Commonwealth Bank Of Australia · ASX:CBA
Commonwealth Bank Of Australia — FY2004 Earnings Presentation
53 slides from Commonwealth Bank Of Australia's earnings presentation, Aug 11, 2004
Slide 1: Presentation of Full Year Results
Presentation of Full Year Results for period ended 30 June 2004 David Murray Chief Executive Officer Michael Cameron Chief Financial Officer 41 August 2004 www.commbank.com.au
Slide 2: Disclaimer
Disclaimer The material that follows is a presentation of general background information about the Bank’s activities current at the date of the presentation, 11 August 2004. It is information given in summary form and does not purport to be complete. It is not financial product advice and is not int
Slide 3: Agenda
Agenda » Full Year Results - Michael Cameron (30 mins) Overview Banking Funds Management Insurance Capital Management » Which new Bank update - David Murray (15 mins) » Questions Conmonweatthsak ly 3 Hello and welcome. I’m Carolyn Kerr, Head of Investor Relations. Thank you for joining us for this p
Slide 4: Overview - Highlights
Overview - Highlights » Underlying profit growth of 15% » Solid profit contributions from each business » Improved productivity » Which new Bank achieved year 1 targets » 18% dividend per share increase in 2004 Conmonweatthsak ly 4 Thank you Carolyn. Let me start with the highlights The results for
Slide 5: 15% growth in underlying cash profit
Overview - 15% growth in underlying cash profit 30/06/04 30/06/03 Change $m $m Goodwill amortisation 324 322 Appraisal value movement (201) 245 Which new Bank 535 168 Shareholder investment returns (152) (73) * Prior to preference dividend distribution Let's go through the overview. The Bank has rec
Slide 6: Strong contributions from each business
Overview - Strong contributions from each business $m Underlying Growth of +15% Investment 3600 - r x 1 Returns 152 insurance ing Funds Mgt. 3200 4 -_? un ‘41 9 64 3,078 EEE Tae 2900 2600 WnB 2300 Incremental 2000 Which new Bank 1700 {535) 1400 1100 800 4 Underlying Underlying Cash Profit Profit Jun
Slide 7: Another record dividend
Overview - Another record dividend Dividend (cents per share} Final dividend of 104 cps, total dividend 183 cps (+19% on 2003) Payout ratio of 89.1% reflecting commitment to add back the WnB costs in determining the Cents: 2004 dividend “10 qoa3 1994 4995 1996 1997 1988 1999 2000 2001 2002 2003 2004
Slide 8: Key shareholder ratios
Overview - Key shareholder ratios 2003 Change Shareholder Ratios™ Earnings Per Share? 203 cents +2% Return on Equity 13.3% 0.1% Dividends Per Share 154 cents +19% Payout Ratio 75.9% Underlying’) EPS was 237 cents (+13% v. 2003) Underlying‘) ROE was 15.1% (+1.3% v. 2003) "! Based on Cash NPAT pre pre
Slide 9: Which new Bank financial update - goals
Which new Bank financial update Reminder — what are our goals Subject to current market conditions continuing Over the three year period we will: Over the three year period this will result in: » Cash EPS growth exceeding 10% CAGR :» Redirect the normal project spend of $600m » 4-6% CAGR productivit
Slide 10: Year 1 investment spend and benefits
Which new Bank financial update Year 1 investment spend and benefits Investment spend ($m) mone nents ($m) 2004 FYO4 Themes Actual Estimate" Revenues | Costs | Total Customers 268 270 Gross benefits 182] 145] 297 Processes 266 280 Additional W 60) ~| (60) People 12 10 operating exp. (60) ) 546 560 N
Slide 11: Total estimates unchanged
Which new Bank financial update Total estimates unchanged Which New Bank estimates updated for 2004 actuals Our estimate of investment and benefits of the total Investment | 2004 2005 | 2008 Total Act. Est. Est. programme remain unchanged spend Original 660 510 310 4,480 onponse bene a fobs. and Rev
Slide 12: Expenditure - FY2004
Which new Bank financial update Expenditure - FY2004 Investment Spend for the period (gross) 634 + Provision for Future Costs 208 - investment Capitalised (112) = Gross Which new Bank expense 730 ~ Normal project spend {200} + Expensing of previously capitalised software 219 = Incremental Which new
Slide 13: Underlying expenses reflect business growth
Overview - underlying expenses reflect business growth - Full year benefits of 2003 strategic initiatives ($125m - $69m) (56) ~ - Year 1 benefits of WnB (145) (141) - WnB revenue based operating expenses 60 CPI and Salary increases 185 Volume related increases 103 One off costs 24 Software capitalis
Slide 14: Banking highlights
Banking “ . Highlights Total underlying banking profit $m Other 3.200 Bank on Continued strong demand for owner ~~ ast me BN occupied and investment loans 3000 = Z 2800 expenses MM 2.278 Maintained position as leading 2600 2376 8) Taxation | | home foan provider and maintained - (124) | share ] 2.17
Slide 15: Banking income
Banking income Banking Income: $8,256m {82% of Group Income) By income type By line of business $M % Banking ; i at interest Retail Banking 4,298 52% income Premium Business Services* 3,140 38% Se.410m ASB + Other Asia Pacific 818 10% (48% 12003} Total Banking Income 8,256 100% * Includes Premium Fi
Slide 16: Banking - Productivity improving
Banking Productivity improving a 60.0 5 58.0 4 56.0 | 2.3% productivity improvement 54.0 4 & sa _— 52.0 4 Perce >. 50.0 | $2.0 June 2006 50.8 ; Target: 48.0 4 ... Under 47 oo 46.0 4 44.0 Jun-02 Jun-G3 Jun-b4 Which Bank ConmonwealthSak <% 1, The underlying banking cost to income ratio was 50.8% for t
Slide 17: Non pricing factors make up most of NIM change
Banking - non pricing factors make up most of the NIM change Net interest margin (bps) 2.70% 267bps ~6bps: . | HD -sups 280% a engi “Ab 253bps #8 0% Growth in I t 2 5 non-lending Funding Asset AO% i; ‘ 1EAY mix mix Competition 2.80% effect 2.20% 2.18% 288% * Interost Earning Assats . see Which Bank
Slide 18: 18% growth in lending assets
Banking +18% growth in lending assets* Lending assets in $ bn 205.9 191.3 +14% v. 2003 (9% # Dee 2003) Bank Acceptances 413% v. 2003 (76% | Dee 2003) Business & Corporate 47% v. 2003 (25% } Dee 2003) Personal +22% v. 2003 {29% | Dev 2003) Housing Jun 03 Dec 03 Jun 04 The Bank’s total lending assets,
Slide 19: Home lending growth profile
Banking Home lending growth profile” Origination of home loans funded 2003/2004(2) Growth represented by: ($bn) 2003 2004 Loans funded 36.9 43.2 Reductions 24.9 25.2 Net Growth 12.0 18.0 [Ej Proprietary Of third Party ‘0 Data relates to the Bank’s Australian home lending business an? Which Bank Conm
Slide 20: Prudent risk provisioning
Banking Prudent risk provisioning Bad and doubtful debts expense {in $m) Continued low charge for bad debts: 0.28% 0.32% » Sound credit management 0.21% Bad and » Good management of 0.15%, 0.16% doubtful 7 ents fo outstandings 449 RWA : High % of home toans in overall 3g5* portfolio 305 Over the cre
Slide 21: Sustained portfolio quality
Banking Sustained portfolio quality 2004 2003 Charge for Bad & Doubtful Debts $276m $305m Crmecteat soa pens | onen | ozs crests esr sadam | _ son Specific Provisions $143m $205m General Provision $1,393m =| $1,325m General Provision to RWA 0.82% 0.90% *Risk Weighted Assets Conmonwealthbak <i 2, Gro
Slide 22: Funds Management - 18% growth in underlying profit
Funds Management o . . 7 18% growth in underlying profit Volume incremental $m Net omens Which new Strong investment markets Operating Bank : Income. underpinned revenue growth 300 4 44 268 Income to average FUA ratio 250 1233 | maintained F tight cost trot 200 4 Reduction in S‘holder ocus on 1g) co
Slide 23: 11% growth in FUA
Funds Management +11% Growth in FUA +1 1% growth $m Strong turnaround in net flow 110000 position from 2003 underpinned by FirstChoice and Intemational flows. s05e00. Outfiows driven by: Legacy products: pieces) Fund closures Performance of flagship funds Industry shift to platforms JUXIGFUA NetFiow
Slide 24: FirstChoice v. Other retail
Funds Management FirstChoice v. Other retail Net Flows ($m) 5,000 2003 v. 2004 2003 2004 ~3,000" FirstChoice / Cash First State Retail Legacy Avanteos Management eee Which Bank ConmonwealthBax & oA Let me make some comments on the individual retail segments: FirstChoice achieved $7bn in FUA during t
Slide 25: FirstChoice continues to grow rapidly
Funds Management FirstChoice continues to grow rapidly Strong market growth: ; Growth in FUA vs. Market’ Movement from single to multi- 000 ; 0000 manager irstnice —— total rasteriund/plaforn market 7000 - FirstChoice Success . 200,000 $7bn FUA ~ 30 June 2004 80 z Leading industry flows = ie Most us
Slide 26: Funds Management productivity improvement
Funds Management ° = . 8% productivity improvement v. June 03 % 8% productivity improvement $bn = 1005 Oo r 110 z 088 Target 76 = oso, |02 ee Under | 100 ? - momen 4074 z © a z 0604 +90 & 8 at 2 S go 0.404 ; 8 8 a 3 2 ~ = 0.204 + 70 3 = 3 0.00 , , T T 60 Jun-02 Jun-03 Jun-04 Eg Average FUA ~«- Under
Slide 27: Insurance - improved operating margins and strong investment returns
Insurance - improved operating margins and strong investment returns Australia $m Market leader in life 133 (11) insurance in Australia — OP] 251 = 14.8% 8% growth in risk inforce premiums Improved General Insurance : . 190 claims ratio Tight expense controls — 100 expenses flat 65 Strong improvemen
Slide 28: Insurance productivity improvement
Insurance 9% productivity improvement v. June 03 % auitey $m 9% productivity improvement 70 5 r 1200 rey 58.5 = eo 4 z Fa + 1100 8 = 504 % ge — 3. Qa Me ey oe as oe L Be 40 LF 42 | 1000 3 as FY06 2 4 Bo 304 Target | 999 0 ge é as 20 a 64 +800 @ 10 4 = 0 T T 700 dun-02 dun-03 Jun-04 [£5 Average Infor
Slide 29: Australian Insurance business
Insurance Australian Insurance business Distribution by Channel’ Product Sales Third Party FA individual [3 Network & Direct* LJ) General * Network - internal Bank Channels Ed Group Risk Direct - Telemarketing & Phone * Excludes Group Risk and Masterfunds Which Bank CommonwealthBak 4% 9 In the Austr
Slide 30: Value of Insurance and Fund Management Business increased $201m
Value of Insurance and Fund Management Business increased $201m $m 10000 4 9000 4 8,546 | i 8,402 sooe + z | Profit 4 [ : ae 519 . Increase in Capital Value Movements 201 7000 4 | {864) 6000 4 | $000 7, T or 1 Directors’ Directors’ Valuation Valuation Jun-03 Jun-04 Psd park & 7 The appraisal value u
Slide 31: Active Capital Management
Active Capital Management » Creating capital flexibility - executed initiatives Tier 1 Hybrid PERLS fl Off-market share buy-back Share Purchase Plan DRP 2H03 DRP 1H04 Life & FM Special Dividend » Existing ratings are stable: S&P Meoodys Fitch $750m $532m $467m $201m $188m $194m Aas US$550m (A$832m)
Slide 32: Capital ratios remain strong
Capital ratios remain strong Jun 2602 Dee 2002 Jun 2063 Dec 2003 Jun 2604 © Tier 1 Capital © Tier 2 Capital ~" Adjusted Common Equity ™ Target Range Which Bank ConmonwealthBank & 32 Both the Tier 1 and S&P’s ACE ratio increased, impacted by growth in Risk Weighted Assets and the capital initiatives
Slide 33: Generation and use of Tier capital
Generation and use of Tier 1 capital 9.0% 1.69 {4.42} Effect of add-back of 8.5% transformation costs i o27 (8.81) 78% 0.88 (0.03) 74s % {0.93} 7.0% | 696 Es 0.37 | i 6.5% S 6.0% 6.5% Tier? Cash = Ord.and = Growthin DRP = Hybrid «= SPP = Buyback Currency — Tier 4 Jun 2003 Eamings Pref. RWA $639m Iss
Slide 34: Highlights
Highlights Underlying profit growth of 15% » Solid profit contributions from each business Improved productivity » Which new Bank achieved year 1 targets 18% dividend per share increase in 2004 Conmonweatthsak ly 34 So that wraps up the details of the financials. To conclude, the highlights for the
Slide 35: Supplementary material
Supplementary material Commonwealthiak 4% 45 35
Slide 36: Strong banking market share positions
Market Shares Strong banking market share positions Banking Market Shares June Dec Jun 2004 © 20031 2003 Retail and Business Deposits? Credit Cards . 2 Transaction Services (commercial) Home Loans Business Lending |: New Zealand Lending New Zealand Deposits’ [J 7 s Asset Finance 0% 10% 20% 90% Sourc
Slide 37: Funds Management market shares
Market shares Funds Management Funds Management Market Shares June Bec June 2004 20033 20033 Managed Investments’ 140%) 14.7% 14.9% New Zealand Managed CT ag ae) Investments Notes: 0% 10% 20% (1) Reta! Onty (2} May 2004 Date (3} As reported in the Dec-2003 profit announcement Source: Plan for Life,
Slide 38: Life Insurance market shares
Market shares Life Insurance Life Insurance Market Shares June Dec Jun 2004 2003° 2003° New Zealand’ Australia 30% 40% Notes: (1) fineforve Business (2} September Dats FF " 3 Pr ; (3} From December 2003 Profit Announcement document Source: 1S! Statistics, Pian for Lite, HK insuranos Association Comm
Slide 39: Total income and NPAT
Overview of results Total income and NPAT Group total Income: $10,092m [£9 Banking EE Insurance EE Funds management Income vesiment returns on shareholders funds and any valuation appraisal uplift or decrease Group Underlying Cash NPAT: $3,078m Which Bank 39
Slide 40: $113bn in Australian Home lending
Banking $113bn in Australian Home lending* Product Balances Outstanding Balances by Loan Type EB Owner occupied EB Variable Investment Home . OB ican fl Fixed Rate [J Line of credit & Honeymoon the Bank's Australian home fending business gross of securitisation Commonwealth <p 40 40
Slide 41: The Bank remains well provisioned
$millions The Bank remains well provisioned 2,108 > * Includes Colonial r 500 1,800 4 [ ‘oo 1,500 4 + 350 4,200 4 r 300 | 250 0% 900 + L F 200 600 4f | 150 F 100 300 | | 50 0 0 Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun 95 96 97 98 98 = G0" or 02 03 04 A General Provision FE Specific Provision Total Pr
Slide 42: Top exposures to Corporates and quality of total exposure
S&P Rating or Equivalent Banking - Top 20 exposures to Corporates and quality of total exposure Top 20 Exposures to Corporates ($m) Quality of total exposure: There is security over 79% of the non- 100%. investment grade exposure 80%. 20%. 0% 4 © 100 200 300 406 500 600 700 800 900 16007100 {Top 20
Slide 43: Arrears in consumer book remain low
Banking Arrears in consumer book remain low 30/06/2004 31/12/2003 30/06/2003 31/12/2002 $m $m $m $m Housing Loans 168 147 157 136 Other Loans 78 66 91 75 Total 246 213 248 211 Housing loans arrears rate 30/06/2004 31/12/2003 30/06/2003 31/12/2002 Housing Loans accruing 90 days or more $m 168 147 157
Slide 44: Total and Offshore credit risk concentration
Banking - Total and Offshore credit risk concentration Total Commercial exposure* Offshore Commercial by location exposure by Industry** $351bn Total Exposure a $45bn Aviation Lg: Technology Telcos Energy Leasing 3% Construction _— International Automobile : a 9 Australia 13% Other Tan Commercial :
Slide 45: A well diversified portfolio by industry
Banking A well diversified portfolio by industry Total Outstandings” $138.6 bn ‘Telecommunicstion As Transport agrounra 8 Gonsinuetion 57% 2.0% Energy 24% Omer CAI 32.9% Motor Vehicle ang Part Manutecturing 0.3% Leasing 6.3% ‘Goverament, 1% * Represents balances actually utilised Conmonwealth’rk 49
Slide 46: Credit Exposure - Agriculture Sector
Banking Credit Exposure - Agriculture Sector 10,000 37 Total exposure: $8,963m Australia (11% investment grade} ween eae New Zeatand (36% investment grade} CommonwealthBark <y 4g 46
Slide 47: Credit Exposure - Aviation Sector
Banking Credit Exposure - Aviation Sector Total exposure: $1,676m im 4,800 1,800 285 4,400 4,200 DAAA to A- 0 886+ to BBB- 4,000 m 68+ to BB- 200 4,463 nae. 600 400 200 |__| ol 3 Ausiralia (89% investment grade} New Zealand (99% investment grade) seit mpeab Europe (27% investment grade} Grea Esco se
Slide 48: Credit Exposure - Energy Sector
Banking Credit Exposure - Energy Sector Total exposure: $4,453m $m 5000, 4500 | 40004 4,286 3500 DADA 3000 BEB +10 BEB 2500 BEBO BB. 2000 2418 ate 1500 10004 _ = ol Australia (77% investment grade} New Zealand (106% investment grade} Asia (93% investment grade} Europe (100% investment grade) America
Slide 49: Credit Exposure - Telcos Sector
Banking Credit Exposure - Telcos Sector Total exposure: $786m $m 900 5 Boo 4 700 4 233 600 4 DAA A 500 4 0 BBB+ to BBB- 1% 400 4 NBBs fo BB- 300 | 454 m<BB- 200 4 100 4 | = Ausiralia {76% investment grade) Europe (100% investment grade} | New Zealand (106% investment grade} Gr Eicune eemn men Inte f
Slide 50: Funds Management asset class breakdown
Funds Management Asset class breakdown FUA: $109.8bn Externally ainar ae at June 2004 Managed ~ 5% 1a aa Australian equities Fixed income based 52% ee Which Bank Equities based 38% 50
Slide 51: Investment Mandate Structure
Funds Management & Insurance Investment Mandate Structure The Bank has $2.7bn of shareholders funds across its insurance and funds management business, which is invested in: Australia New Zealand Asia Total Local Equities 10% 1% 4% 7% international Equities 4% 6% 6% 5% Property 22% 4% 0% 14% Other G
Slide 52: Claims ratios are consistent with prior years
Claims ratios* are consistent with prior years. GI was impacted in 03 by the Canberra bushfires. OJun-03 YTD Actual Hi Jun-04 YTD Actual 80.0% 4 70.0% + 60.0% 4 50.0% 4 = 40.0% 4 30.0% 4 20.0% 10.0% 5 0.0% 69.9% 58.8% 50.9% 52.4% General Insurance Life insurance ConmonwealthBank &y 52 52
Slide 53: International Accounting Standards
International Accounting Standards Outlining our approach » Qualitative comments in the profit announcement document » Timeline: » 1 July 2004 — start accounting internally according to IAS :» Feb 2005 (half year ’05 profit announcement) — further qualitative and some quantitative statements » 1 Jul
Commonwealth Bank of Australia — FY2004 Earnings Presentation on 6ix