“Disappointing and below our expectations.”
Those were the words offered by Bank of Queensland (BoQ) interim chief executive Anthony Rose on Friday as the bank delivered a four cent dividend cut to weary investors propelled in large part by a paucity of retail technology vision and poor execution.
After pursuing an overtly “conservative” stance on innovation and product development, the boutique bank on Friday threw in the towel and conceded its current systems, especially retail, mobile app and mortgage processing are so out of date they’ll need replacing.
Friday’s nasty first half 2019 numbers speak for themselves and shrinkage BoQ is now feeling.
Cash earnings plummeted 8 percent to $167 million compared to H1 2018, while basic cash earnings per share slumped 10 percent to 41.8c. Meanwhile, cost to income ratio ticked up 190 bpts to 49.5 percent.
In a presentation to investors that stunned many seasoned observers, Rose revealed that what appears to be most of BoQ’s existing software and infrastructure – which is still mostly on premises – is headed for the scrap heap due to non-performance.
“Our digital customer offering, lending processes and the inability to attract new owner managers with the overlay of regulatory uncertainty, has hampered customer acquisition and returns,” Rose said adding “‘must do’ priority activities” to rebuild systems are underway as of April 2019.
“The first of these is our mortgage lending processes which reflect the complexity of our compliant approach to responsible lending. The second is our digital customer offering – where our mobile banking app is not delivering the experience customers expect in 2019.”
Rose said there were now “dedicated programs of work to address these issues” adding that there was “an end to end mortgage lending transformation program in place to streamline processes, including use of automation and robotics.”
According to the presentation to investors a hybrid cloud approach is also now firmly on the table with a “core infrastructure modernisation” sheeted to run out to latter part of next year.
A contact centre re-platforming, enhanced email marketing and integration with the New Payments Platform is also listed to be finished by the end of next year.
Part of the problem for BoQ has been it’s eschewal of tech fads, which initially pleased conservative investors, has now left it stranded as the entire financial services industry, not least customers, go digital first around it.
But unwinding the legacy will take time and it’s not clear how much patience investors have in reserve.
Rose said delivery of a “new internet and mobile banking offering for BOQ customers is now under development and is scheduled for delivery over the next year.”
Which in tech investment terms means more pain before visible gain.
Then there’s the price of write offs and staff turnover.
Chief financial officer Matt Baxby sheeted $2 million back charge to “a software impairment” that was pushed along by “executive transition costs totalling approximately one million dollars.”
And the longer you leave legacy, the more it costs to unwind, which must have some wondering whether it might just be easier to start again from scratch.
“We have an increased volume of projects underway, which has seen the assets under construction element of our intangible assets balance increase.
"These are critical foundational investments that help us meet our regulatory requirements and better serve customers. As these projects are completed, they will contribute to a higher level of amortisation than we incurred this half. This will continue into FY20,” Baxby said.
According to Baxby’s numbers IT operating expenses remained stable at $60 million, but overall opex is climbing “to between $280 million and $285 million in the second half of 2019, in the absence of any new actions to reduce underlying costs.”
But things are changing. Rose said BoQ has committed $5 million “as the first step towards establishing a functioning cloud-based digital bank offering. “
“We are well progressed with stage one which is the delivery of a proof of concept, with all key milestones on track. This will be a key part of our consideration in allocation of resources to segments where we see the opportunity to improve customer acquisition and lift returns for shareholders.”
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