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AU$1.3b transformation spend reaps rewards for Westpac in H1

After spending AU$1.3 billion on developing new services and upgrading its infrastructure, Westpac has posted AU$4.2 billion in first half after-tax profit.

Westpac has reported AU$4.2 billion in after-tax profit for the first half of FY18, up 7 percent year on year after spending AU$1.3 billion on transforming the bank over the past 12 months.

"Over the past 12 months, we have continued to make progress on our service-led strategy, including adding over 370,000 new customers and making it easier for customers to manage their money. We have invested over AU$1.3 billion in delivering new services to customers and upgrading the bank's infrastructure," CEO Brian Hartzer told shareholders Monday.

For the six-month period, net interest income was AU$8.3 billion, while net operating income was AU$11.2 billion. Revenue was up 4 percent to AU$11.2 billion.

Operating expenses were reported as AU$4.8 billion. Operating expenses increased by 2 percent -- AU$92 million -- during the half, thanks mainly to the Banking Royal Commission currently underway, salary increases, and the higher technology spend, the bank said.

Technology expenses increased AU$23 million compared to the second half of 2017; technology services costs rose AU$42 million and software maintenance and licensing costs were also up AU$17 million, driven by programs including the customer service hub, Panorama, and enhancements to the bank's technology infrastructure, Westpac told shareholders.

AU$40 million was spent on software maintenance and licensing costs for the customer service hub, Panorama, and the New Payments Platform.

Read also: What is Australia's New Payments Platform?

Telecommunications costs were also up AU$18 million from enhancements to the telephony infrastructure of Westpac's customer contact centres.

"Amortisation of software assets and depreciation of IT equipment, in aggregate, were AU$19 million lower as investments across datacentres, branch teller system upgrades, and components of Westpac Live were fully amortised or depreciated. Software impairments were also lower this half -- down AU$9 million," the bank explained.

Flagging its digital transformation strategy, Westpac said advances in digital technology provided the bank with the ability to improve customer experience, productivity, and risk management.

In first half 2018, the bank said it invested AU$638 million, with most spending directed to growth and productivity initiatives.

Major developments for the bank during the half included progress on its customer service hub that will be the "centrepiece of customer origination and service processes", with the new system slated for go-live later this year, firstly for mortgages.

The bank said it also upped its cyber capabilities, "enhancing" its infrastructure to "further reduce cybersecurity risks".

By "improving the stability and efficiency" of the bank's technology infrastructure, Westpac reported one "severe" incident in Australia during the six-month period, compared to 19 recorded during the 2016 financial year.

Westpac also launched Presto Smart in April, which is an integrated payments solution for business customers that links payments and point of sale systems.

Instead of plugging into devices manufactured by third parties such as Garmin or Fitbit, Westpac in October launched its own range of wearable, hands-free, and battery-free payment-enabled accessories that allow customers to "tap and pay" on all contactless-enabled terminals.

Must read: Wearable payments: A gimmick that might take off

"Strategically, Westpac continues to focus on growing the long-term value of the franchise through its customer focused strategy," the bank explained. "In first half 2018 the group has further grown its customer franchise, enhanced services to customers, and improved productivity. This has been achieved while continuing to transform the organisation, and the customer experience, in particular using digital capabilities."

Westpac's highest performing segment was Consumer Banking, which produced AU$1.7 billion in cash earnings. Meanwhile, the federal government bank levy cost Westpac AU$186 million, pre-tax, for the six-month period, while income tax was AU$1.8 billion.

"We have introduced a number of new digital initiatives that make it easier for customers to manage their money, including PayWear, our 'wearable' payment cards, access to finances via Amazon's virtual assistant Alexa, and more convenient wealth management through our wealth system Panorama," the bank continued.

"Meanwhile our investments in companies such as Uno Home Loans, zipMoney, and Assembly Payments, as well as Reinventure's portfolio of fintech startups, position Westpac to benefit from the rapid technology and data-driven changes in our core markets."

For the 2017 financial year, the bank reported AU$7.99 billion in after-tax profit, on revenue of AU$21.8 billion, an increase of 4 percent year-on-year.

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