Commonwealth Bank Of Australia · ASX:CBA
Commonwealth Bank Of Australia — FY2003 Earnings Presentation
100 slides from Commonwealth Bank Of Australia's earnings presentation, Aug 22, 2003
Slide 1: Slide 1
Slide 2: Highlights (cont'd): Financial Performance and Business Review
Underlying measures exclude shareholder investment returns and first time operating expenses along with their associated tax if relevant. This represents core operating performance, removing the volatility of shareholder earnings and the impact of strategic initiatives Highlights (cont’d) Financial
Slide 3: Banking Analysis
Financial Performance and Business Review Banking operations produced a very strong result. The cash profit contribution increased by $182 million or 9% to $2,249 million. Excluding first time expenses, the growth in underlying profit is 16% or $334 million. This was achieved through strong balance
Slide 4: Net interest income increased 7%
Net Interest Income for the year increased by 7% or $316 million from $4,710 million in the prior year to $5,026 million in the current year. The increase in net interest income is due to a 10% or $18 billion increase in average interest earning assets between 30 June 2002 and 30 June 2003. This has
Slide 5: Net interest margin reduction
The reduction in the net interest margin from 2.76% at June 2002 to 2.67% in the current year has had a negative effect on interest income of $163 million. The decline in margin can be attributed as follows: • A benefit of two basis points from the movement in Australian official rates in June 2002,
Slide 6: Other banking operating income
Other banking operating income has increased by $145 million or 6% on the prior year, increasing from $2,552 million for 2002 to $2,697 million for 2003. Included within other banking income is non-interest income earned on transaction accounts for the Bank’s personal, business and corporate custome
Slide 7: Expense to income ratio and bad debts
The expense to income ratio for the six months ended 30 June 2003 is 51.4% an improvement from 52.6% for the six months ended 31 December 2002. Operating Expenses — Included for the First Time Operating expenses included for the first time within the banking business were $217 million. This includes
Slide 8: Home Loan Balances by Product Type
Home Loan Balancesby Product Type occipea
Slide 9: Banking Analysis (cont'd): Retail
Banking Analysis (cont’d) Retail Lending Assets Retail banking lending assets was $100 billion, an increase of $12 billion or 14% over the prior year. Lending assets comprises Australian Home Lending and Personal Lending. Housing Home loan outstandings have increased by 16% over the prior year. This
Slide 10: Growth in assets drives growth in RWA
20000 2x0 p00 sop topo pw Growth in assets of $16bn drives growth in RWA of $6bn Ask Weghing O% MRIek Wishing 0% SRsk Weighing 0% BAsk Weighing 100% ma " 449% (85b0) — _ = a oo [= [=
Slide 11: Top Exposures to Corporates
Top 20 Exposures to Corporates (Committe d)
Slide 12: Funds Management Analysis
Funds Management Analysis Full Year Ended Increase/ 30/06/03 30/06/02 (Decrease) Key Performance Indicators $M $M % Profitability Underlying Profit after Income Tax (37 ) Shareholder investment returns (after tax) Operating expenses - included for first time (after tax) (29 ) — — Net Profit after In
Slide 13: Funds management expenses and taxation
Expenses as a percentage of average FUM increased over the year, reflecting the fall in funds and an increase in expenses. Operating Expenses – Included for the First Time These expenses include the expenses of strategic initiatives. The strategic initiatives undertaken during the year were the sale
Slide 14: Movement in Directors Valuations
Slide 15: Financial Disclosures for the year ended June 2003
Financial Disclosures for the year ended 30 June 2003 Consolidated Statement of Financial Performance For the year ended 30 June 2003 30/06/03 30/06/02 Appendix $M $M Interest income 11,528 10,455 Interest expense 6,502 5,745 Net interest income 5,026 4,710 Other income: Revenue from sale of assets
Slide 16: Full Year Results - June 2003 Presentation to Media
Full Year Results - 30 June 2003 Presentation to Media David Murray 20 August 2003 www.commbank.com.au
Slide 17: Disclaimer
The material that follows is a presentation of general background information about the Bank's activities current at the date of the presentation, 20 August 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 18: Agenda
Agenda Results Group Business Segments Outlook Operating Environment Financial Services Industry Direction
Slide 19: 3% increase in cash profit in line with expectations
3% increase in cash profit in line with expectations at last AGM Statutory Net Profit After Tax Net Profit After Tax (cash basis)* Earnings per Share (cash basis)* Jun 2003 $2,012m $2,579m 203cps Jun 2002 $2,655m $2,501m 197cps Change (24%) 3% 3% * excluding goodwill amortisation of $322 million and
Slide 20: Another record dividend
Another record dividend Dividends per Share Dividend Payout Ratio Jun 2003 154cps 75.9% Jun 2002 150cps 76.2% Change 3% - - 42 60 82 90 102 104 115 130 136 150 154
Slide 21: Banking performance drives a 9% underlying growth
Banking performance drives a 9% underlying growth
Slide 22: Lower results in funds management
Lower results in funds management consistent with tough market conditions Income to FUM stable at 116 basis points FirstChoice growing rapidly to $3.2bn Net Funds Flow $bn *Cash Management Trusts ^ Non-UK includes New Zealand and Asia
Slide 23: Steady operating margins for life insurance
Steady operating margins and improving investment returns for life insurance
Slide 24: Implementation of strategic initiatives
Implementation of strategic initiatives Redesign of our branch telling system Small business and corporate process redesign Home loan process redesign ATM replacement NetBank upgrade
Slide 25: Outlook
Outlook Operating Environment Australian economy reasonably resilient but remains dependent on US recovery Positive signs emerging Significant potential financial imbalances from US deficits Financial Services Industry Highly competitive Environment of reducing margins Possible slowing of credit gro
Slide 26: Value Creation Phases
Privatisation Value Creation Phases Efficiency Online Service Wealth Management Service Transformation
Slide 27: Online banking, integral to the way customers transact
Online banking, integral to the way customers transact First major bank to launch internet banking 2.8m customers registered for NetBank 1.3m customers registered for our other internet services including: CommSec First Net and First Net Adviser Over half of all bill payments now being done online A
Slide 28: Colonial merger added banking, funds and life insurance
Colonial merger, added banking, funds and life insurance to an existing product mix
Slide 29: Customer service culture, the next transformation
Customer service culture, the next transformation Customer Service through Engaged People supported by Simple Processes
Slide 30: Full Year Results - June 2003 Presentation to Media
Full Year Results - 30 June 2003 Presentation to Media David Murray 20 August 2003 www.commbank.com.au
Slide 31: Full Year Results - June 2003 Presentation to Analysts
Full Year Results - 30 June 2003 Presentation to Analysts David Murray 20 August 2003 www.commbank.com.au
Slide 32: Disclaimer
The material that follows is a presentation of general background information about the Bank's activities current at the date of the presentation, 20 August 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 33: Outlook
Outlook Operating Environment Australian economy reasonably resilient but remains dependent on US recovery Positive signs emerging Significant potential financial imbalances from US deficits Financial Services Industry Highly competitive Environment of reducing margins Possible slowing of credit gro
Slide 34: Outlook: Customer Need and Bank's Positioning
Outlook Customer Need Convenient and informed access to financial services Bank's Positioning
Slide 35: Value Creation Phases
Privatisation Value Creation Phases Efficiency Online Service Wealth Management Service Transformation
Slide 36: Full Year Results - June 2003 Presentation to Analysts
Full Year Results - 30 June 2003 Presentation to Analysts David Murray 20 August 2003 www.commbank.com.au
Slide 37: Presentation of Full Year Results
Presentation of Full Year Results Michael Cameron Chief Financial Officer 20 August 2003 www.commbank.com.au Welcome, and thank you for attending today’s briefing. Today, we are broadcasting live via webcast to the public. We also have a number of analysts joining us by teleconference, and the Bank’
Slide 38: Disclaimer
The material that follows is a presentation of general background information about the Bank's activities current at the date of the presentation, 20 August 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 39: Speaker's Notes
Speaker's Notes Speaker's notes for this presentation are attached below each slide. To access them, you may need to save the slides in PowerPoint and view/print in "notes view."
Slide 40: Overview
Overview Let’s start with an overview, followed by details of the Bank’s key areas. David Murray will follow with some concluding comments before questions.
Slide 41: 3% increase in cash profit in line with expectations
3% increase in cash profit is in line with expectations at the last AGM Statutory Net Profit After Tax Net Profit After Tax (cash basis)* June 2003 $2,012m $2,579m June 2002 $2,655m $2,501m Change (24%) 3% * ie excluding appraisal value uplift/reduction and goodwill amortisation. Unless otherwise st
Slide 42: Banking performance drives a 9% underlying growth
Banking performance drives a 9% underlying growth • Excluding first time expenses and investment returns, the underlying NPAT is $2.69bn, a 9% improvement on 2002. This increase is a result of: • Strong performance in the banking business, driven by the continued growth of the housing market in Aust
Slide 43: Key shareholder ratios improving
Key shareholder ratios improving Earnings per Share Dividend per Share June 2003 $2,579m 203 cents 154 cents 75.9% 13.27% June 2002 $2,501m 197 cents 150 cents 76.2% 13.12% Change 3% 3% 3% - - 2% Dividend Payout Ratio Return on Equity Net Profit After Tax • Consistent with NPAT growth, dividends per
Slide 44: Another record dividend
Another record dividend • The fully franked final dividend of 85 cents per ordinary share brings the dividend paid for the year to a total of 154 cents. The dividend payout ratio is 75.9%, which is again high relative to our peers.
Slide 45: Strategic initiative targets achieved
Strategic initiative targets achieved Costs Benefits Net Cost Annual Benefit $m $m $m $m Target 227 84 143 159 Outcome 214 69 145 165 Revenue: $40m Costs: $125m Full Year to 30 June 2003 • I’m pleased to report that we have successfully implemented four strategic initiatives to further improve the B
Slide 46: Segment Results: Banking
Segment Results: Banking Now let’s analyse each segment in more detail.
Slide 47: Banking: strong result driven by home loan growth
Banking A strong result driven by solid home loan growth and continuing sound asset quality In summary 16% underlying profit growth 4% productivity improvement 9% growth in assets • The banking segment delivered a strong result driven by solid home loan growth and continuing sound asset quality. • I
Slide 48: Banking result reflects the strong home loan market
Banking result reflects the strong home loan market • The banking operations performed well, achieving growth in operating profit after tax of 9% to $2.25bn. • Net interest income performance reflects the strong growth in housing loan balances, partially offset by a subdued performance in business a
Slide 49: Banking income has grown strongly
Banking income has grown strongly Let’s turn to the components of operating income for the Banking Segment: Net Interest Income • Net interest income growth of $316m has been driven by an increase of $18bn or 10% in average interest earning assets partly offset by a small decline in interest margin.
Slide 50: Underlying Banking Cost to Income is improving
Underlying Banking Cost to Income is improving... • Underlying cost growth was 2% reflecting: • Increased volumes across housing and credit cards. • Non-volume related increases include: • increased software charges • the appreciation of the New Zealand dollar, and • the costs to establish Premium F
Slide 51: 9% growth in lending assets
9% growth in lending assets • The Bank’s total lending assets, excluding securitisation, increased by 9% to $175bn. • This increase was driven by strong growth in home loan outstandings, which rose by 17% to $100bn. • Growth in credit card balances was above industry growth, with customers respondin
Slide 52: Strong banking product market shares
Strong banking product market shares Source: RBA, APRA, East and Partners, AELA, Reserve Bank of NZ Banking Market Shares Notes: (1) - Includes both Credit and Debit Turnover (2) - Retail Only (3) - Mid-Corporates (turnover $20m-100m) (4) - Excludes consumer and commercial finance (5) - April Data (
Slide 53: Home lending growth profile
Home lending growth profile* Proprietary Third party Jul 02-jun 03 7815 4171 Owner occupied Viridian/ Access Advantage Investment Home Loan • Net growth in the Bank’s Australian home lending book was $12bn, compared to $10.8bn last year. • New home loans have been sourced through both the proprietar
Slide 54: Further improvement in the portfolio
Further improvement in the portfolio Dec 01 Dec 02 Jun 02 63% investment grade *CBA Equivalent Ratings ^Predominantly secured lending Jun 03 Other Commercial Government Agriculture Finance Construction Leasing Energy Telcos Technology Aviation A High Quality Portfolio Well Diversified Portfolio by I
Slide 55: Continuing sound asset quality
Continuing sound asset quality *Risk Weighted Assets • The annual bad and doubtful debt charge reduced by 32% to $305m. The ratio to risk weighted assets ratio is 21 basis points, which is the lowest of our domestic peers. • This outcome compares with an average rate of 26 basis points over the past
Slide 56: The Bank remains well provisioned
* Includes Colonial $millions The Bank remains well provisioned • The Bank remains well provisioned with total provisions for impairment at June 2003 of $1.5bn. • The continued decrease in specific provisions reflects the strong performance of the portfolio and reductions achieved in gross impaired
Slide 57: Segment Results: Funds Management
Segment Results: Funds Management Let’s look at the Funds Management Business
Slide 58: Funds Management: lower result in tough market conditions
Funds Management Lower result consistent with tough market conditions Income to FUM stable at 116 basis points Cost growth of 6% FirstChoice growing rapidly to $3.2bn • The lower result is consistent with tough market conditions. • Income as a ratio to FUM has remained stable at 116 basis points, •
Slide 59: Lower Funds Management profit
Lower Funds Management profit • The underlying net profit after tax for the Funds Management* Segment decreased by $132m. Including first time expenses and shareholders’ investment returns net profit after tax was $160m^ lower than last year. • Operating income was down 9%, in direct proportion to t
Slide 60: Underlying expenses increased by $46m
Underlying expenses increased by $46m % $bn Underlying Expenses/Average FUM (%) Average FUM ($bn) • The higher expenses in the Australian business were due to: • Compliance with new regulatory changes and increased compliance expenses on legacy products, • Underlying staff salary increases of 4%, re
Slide 61: Movement in funds under management
Movement in funds under management • The underlying reduction in the level of funds under management of $6bn for the year was due to: • Weakness in investment markets, and • Retail investor preference for defensive, cash based products (including retail bank deposits) and property over much of the p
Slide 62: Net flows by product category
Net flows by product category $bn *Cash Management Trusts ^ Non-UK includes New Zealand and Asia Net Funds Flow • Despite 2002/03 being a challenging year for managed funds, inflows in key areas have been strong for CBA: • FirstChoice has been very successful, growing to $3.2bn during the year. • Th
Slide 63: Strong market share position
Strong market share position Funds Management Market Shares Source: Plan for Life, Fund Source Research (1) Retail Only (2) Internally Calculated (3) March Data Managed Investments1 0% 10% 20% Property Managed Funds2 New Zealand Managed Investments 6.3% 14.0%3 14.8% 2003 2002 June 5.2% 13.0% 15.5% •
Slide 64: FirstChoice has made a strong contribution
FirstChoice has made a strong contribution • The master trust offering, FirstChoice, which was launched in May last year has grown to $3.2bn, with at least 80% of inflows representing ‘new’ money. The growth of this product over the year has been outstanding given the overall industry experience for
Slide 65: Segment Results: Life Insurance
Segment Results: Life Insurance Moving on to Life Insurance
Slide 66: Life Insurance
Life Insurance 85% growth in net profit after tax Improved shareholder investment returns Lower operating costs #1 market share in Australia and New Zealand • Net profit after tax has grown by 85%. • Shareholder investment returns have improved. • We have achieved lower operating costs. • We now hol
Slide 67: Steady operating margins and improving investment returns
Steady operating margins and improving investment returns • The underlying life insurance operating profit reflects a 41% increase, and including shareholder investment returns, represents an 85%* increase over 2002. • In Asia, underlying profit improved by $41m. This result reflects improved policy
Slide 68: Operating expense to average inforce premiums is improving
Operating expense to average inforce premiums is improving % $m Operating Expenses/ Average Inforce Premiums (%) Average Inforce Premiums ($m) • Operating expenses in the life insurance business have reduced by $40m or 8%. This improvement has been achieved as the result of: • cost control initiativ
Slide 69: 9% growth in annual premiums
9% growth in annual premiums • The growth of 9% or $70m in annual inforce premiums has resulted in a balance at June 2003 of $880m. • This has been achieved through a 8% increase in the balances of personal risk products, and 11% growth in group risk products. • The New Zealand business experienced
Slide 70: Market shares growing
Market shares growing Life Insurance Market Shares Source: ISI Statistics, Plan for Life, HK Insurance Association (1) In-force Business (2) March Data (3) Single premium new business (Jan - Mar 2003) (4) Single premium new business (Jan - Jul 2002) New Zealand1 0% 10% 20% 30% 40% Australia Hong Kon
Slide 71: Australian Life Insurance business
Australian Life Insurance business Lump Sum Disability Income Group Risk & MasterFund • The growth in life insurance sales (including re-rates) through the bank’s owned channels increased from 28% to 41% for the year ended 30 June 2003. In terms of inforce premiums, these channels still only account
Slide 72: Investment Earnings
Investment Earnings I’ll now talk about Investment earnings
Slide 73: Investment earnings
Investment earnings • Earnings on shareholders’ funds invested in the life insurance and funds management businesses increased by $40m or 121% on the prior year to $73m after tax, primarily reflecting the improvement in global equity markets in the second half of the year.
Slide 74: Investment Mandate Structure
Investment Mandate Structure The Bank has $3bn of shareholders funds across its insurance and funds management business, which is invested in: • Total shareholder capital relating to the Life & Funds Management businesses at 30 June 2003 was $3bn ($2.9bn at 30 June 2002). • These funds are invested
Slide 75: Wealth Management Valuations
Wealth Management Valuations
Slide 76: Wealth management valuations
Wealth management valuations • The Bank has added significant value to its wealth management businesses since June 2000. • Notwithstanding a net $222m reduction in the first half of the year, the $188m increase in the second half has resulted in a total reduction of $34m for the year. Over $1.8bn in
Slide 77: Wealth management valuations - movement analysis
Wealth management valuations - movement analysis The $34m reduction in carrying value over the year consisted of: • Realised profit from these businesses of $330m • Other capital movements which were $119m lower and include: • acquisition of the Gandel retail trust and • other capital injections, pr
Slide 78: Capital
Capital
Slide 79: Capital ratios remain strong
Capital ratios remain strong Credit Ratings unchanged or improved since 1996... Short Term Long Term Fitch Moody's S&P F1+ AA (Stable) P1 Aa3 (Stable) A1+ AA- (Stable) • The Bank’s capital position has remained strong during the year. • These numbers do not reflect the recently completed US$550m Tie
Slide 80: Generation and use of capital
Generation and use of capital • The movement in the Tier 1 ratio can be attributed to: • retained earnings net of dividend of $608 million • the growth in risk weighted assets • The issue of $181m of ASB preference shares in October 2002; and • currency related movements, with the Australian dollar
Slide 81: Summary
Summary That wraps up the key areas of the business. Let me finish by summing up the highlights of the 2003 full year result.
Slide 82: Summary
Summary Cash profit up 3% with underlying Group profit growth of 9% 2003 strategic initiatives delivered Underlying bank cost/income improvement of 4% Further improvement in credit quality Continued strengthening of our Tier 1 capital position • We have delivered a cash profit up 3%, with underlying
Slide 83: Presentation of Full Year Results
Presentation of Full Year Results Michael Cameron Chief Financial Officer 20 August 2003 www.commbank.com.au
Slide 84: Supplementary Slides
Supplementary Slides
Slide 85: Strong market share position
Corporate Bonds Global Loans FX Overall Interest Rate Derivatives Commercial Bills (Investment) Term Loans (Debt) Interest Rate Swaps FX Options Strong market share position Source: Insto Public Domestic Non Govt. Bond League Table, Bloomberg Global Loans League Table, Greenwich and Associates, East
Slide 86: Arrears in consumer book remain at low levels
Arrears in consumer book remain at low levels
Slide 87: Credit ratios are in line with peers
CBA ANZ NAB WBC Credit ratios are in line with peers
Slide 88: Offshore credit risk concentration
Offshore credit risk concentration Other Commercial Government Agriculture Finance International breakdown by Industry* Australia New Zealand International *Excludes Mortgage and Personal
Slide 89: Bad debt charge as annualised % of secured lending balances
Bad debt charge as annualised % of secured lending balances 0.00% 0.02% 0.04% 0.06% 0.08% 0.10% Dec-01 Jun-02 Dec-02 Jun-03
Slide 90: Credit Exposure - Energy Sector
Credit Exposure - Energy Sector Australia (7 71 % investment grade) Asia ( 87 % investment grade) North America ( 61 % investment grade) Other ( 100 % investment grade) 76 % 8 % 2 % 1 4 % $3, 885 m 297 638 1,807 1,143 $m
Slide 91: Credit Exposure - Telcos Sector
Credit Exposure - Telcos Sector Australia ( 74 % investment grade) Asia (100% investment grade) Europe (18% investment grade) Other ( 100 % investment grade) 86 % 1 % 2 % 11% $1, 042 m 1 24 196 411 311 $m
Slide 92: Credit Exposure - Technology Sector
Credit Exposure - Technology Sector 78 % 8 % 5 % $ 895m 27 3 73 387 162 $m 9 % Australia ( 56 % investment grade) North America (100% investment grade) Europe ( 72 % investment grade) Other ( 57 % investment grade)
Slide 93: Credit Exposure - Agriculture Sector
Credit Exposure - Agriculture Sector
Slide 94: Credit Exposure - Aviation Sector
Credit Exposure - Aviation Sector 84 % 10 % 6 % Other ( 100 % investment grade) Australia ( 69 % investment grade) Europe ( 19 % investment grade) $ 1,975 m 61 607 1,136 171 $m
Slide 95: Funds under management
Funds under management 100 80 2 o 8 $94bn 40 20 0+ 1 Jun 2001 Jun 2002 Jun 2003 © Australian Retail Funds la Australian Wholesale Funds Ml Hternetional Funds Ha Cash Management Trusts — Average FUM Comanwesitnen: <p 60
Slide 96: Movement of funds by product category
*Cash Management Trusts Movement of funds by product category
Slide 97: 9% growth in annual premiums
9% growth in annual premiums Opening | SalesiNew | Lapses Other Closing Balance | Business Movements | Balance 30106102 30106103 $m $m $m $m $m Personal 581 128 8) 6) 625 Group 229 59 (30) 8) 255 Total 810 187 (108) @) 880 Australia 827 128 (80) - 875 New Zealand 187 43 (1s) 7 224 Asia 96 16 (12) (1
Slide 98: Generation and use of capital (2nd half 2003)
Generation and use of capital (2nd half 2003)
Slide 99: Generation and use of capital (1st half 2003)
Generation and use of capital (1st half 2003)
Slide 100: Total income segmentation at June 2003
Total income segmentation at 30 June 2003 (1) (1) (2) (1) Excludes policyholder tax (2) Excludes internal funds management income
Commonwealth Bank of Australia — FY2003 Earnings Presentation on 6ix