Commonwealth Bank Of Australia · ASX:CBA
Commonwealth Bank Of Australia — Morgan Stanley Asia Pacific Summit 2003
61 slides from Commonwealth Bank Of Australia's conference presentation, Nov 7, 2003
Slide 1: Morgan Stanley Asia Pacific Summit
Morgan Stanley Asia Pacific Summit Hugh Harley Group Executive, Retail Banking Services Commonwealth Bank of Australia November 2003 Good afternoon Thankyou for attending today’s presentation
Slide 2: Disclaimer
The material that follows is a presentation of general background information about the Bank's activities current at the date of the presentation, 5 November 2003. It is information given in summary form and does not purport to be complete. It is not intended to be relied upon as advice to investors
Slide 3: Agenda
Agenda Operating Environment Performance Transformation Agenda: •Review operating environment in Australia •Review Bank’s performance •Details of new transformation program. •Given role in the Bank, discussion will draw more heavily on retail banking segment of our business. Happy to take questions
Slide 4: The Operating Environment
now! Which/bank The Operating Environment
Slide 5: Australia's economy has been resilient
Australia's economy has been resilient Source: RBA, OECD. Data is for calendar years 1992-2002. Australia United States •Australia’s economy resilient in global context •Aus vs US - outperformed on a number of measures over last decade. •However, downside risks remain as we are not immune from the i
Slide 6: Credit growth has been strong, but banking margins have been squeezed
Credit growth has been strong, but banking margins have been squeezed Source: Company Financial Statements Average Operating Margins* 4 Major Banks (1997 - 2002) *Margin calculated as Total Income/Total Controllable Assets Credit (3 month ended annual rates) Source: Reserve Bank Economic growth and
Slide 7: Demographic changes place emphasis on self funded retirement
$ Billion Source: DEXX&R projections February 2003. Funds management data assumes 5% post fee returns. Projected Size of Various Product Segments $ Billion Funds Management Life Insurance Demographic changes place emphasis on self funded retirement Demographic changes: Australia’s ageing population
Slide 8: Performance
now Which/bank Performance
Slide 9: FY03 result: 3% improvement in cash profit and 9% in underlying profit
FY03 result: 3% improvement in cash profit and 9% improvement in underlying profit Net Profit After Tax (cash basis)* Net Profit After Tax (underlying)** June 2003 $2,579m $2,687m June 2002 $2,501m $2,468m Change 3% 9% * ie excluding appraisal value uplift/reduction (2003: -$245m; 2002: $477m) and g
Slide 10: Banking performance drove underlying growth of 9% in FY03
Banking performance drove underlying growth of 9% in FY03 In terms of business performance, the underlying result reflects: Strong performance in the banking business, driven by the continued growth of the housing market in Australia and New Zealand. A life insurance result that shows solid profit g
Slide 11: 9% growth in lending assets
9% growth in lending assets ** Excludes securitised housing loan balances $6.5b (Jun 03), $7.0b (Jun 02). $ billion 161 175 Lending Assets** Housing Personal Business & Corporate Bank Acceptances To touch on some highlights of the banking result: Total lending assets, excluding securitisation, incre
Slide 12: Key shareholder ratios improved
Key shareholder ratios improved June 2003 203 cents 154 cents 76% 13.27% 6.96%* June 2002 197 cents 150 cents 76% 13.12% 6.78% Change 3% 3% - - 2% 3% Earnings per Share Dividend per Share Dividend Payout Ratio Return on Equity Tier 1 Capital Ratio * This ratio does not include the USD550m hybrid cap
Slide 13: Another record dividend
Another record dividend The Bank’s final dividend: 85 cents fully franked. Total full year dividend to 154 cents. Dividend payout ratio of 76% remains high relative to peers.
Slide 14: Strategic initiative targets achieved and banking cost to income improved
Strategic initiative targets were achieved and the Banking cost to income ratio improved Costs Benefits Net Cost Annual Benefit $m $m $m $m Target 227 84 143 159 Outcome 214 69 145 165 Revenue: $40m Strategic Initiatives FY03: 6% 4% 10% improvement over two years Costs: $125m Banking cost to income
Slide 15: September 2003 Quarter: Performance
September 2003 Quarter: Performance Continued high levels of credit growth Deposit growth above expectations Strong investment returns Increased FUM Growth in insurance premium income In relation to performance for the 1st quarter of 2004, we have experienced: Continued high levels of credit growth,
Slide 16: Transformation
Transformation Let’s now turn to the Bank’s transformation program, which was launched in September 2003.
Slide 17: Successful track record on execution; service transformation is next
We have a successful track record on execution. Transformation of service is the next phase Privatisation Efficiency Online Service Wealth Management Service Transformation Since privatisation in the 1990’s, the Bank has undertaken a number of programs aimed at positioning itself to meet the changin
Slide 18: Why service transformation is necessary
Why service transformation is necessary Environment Customer need Demographic change Monetary cycle High value creation Through advice and investment Even better value Imperatives for the Bank Service transformation Competitive superiority Why is transformation necessary? Look at from customer point
Slide 19: Three themes in our service transformation
Simple processes that are fast, accurate and efficient 'To excel in customer service' Customer service that is responsive, convenient and reliable via Engaged people who are empowered, motivated and skilled to deliver Supported by Through There are three themes in our service transformation Customer
Slide 20: Over 100 initiatives grouped into 20 key workstreams
Simple processes 'To excel in customer service' Customer service via Engaged people Supported by Through There are over 100 initiatives ... grouped into 20 key workstreams Service/Sales 1. Segment and Advice Effectiveness Alignment 2. Advice Implementation 3. Service/Sales system 4. Divisional sales
Slide 21: Customers: Initiatives predominantly drive revenue benefits
Customers: Initiatives predominantly drive revenue benefits Distribution Efficiency Product Sales and Service Effectiveness East 33 37 30 Distribution efficiency Product Sales and Service effectiveness $460m Estimated benefits (pre tax) realised in 2006 IBS redesign Enhanced branch service Branch re
Slide 22: Customers: Transformation Outcomes
Customers: Transformation Outcomes Improved customer experience, including: More modern branches better suited to community needs Average queue time reduction of 35% Increased branch manager visibility Innovative financial solutions better suited to customer needs More informed view of the customer
Slide 23: Customer initiatives: size of prize and status
Initiative name Initiative description Size of prize Status > $100m $50m - $100m Estimated pre tax benefits realised in 2006 $30m - $49m $10m - $29m Branch sales effectiveness Reinvigoration of a world standard service and sales culture. Customer Service (CSO) roles redefined to increase customer co
Slide 24: Customer initiatives: size of prize and status (continued)
Initiative name Initiative description Size of prize Status > $100m $50m - $100m Estimated pre tax benefits realised in 2006 $30m - $49m $10m - $29m Enhanced Branch Service, Branch Redesign Maximise efficiency and effectiveness in branch workflow by improving queue management practices, improving re
Slide 25: Retail branch sales effectiveness is being trialled in branches
Retail branch sales effectiveness is being trialled in 12 branches Focus on Customer Service Officers (CSOs); - redefine role to focus on identifying and satisfying customer needs - KPIs, targets & incentives clearly aligned to customer outcomes - emphasis on sales skills, role plays & coaching - In
Slide 26: Initial results of the pilot are positive
Initial results of the pilot are positive Breakaway sites Control sites (equivalent FTE) Week 1 Week 2 Week 3 Week 4 Week 6 Referrals to specialists per FTE Week 5 Week 7 Week 8 Week 1 Week 2 Week 3 Week 4 Week 6 Cross-sell ratio Week 5 Week 7 Week 8 Baseline: 100 Baseline: 100 Individualised sales
Slide 27: Retail Banking Services: Strength of Relationships Score
Retail Banking Services: Strength of Relationships Score % One of our key customer satisfaction measures in the retail bank looks at “Strength of Relationship”. There has been some encouraging improvement in this measure in recent times. The % of customers who are advocates for the Bank has improved
Slide 28: People: Engagement improves the customer experience
People: Engagement improves the customer experience Source: Gallup Organization. Note: Gallup Workplace Survey was not commissioned by the Bank in 2000. Commonwealth Bank percentile ranking in Gallup database Our people initiatives are aimed at maximising the engagement of our staff. To give you som
Slide 29: People: Transformation Outcomes
People: Transformation Outcomes A better experience for our people, derived from: Taking direction from people that serve our customers Enabling frontline people to solve customer problems Investing in the development and training Measuring performance on customer outcomes Recognising and rewarding
Slide 30: Engagement has a tangible impact on service and performance
Level of engagement has a tangible impact on customer service and business performance Bottom 15% Staff Engagement Score1 > 4.23 Top 15% < 3.72 Average Business Performance Against Plan 107% 72% Average Service Score2 90.3% 83% 1CBA business unit results, 2002, score out of 5 2 An aggregate measure
Slide 31: Framing cultural change within our service aims
We are framing our cultural change within the context of our service aims Customer focus driven by a sales and service culture Operational simplicity and relentless execution driven by a efficiency and sustainability culture New deal for our people through performance management and people develop-
Slide 32: Processes: Initiatives predominantly drive cost benefits
Processes: Initiatives predominantly drive cost benefits Support IT efficiency Purchasing and Property Process / Product simplification East 31 20 6 43 Support Purchasing & Property IT efficiency $440m Estimated benefits (pre tax) realised in 2006 Process / product simplification E2E home loans (RBS
Slide 33: Process Improvement: Transformation Outcomes
Process Improvement: Transformation Outcomes Simpler, more effective processes resulting from: reduced number of IT systems reduced re-keying and paper handling streamlined approval processes Providing: improved responsiveness and faster cycle times increased accuracy and reduced information request
Slide 34: Process initiatives: size of prize and status
Initiative name Initiative description Size of prize Support function redesign Redesign the support functions across the Group by reducing duplication, complexity and low value added worked. We are aiming to reduce support function costs by 25% Status Design IT efficiency Improved management of IT s
Slide 35: End to End Home Loan
End to End Home Loan supported by service initiatives are already underway and will be extended to other product lines r New Origination Platform (CMP) + Workflow Technologies r "Straight-through" processing (vanilla loans - application to documentation) r Rollout CMP to Mobile Lenders r Online Appl
Slide 36: Operations Processing (OPC) Example
Operations Processing (OPC) Example Improved work flows Standardised processes Removal of obstacles and redundant activity World Class Manufacturing pilots in retail will be expanded across the Bank Baseline establishment Establish the optimal 'flow rate' to balance processing Define optimal process
Slide 37: Financial impact and outcomes
Financial impact and outcomes Over the next three years we will: Redirect the normal project spend of $600m Spend an additional $620m Invest a further $260m in our branch network Over the next three years this will result in: Cash EPS growth exceeding 10% CAGR 4-6% CAGR productivity improvements Pro
Slide 38: Investments & Benefits
Investments & Benefits (1) Estimated benefits are recurring and continue to grow beyond 2006. They are comprised of 50% cost savings and 50% revenue improvement. Investment Analysis ($m) 2004 2005 2006 Total 2004-06 Estimated Investment Spend Initiatives 570 425 225 1,220 Branch refresh 90 85 85 260
Slide 39: Investment spend
Investment spend $100m+ $0-49m $50-99m Investment spend Total ($m) FY04 FY05 FY06 Themes Sales and service effectiveness Product offering Distribution efficiency Customers IT enablers Product and process simplification Support Purchasing/property IT efficiency Performance culture Processes People 42
Slide 40: Benefit analysis
Total ($m) Benefit analysis Revenue Cost saving FY04 FY05 Themes Sales and service effectiveness Product offering Distribution efficiency Customers IT enablers Product and process simplification Support redesign Purchasing/property IT efficiency Performance culture Processes People FY06 $100m+ $0-49
Slide 41: Productivity improvements of 4-6% pa over the next three years
Productivity improvements of 4-6% pa CAGR over the next three years 52% Under 48% 0.85% Under 0.75% 57% Banking Cost to Income* Funds Management Cost* to Average FUM Life Cost* to Average Inforce Premiums Under 52% 2003 Actual 2006 Estimate * Includes commissions 2003 Actual 2006 Estimate 2003 Actua
Slide 42: Summary
Summary Operating Environment: Economy resilient Home loan growth continues Favourable outlook for Funds Management and Life Insurance Performance: 9% underlying profit growth Strong credit quality and capital position Good September 2003 quarter Which new Bank: Launched September 2003 Significant c
Slide 43: Morgan Stanley Asia Pacific Summit
Morgan Stanley Asia Pacific Summit Hugh Harley Group Executive, Retail Banking Services Commonwealth Bank of Australia November 2003
Slide 44: Supplementary Slides: Transformation
Supplementary Slides: Transformation
Slide 45: We are serious about changing to be more customer focused
We are serious about changing to be more customer focused Our plans are comprehensive, well thought through and already underway We have achieved encouraging results to date We are confident that we will meet our financial expectations
Slide 46: Plans are in place to complete our largest transformation
Plans are in place to complete our largest transformation Around $900 million of improvement initiatives (~50% customer, 50% simplicity ~50% cost, 50% revenue) 100+ initiatives within divisions and cross-divisional Opportunities identified Significant recurring value to be created through behavioura
Slide 47: Our vision 'To excel in customer service'
Our vision 'To excel in customer service'
Slide 48: Focus of customer work streams
Simple processes that are fast, accurate and efficient 'To excel in customer service' Customer service that is responsive, convenient and reliable Focus of customer work streams Provide the best service and level of advice to each customer segment, including training more than 200 additional financi
Slide 49: Key value drivers for customer service initiatives
Key value drivers for customer service initiatives have been identified Service and Sales Effectiveness IT Enablers Distribution Efficiency Product Sales force effectiveness Retention and run off Cross sell / penetration Credit approvals IT demand management IT system rationalisation Network optimis
Slide 50: ASB service and sales model - a proven success story
ASB service and sales model - a proven success story Success has been widely recognised... 5th consecutive year rated NZ's No.1 Major Bank in terms of customer satisfaction1 3rd consecutive year rated No.1 Business Bank2 Best Bank in NZ3 Best Service Provider for any NZ company4 'Best in Class Statu
Slide 51: Service & Sales Process
Service & Sales Process Examples of Actions Weekly ExCo service & sales meetings Structured focus on behaviour Drives continuous improvement Align meeting processes across the Group Inter-divisional Referral Process Service & Sales Reporting & Meetings Rewards & Recognition Metrics & 'formal incenti
Slide 52: Customer service delivered through engaged people
Our customer service will be delivered through engaged people Simple processes that are fast, accurate and efficient 'To excel in customer service' Customer service that is responsive, convenient and reliable Focus of people work stream Implement a cultural change program - networked, performance dr
Slide 53: Focus of simplification work streams
Simple processes that are fast, accurate and efficient 'To excel in customer service' Customer service that is responsive, convenient and reliable Focus of simplification work streams Provide faster service through improved cycle times eg aim to fund approved personal loans in less than 24 hours Mor
Slide 54: Key value drivers for process simplification
Key value drivers for process simplification have been identified Support function redesign including purchasing & property Process / product IT Efficiency Activity Value Analysis Purchasing effectiveness & demand reduction Marketing spend effectiveness Collections effectiveness Property usage effec
Slide 55: Lessons learnt and best practice principles for execution
We are drawing on lessons learnt from previous experience and are applying best practice principles to execute the transformation 1. Full-time teams with a tight scope and clear deliverables 2. Relentless focus by the entire top team ExCo KRAs aligned to program delivery ExCo play a sponsorship role
Slide 56: Governance structure to minimise execution risk
A governance structure has been established to minimise execution risk CEO David Murray Group ExCo Group Strategic Delivery Divisional program office For each division Groupwide workstreams Sponsor from ExCo Leader Team Divisional initiatives Sponsor from line Leader Team Co-ordinated workstreams Di
Slide 57: Investment and Accounting Treatment
Investment and Accounting Treatment $200m of software expenditure over the three years will be capitalised ($90m in 2004) and $260m over three years will be capitalised for branch refurbishment ($90m in 2004) In addition, $215m of the $248m capitalised software from previous years will be expensed i
Slide 58: Estimated Financial Impact of Transformation Costs
Estimated Financial Impact of Transformation Costs Adjusted Cash EPS The following transformation costs will be added back to the 2004 cash earnings when considering the dividend payment: Total investment spend for 2004 660 Provision for future years (at June 2004) 210 Capitalised software and branc
Slide 59: Impact on Annual Profit
Impact on Annual Profit (excluding all benefits and amortisation)
Slide 60: Dividends & Capital
Dividends & Capital Subject to current trading conditions being maintained, we would expect the 2004 dividend per share growth to be in line with earnings per share growth, after adding back the transformation costs We will continue to issue shares to satisfy the DRP which, subject to approvals, sho
Slide 61: Workplan for implementation over the next three years
We have a workplan for implementation over the next three years Group 'Clear the way' 'Get on with it' 'Scale it up' 'Make it stick' Jun 06 Jun 05 Jun 04 Jan 04 Today 4 months 6 months 12 months 12 months M m Service/sales effectiveness IT enablers Distribution efficiency Product Performance culture
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