Westpac reaps fruits of its labour

WestpacBanking Corporation says synergies from the highly publicised purchase ofBT Financial Group, exactly one year to the day last Thursday, are now being reflected in its bottom line.

Speaking at the release of Westpac’s full year results, chief executive officer David Morgan says BT achieved $54 million in synergies over the 12 month period — 17 per cent above initial forecasts, with BT’s cash earnings also up 48 per cent on the corresponding period for 2002.

Morgan says the bank’s full year result — an operating profit after tax of $2.18 billion — demonstrates that Westpac has achieved the right balance between growth and return, having delivered consistent earnings growth despite the earnings dilution arising from the sale of AGC in 2002 and the acquisition of Rothschild Australia Asset Management (now Sagitta) and BT Funds Management (now BT Financial Group).

“Westpac has integrated its wealth management acquisitions and achieved additional synergy benefits while remaining focused on the performance of our existing franchise,” he says.

However, the bank’s results documentation reveals that the acquisition of Sagitta and BTFM were major contributors to the bank’s 9 per cent increase in operating expenses, accounting for $148 million of $311 million.

The company reported a $204 million increase in wealth management income, driven by the contribution of Sagitta and BT, as well as growth in life and risk insurance premiums and improved investment returns on capital.

It says growth in the second half was boosted by a six month contribution from BT compared with only five months in the previous half.

The group adds that a turnaround in equity markets and improved performance from BT managed funds, combined with retention initiatives, significantly reduced the outflow of funds in the latter part of the year while increasing fee income.

The company’s review of group operations says Westpac had continuing success in building the BT business through the integration of the former Westpac Financial Services business with Sagitta and the BT businesses.

“Integration synergies were initially estimated at $46 million for 2003. We achieved $54 million which was $3 million more than our revised 2003 synergy target,” the group says.