust. 2017 will be an exciting year for Westpac. In addition to the significant changes taking place in banking, 2017 will mark our 200th anniversary a milestone that is generating great excitement and pride across the Group. We approach our 200th anniversary in great shape, a position of which our past Chairmen would be proud. Westpac is strong, our strategy is delivering, our operating divisions are well placed and our 40,000 employees are passionate about helping customers reach their financial goals. With this foundation, we expect to continue generating long-term value and sound returns for shareholders for many years to come. Outlook Our outlook for the Australian and New Zealand economies remains positive and while growth remains a little uneven across States, the fundamentals remain sound. The relatively low level of the Australian dollar and low interest rates have supported good growth in the services sector (particularly health, education and tourism), a rise in residential and infrastructure investment, and improved net exports. These gains have offset the slowdown in mining investment. Asset quality is expected to remain sound in the year ahead, although it is likely that additional stress will continue to emerge in sectors and regions undergoing some structural change. With the banking sector in strong shape, competition is also expected to remain intense. Summary It has been a challenging year for the banking sector given the evolving operating environment. This has included changes to capital and liquidity requirements, strong competition and increased criticism of how customers have been treated. Westpac has responded to these changes by materially strengthening our balance sheet for capital and liquidity purposes while These trends are expected to broadly continue in the year ahead with Australias GDP growth expected to grow a little ahead of 3% with unemployment likely to hold below 6%. LINDSAY MAXSTED Chairman Westpac Group
12 WESTPAC GROUP CEOS LETTER Weve prioritised strength, delivered a solid result and made significant progress on transforming the Group Australias first bank demographic, cultural, and politicalso too Dear fellow shareholders the centurieseconomic, environmental, And, given all the negative political and media attention paid to the banking industry in recent months, Id like to add a few further thoughts to those of our Chairman on the industrys reputation and what we are doing to close what Ive been referring to as the trust gap. As part of this, Ive included several real customer stories that I believe highlight the sort of company that Westpac is today. 2016 financial performance As in every year, our highest priority is to maintain the strength of our balance sheet. This financial year we took significant steps to increase our equity capital basethrough an entitlement offer raising $3.5 billionwhich followed other initiatives last financial year, including the underwritten dividend reinvestment plan in May 2015 and the partial sale of BT Investment Management (BTIM). As a result, our common equity Tier 1 ratio stands at 9.5%, or 14.4% on an internationally comparable basisone of the highest ratios of any large bank in the world. Two hundred years ago this month, on the 22nd of November 1816, a group of prominent Sydney business people met formally for the first time to consider Governor Lachlan Macquaries request that they advise him on how to create a local currency for the still-new colony. we at Westpac have constantly adapted to support the economic development of these nations. We reflect this role in our vision statement: To be one of the worlds great service companies, helping our customers, communities, and people to prosper and grow. In last years letter I outlined our strategy to fulfil this vision, and why we believe that a strategy focused on service is the right response to our rapidly changing environment. Our strategy has not changed, and because we have the right business mix and are not burdened with major underperforming or non-core businesses weve been firmly focused on implementation. This year my aim, once again, is to give you a candid assessment of our performance, as well as update you on our strategic progress and provide my perspective on the challenges and priorities for the next period. The request reflected Governor Macquaries desire to build a strong, independent economyan objective that was not shared by his colonial overseers in London. The groups responsethat to have a currency, the colony needed its own bank led to the founding in April 1817 of the Bank of New South Wales: Australias first company, and first bank. Since that first meeting 200 years ago, the company we now call Westpac has always recognised that our success is inexorably tied to the prosperity of the local economy, through the success of our customers. As our home communities of Australia and New Zealand have faced and responded to many challenges over
ANNUAL REVIEW & SUSTAINABILITY REPORT 13 We strengthened our funding mix, with customer deposits rising 9% to comprise 70.5% of loans. The average tenor of wholesale funding raised this year was 5.4 years, up from less than 5 years in 2015, and our Liquidity Coverage Ratio (LCR) reached 134%an important regulatory measure of our ability to absorb market shocks. We also assessed our Net Stable Funding Ratio (NSFR) as exceeding 100%a milestone set by APRA (our key prudential regulator) that all banks must achieve by the beginning of the 2018 calendar year. Profitability Turning to profit, cash earnings for the Westpac Groupour preferred performance measurewas $7,822 million compared to $7,820 million for Full Year 2015. Earnings per share fell 5% to 235.5 cents, reflecting the significant increase in capital issued over the last 12 months. Return on equity (ROE) was also lower at 14.0%, down from 15.8% in 2015.
14 WESTPAC GROUP CEOS LETTER OUR VISION STRATEGIC PRIORITIES A SUSTAINABLE FUTURE To be one of the worlds great service companies, helping our customers, communities and people to prosper and grow. PERFORMANCE DISCIPLINE Managing our business in a balanced and disciplined way to be recognised as the regions best-performing bank. BETTER FINANCIAL FUTURES Help customers have a better relationship with money. SERVICE LEADERSHIP Through our service revolution, help customers achieve their goals. DIGITAL TRANSFORMATION Continue to invest in digitisation and use technology to redesign and enhance the customer experience. TARGETED GROWTH Direct investment towards the areas that offer the greatest growth including wealth and SME. WORKFORCE REVOLUTION Employ and retain the best people with a culture that helps them succeed. ENVIRONMENTAL SOLUTIONS Help find solutions to environmental challenges. EMBRACING SOCIETAL CHANGE Help improve the way people work and live as society changes. On a reported basis, Westpacs net profit was $7,445 million, down 7% over the year. The difference between cash earnings and reported profit reflects a number of infrequent items that, in aggregate, boosted reported profit by $375 million in 2015 (but were excluded from the calculation of cash earnings in that year). These items included gains associated with the partial sale of BTIM and tax benefits linked to the acquisition of Lloyds Australia in 2014, partially offset by a reduction in capitalised software charges following a review of how we account for some technology investments. While these results are lower than wed like, the flat cash earnings growth masks the fact that below the surface we were doing a lot of paddlingand making real progress. Its also worth noting that these results took place in an environment that was difficult for banks, with more financial headwinds than we expected at the start of the year. Interest rates were lower, which is a significant drag on earnings for a bank like Westpac. Global financial market conditions also contributed to reduced customer activity for our institutional business. At the same time, regulatory and legal costs were higher, as we responded to an increased number of requests by regulators both at home and abroad. And, after a number of years of very low credit lossesindeed, net write-backsin our Institutional business, we saw a small number of relatively large names get into difficulty. This meant that we increased our credit provisions substantially in Westpac Institutional Bank (WIB)an occasional feature of being in this business, but a drag on earnings nonetheless. deposit growth of 9%, and a 5 basis point improvement in our net interest margin. Its worth noting that the net interest margin picture is complex; encompassing changes across our entire suite of lending, deposit, and wholesale borrowing costs, as well as changing capital and liquidity requirements from our regulators. Although there has been a lot of media and political attention on our pricing of late, the fact remains that our margin has come down over the last ten years. Ten years ago the net interest margin was 2.29%; five years ago it was 2.22%, and this year it averaged 2.13%while the second half margin was a bit lower still at 2.11%. The perception that we have repriced loans to lift the overall margin fails to consider all the movements across our entire balance sheet, and how we seek to balance the impact of these movements across borrowers, depositors, and shareholders. Setting aside the margin picture, net interest income growth reflected strong performance in our Consumer and Business Revenue performance1 Looking within the result, operating income for the group increased 3%, with net interest income growth of 8% partially offset by lower non-interest income. The growth in net interest income was driven by loan growth of 6%, customer 1. On a cash earnings basis
ANNUAL REVIEW & SUSTAINABILITY REPORT 15 FINANCIAL PERFORMANCE MOVEMENT IN CASH EARNINGS 1,109 (446) (263) Cash earnings were little changed in the year. The Group achieved disciplined growth across the business, particularly in areas such as home lending, SME lending and customer deposits which lifted net interest income. Non-interest income was lower particularly across our wealth and institutional businesses. Expenses were well managed with business as usual costs largely offset by productivity increases. Most of the rise in expenses was due to higher regulatory and compliance spending along with increased investment. Asset quality remains sound although a small number of larger names were downgraded to impaired in the first half of the year and this led to a rise in impairment charges. (371) (27) 7,822 7,820 Full Year 2015 Net interest income Non-interest income Expenses Impairment charges Tax and non-controlling interests Full Year 2016 INTEREST RATES AND FUNDING $404bn AUSTRALIAN HOME LOANS In funding loans to customers, Westpac draws from three main sources: customer deposits, wholesale funding and equity. The rates we pay on each of these sources of funds is determined by market forces within each category. While the Reserve Bank of Australias cash rate is a market indicator, banks do not borrow money at that rate. Moreover, the relationship between the cash rate and the rates we pay over time varies. Prior to the GFC for example term deposit rates were generally below the cash rate. Today, those taking out a term deposit can often receive a rate well above the cash rate. We set our lending rates based on our funding costs, ensuring we earn an appropriate return for shareholders and for the risk we take every time we lend money. It is a balancing act and we need to consider the needs of borrowers, depositors and shareholders. As interest rates fall this has become even harder. We understand that these decisions impact people but feel we achieved the right balance this year. $ 150bn AUSTRALIAN BUSINESS LOANS $23bn AUSTRALIAN PERSONAL LOANS NEW ZEALAND $ 72bn 1 LOANS $662bn TOTAL LOANS OTHER OVERSEAS $ 13bn 1 LOANS 16 61% 31% 8% FUNDING MIX 766bn2 + + WHOLESALE FUNDING SHORT TERM LONG TERM SECURITISATION $241bn CUSTOMER DEPOSITS TERM DEPOSITS SAVINGS $467bn SHARE-HOLDERS EQUITY $58bn 1. A$ 2. Funding for loans and liquidity Lending up 6%, customer deposits up 9%. Margins up 5bps Solid franchise growth in wealth offset by reduced income from the partial sale of BTIM, and lower institutional banking fees Costs up 3% with the cost to income ratio stable at 42% Asset quality sound. Some increase in stress in mining-related regions and higher impairments from a small number of larger companies Effective tax rate at 30%
16 WESTPAC GROUP CEOS LETTER Bank divisions. Australian mortgages grew $28 billion, or 8% year-on-year. We grew our share in mortgages, despite the imposition by APRA of a cap on investor property lending and certain other regulatory adjustments to underwriting standards. The net result of these and other changes was to more evenly balance home loan growth across owner-occupied and investor lending. Small business lendingone of our key focus areasalso grew strongly, with loans up 8% over the year. This reflects the benefit from our new online loan origination platform, LOLA, and the use of video conferencing to immediately connect customers with business specialists in areas like transaction banking, trade, and merchant (credit card) processing. Herb Smiths story illustrates how customers can now walk into their local branch and connect with experts to help them reach their goals. regions. However, a highly competitive market for both deposits and loans put significant pressure on the net interest margin in New Zealand, which fell sharply in the first half (although there are signs of stabilisation in the second half of the year). In WIB, the ongoing phenomenon of quantitative easing by central banks around the world has continued to put pressure on margins for institutional lending here in Australiaas global banks from markets with low to zero interest rates seek higher returns elsewhere. In this environment, we are focusing on managing return and margins while preserving our most important long-term transactional and lending relationships. As a consequence, we stood back from a number of large transactions in the market (especially in commercial property and trade finance), and overall lending fell 3% an outcome we are comfortable with. sales, the partial sale of our investment in BTIM, as well as reduced customer activity in WIB. At the same time, the Consumer Bank experienced a regulated reduction in interchange income on credit cards. Expense performance and investment in growth Given the lower revenue environment this year, weve remained disciplined on our expenses while continuing to invest in ways that will drive a step-change in long-term productivity. Essentially our goal is to neutralise ordinary expense growth through disciplined productivity initiatives, so that most of the net growth in expenses is investment-related. This year we achieved $263 million in productivity savings (3% of our cost base) including through digitising processes, further reconfiguring our network and renegotiating major contracts. Given our flat financial performance, this included a reduction of around 10% in the overall variable incentives paid to our senior employees. New Zealands loan book grew strongly across both business and consumer lending, at 9%1 over the year. This growth was broad-based across industries and 1. In NZ$ The other key driver of our revenue result was non-interest income, which was down $446 million over the year. Much of the decline was due to lower gains on asset
ANNUAL REVIEW & SUSTAINABILITY REPORT 17 HERB SMITH GIVING BUSINESSES WINGS Through his new business, Dreamtime Tuka, Herb Smith is bringing to life a long-held dream. As custodian of his grandmothers recipes, he is taking her famous lemon myrtle biscuits to the world. After a 32 year career in the police force, Herb returned to his hometown of Wellington in country NSW with the idea to create a range of Australian bush food. With the support of Westpac, Herb has started big. After securing a contract with Qantas, Herb is extending his range and growing Dreamtime Tuka. And hes taking his community with him. AUROR CONNECTING DATA TO FIGHT CRIME New Zealand-based start-up, Auror, is harnessing data to fight crime. Auror has developed powerful software that is changing the approach to crime prevention and enforcement in New Zealand. Their system has been adopted by the New Zealand Police Force and more than 500 retailers and is already making a dent in small crime. Backed by Westpacs Reinventure Fund, Auror is exploring ways to help Westpac customers and launch their crime-fighting tool in Australia. From left: Phil Thomson and Tom Batterbury To read more about these stories please go to 2016annualreport.westpacgroup.com.au At the same time, we materially increased our strategic investments in service and productivity; with an annual spend of $1.2 billion against last years total of around $1 billion. This meant that total expenses grew 3% and our cost-to-income ratio was maintained at 42%a number that we aim to drive below 40% in coming years. We are also investing in technology to transform customer experiences and further strengthen our core infrastructure. In New Zealand, after a significant upgrade to our online platform last year, weve rolled out several new innovationsmost recently the CashNAV mobile app developed in conjunction with fintech leader Moven. This app allows customers to better track and manage their spending. We also achieved a significant technology milestone this year with the upgrade of our deposit and transaction system for St.Georgecalled Celeriti. This system will ultimately serve as our single transaction and deposit platform for all our consumer and business relationships. In BTFG, our new wealth platform, Panorama, has achieved a number of development milestones, and balances are beginning to grow on the platform. We believe this system will give us a significant functionality and cost advantage in the high-growth wealth business in years to come. With a wide variety of fintech firms emerging we are keeping an eye on developments and are selectively investing in new models that have the potential to disrupt traditional banking. We are partnering with businesses in areas as diverse as blockchain, quantum security, and digital mortgage broking. We have also separately invested $100 million in Reinventure, a venture capital fund that directly invests in fintech businesses with the potential to make a significant impact in Australia. The fund currently has 11 investments, including data marketplace platform Data Republic, employee platform provider Flare HR, peer-to-peer lender Society One, and crime prevention software provider Auror, which you can read about in more detail above. Credit costs and asset quality The other major impact on our earnings was credit provisions, with impairment charges up 49% to $1,124 million. Much of the rise was due to single names mentioned earlier. We take a conservative approach to such facilities and therefore significantly increased the provisioning associated with each. Setting aside these large impairments, overall asset quality is in good shape: stressed assets to total committed exposures were low at 1.20%. This is more than 60% below financial crisis levels in 2010. There has been a small rise in stress through the year in certain sectors and regions impacted by the slowing in mining investment along with some challenges in New Zealand dairy, but in our judgment these trends dont indicate a broader deterioration in quality. Although there has been some commentary recently about credit risks in commercial property and housing, we remain very comfortable with our book,
18 WESTPAC GROUP CEOS LETTER thanks in part to actions we took in previous years. In commercial property, for example, back in 2012 we identified regions where residential apartment supply looked to be increasing too rapidly, and in response we further tightened our lending criteria. Those decisions have proven to be prudent, with those same regions now being flagged as oversupplied. There is no doubt that house prices are high and customers are more leveraged. But we believe that, with a few localised exceptions, market conditions reflect the impact of lower interest rates along with genuine supply and demand imbalances, rather than being fuelled by excessive speculation or an easing in lending standards. Therefore, we do not subscribe to the view that there is a housing bubble. Elsewhere in the portfolio we have had some concerns on the New Zealand dairy industry given depressed global milk prices, but efforts of farmers to re-align their cost basesalong with recent improvements in milk priceshave alleviated some of our concern. In consumer lending we have seen a small rise in mortgage 90+ day delinquencies, but these tend to be concentrated in regions affected by the slowdown in mining investment mentioned above, and overall remain within our normal tolerance levels. In fact, of the 1.5 million mortgages we have outstanding, there are only 262 houses that are currently in possessionwhich is a very low level in absolute terms and relative to history. Summaryfinancial performance Taking all of these factors into account, the combination of earnings and capital/ funding actions meant that we finished the year with a much stronger balance sheet than we started. For our shareholders, this meant that we have continued to grow the net tangible assets per share by 7% or 88 cents per sharean important measure of intrinsic value. Including total dividends paid and share price movements, total shareholder return for the 2016 financial year was 6.3%. This compares with the average total return for the banking sector of 6.2% over the same period. 812m1 DIVISIONAL CONTRIBUTION TO WESTPAC GROUP CASH EARNINGS $7,822m CONSUMER BANK Sales and customer service to consumer customers in Australia $2,981m BUSINESS BANK Sales and customer service to small-to-medium enterprise, commercial and agribusiness customers $1,999m BT FINANCIAL GROUP Westpacs Australian wealth and insurance business $876m WESTPAC INSTITUTIONAL BANK Sales and service to commercial, corporate, institutional and government customers $1,098m WESTPAC NEW ZEALAND Sales and service of banking, wealth, and insurance products for consumer, business and institutional customers across New Zealand $ 1. NZ$872m
ANNUAL REVIEW & SUSTAINABILITY REPORT 19 The Business Bank also performed well, with core earnings growth of 5% over the year. Market share increased across SME and in the merchant credit cards, to the point where around 50% of Australian businesses now have a banking relationship with the Westpac Group. While customer satisfaction3 in the Business Bank was down slightly from 7.4 to 7.3, we continue to be ranked number 1 for total Business in NPS4. During the year we rolled out a new online banking system for St.George business customers, significantly improving service, and our online loan origination platform, LOLA, is now processing two out of every three eligible loans. We also rolled out around 127,000 merchant terminals which are all enabled with market-leading contactless tap and go functionality. Despite the good core earnings growth, higher impairment charges meant that cash earnings in this business rose by a more modest 1%. The main driver of the increased provisions was the fact that we had lower write-backs than in previous years; we also had an increase in provisions in auto finance. Overall, however, credit quality in this business remains sound. BTFG continued to see good underlying growth in its business, with FUM and FUA balances growing 5% and 7% respectively, while insurance premiums were also higher. However a number of specific issues reduced reported cash earnings by 4%; adjusting for the partial sale of BTIM, cash earnings would have been down 2%. The other issues holding back BTFGs earnings this year included the impact of higher claims and lower renewals in Insurance, currency movements in Ascalon (our boutique funds management investor), and higher regulatory costs. As discussed earlier, WIB cash earnings were down $245 million, reflecting higher impairment charges and our decision to focus on return rather than growth in a difficult market. Despite this, WIB grew its core customer base this year, continuing to invest in service quality and grow its leading position in transaction banking. WIB changed its operating model to increase the focus on service and reduce its cost base which has set the business up for improved performance in the years ahead. Full Year 2016 has been a year of change for Westpac New Zealand with the start of a major transformation program and the relaunch of its brand. Cash earnings for the division were lower over the year, down 4% in $NZ, principally due to the highly competitive market for home loans, and costs associated with its transformation program. While the overall financial result is below what we would like, I am confident that David McLean and his refreshed management team are taking the steps necessary to deliver a significant lift in service and cost efficiency in the years ahead. In summary, we are well underway with our Service Revolution, making real steps towards delivering world-class service, digitising our business, and building a culture that puts a dedication to helping at the heart of a truly sustainable business. Creating a workforce for the future The environment in which our 40,000 people are working is changing. This includes how customers wish to interact with us, changes in daily work tasks, and expectations around diversity and flexibility. Public scrutiny of culture across the sector has also intensified. With this in mind, we have been working hard to find new ways to build the workforce of the future: where people with diverse backgrounds can adapt to change and, importantly, maintain a relentless focus on providing exceptional service. Customer and market performance As part of our service strategy we changed our organisational structure in 2015 to better align with our customer segments. This led to the creation of two new divisions: Consumer Bank, with end-to-end accountability for consumer banking relationships across both Westpac and our regional brands; and Business Bank, which serves commercial and small business customers. The structures of BT Financial Group (BTFG), WIB, and Westpac New Zealand remained largely unchanged. This is the first year we are reporting under our new structure and comparative financials have been restated to compare like for like. The Consumer Bank performed strongly this year. In total, more than 500,000 new customers joined us, contributing to net customer growth of 3% and helping to lift cash earnings by 14%. From a service point of view, the outcomes were mixed. Customer satisfaction for the Consumer Bank was down a little, from 83.8% to 81.3%1. When we look beneath that overall survey resultwhich has almost certainly been negatively impacted by the general media climate for bankswe see substantial improvements in how customers rate their direct experience with us. For example, the net promoter score (NPS) across our call centres rose from 65.5 to 68.1 and branch NPS2 for St.George, Bank of Melbourne and BankSA for instance grew from 55 to 57 over the year. Complaints in the Consumer Bank reduced by 29%, and over the last quarter we recorded three times as many compliments as complaints in our branch network. One particular area of focus has been on digital service, where we saw an increase in digital logins of 11%; digital channels now represent 23% of sales. Our Westpac Live mobile application was rated No.1 in the world by Forrester Research, reflecting the work underway to transform our digital capabilities and position Westpac as the best in class digital customer service bank. In fact, we introduced more than 180 new features and enhancements across our digital channels this year. For example, customers can now activate a credit card using their phones camera, or manage a term deposit rollover, all without having to visit a branch. 1. Source: Roy Morgan Research, September 2015 2016, 6MMA. Westpac Group Main Financial Institution (as defined by the customer). Satisfaction ratings are based on the relationship with the financial institution. Customers must have at least a Deposit/Transaction account relationship with the institution and are aged 14 or over. Satisfaction is the percentage of customers who answered Very or Fairly satisfied with their overall relationship with their MFI. 2. Internal NPS, September 2015 2016, 6MMA. 3. Source: DBM Consultants Business Financial Services Monitor, September 2015 2016, 6MMA. MFI customers, all businesses. The Customer Satisfaction score is an average of customer satisfaction ratings of the customers main financial institution for business banking on a scale of 0 to 10 (0 means extremely dissatisfied and 10 means extremely satisfied). 4. Source: DBM Consultants Business Financial Services Monitor, September 2015 2016, 6MMA. Westpac Group, MFI customers, all businesses. Net Promoter Score measures the net likelihood of recommendation to others of the customers main financial institution. Net Promoter ScoreSM is a trademark of Bain & Co Inc., Satmetrix Systems, Inc., and Mr Frederick Reichheld. Using a scale of 0 to 10 (0 means extremely unlikely and 10 means extremely likely), the 0-6 raters (detractors) are deducted from the 9-10 raters (promoters). The ranking refers to Westpac Groups position relative to the other three major Australian banking groups (ANZ Group, CBA Group and NAB Group).
20 WESTPAC GROUP CEOS LETTER As part of this, our flagship initiative during the year was the introduction of Our Service Promise, a set of principles and practices that clearly defines our expectations of what it means to deliver great serviceconsistently. During the year, we conducted a survey which showed an employee engagement score of 69%. While this was a good outcome, it is below the high bar of global best practice a benchmark to which we aspire. Given the amount of change in our organisation this year, the result was not a surprise; but nevertheless weve listened to feedback and are already rolling out a number of actions to address those areas our employees told us needed to improve. Our new city-based corporate offices are now providing more than 10,000 employees with some of the worlds best physical environments, tools, and technologies, and a new way of working that is driving greater agility, mobility, and productivity. We also continued to foster a more diverse and inclusive workplace, delivering some excellent results during the year. This included an increase in the number of women in leadership positions to 48% up from 46% last yearwhich brings us closer to our target of 50% by 2017; and an increase in the cultural diversity of our employees. Notably, the percentage of employees who self-identify as Indigenous Australians increased to more than 4%, which is greater than the proportion in the broader Australian population. Kate Holloways story shows how employees are applying our approach to diversity and flexibility to help solve customer issues and better meet their needs. That leads me to the final issue I wanted to address in this years letter. Bridging the trust gap Trust is fundamental to the service we provide. For us to fulfil our role, customers need to trust that we are acting in their interests; that our advice is honest; and that their money is safe. We recognise that there have been times when we have not met customers expectations and this has contributed to a trust gap between the community and the banking sector. We are working hard to rebuild that trust. There has been an increase in public and political scrutiny, with calls for further regulation and investigations into Australian banking activityincluding a potential Royal Commission on conduct in the banking and financial services sector. A number of banks also face individual challenges, such as the civil proceedings in Federal Court commenced by ASIC in April this year, which allege manipulation of the Bank Bill Swap Rate between the period 6 April 2010 and 6 June 2012. We dont accept ASICs allegations and think this complex matter is now best resolved by the Courts. In our Code of Conduct we commit to doing the right thing by customers. Given the changing environment and need to build trust were implementing a number of
ANNUAL REVIEW & SUSTAINABILITY REPORT 21 Trust is fundamental to the service we provide KATE HOLLOWAY EMPLOYEES IDEA HELPS WORKING FAMILIES While Westpac employee Kate Holloway was on parental leave, she kept hearing of people having trouble getting a home loan because banks didnt recognise their parental leave entitlements or return to work income in their borrowing capacity. When she returned to work, Kate decided to speak up and see what could be done. As a result, Westpac is the first bank to recognise paid parental leave and return to work income as standard operating procedure when assessing a persons capacity to make home loan repayments. Now hundreds of families are benefiting from this change. To read more about this story please go to 2016annualreport.westpacgroup.com.au programs to ensure our products, policies, reward frameworks and processes are even more closely aligned to customers interests. As part of this program we have: appointed an independent customer advocate, Adrian Ahern, who is empowered to resolve customer issues and overturn decisions made by our dispute resolution processes; introduced new criteria to be applied to our products to confirm theyre fair for customers. A new governance committee assesses the application of these criteria; and reviewed our Whistleblower Protection Policy and approach, to ensure people feel comfortable to speak up and question practices when they dont seem right, and provide a safe environment for them to do so. Westpacs principles are clear: when something doesnt measure up, we change it. When we find a problem, we fix it, so that it doesnt happen again. And were open about the issues we find. At an employee level, were changing our remuneration frameworks to ensure we reward our people based on the value and outcomes delivered to customers. In November 2016, we were the first bank to remove all product related incentives across our 2,000 tellers in the Westpac branch network. Their incentives are now based entirely on the quality of service customers receive. We have increased transparency in financial planning and remain the only company to invite customers to publicly rate the service provided by our financial planners via the online Adviser View. We were also early movers in removing commissions paid to financial planners back in 2014, and are now revisiting the way we reward other specialised sales roles. Similarly, we have led the market on educational standards for financial advisers, and our current requirements are above the new standards recently proposed by the Federal Government. Over the year, a range of financial issues emerged for some of our peers across financial planning and insurance. We have thoroughly investigated our own operations and while we are not perfect, I can assure you that our record in this area is strong: BTFG has been a role model in seeking to genuinely help customers manage and protect their wealth. To bring this to life, the experience of Bob Mac Smith is similar to many other stories I have heard across our organisation. At an industry-level, we publicly committed to implement six areas of industry reform the Australian Bankers Associations (ABA) 6-point plan. The plans aim is to protect customer interests and increase transparency and accountability across the industry. As CEO, I know our people overwhelmingly set out to do the right thing by customers, and I want customers and the community to be confident of that too. The contract we hold with customers is one weve never taken for granted: Customers trust us to help them live the lives they want; to grow; to be more secure; and to be better off.
22 WESTPAC GROUP CEOS LETTER By focusing on customer needs, delivering world-class service, and measuring our success on customers success, I believe we have a business strategy that will, in time, help us to restore trust. History and our future As I mentioned at the outset, Westpac is fast approaching its 200th anniversary. Its an exciting time to be part of this organisation; a time to reflect on our past and recognise our successes. But more importantly, we are looking to the future and positioning Westpac for its third century. During the year we invested in the people, businesses, and community organisations that are helping to shape our nation. Our $100 million Westpac Bicentennial Foundation is on track to award its 200th scholarship and will continue to add 100 scholars to the alumni every year, in perpetuity. We also launched the Westpac Businesses of Tomorrow program to identify 200 promising businesses that will receive direct support and intellectual capital from some of Australias leading business people. At the same time, the grants awarded by the Westpac Foundation have helped create more than 2,900 employment pathways for Australians experiencing disadvantage, and the number of businesses set up or expanded with support from Westpacs microfinance partner, Many Rivers, exceeded 1,000. Our total committed exposure to the CleanTech and environmental services sector reached $6.2 billion, directed to activities such as generating renewable energy and developing green buildings. Over the past five years, we have increased the proportion of renewable energy financing in our total electricity generation portfolio from 45% to 59%. We also brought to market a $500 million Westpac Climate Bond and an Energy Efficiency Finance Program. These are important steps in supporting the shift to a more sustainable economic model that is less dependent on fossil fuels. This demonstrates our commitment to supporting the transition to an economy that limits global warming to less than two degrees above pre-industrial levels. Our lending to help grow the stock of social and affordable housing grew to $1.05 billion, as we look to play our part in addressing the shortage of affordable housing. That means ensuring our business is strong, our strategy is right, and that we are continuing to support our customers, shareholders, employees and the broader community. It also means taking a leadership role in tackling emerging issues that we believe will affect future prosperity. Its this approach that has contributed to Westpac being namedfor the third year in a rowthe most sustainable bank in the world in the Dow Jones Sustainability Indices Review. This marks the ninth time we have topped this global annual index. Summary It is an exciting time to be in banking. The industry is highly competitive, our operating environment remains challenging and we face increased regulatory and public scrutiny. However, with change comes opportunity and we are already responding and adapting across all elements of the business. From left to right: Tony Rodd, Bob Mac Smith and Hamish McDouall
ANNUAL REVIEW & SUSTAINABILITY REPORT 23 BOB MAC SMITH FIVE GENERATIONS OF SUPPORT Fifth generation farmer, Bob Mac Smith, has seen his fair share of ups and downs as he, his brother and their families have transformed their family farm into an industry. These business challenges were nothing compared to when a routine skin check revealed he had melanoma. When Bobs local relationship manager, Tony Rodd, and financial planner, Hamish McDouall, heard the news they swung into action to see how they could help. Bob knew he had trauma insurance but the team dug deeper and worked out Bob was eligible for another claim. Bob has been in remission for over three years and donated the proceeds from his second claim to the Melanoma Institute of Australia. ANTONIO TRICOLI FIGHTING AUSTRALIAS NATIONAL CANCER Early career researcher Associate Professor Antonio Tricoli was one of the first 100 Westpac Scholars selected by the newly established Westpac Bicentennial Foundation. His Westpac Research Fellowship, co-funded by The Australian National University, is helping to fund his dream of applying nanotechnology to fight Australias national cancer, melanoma. To read more about these stories please go to 2016annualreport.westpacgroup.com.au Our service-led strategy is right for the times. We have strengthened our business and are committed to transforming our operations in ways that will give us a sustainable competitive advantage and bring benefits to all of our stakeholders. As we enter our third century of business, my executive team and I are proud to lead a company that is dedicated to serving our customers and our communities and is committed to operating with courage and integrity. As a result were confident that we will continue to deliver growth, returns, and stability that increases the value of your shares and makes you proud of your decision to invest in the Westpac Group. With warm regards, BRIAN HARTZER Chief Executive Officer Westpac Group
24 WESTPAC GROUP SUSTAINABILITY LEADERSHIP A sustainable future CONDUCT AND TRUST DIGITAL INNOVATION We are committed to doing the right thing by customers. However, we recognise there have been times when we and the financial services industry more broadly have not met the expectations of stakeholders. This has opened a trust gap. We are determined to restore trust and have established a program to review and update our processes and policies to better reflect changes in community standards. Combined with our efforts to strengthen our service culture this will truly put customer outcomes at the heart of our business. The rapid evolution of technology brings exciting opportunities to improve the way we meet customers needs. Technology brings new services along with greater speed and convenience. It also brings challenges including privacy, the protection of data, and cybercrime along with new business models with the potential to disrupt traditional banking. Were embracing these changes to benefit customers and employees, while vigilantly protecting the customer security. + WORKFORCE OF THE FUTURE Many aspects of employees daily roles are changing, as we respond to customers evolving expectations and apply new technologies to our business. At the same time, employees expectations about work are changing, including a growing demand for flexible working arrangements. These shifting dynamics have seen us step up our focus on building future-ready workplaces that attract and support employees who are more digitally confident, pursuing more flexible career paths, from more diverse backgrounds, and attaining higher skill levels. + + VALUE CHAIN RISK Sustainable business practices for Westpac include our impact through our value chain. This includes customers, suppliers and the companies in which we invest through BTFG. Climate change and human rights have been particularly prominent issues in 2016. We have completed the first phase of work to analyse the risks and opportunities of a transition to an economy that limits global warming to less than two degrees, and have commenced reporting on our progress on human rights. To read more about how we assess these issues and how we are responding, read our 2016 Sustainability Performance Report online at 2016annualreport.westpacgroup.com.au SERVICE LEADERSHIP The value we create for customers underpins the value of our organisation. Customers financial needs are becoming more complex and expectations are changing. True service leadership requires a commitment to help people achieve their financial goals, at every stage of their lives. We are revolutionising our service, product design and accessibility in an effort to become one of the worlds great service companies. POSITIVE SOCIETAL IMPACT The gap between the richest and poorest is widening, in Australia and New Zealand and around the world. Social and economic challenges are being exacerbated by rising youth unemployment and deteriorating housing affordability. At the same time, global warming is expected to have significant physical, social and economic implications for communities. As one of our regions largest financial institutions, we are applying our skills, expertise and resources to help meet these challenges. The issues that matter most Through our regular assessments of stakeholder feedback and industry trends, we gain an understanding of the issues that matter most to the people connected to our business. This regular assessment helps to ensure we are directing our efforts and resources to the most pressing emerging risks and opportunities. We have categorised our material issues into the following six themes.
ANNUAL REVIEW & SUSTAINABILITY REPORT 25 Sustainability strategy progress SUSTAINABILITY STRATEGY PROGRESS At the heart of our approach to operating sustainably is a simple belief. We need to be future-focused, identifying and responding to emerging societal issues that present risks and opportunities for our business and our stakeholders, and for which we have the skills and experience to make a difference. In 2013, we set a five-year Sustainability Strategy with ten measurable objectives across three broad categories: embracing societal change; environmental solutions; and better financial futures. Highlights of how we are tracking against the objectives follow. Further details, including performance metrics, can be found in our 2016 Sustainability Performance Report. As we approach the final year of this strategy, we are working with stakeholders to test our approach and identify and explore the emerging issues, and how best to respond in the next iteration of our Sustainability Strategy. WOMEN IN LEADERSHIP (%) Indigenous Australian recruitment milestone We have work to do to reach our three year target of recruiting an additional 500 Indigenous Australians by 2017. However, we have surpassed the more critical goal of attaining parity, whereby the proportion of employees who self identified as Indigenous Australian was 4%, which is greater than the proportion in the broader Australian1 population. Creating change through our supply chain Introduced a Supplier Inclusion & Diversity Policy which aims to proactively increase the number of businesses in Westpacs supply chain that have traditionally been underrepresented in our community, including businesses owned by Indigenous Australians and women, Australian Disability Enterprises, social enterprises and Benefit Corporations (B Corps). 2014 44 INDIGENOUS AUSTRALIANS RECRUITED (CUMULATIVE) 2015 150 Inclusive leadership 500 senior leaders participated in a new Inclusive Leadership training program. Introduced Inclusive Leadership Index to track progress on our peoples perceptions of inclusion in the workplace. Piloted an anonymous recruitment initiative to tackle unconscious bias by removing applicants names, schools and other cultural indicators. Supporting gender equity The proportion of women in leadership reached 48%, continuing the steady increase over recent years. Introduced additional targets for our Board (30% women by end 2018) and General Managers (40% women by end 2017). Increasing flexible working arrangements Percentage of employees working flexibly increased from 63% in 2014 to 74% in 2016. 1. Data derived from an employee survey based on the number of individuals who self-identified as having Aboriginal, Indigenous Australian or Torres Strait Islander cultural heritage. 2017 target 500 2016 290 2013 42 2017 target 50 2016 48 2015 46 Embracing societal change Under this objective, our activities have focused on helping to improve the way people work and live, as society changes. 2016 PERFORMANCE HIGHLIGHTS
26 WESTPAC GROUP SUSTAINABILITY LEADERSHIP Supported CleanTech and environmental services sector Total committed exposure to the CleanTech and environmental services sector increased to $6.2 billion, ahead of our 2017 target of making available up to $6 billion. We increased the stringency of our CleanTech definitions in 2015. Electricity generation financing Australia and New Zealand % Issued $500 million Improved Supporting transition to Climate Bond Raised $500 million through Westpac Climate Bond. Funds will be allocated to seven wind energy facilities and five low carbon commercial properties, all certified under the Climate Bonds Standard (VI). The commercial properties have an emissions performance in the top 15% of properties in their city. New Energy Efficiency Financing Program Introduced a new Energy Efficiency Financing Program, supported by energy efficiency specialists Verdia, to provide businesses with an end-to-end solution to identify, finance and install equipment that improves energy efficiency. A discounted interest rate is applied to finance, supported by an arrangement with the Clean Energy Finance Corporation. environmental footprint Achieved a 73% recycling rate in Westpacs Sydney head offices; and a 9.5% reduction in total greenhouse gas emissions in Australian sites. In New Zealand, a Two Degree Economy We undertook scenario analysis to understand the longer term impacts to the Australian economy including risks and opportunities for Westpac of limiting global warming to less than two degrees celsius above pre-industrial levels, meaning the Australian economy reaches net zero carbon emissions by 2050. A summary of findings is in our 2016 Sustainability Performance Report. Following this work, we are conducting further reviews of a number of key sectors and will release our refreshed Climate Change and Environment Position Statement in 2017. 60 50 40 11 12 13 14 15 Renewable Non renewable 16 achieved lowest CO -e 2 emissions since records started in 2008, having reduced emissions by 43% over this time. First ever Six Star Green Star rated bank branch Received Six Star Green Star rating for the St.George branch at Barangaroo the first Green Star rating for an Australian bank branch and highest rating ever awarded for a retail outlet, reflecting leading eco-efficiency practices. Westpac Place, Sydney, received a Six Star Green Star performance rating. Supporting transition to a clean energy future The proportion of renewable energy financing in our total electricity generation portfolio was 45% in 2011. It has increased to 59% in 2016. Environmental solutions We have introduced solutions to help tackle environmental challenges, both by reducing the direct environmental impact of operations, and collaborating with others including our customers and suppliers to help minimise our indirect footprint. Our actions recognise the importance of limiting global warming to below two degrees Celsius above pre-industrial levels. 2016 PERFORMANCE HIGHLIGHTS
ANNUAL REVIEW & SUSTAINABILITY REPORT 27 Improved banking access in the Pacific Net basic banking account customers in the Pacific (cumulative) 147,392 Growing social and affordable housing stock Finance directed to social and affordable housing sector ($bn) New tool for customers Shared equivalent Money management to manage their wealth Introduced Wealth Review, an online tool designed for BTFG super fund members to help them gain a better understanding of their current financial situation and what they need to do to achieve their financial goals. 1,000 businesses backed with microfinance Through support from Westpacs microfinance partner Many Rivers more than 1,000 businesses have now been established by aspiring business owners who are not able to access mainstream bank finance, Westpac announced a further $2.25 million in funding over three years for Many Rivers. of 100 years with Indigenous Australian community organisations Westpac Group employees have shared the equivalent of over 100 years on secondment in Indigenous Australian community organisations through the Jawun Indigenous Corporate Partnerships program. Educating more people about money Delivered financial literacy training to 59,596 people through workshops and webinars. This has included dedicated workshops for Indigenous Australian businesses. Post workshop surveys indicate almost 70% of participants believed the workshops improved their financial confidence. tool for New Zealanders Launched CashNav, an app that helps customers manage spending by automatically categorising banking transactions into needs and wants and notifying customers of how their spending is tracking. In addition, expanded financial education programs in New Zealand. Jobs for people experiencing disadvantage Introduced a new Westpac Foundation grant program to back not-for-profit social enterprises with proven models for job creation for Australians experiencing disadvantage. Existing grants programs have supported social enterprises that created more than 2,900 employment pathways and jobs during the past two years. The Westpac Foundation has granted more than $30 million since 1999. 2015 1.02 2013 0.65 2014 0.82 2017 target Up to 2.0 2016 1.05 2017 target 300,000 2016 296,931 2015 292,374 2014 225,260 2013 Better financial futures We have introduced initiatives to help people have a better relationship with money, for a better life. This includes helping people to become more financially resilient, stretching their post-work income streams further, and finding ways to break down barriers to make banking more accessible. 2016 PERFORMANCE HIGHLIGHTS
28 WESTPAC GROUP FIVEYEAR SUMMARY FINANCIAL AND OTHER INFORMATION1 (in $millions unless otherwise indicated) 1. The Summary Income Statement, financial position and key financial ratio information is an extract of the Westpac 2016 Annual Report. 2. For more detail please refer to the Westpac 2016 Annual Report, available at www.westpac.com.au/investorcentre 3. Net profit attributable to equity holders adjusted for cash earnings adjustments. For further details on cash earnings adjustments refer to 2016 Full Year Financial Results. 4. Basel III was not effective in Australia until 1 January 2013. The 2012 ratio has been presented on a pro forma Basel III basis. No comparatives are presented for other years. 5. Basel III was effective in Australia from 1 January 2013. The 2012 ratio is presented on a Basel II basis. 6. Excludes special dividends. 7. Total equity attributable to owners of Westpac, after deducting intangible assets divided by the number of ordinary shares outstanding, less treasury shares held. 2016 2015 2014 2013 2012 Income statements for the years ended 30 September Net interest income 15,148 14,267 13,542 12,82112,502 Non-interest income 5,837 7,375 6,395 5,774 5,481 Net operating income before operating expenses and impairment charges 20,985 21,642 19,937 18,595 17,983 Operating expenses (9,217) (9,473) (8,547) (7,976) (7,957) Impairment charges (1,124) (753)(650) (847) (1,212) Profit before income tax 10,644 11,416 10,740 9,772 8,814 Income tax expense (3,184) (3,348)(3,115)(2,947) (2,812) Profit attributable to non-controlling interests (15) (56)(64) (74)(66) Net profit attributable to owners of Westpac Banking Corporation 7,445 8,012 7,5616,751 5,936 Cash earnings adjustments 377 (192) 67 312628 Cash earnings3 7,822 7,820 7,628 7,063 6,564 Financial position and key financial ratios2 Balance sheet as at 30 September Total assets 839,202 812,156770,842 701,097678,612 Total shareholders equity and non-controlling interests 58,181 53,915 49,337 47,537 46,265 Business performance Operating expenses to operating income ratio (%) 43.9 43.8 42.9 42.9 44.2 Net interest margin (%) 2.10 2.09 2.09 2.142.16 Capital adequacy Common equity tier 1 capital ratio APRA Basel III (%)4 9.5 9.5 9.0 9.18.2 Tier 1 capital ratio (%)5 11.2 11.410.6 10.710.3 Total capital ratio (%)5 13.1 13.312.312.311.7 Total equity to total assets (%) 6.9 6.6 6.4 6.8 6.8 Credit quality Net impaired assets to equity and collectively assessed provisions (%) 1.8 1.82.5 4.15.6 Total provisions to total loans (basis points) 54 53 60 73 82 Shareholder value Dividends per ordinary share (cents) 188 187182174166 Special dividends per ordinary share (cents) 20 Dividend payout ratio (%)6 84.2 73.4 74.7 79.7 85.3 Dividend payout ratio cash earnings (%)6 80.3 75.4 74.2 76.5 77.6 Cash earnings to average ordinary equity (%) 14.0 15.816.415.915.4 Cash earnings per share (cents) 235.5 248.2 245.4 227.8 214.8 Net tangible assets per ordinary share7 ($) 13.96 13.08 11.5711.0910.49 Share price as at 30 September ($) 29.51 29.70 32.1432.73 24.85
ANNUAL REVIEW & SUSTAINABILITY REPORT 29 FIVE YEAR NON-FINANCIAL SUMMARY1,2,3 1. All data represents Group performance as at 30 September unless otherwise stated. 2. Definitions and further information on metrics is available in the Westpac 2016 Annual Report and online at www.westpac.com.au/investorcentre 3. Expanded set of performance metrics for Customer, Employees, Environment, Sustainable lending and investment, Social impact, and Supply chain are available in the Westpac 2016 Sustainability Performance Report and online at 2016annualreport.westpacgroup.com.au 2016 2015 2014 2013 2012 Customer Total customers (millions) 13.4 13.112.812.211.8 Digitally active customers (millions) 4.9 4.9 4.7 4.2 4.0 Branches 1,309 1,4291,5341,544 1,538 Branches with 24/7 capability (%) 27 22 15 ATMs 3,757 3,850 3,890 3,8143,639 Smart ATMs (%) 37 3124 17 Change in consumer complaints (%) Australia (31) (31) (27) (15) Change in consumer complaints (%) NZ (7) (18) (16) 19 Wealth customer penetration (%) 19.1 19.720.0 18.718.4 Employees Total core (permanent) full time equivalent staff 32,190 32,62033,586 33,045 33,418 Employee voluntary attrition (%) 10.6 10.6 9.8 9.8 9.9 New starter retention (%) 85.5 85.3 88.0 86.7 84.8 High performer retention (%) 94.8 95.0 95.8 95.7 95.9 Employee Engagement Index (%) 69 Lost Time Injury Frequency Rate (LTIFR) 0.8 0.8 1.1 1.51.9 Women as a percentage of the total workforce (%) 58 59 59 60 61 Women in leadership (%) 48 46 44 42 40 Environment Total Scope 1 and 2 emissions Aust and NZ (tonnes CO2-e) 154,339 173,437 175,855 180,862 183,937 Total Scope 3 emissions Aust and NZ (tonnes CO2-e) 63,016 67,899 73,87185,013 91,855 Paper consumption Aust and NZ (tonnes) 3,304 4,857 5,334 5,762 Sustainable lending and investment Proportion of electricity generation financing in renewables including hydro-Aust and NZ (%) 59 6159 55 52 Electricity generation portfolio emissions intensity (tonnes CO2-e/MWh) 0.38 0.38 0.41 0.44 Finance assessed under the Equator Principles Group ($m) 617 1,065851268 1,140 Responsible investment funds under management ($m) 18,723 15,017 Social Impact Community investment ($m) 148 149217131133 Community investment as a percentage of pre-tax profits Group (%) 1.39 1.302.02 1.331.50 Community investment as a percentage of pre-tax operating profit (cash earnings basis) 1.32 1.331.991.281.41 Financial education (participants) 59,596 65,538 49,812 32,577 36,182 Supply chain Top suppliers self-assessed Australia (%) 100 100 100 98 94 Spend with Indigenous Australian suppliers Australia ($ million) 1.6 1.2
30 WESTPAC GROUP EXECUTIVE TEAM Brian Hartzer Managing Director & Chief Executive Officer Philip Coffey Deputy Chief Executive Officer John Arthur Chief Operating Officer Lyn Cobley Chief Executive, Westpac Institutional Bank Brad Cooper Chief Executive Officer, BT Financial Group David Curran Chief Information Officer George Frazis Chief Executive, Consumer Bank Alexandra Holcomb Chief Risk Officer Peter King Chief Financial Officer David Lindberg Chief Executive, Business Bank David McLean Chief Executive Officer, Westpac New Zealand Limited Christine Parker Group Executive, Human Resources, Corporate Affairs & Sustainability Gary Thursby Chief Strategy Officer
ANNUAL REVIEW & SUSTAINABILITY REPORT 31 BOARD OF DIRECTORS Lindsay Maxsted DipBus (Gordon), FCA, FAICD Independent Director since March 2008. Chairman since December 2011. Chairman of the Board Nominations Committee. Member of each of the Board Audit and Board Risk & Compliance Committees. Brian Hartzer BA, CFA Elizabeth Bryan AM BA (Econ.), MA (Econ.) Ewen Crouch AM BEc (Hons.), LLB, FAICD Alison Deans BA, MBA, GAICD Managing Director & Chief Executive Officer since February 2015. Member of the Board Technology Committee. Independent Director since November 2006. Chairman of the Board Risk & Compliance Committee. Member of each of the Board Nominations and Board Remuneration Committees. Independent Director since February 2013. Chairman of the Board Remuneration Committee. Member of each of the Board Nominations and Board Risk & Compliance Committees. Independent Director since April 2014. Member of each of the Board Risk & Compliance and Board Technology Committees. Craig Dunn BCom, FCA Robert Elstone BA (Hons.), MA (Econ.), MCom Peter Hawkins BCA (Hons.), SF Fin, FAIM, ACA (NZ), FAICD Peter Marriott BEc (Hons.), FCA Independent Director since June 2015. Member of each of the Board Remuneration and Board Risk & Compliance Committees. Independent Director since February 2012. Member of each of the Board Audit, Board Remuneration and Board Risk & Compliance Committees. Independent Director since June 2013. Chairman of the Board Audit Committee. Member of each of the Board Nominations, Board Risk & Compliance and Board Technology Committees. Independent Director since December 2008. Chairman of the Board Technology Committee. Member of each of the Board Audit, Board Nominations and Board Risk & Compliance Committees.
32 WESTPAC GROUP REMUNERATION Non-executive Director Remuneration Westpacs Non-executive Director remuneration strategy is designed to attract and retain experienced, qualified Board members and remunerate them appropriately for their time and expertise. With a Board focus on strategic direction, long-term corporate performance and the creation of shareholder value, fees for Non-executive Directors are not directly related to the Groups short-term results and they do not receive performance-based remuneration. BOARD OF DIRECTORS: REMUNERATION RECEIVED DURING 2016 ($) Westpac Banking Corporation Board fee1 Subsidiary and Advisory Board fees Super-annuation Name Position Total Lindsay Maxsted Chairman 810,000 19,540 829,540 Non-executive Director Elizabeth Bryan 324,400 19,540 343,940 Non-executive Director Ewen Crouch 320,800 19,540 340,340 Alison Deans Non-executive Director 273,000 19,540 292,540 Craig Dunn Non-executive Director 286,000 19,540 305,540 Non-executive Director Robert Elstone 318,000 19,540 337,540 Non-executive Director Peter Hawkins 324,200 35,000 19,465 378,665 Peter Marriott Non-executive Director 343,400 19,540 362,940 1. Includes fees paid to the Chairman and members of Board Committees. CEO and Senior Executive Remuneration The Westpac Groups remuneration strategy is designed to attract and retain the highest quality executives by rewarding them for achieving high performance, developing sustainable customer relationships and delivering superior long-term results for shareholders. This strategy incorporates sound principles of risk management and governance. SENIOR EXECUTIVE TEAM: REMUNERATION RECEIVED DURING 2016 ($) (either as cash or in the case of equity, the value that has vested during 2016) Fixed remuneration & superannuation1 2016 STI cash payment2 2016 Total cash payment3 Equity awards vested during 20164 Name Position Managing Director & Chief Executive Officer Brian Hartzer 2,811,402 1,302,710 4,114,112 1,003,809 John Arthur Chief Operating Officer 1,222,005 585,000 1,807,005 1,275,467 Lyn Cobley Chief Executive, Westpac Institutional Bank 1,124,889 492,500 1,617,389 553,866 Philip Coffey Deputy Chief Executive Officer 1,331,293 597,500 1,928,793 1,392,992 Brad Cooper Chief Executive, BT Financial Group 1,097,162 735,000 1,832,162 1,336,930 David Curran Chief Information Officer 940,826 467,500 1,408,326 - George Frazis Chief Executive, Consumer Bank 1,168,631 815,000 1,983,631 1,150,603 Alexandra Holcomb Chief Risk Officer 986,607 492,500 1,479,107 662,184 Peter King Chief Financial Officer 1,072,417 545,000 1,617,417 458,612 David Lindberg Chief Executive, Business Bank 903,399 477,500 1,380,899 326,656 David McLean Chief Executive, Westpac New Zealand 836,941 363,050 1,199,991 259,469 Christine Parker Group Executive, Human Resources, Corporate Affairs & Sustainability 873,835 450,000 1,323,835 703,239 1. Fixed remuneration includes cash salary, annual leave accrual and salary sacrificed items plus employer superannuation contributions. 2. The cash STI payment represents 50% of the 2016 STI outcome and will be paid in December 2016. The remaining 50% is deferred in the form of equity granted in December 2016 which will vest in equal tranches in October 2017 and 2018. 3. This is the addition of the first and second columns. 4. Prior year equity awards include both deferred STI and LTI allocations subject to performance hurdles that vested in 2016. The equity value has been calculated as the number of securities that vested or forfeited during the year ended 30 September 2016, multiplied by the five day volume weighted average price of Westpac ordinary shares at the time they vested or were forfeited, less any exercise price payable.
ANNUAL REVIEW & SUSTAINABILITY REPORT 33 Financial calendar for Westpac Ordinary Shares Contact details Head Office 275 Kent Street Sydney NSW 2000 Australia Tel: +61 2 9374 7113 Fax: +61 2 8253 4128 International: +61 2 9806 4032 Record date for final dividend 15 November 2016 Annual General Meeting 9 December 2016 Final dividend payable 21 December 2016 Financial Half Year end 31 March 2017 Interim results and dividend announcement 8 May 2017 Record date for interim dividend 19 May 2017 Interim dividend payable 4 July 2017 Share Registrar Link Market Services Limited Level 12, 680 George Street Sydney NSW 2000 Australia Mail: Locked Bag A6015, Sydney South NSW 1235 Tel: +61 1800 804 255 Fax: +61 2 9287 0303 Email: westpac@linkmarketservices.com.au Investor Centre: www.linkmarketservices.com.au Financial Year end 30 September 2017 Annual General Meeting The Westpac Annual General Meeting (AGM) will be held on Friday, 9 December 2016 at the Adelaide Convention Centre in Adelaide commencing at 10:00 am (Adelaide time). The AGM will be webcast live on the Westpac website at www.westpac.com.au/investorcentre for shareholders unable to attend. Westpac Investor Relations Email: investorrelations@westpac.com.au Tel: +61 2 8253 3143 www.westpac.com.au/investorcentre Additional reporting information Westpac provides a suite of information about the Groups Full Year 2016 performance, including the Annual Report, Full Year Financial Results, Investor Discussion Pack, Sustainability Performance Report and other Shareholder information including a financial calendar. Visit the Investor Centre on the Westpac Group website at www.westpac.com.au/investorcentre Supplementary information about the Groups Full Year 2016 performance, including details about our approach to our strategic priorities and sustainability objectives, case studies and material issues assessment, can be found online at www.2016annualreport.westpacgroup.com.au Westpac Group Sustainability For questions and comments on our sustainability performance: Email: sustainability@westpac.com.au Tel: +61 2 8254 8488 www.westpac.com.au/sustainability Assurance Our adherence to the GRI G4 Sustainability Reporting Guidelines and disclosures associated with alignment to the AA1000 AccountAbility Principles Standard have been independently assured by Ernst & Young (EY). For further information please refer to the detailed assurance statement available in the 2016 Sustainability Performance Report at www.2016annualreport.westpacgroup.com.au For information on our compliance with International Agreements, including the United Nations Global Compact and Declaration on Human Rights, contact the General Manager of Group Corporate Affairs & Sustainability via Westpac Group Sustainability, details above. Westpac Banking Corporation ABN 33 007 457 141
2X> I Ulestpac GROUP www.westpac.com.au
Exhibit 2
Proudly |
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Supporting | |
Australia |
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Westpac 2016
Annual General
Meeting
Dear Shareholder
It is my pleasure to invite you to Westpacs Annual General Meeting (AGM) on Friday, 9 December 2016.
Venue: |
Hall L, Ground Floor, Adelaide Convention Centre |
Address: |
North Terrace, Adelaide, South Australia 5000 |
Date: |
Friday, 9 December 2016 |
Start time: |
10:00 am (Adelaide time) |
Registration: |
From 9:00 am (Adelaide time) |
The AGM is an opportunity for Directors and Senior Executives to interact directly with shareholders and I hope you will be able to attend. This year, we have continued our plan of reaching out to a broader range of shareholders and I am pleased that we will be holding our AGM in Adelaide. For those planning to attend, please be assured that we are seeking to make the event as accessible as possible with arrangements for the mobility impaired, a sign language interpreter and hearing loop facilities. Details of how to get to the AGM are set out in the accompanying Notice of Meeting. For those unable to attend, we will webcast the proceedings live via our website www.westpac.com.au/investorcentre. An archive of the AGM will also be subsequently available.
For those who have elected to receive a hard copy of our Annual Report and/or our Annual Review (Reports), we normally distribute these with the Notice of Meeting. This year, given the shorter timeframe between the announcement of our Full-Year financial results and the AGM, we have dispatched hard copies of the Reports separately and these will arrive in due course. As with prior years, the Reports will also be available online once they have been lodged with the ASX.
Our Chief Executive Officer, Brian Hartzer, and I will both speak at the AGM, and our presentations will also be available to view on our website soon after the AGM.
A key purpose of the AGM is to allow you to vote on matters put to the meeting. Those attending will be able to vote at the meeting. Those not able to attend the AGM, but who wish to vote on matters before the meeting, will need to appoint a Proxy. The easiest way to appoint a Proxy and direct them on how to vote is to do so online. This can be completed via our Share Registrys dedicated website vote.linkmarketservices.com/WBC. Alternatively you may use the form enclosed with this letter. Details on how to appoint a Proxy are included in the Notice of Meeting.
Holders of Westpac Convertible Preference Shares (CPS) are also invited to attend the AGM but, in accordance with the terms of those securities, are not able to vote.
As the AGM is the Boards opportunity to hear directly from you, should you be unable to attend but would like to submit questions on any matters related to the AGM, these can be submitted through the voting site above. Questions you submit will be considered in preparing my AGM address.
As always, our Directors and Senior Executives look forward to mixing with you informally over light refreshments at the conclusion of the AGM.
I look forward to welcoming you to the AGM.
Yours sincerely,
Lindsay Maxsted
Chairman
9 November 2016
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Westpac Banking Corporation ABN 33 007 457 141
Level 20, 275 Kent Street, Sydney NSW 2000 | www.westpac.com.au
Westpac 2016
Annual General
Meeting
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Notice of Annual General Meeting
The Annual General Meeting (AGM) of Westpac Banking Corporation (ABN 33 007 457 141) (Westpac) will be held in Hall L, Ground Floor, at the Adelaide Convention Centre, North Terrace, Adelaide, South Australia 5000, on Friday, 9 December 2016, commencing at 10:00 am (Adelaide time).
Items of Business
1. Financial Reports
To receive and consider the Financial Report and the Reports of the Directors and Auditor for the year ended 30 September 2016.
2. Remuneration Report
To adopt the Remuneration Report for the year ended 30 September 2016.
3. Grant of equity to Managing Director and Chief Executive Officer
To approve for all purposes, including ASX Listing Rule 10.14 and sections 200B and 200E of the Corporations Act 2001 (Cth) the grant of shares under the CEO Restricted Share Plan, and performance share rights and shares under the CEO Long Term Incentive Plan to the Managing Director and Chief Executive Officer, Brian Hartzer, in accordance with the rules of those Plans and on the terms summarised in the Explanatory Notes accompanying this Notice of Meeting.
4. Election of Directors
To elect Directors:
(a) Ewen Crouch who retires in accordance with the Constitution and, being eligible, offers himself for re-election.
(b) Peter Marriott who retires in accordance with the Constitution and, being eligible, offers himself for re-election.
By order of the Board of Directors
Timothy Hartin
Group Company Secretary
9 November 2016
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Westpac Banking Corporation ABN 33 007 457 141
Level 20, 275 Kent Street, Sydney NSW 2000 | www.westpac.com.au
2
Westpac 2016
Annual General
Meeting
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Notes
1. Voting Exclusion Statement
Resolutions 2 and 3 - Remuneration Report and Grant of equity to Managing Director and Chief Executive Officer
Resolutions 2 and 3 are directly or indirectly related to the remuneration of a member of the Key Management Personnel (KMP) of Westpac. Westpacs KMP are set out in Westpacs Remuneration Report. The Corporations Act 2001 (Cth) (Corporations Act) restricts KMP and their closely related parties from voting in certain circumstances on such resolutions.
A closely related party of a KMP is defined in the Corporations Act and includes a spouse, dependant and certain other close family members, as well as any companies controlled by the KMP.
In accordance with these requirements, Westpac will disregard any votes cast on Resolution 2, in any capacity, by or on behalf of a member of the KMP or that KMPs closely related parties. Westpac will also disregard any votes cast on Resolution 2 and Resolution 3 as Proxy by any member of the KMP at the date of the AGM or that KMPs closely related parties, unless the vote is cast:
by a Proxy for a person entitled to vote, in accordance with the directions on the Proxy Form; or
by the Chairman of the AGM as Proxy for a person entitled to vote, in accordance with an express authority to vote undirected proxies as the Chairman sees fit.
In addition, in accordance with the ASX Listing Rules, Westpac will disregard any votes cast on Resolution 3 by Mr Hartzer and any associate of Mr Hartzer. However, Westpac will not disregard a vote cast by Mr Hartzer as Proxy for a person who is entitled to vote, in accordance with the directions on the Proxy Form. Mr Hartzer is the only Director currently eligible to participate in an employee incentive scheme.
Section 3 discusses how to appoint a Proxy.
2. Right to attend, speak and vote at the AGM*
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* Refer to Note 1 (Voting Exclusion Statement) regarding restrictions on voting.
We use the term securityholder throughout this Notice of Meeting to collectively refer to our ordinary shareholders and CPS holders.
For the purposes of the AGM, securities will be taken to be held by the persons who are registered as the holders of those securities at 7:00 pm (Adelaide time) on Wednesday, 7 December 2016.
3. Appointing a Proxy
Ordinary shareholders are entitled to appoint up to two Proxies to act at the AGM on their behalf, and to vote in accordance with their instructions on the Proxy Form.
A Proxy need not be a shareholder of Westpac.
Where two Proxies are appointed, each Proxy can be appointed to represent a specified proportion or number of a shareholders votes. If no number or proportion of votes is specified, each Proxy may exercise half of the shareholders votes.
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Appoint your Proxy online via the website of our Share Registrar, Link Market Services Limited (Link), at vote.linkmarketservices.com/WBC. Follow the prompts and have your SRN or HIN available. Alternatively, completed Proxy Forms (together with any authority under which a Proxy Form is signed, or a certified copy of that authority) may be delivered to Link in the following ways: scanned and emailed to vote@linkmarketservices.com.au; posted to Link Market Services Limited, Locked Bag A6015, Sydney South, NSW 1235, using the enclosed return envelope; hand delivered to Link Market Services Limited at 1A Homebush Bay Drive, Rhodes, NSW 2138; or by facsimile to (+ 61 2) 9287 0309.
All Proxies must be appointed (either online or Proxy Forms received) by 10:00 am (Adelaide time which is 10:30 am Sydney time) on Wednesday, 7 December 2016.
If a Proxy is instructed to abstain from voting on a Resolution, they must not vote on the shareholders behalf, and any vote will not be counted.
If you appoint a Proxy (other than the Chairman of the AGM) and direct them how to vote, the Chairman of the AGM must cast those Proxy votes on your behalf if your Proxy does not do so.
If you appoint the Chairman of the AGM as your Proxy (or if he is appointed by default), and no direction is provided in relation to Resolution 2 or Resolution 3, you will be expressly authorising the Chairman to exercise your Proxy as the Chairman sees fit in relation to those Resolutions, even though those Resolutions are connected directly or indirectly with the remuneration of a member of Westpacs KMP. If you wish to appoint the Chairman of the AGM as Proxy with a direction how to vote on a Resolution, including Resolution 2 and Resolution 3, you should specify this by completing the For, Against or Abstain boxes on the Proxy Form.
If you appoint a Director (other than the Chairman) or another member of Westpacs KMP or their closely related parties as your Proxy, you must specify how they should vote on Resolution 2 and Resolution 3 by completing the For, Against or Abstain boxes on the Proxy Form. If you do not, your Proxy will not be able to exercise your vote for that Resolution.
Shareholders are encouraged to consider how they wish to direct their Proxies to vote. Other than as described above for Resolution 2 and Resolution 3, if a Proxy is not directed how to vote on a Resolution, the Proxy may vote, or abstain, as they see fit. Should any Resolution, other than those specified in this Notice of Meeting, be proposed at the AGM, a Proxy may vote on that Resolution as they see fit.
Further instructions on appointing Proxies are available on the reverse of the Proxy Form or online at vote.linkmarketservices.com/WBC.
4. Undirected proxies
The Chairman of the AGM intends to vote all available proxies in favour of all Resolutions.
5. Corporate representatives
A corporation which is a shareholder, or which has been appointed a Proxy, may appoint an individual to act as a representative to vote at the AGM. The appointment must comply with section 250D of the Corporations Act. The representative should bring to the AGM evidence of his or her appointment unless it has previously been provided to Link.
6. Voting by poll
Voting on Resolutions at the AGM will be conducted by poll. Further details on the poll will be provided at the AGM.
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Conduct of the Westpac AGM
The AGM is an important forum for interaction between the Board, the management team and securityholders. Our AGM is intended to give securityholders the opportunity to:
hear from the Chairman and the CEO about the performance and operations of Westpac;
consider and vote on the Resolutions before the AGM (subject to any voting restrictions); and
ask questions of the Board and the Auditor at the AGM. The Chairman and the CEO will generally answer questions. If questions cannot be answered by the Chairman or the CEO, they may be referred to a Senior Executive or we will seek to provide a response as soon as possible after the AGM.
To do this, we will:
give securityholders the chance to raise questions before the AGM online via Links website at vote.linkmarketservices.com/WBC or by using the form included with this Notice of Meeting;
provide securityholders a reasonable opportunity to ask questions;
inform securityholders of the proxy position on each Resolution and the manner in which the Chairman of the AGM will vote available proxies;
webcast the AGM live on our website at www.westpac.com.au/investorcentre;
provide sign language and hearing loop facilities; and
provide assistance for people with mobility or vision impairment.
To assist us to achieve all this, we ask that securityholders:
are courteous and respectful to all attending the AGM, and to those assisting in running the AGM;
keep questions to a reasonable length to allow as many securityholders as possible to participate;
confine questions to matters being considered at the AGM and which are relevant to securityholders as a whole. Questions relating to a securityholders individual circumstances can be raised with Westpac or Link representatives who will be available before and following the AGM. Personal banking matters will be directed to a senior company representative who will be available to assist securityholders with their queries;
do not photograph, videotape or record the AGM; and
do not repeat questions already raised and answered.
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Explanatory Notes
Item 1 Financial Reports
In accordance with the Corporations Act, the Financial Report, Directors Report and Auditors Report (collectively, the Reports) for the year ended 30 September 2016 will be put before the AGM. These Reports are in Westpacs 2016 Annual Report and can be accessed on our website at www.westpac.com.au/investorcentre.
This item does not require a formal resolution and, accordingly, no vote will be held on this item. Securityholders will be given a reasonable opportunity to ask questions on the Reports during discussion on this item.
Item 2 Remuneration Report (Non-binding Advisory Vote)
Shareholders are asked to adopt Westpacs Remuneration Report for the year ended 30 September 2016. The Remuneration Report is included in the Directors Report in Westpacs 2016 Annual Report and is also available at www.westpac.com.au/investorcentre.
The Remuneration Report outlines Westpacs remuneration strategy and objectives and provides details of Board and KMP remuneration received during the year. Westpacs remuneration strategy seeks to attract and retain talented Executives and employees by rewarding them for achieving high performance and delivering superior long-term results for securityholders, while adhering to sound risk management and governance principles.
Westpacs remuneration strategy for Non-executive Directors is to remunerate them appropriately for their time, expertise and insight into strategic and governance issues, and to ensure we are able to attract and retain high quality and experienced Directors.
Under the Corporations Act, the vote on this Resolution is advisory only and does not bind the Board or Westpac. However, Westpac values shareholder feedback and the Board and the Board Remuneration Committee will take the outcome of the vote into account when considering future remuneration policies.
A voting exclusion applies to this Resolution, as set out earlier in this Notice of Meeting.
The Board unanimously recommends that shareholders vote in favour of adopting the Remuneration Report.
The Chairman of the AGM intends to vote all available proxies in favour of this Resolution.
Item 3 Grant of Equity to Managing Director and Chief Executive Officer
Shareholders are asked to vote on whether Brian Hartzer should receive equity securities as part of his remuneration for the 2017 financial year.
The Board believes that the CEOs remuneration should be aligned to the long-term interests of securityholders. Accordingly, the Board believes that the CEO should maintain a substantial shareholding in Westpac and that part of his remuneration should be in the form of equity that aligns with securityholder interests and only vests if certain conditions or hurdles are achieved. Equity grants to Mr Hartzer would be made up of two elements:
1. Under the CEO Restricted Share Plan (CEO RSP), part of Mr Hartzers short-term incentive would be paid as deferred shares that only vest if he remains with Westpac or in other limited circumstances discussed below. These deferred shares would vest over two years.
2. Under the CEO Long Term Incentive Plan (CEO LTIP), long-term incentives would be allocated in the form of performance share rights which only vest if certain performance hurdles are met.
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An overview of these plans is provided below.
1. Overview of the CEO RSP and the CEO LTIP
The CEO RSP and CEO LTIP were established to provide deferred short-term incentive (STI) and long-term incentive (LTI) awards, respectively, to our CEO. The terms of the CEO RSP and CEO LTIP are determined by the Board in accordance with Mr Hartzers employment agreement and, consistent with our remuneration strategy, have been designed to link Mr Hartzers remuneration to performance and the delivery of long-term value for our securityholders. The plans are considered appropriate as they:
align Mr Hartzers interests with the interests of securityholders;
ensure that Mr Hartzers remuneration is competitive and aligned with market remuneration in the financial services industry; and
encourage the achievement of performance goals and the growth in the value of Westpacs business.
Each year, the Board determines Mr Hartzers STI target amount. The STI amount that Mr Hartzer is actually awarded is then determined by the Board at the end of each financial year based on his performance against a balanced scorecard of financial and non-financial objectives. The STI amount awarded will range between 0% and 150% of the STI target amount. The Board currently requires that 50% of any STI award be deferred under the CEO RSP. This approach would see Mr Hartzer receive restricted shares that subsequently vest in two equal tranches over the next two years. The Board retains the discretion to determine the portion of any STI award that is deferred and the period of any such deferral.
Each year, under the CEO LTIP, Westpac may grant performance share rights to Mr Hartzer. If these rights vest, Mr Hartzer is entitled to one Westpac ordinary share for each vested performance share right. The CEO LTIP award only delivers value to Mr Hartzer if the share rights vest, which requires certain performance hurdles to be satisfied. These hurdles are based on a peer-weighted Total Shareholder Return (TSR) index and Westpacs average cash Return on Equity (ROE).
2. Why is shareholder approval being sought?
Shareholder approval is being sought to satisfy ASX Listing Rule 10.14 which requires shareholder approval if a director is issued securities under an employee incentive scheme. Accordingly, before any securities may be granted to the CEO under either the CEO RSP or the CEO LTIP, the grants must first be approved by shareholders.
Under the CEO RSP, the Board decides at the date of grant whether any restricted shares awarded will be acquired on-market or issued by Westpac. Similarly, under the CEO LTIP, the Board decides within 28 days of the date of vesting whether the shares underlying the performance share rights will be issued or acquired on-market. Shareholder approval is being sought at this meeting to retain flexibility to issue shares under either the CEO RSP or the CEO LTIP. If shareholder approval is not obtained, Mr Hartzers deferred STI and LTI will be delivered in cash.
Shareholder approval is also being sought for the purposes of section 200B and section 200E of the Corporations Act for any termination benefits that might be given to Mr Hartzer in connection with the deferred STI and LTI awards covered by Resolution 3. If approved, Mr Hartzer will be entitled to receive any benefit arising through these awards upon termination (subject to various conditions), in addition to any other termination benefits that may be provided to him, without further shareholder approval under the Corporations Act. It is intended that this approval will remain valid during the life of any securities granted pursuant to Resolution 3.
Further details of Mr Hartzers remuneration package and performance hurdles for Westpacs 2016 financial year are set out in the Remuneration Report contained in our Annual Report, and available on Westpacs website.
3. CEO RSP 2017 STI award
Mr Hartzers 2017 STI target is $2,686,000. Once Mr Hartzers 2017 STI award has been determined by the Board (which will be assessed at the end of the 2017 financial year), 50% will be delivered in cash and 50% as restricted shares under the CEO RSP and will be Mr Hartzers deferred STI for 2017.
Half of Mr Hartzers deferred STI will be restricted for one year from the commencement of the restriction period (1 October 2017) and the remainder will be restricted for two years.
The number of restricted shares Mr Hartzer receives will be determined by dividing the dollar value of his deferred STI by the market price (being the volume weighted average market price of Westpacs shares, as traded on the ASX in the 5 trading days up to and including the day before the award is made). If new shares are issued by Westpac to
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satisfy this obligation, the market price is calculated in the manner described above. If, on the other hand, Westpac acquires shares on-market to satisfy this obligation, the market price is the average purchase price of the shares.
Example: Assuming Mr Hartzer is awarded 100% of his 2017 STI target for his 2017 financial year performance, he would be entitled to $2,686,000. Half of that (i.e. $1,343,000) would be paid in cash and the other half would be delivered as restricted shares. Assuming a market price of $30.35, 44,250 restricted shares would be granted to Mr Hartzer in December 2017. Subject to meeting the conditions of the restricted shares, half of the restricted shares would be released to Mr Hartzer on 1 October 2018, while the other half would be released on 1 October 2019. This is an indicative example only as it depends on the CEOs award and the market price of Westpac shares at the time of the grant.
4. CEO LTIP 2017 LTI award
The Board has determined that Mr Hartzer will receive a 2017 LTI award comprising a grant of 211,548 performance share rights under the CEO LTIP, to the value of $2,528,000. The number of performance share rights to be granted to Mr Hartzer was determined by dividing the dollar value of the award by the notional value of the performance share rights at the start of the performance period (being 1 October 2016). For TSR hurdled performance share rights, the notional value was $11.95 and for ROE hurdled performance share rights, $11.95.
Example: For illustrative purposes, the face value of the 2017 CEO LTIP performance share rights was $6,418,366 (based on the one week volume weighted average price of Westpacs shares traded on the ASX in the week up to 21 October 2016). The face value in this instance assumes that Westpac achieved the maximum result for its performance hurdles and so 100% of the share rights vested. In 2016, the application of the performance hurdles resulted in vesting of 0% of LTI.
The notional values of the TSR and ROE performance share rights were calculated by an independent valuer, taking the market price of Westpac shares at the start of the performance period, and using a Monte Carlo pricing model. The Board applies a maximum discount of 60% (including the impact of dividends forgone) to the market price of Westpac shares when determining the value of the share rights. This methodology is applied consistently across all other Westpac Executives who receive performance share rights.
If no securities vest, the value of the grant will be $0.
Under the CEO LTIP, Board-determined performance hurdles must be satisfied before any securities can vest (except in limited circumstances such as death or total and permanent disablement, as explained below).
For the 2017 grant, the performance hurdles are TSR and ROE. The Board determines at the time of grant the number of performance share rights in two tranches of equal value, one of which will be subject to the TSR performance hurdle (TSR Performance Securities) and the other will be subject to the ROE performance hurdle (ROE Performance Securities). There will be no re-testing of either the TSR Performance Securities or the ROE Performance Securities.
(a) TSR Performance Securities
The TSR hurdle is a weighted, composite TSR index (composite TSR index) for a peer group (peer group) comprising the ten top financial services companies other than Westpac.
Within the peer group, each of the other three major Australian banks has been allocated a 16.67% weighting, with the other seven companies each having a 7.14% weighting.
The composite TSR index is calculated by multiplying each peer group members TSR for the four year performance period by its weighting, and then adding together the results of those ten calculations.
Westpacs TSR for the four year period is then compared to the composite TSR index.
For 50% of the TSR tranche to vest, Westpacs TSR must at least equal the composite TSR index. For 100% to vest, Westpacs TSR must exceed the composite TSR index by an amount that, when added to the composite TSR index, simulates historic 75th percentile performance within the peer group (i.e. an additional 21.55, reflecting an extra 5% compound annual growth in TSR over the four year period).
If Westpacs TSR is between the composite TSR index and the composite TSR index plus 21.55, TSR Performance Securities will vest from 50% up to a possible 100% on a straight line basis between the composite TSR index and the composite TSR index plus 21.55.
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(b) ROE Performance Securities
The ROE performance hurdle measures the average cash earnings return on average ordinary equity (Average Cash ROE) over the three year performance period.
For the 2017 grant, the performance rights are tested against the performance hurdles on the third anniversary of the commencement of the performance period (Test Date). If Westpacs Average Cash ROE is equal to 13.5%, 50% of the ROE Performance Securities awarded to Mr Hartzer will qualify for vesting. If Westpacs Average Cash ROE is at or above 14.5%, 100% of the ROE Performance Securities awarded to Mr Hartzer will qualify for vesting. If Westpacs Average Cash ROE is between 13.5% and 14.5%, the number of ROE Performance Securities eligible for vesting will increase on a straight line basis from 50% to 100% of the total number of ROE Performance Securities awarded to Mr Hartzer.
Westpac shares will be allocated to Mr Hartzer if the performance conditions attached to the ROE Performance Securities are satisfied. The ROE Performance Securities that qualify for vesting as noted above will vest on the fourth anniversary of the commencement of the performance period.
5. Cessation of employment
5.1 Deferred STI
Subject to the Boards discretion, all unvested restricted shares lapse when Mr Hartzers employment with Westpac ceases, except where the cessation of his employment:
is due to death, or total and permanent disablement; or
occurs in certain circumstances (such as a change of control).
If Mr Hartzers employment ceases for any of those reasons, all unvested restricted shares that he holds will vest.
If Mr Hartzer is terminated for misconduct, all unvested restricted shares will be forfeited.
If, in the Boards opinion, Mr Hartzer has acted fraudulently or dishonestly, or is in material breach of his obligations, all of his restricted shares (whether or not vested) that are subject to a holding lock under the CEO RSP will be forfeited, unless the Board determines otherwise.
The Board may in certain circumstances also adjust the number of unvested restricted shares downwards, or to zero (in which case they will lapse) including to respond to significant misconduct by Mr Hartzer which may result in significant financial and/or reputational impact to Westpac.
5.2 LTI
Subject to the Boards discretion, all unvested performance rights lapse when Mr Hartzers employment with Westpac ceases, except where the cessation of his employment:
is due to his death, or total and permanent disablement; or
occurs in certain circumstances (such as a change of control where certain other conditions are met).
If Mr Hartzers employment ceases for any of those reasons, all unvested performance share rights that he holds will vest.
If, in the Boards opinion, Mr Hartzer has acted fraudulently or dishonestly, or is in material breach of his obligations, the Board may determine that his unvested performance share rights under the CEO LTIP will lapse.
The Board may in certain circumstances also adjust the number of unvested performance share rights downwards, or to zero (in which case they will lapse) where the circumstances of the departure warrant, or to respond to misconduct resulting in significant financial and/or reputational impact to Westpac.
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5.3 Termination benefits
Early vesting of Mr Hartzers deferred STI and LTI in the circumstances outlined above may amount to the giving of a termination benefit. The Board also has discretion in relation to performance share rights and unvested restricted shares where Mr Hartzer ceases employment under certain circumstances that do not involve serious misconduct. This discretion enables the Board to vest or leave the performance share rights on foot subject to the performance hurdles. In relation to the deferred STI, the discretion enables the Board to leave unvested restricted shares on foot and vest only on the expiry of the full term stated in the CEO RSP. The Board may determine to exercise this STI and LTI discretion in circumstances where Mr Hartzers employment ceases without fault on his part. In determining whether to exercise its discretion, the Board will take into account all relevant circumstances, which may include Mr Hartzers (and Westpacs) performance against applicable performance hurdles at the date of cessation, as well as Mr Hartzers individual performance and the period that has passed from the date of grant to the date of cessation.
The value of any termination benefits that may be given to Mr Hartzer by reason of early vesting of any of his 2017 deferred STI and LTI awards or the exercise of the Boards discretion that his unvested restricted shares and performance share rights will not lapse, cannot be determined in advance. This is because, in addition to the factors listed above, the value at the date of cessation of employment will also depend upon:
the number of securities initially granted as part of a deferred STI or LTI award;
the date when, and circumstances in which, Mr Hartzer ceases employment;
Westpacs share price at the date of vesting; and
the number of unvested securities held by Mr Hartzer at the time of cessation.
6. Further information
(a) There are no loans to be granted to Mr Hartzer in connection with his participation in either the CEO RSP or the CEO LTIP.
(b) Details of any shares issued under the CEO RSP and performance share rights granted under the CEO LTIP will be published in each Annual Report relating to a period in which such securities have been issued. The Annual Report will note that approval for issue of those securities was obtained under Listing Rule 10.14.
(c) Mr Hartzer is the only Director of Westpac entitled to participate in the CEO RSP and the CEO LTIP. If shareholders vote in favour of Resolution 3, no additional person who becomes entitled to participate in the CEO RSP or the CEO LTIP will participate until approval is obtained under Listing Rule 10.14.
(d) Mr Hartzer is not permitted to trade in securities received under the CEO RSP or CEO LTIP until they have vested. After vesting, any trading in the resulting shares must comply with Westpacs Securities Trading Policy. Restricted shares carry dividend and voting rights during the restriction period. Performance share rights do not confer dividend entitlements or voting rights.
(e) If shareholder approval is obtained, the issue of restricted shares and performance rights (and the shares underlying the performance rights) will be approved for the purposes of all applicable requirements under the Corporations Act and the Listing Rules, including sections 200B and 200E of the Corporations Act and Listing Rule 10.14.
(f) Westpac will issue the restricted shares in or about December 2017 and performance share rights in December 2016, and in any event, no later than 3 years after the AGM.
(g) Mr Hartzer was awarded 39,491 shares under the FY15 CEO RSP with a value of $1,245,960, 119,476 share rights under the FY15 CEO LTIP with a value of $1,685,333 and 204,139 share rights under the FY16 CEO LTIP with a value of $2,528,000.
Further information on the CEO RSP and CEO LTIP is available in the Remuneration Report.
A voting exclusion applies to this Resolution, as set out in the Notice of Meeting.
The Board (other than Mr Hartzer) unanimously recommends that shareholders vote in favour of Resolution 3.
The Chairman of the AGM intends to vote all available proxies in favour of this Resolution.
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Item 4 Election of Directors
Ms Elizabeth Bryan is retiring from the Board in accordance with the Constitution and is not seeking re-election.
Mr Ewen Crouch and Mr Peter Marriott are retiring by rotation at this meeting in accordance with the Constitution and are offering themselves for re-election.
The Board undertakes an annual review of its performance, policies and practices. The Board has considered the results of this review in determining its endorsement of the Directors standing for re-election at the AGM.
Succession planning for new directors is continually discussed by the Board. We expect to be able to conclude discussions and announce the appointment of two non-executive directors in the first half of 2017, who will add further strength and diversity to your Board.
(a) Ewen Crouch AM BEc (Hons.), LLB, FAICD, Age 60
Mr Crouch has been an independent Non-executive Director of Westpac since February 2013.
Mr Crouch is a director of BlueScope Steel Limited, a member of the Commonwealth Remuneration Tribunal and a director of Jawun, the Sydney Symphony Orchestra and Chairman of Mission Australia.
Mr Crouch was a partner of Allens from 1988 to 2013, where he was one of Australias most accomplished mergers and acquisitions lawyers. He served as a member of the firms board for 11 years, including four years as Chairman of Partners. His other roles at Allens included Co-Head Mergers and Acquisitions and Equity Capital Markets, Executive Partner, Asian offices and Deputy Managing Partner. He is now a Consultant to Allens. |
Mr Crouch is also a Fellow of the Australian Institute of Company Directors (AICD). From 2010 to 2015 he was a member of the Takeovers Panel. He is a member of the AICDs Law Committee.
Mr Crouch is also a member of the Corporations Committee of the Law Council of Australia. He is admitted to practise law in New South Wales, Victoria, the Australian Capital Territory and Western Australia.
In 2013, Mr Crouch was awarded an Order of Australia in recognition of his significant service to the law as a contributor to legal professional organisations, and to the community.
Mr Crouch does not have a relationship with Westpac, other than as a Director, as a customer and as a shareholder. Mr Crouch does not have a relationship with any other Director.
Mr Crouch is Chairman of the Board Remuneration Committee and a member of each of the Board Nominations and Board Risk & Compliance Committees.
The Board considers Mr Crouch to be an independent Director.
Following a peer review, the Board (other than Mr Crouch) unanimously recommends that shareholders vote in favour of the re-election of Mr Crouch to the Board.
The Chairman of the AGM intends to vote all available proxies in favour of this Resolution.
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(b) Peter Marriott BEc (Hons.), FCA, Age 59
Mr Marriott has been an independent Non-executive Director of Westpac since June 2013.
Mr Marriott has over 30 years experience in senior management roles in the finance industry encompassing international banking, finance and auditing. He joined Australia and New Zealand Banking Group Limited (ANZ) in 1993 and held the role of Chief Financial Officer from July 1997 to May 2012. Prior to his career at ANZ, Mr Marriott was a banking and finance, audit and consulting partner at KPMG Peat Marwick. Mr Marriott has been a non-executive director of ASX Limited (and Chairman of its Board Audit & Risk Committee) since 1 July 2009. This appointment has involved him acting as a director on the ASX Group Clearing and Settlement Boards and as Chairman of Austraclear Limited. Mr Marriott was formerly a director of ANZ National Bank Limited in New Zealand and various ANZ subsidiaries. |
Mr Marriott does not have a relationship with Westpac, other than as a Director, as a customer and as a shareholder. Mr Marriott does not have a relationship with any other Director.
Mr Marriott is Chairman of the Board Audit Committee and a member of each of the Board Nominations, Board Risk & Compliance and Board Technology Committees.
The Board considers Mr Marriott to be an independent Director.
Following a peer review, the Board (other than Mr Marriott) unanimously recommends that shareholders vote in favour of the re-election of Mr Marriott to the Board.
The Chairman of the AGM intends to vote all available proxies in favour of this Resolution.
Further information
For further information regarding the Westpac AGM, please contact Link on (+61) 1800 804 255 (toll free within Australia).
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How to get to the AGM
Location Adelaide Convention Centre
Hall L, Ground Floor
North Terrace
Adelaide, South Australia 5000
The Adelaide Convention Centre is located in the Adelaide city centre. Public transport, parking and taxi ranks are close by.
The main entrance is located on North Terrace by the Riverbank Building. The closest entrance to Hall L is the Western Entrance off the Morphett Street Bridge (drop-off access only). AGM Registration is in Hall M.
Mobility impaired access
All car parks and buildings are wheelchair accessible. Facilities for people with disabilities are provided throughout the Adelaide Convention Centre.
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Transport
By car
The Adelaide Convention Centre is located approximately seven kilometres from Adelaide Airport.
Undercover car parking is available directly under the Adelaide Convention Centre at the North Terrace and the Riverbank car parks. Automated payment stations accept credit and debit cards. It is recommended that AGM visitors park in the North Terrace car park for ease of access to Hall L.
For further information about parking at the venue please telephone (+61 8) 8210 6738 or visit https://www.adelaidecc.com.au/content/uploads/2015/04/Car-Parking-Rates_General-Public-2016-v2.pdf.
Public Transport
The Adelaide Convention Centre is a 2 minute walk from the Adelaide Railway Station. A tram stop is also located just in front of Adelaide Railway Station.
For further information regarding public transport, including timetables, please refer to the following website: www.adelaidemetro.com.au.
Taxis
Taxi ranks are located on North Terrace and Morphett Street Bridge, right on the doorstep of the Central and West Buildings of the Adelaide Convention Centre.
Venue Security
Security arrangements will be in place at the venue, including random bag searches prior to AGM entry.
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The Westpac Group 2016 Notice of Meeting is printed on PEFC certified paper. Compliance with the certification criteria set out by the Programme for the Endorsement of Forest Certification schemes (PEFC) means that the paper fibre is sourced from sustainable forests.
Westpacs printer is certified under an ISO14001 Environmental Management System.
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WBCNOM2016_1016
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