Commonwealth Bank Of Australia · ASX:CBA
Commonwealth Bank Of Australia — H1 2004 Earnings Presentation
66 slides from Commonwealth Bank Of Australia's earnings presentation, Feb 11, 2004
Slide 1: Presentation of Half Year Results
Presentation of Half Year Results for period ended 31 December 2003 David Murray Chief Executive Officer Michael Cameron Chief Financial Officer 11 February 2004 www. commbank.com.au o Hello and welcome. I’m Carolyn Kerr, Head of Investor Relations. Thank you for joining us for this presentation. To
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 February 2004. It is information given in summary form and does not purport to be complete. it is not intended fo be relied upon as advice
Slide 3: 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.” Whict Bank ‘Conmeanmerealttiieri:
Slide 4: Agenda
Agenda Half Year Results - Michael Carneron (40 mins) » Overview : Segment Performance and key iterns : Financial Update on Which new Bank Progress of Which new Bank - David Murray (20 mins} Questions Whict Bank ‘Conmeanmerealttiieri: Today's Agenda will consist of two parts: | will provide: * an ov
Slide 5: Half Year Results: Overview
Half Year Results: Overview Except where otherwise stated, all figures relate to the half year ended 31 December 2003 and comparatives for the profit and loss are for the half year ended 31 December 2002. Comparisons on balance sheet are to 30 June 2003, unless otherwise stated. Whict Bank Conmonwea
Slide 6: Highlights
Highlights » Good result: underlying profit growth of 17% » Another record dividend » Productivity improvement in all businesses » Further improvement in credit quality » Continued strengthening of Tier 1 capital : Which new Bank meeting early expectations » Share Buy-Back announced First up, I’d li
Slide 7: A good result: 17% growth in underlying cash profit
A good result: 17% growth in underlying cash profit 31/12/03 34/12/82 Change $m $m a Goodwill amortisation 162 160 Appraisal value movement {165) 426 Which new Bank 346 - Strategic initiatives - 2002 - 39 ESAP - 2002 - 19 Shareholder investment returns {99) 8 The Bank has recorded a Statutory NPAT f
Slide 8: Banking and Insurance strong, Funds Management rebound
Banking and Insurance strong, Funds Management rebound $m 1800 5 Underlying Growth of 17% investment 1700 + f . \ Returns 1600 4 insurarice 9g . Banking 54 1,487 | 1506 4 158 — ae at 1400 4 | 1,274 ‘ Funds 1300 ~ : Management . 1200 J 1 4 17100 4 Incremental 1000 4 Which new Bank 900 (346) 800 T r r
Slide 9: Key shareholder ratios
Key shareholder ratios 31/12/03: 3442/02 Shareholder Ratios* Earnings Per Share 96 cents 95 cenis Return on Equity 123% 12.4% Dividends Per Share 79 cents: 69 cents Payout Ratio B2.0% 72.7% * Based on Cash NPAT Whieh Bank Commomnealthiak <p , Even after taking into account the cost of Which new Bank
Slide 10: Another Record Dividend
Another Record Dividend Interim dividend of 140 79 cps, up 14% on pep 108 Fa | | *Payout ratio of 82.9% reflecting Which new Bank expenditure impact in 2004 Which Bank We committed to looking through the costs of transformation when determining the dividend for the year to June 2004. As a result of
Slide 11: Segment Results: Banking
Segment Results: Banking Whict Bank ‘Conmeanmerealttiieri: Let’s look at each segment in more detail “9 4 11
Slide 12: Banking
Banking Performance driven by growth in home lending and sound asset quality In summary: 14% underlying profit growth « 8% growth in banking income » 4.6% annualised productivity improvement since June 2003 » 89% growth in lending assets since June 2003 Witch Sank Commonwealth Bark The banking segme
Slide 13: 14% underlying profit growth driven by strength in home lending
14% underlying profit growth driven by strength in home lending $n 2,000 7 1,900 4 14% increase from underlying business 1,800 4 ion 1,700 4 Other Bank 1,600 4 Interest tneone al 1,600 4 Income Which new 1.400 J a fa) Ea 204 . 1. 1.300 4 1 E224 1.200 4 1136 se 1 | 1100-4 Expenses 970 1,000 4 (406) .
Slide 14: Underlying Banking Cost to Income ratio has improved
Underlying Banking Cost to Income ratio has improved by over 4% annualised 4.6% annualised productivity 547 ° }. improvement 52 o ] 52.2 ° 50 51.9 50.7 ° 48 June 2006 467 Target:Under 48 44 T T T T T T T T T 1 Dec- Jun- Dec- Jun- Dec- 01 02 02 03 03 Which Bank Comnommeaithiivic < y 4, The underlying
Slide 15: 9% growth in lending assets
9% growth in lending assets* over the last six months 191,272 200000 7 169,084 175,074 160000 4 c < Oo i = 100000 7 a fs ' a A Se 50000 4 100,203 “ i 0 a ce) _ ee Dec 2002 Jun 2003 Dec 2003 | Q Housing | Personal | Business & Corporate 2] Bank Acceptances “Lending assets excludes secusitised housing
Slide 16: Home lending growth profile
Home lending growth profile* Source: Loans Funded 1/07/03 - 34/42/03 EJ Proprietary Growth represented by: {$bn)} 1HO4 Loans Funded 23.1 Reductions (14.4 Net Growth 87 2H03 18.4 11.8 6.6 * Data relates to the Bank's Australian hore lending business Which Bank Product Balances Outstandin. Balances by
Slide 17: Continued improvement in portfolio quality
Continued improvement in portfolio lity Top 20 Exposures to Corporates (Committed) Weil Diversified Portfolio by Industry {Top 26 exposures are 3.5% of total committed é Telcos exposures of $245 billion) Lansing Tachnology Construction ZL bvation Other Commerciai Finance Agricatture Government AHigh
Slide 18: The Bank's asset quality remains sound
The Bank’s asset quality remains sound 31/12/03 30/06/03 3442102 Charge for Bad & Doubtful Debts (6 months) $150m $154m $151m Charge for Bad & Doubtful Debts to RWA* (annualised} 0.19% 0.21% 0.21% Gross Irnpaired Assets {net of interest reserved) $$73m $639m $863m Specific Provisions $198m $205m $26
Slide 19: Segment Results: Funds Management
Segment Results: Funds Management Whict Bank ‘Conmeanmerealttiieri: “9 49 19
Slide 20: Funds Management
Funds Management » Since June 2003, underlying profit rebound of 17% to December 2002 levels » Income to average FUM steady at 119 basis points « 9.0% annualised productivity improvement since June 2003 » FirstChoice continues to grow rapidly Whieh Bank Commnomnoalthiank <p ,. The funds management b
Slide 21: Underlying profit rebounds to December 2002 levels
Underlying profit rebounds to December 2002 levels $m $m 206 7 Net Incremental 2004 After Tax Profit: 17% Operating Which new underlying growth income Bank in six months 9 (49) 150 4 1 s| 160 4 125 125 126 =_— 128 oe 128 ca (1) } 100 4 1004 Operating S'holder Expense Tax Invest 2 8) Returns 50 4 19
Slide 22: Since June, FUM has grown by 7% and productivity improved
Since June, FUM has grown by 7% and productivity has improved by 9% annualised % 9.0% annualised productivity improvement $bn _ 17 r 140 z re i cn OB arn a 7 100 & FYO6 y S Target & & 064 Under 9 g 0.78 2 5 J L 2 E 04 80 3 > = z 2024 t 70 3 5 O4 T T T T T 60 Dec-02 Jun-03 Dec-03 E) Average FUM -« Un
Slide 23: 7% Growth in Funds under Management
7% Growth in Funds under Management $m 7% underlying growth 105,000 8 (4) 100 100,000 | 1 ] 94 ces 96,000 ey 80.000 85,000 Jua-03 NetFiows Investment Other Dec-03 FUM Returns, FUM ‘Which Bonk Gommenweulth'ti%: p25 Contributing to the 7% growth in FUM were net flows of $1bn and investment returns of
Slide 24: FirstChoice continues to grow rapidly
FirstChoice continues to grow rapidly [ Funds under Administration of $5bn at 31 December 2003 ] Source Destination Half Year Growth represented by: Dec = Jun {$bn) 2003 2003 Inflows 22 1.6 Outflows 05 0.3 Net Growth 17 1.3 “Proprietary OICFS 23rd party “Extemal Which, Sank. Comnovewealthsak FirstCh
Slide 25: Segment Results: Insurance
Segment Results: Insurance Whict Bank ‘Conmeanmerealttiieri: Moving to insurance “9 25 25
Slide 26: Insurance
Insurance Fourfold increase in underlying net profit after tax to $67m Strong improvement in shareholder investment returns 9.2% annualised productivity improvement since June 2003 Continued growth in anriual premiums Positive experierice profit for two consecutive halves Whieh Bank The main points
Slide 27: Insurance result reflects improved operating margins and strong investment returns
Insurance result reflects improved operating margins and strong investment returns $m we) 89 @) 153 160 7 | >400% increase from underlying business | 140 4 a | 120 4 | 1004 * 3 Eg 60 a me —_— 404 4 4 13 ee 20 a iS) T T T T T T T Ungerlying Asia Australia NZ Uadertying S‘hoiger Whichnew Cash Profit P
Slide 28: Since June, productivity has improved by 9.2% annualised
Since June, productivity has improved by 9.2% annualised % ° ; as $m 605 528 9.2% annualised productivity improvement _ 4200 s 477 = “~__ z Ee nD Setter a pte & +E fo erence te o 2 40 FYO6 3 5 9 Target g RS 304 Under F 1000 * me 42 é £0 3 Be 204 5 ag a Og p 900 = 10 4 3 04 \ T T T T T 800 Dec-02 Jun
Slide 29: Australian Insurance business
Australian Insurance business Distribution by Channel* El third Party Network & Direct* Network - Internal Bank Channels GCirect - Telemarketing & Phone * Excludes Group Risk and Masteniunds Which Bank Growth represented by: Dec Jun ($bn) 2003 ©2003 Sales/New Business 91 83 Lapses 64 58 Net Growth 2
Slide 30: Investment Earnings
Investment Earnings Which Bank ‘Conmeanmerealttiieri: Now let me talk briefly about investment earnings “9 30 30
Slide 31: Investment Mandate Structure
Investment Mandate Structure The Bank has $2.9bn of shareholders funds across its insurance and funds management business, which is invested in: Australia New Zealand Asia Total Local Equities 13% 1% 10% International Equities 3%| 11% 5% Property 16% 2% 11% Other Growth 0%| 12% 4% Sub Total zi 26% 3
Slide 32: Wealth Management Valuations
Wealth Management Valuations Whict Bank ‘Conmeanmerealttiieri: The valuation of the wealth management businesses was straightforward. “9 32 32
Slide 33: Wealth management valuations - movement analysis
Wealth management valuations - movement analysis $m Net appraisal value increase of $59m 10000 5 9000 4 oo _ — Total 8546 fy ~~-B,805. -- EEE . Profit Profit 270 8000 7 270 Increase In - Value Capital (376) 7000 + Value 188 Other Capital sooo 4 Moe Net 59 $000 T T T T 1 Directors’ Directors’ Valuati
Slide 34: Capital
Capital Which Bank There are a number of capital items to discuss. ‘Conmeanmerealttiieri: “9 34 34
Slide 35: Capital Management strategy
Capital Management strategy Creating capital flexibility Executed initiatives Tier 1 Hybrid US$550m (A$832m) PERLS It $750m Subordinated debt $500m Proposed initiatives Off-market share buy-back $450m - $550m Share Purchase Plan and Share Sale Facility (executed following the share buy-back) Which B
Slide 36: Capital ratios remain strong
Capital ratios remain strong 1% 10% Jan 2002 Dee 2002 Jun 2003 Dec 2003 Deo 2003 Pro-lorma™ # Tier 1 Capital s: Tier 2 Capital ~- Adjusted Common Equity # Target Range * Proforma figuras represent actuat December 2098 capitat ratios adjusted fos $758m PERLS Il, an issue and redemption of subordinate
Slide 37: Generation and use of tier capital
Generation and use of tier 1 capital 8.0% 7 0.79 (054) 047 (032) “ o.t0 066 (0.14) 751 | ~ 15% (0.47) TI 7.26 _—Z=; 6.98 s — 7.0% 4 | 6.5% 4 PERLS I ‘Bay-back SPP inelofesze —-Y.60%5m, 3360m oosis} B242m 11.836 80.213m $1,240 $846 * Growth in RWA = $10.7 bn ? Principally comprises the issue of $201m
Slide 38: Off-market share buy-back
Off-market share buy-back Structure Offer to buy back approximately $450 to $550 million (up to 1.7%) of issued capital All shareholders eligible to participate via tender Shareholders can tender any number of their shares within the range $26.00 to $31.25 The buy back price will comprise: Cash capi
Slide 39: Which new Bank
Which new Bank Which Bank ‘Conmeanmerealttiieri: “9 39 Lets now move on to the financial update for Which new Bank. 39
Slide 40: Expected financial impact and outcomes of the program
In September 2003, we set out the expected financial impact and outcomes of the program Subject to current market conditions continuing Over the next three years we will: Over the next three years this will result in: Cash EPS growth exceeding 10% CAGR Redirect the normal project spend of $600m 4-6%
Slide 41: Which new Bank Expenditure to Date
Which new Bank Expenditure to Date Actual half yearto |Full Year Estimated 34/12/03 Financial Impact” $m $m Incremental Which new Bank expense after tax: Investment Spend for the period (grass) 179 866 ~ Investment Capitalised {45} (186) + Provision for Future Costs 200 210 + Expensing of previously
Slide 42: Investment spend is in line with expectations
Investment spend is in line with expectations Themes 1H04 Actual| 2HO4Estimate| FY04 Estimate ($m) ($m) ($m) Customers 60 210 270 Processes 100 180 280 People 5 5 10 165 395 560 Branch Refurbishment 14 86 100 Total 179 431 660 Which Bank At December 2003, 20 Branches had been reburbished. As at toda
Slide 43: Benefits are emerging
Benefits are emerging Themes 1H04 Actuai| 2H04 Estimate} FY04 Estimate ($m) ($m) ($m) Customers 58 87 145 Processes 5 50 55 People - - Total 63 137 200 Which Bank OP a3 Early benefits are emerging as set out on this slide. From the work we have underway we expect to achieve the committed benefits of
Slide 44: Highlights
Highlights » Good result: underlying profit growth of 17% » Another record dividend » Productivity improvement in all businesses » Further improvement in credit quality » Continued strengthening of Tier 1 capital » Which new Bank is meeting early expectations » Share Buy-Back announced Before | hand
Slide 45: Presentation of Half Year Results
Presentation of Half Year Results for period ended 31 December 2003 David Murray Chief Executive Officer Michael Cameron Chief Financial Officer 11 February 2004 Which Bank Conmanwealih Gari: “9 45 www. commbank.com.au o 45
Slide 46: Supplementary Slides
Supplementary Slides Which Bank ‘Conmeanmerealttiieri: “9 46 46
Slide 47: Strong market share position
Strong market share position Banking Market Shares Retail and Business Deposits’ P22 Credit Cards Transaction Services” Home Loans Business Lending New Zealand Lending New Zealand Deposits: Asset Finance’ [J dune 2003 242% 22.8% 227% Brae 4.0%: 20.695 pce 494% 0% 10% 20% 30% Soureo: RBA, APRA, East
Slide 48: Strong market share position
Strong market share position Funds Management Market Shares June 2003 Managed Investments: 4A New Zealand Managed 148%. Investments 0% 10% 20% Notes: (1) Retail Oniy (2) September Data Source: Pian for Lite, Func Source Research Which Bank Conmanwealih Gari: 48
Slide 49: Strong market share position
Strong market share position Life Insurance Market Shares New Zealand® Australia Hong Kong Dec June 2003 +2003 28.1%" 283% 151%" 18.3% 22%) 22% Notos. (1) fo-forco Businoss {2) Soptembor Dato 40% Source: 1S! Statistics, Pian tor Life, MK Insurance Association Which Bank ‘Conmeanmerealttiieri: 49
Slide 50: Arrears in consumer book remain at low levels
Arrears in consumer book remain at low levels Loans Accruing past 90 days or more 31/12/03 30/06/03 31/12/02 30/06/02 $m $m $m $m Housing Loans 147 157 136 176 Other Loans 66 91 75 73 Total 213 248 211 249 Housing loans arrears rate 30/06/03 30/06/03 31/12/02 30/06/02 Housing Loans accruing 90 days
Slide 51: Credit ratios are in line with peers
Credit ratios are in line with peers Bad Debt Expense to RWA. 1.00% 0.20% 0.86% RWA 0.40% es Sia General Provision to RWA 0.20% 4 % Oe Dome 0.80% O.0O% 0.70% + CEL LL ELS LPP CL SM SK OCBA BANZ NAB @wec Which Bank Commonwaalthisnk < 7% ,, 51
Slide 52: Offshore credit risk concentration
Offshore credit risk concentration International breakdown by Industry* Finance. Aviation Technology Telcos Cc > pe | Eneray Leasing Construction Other Commercial Government New Zealand Olnternational @ Australia “Excludes Mortgage and Personal Which Bank. Conmanwealthlicr: $2
Slide 53: Consumer Portfolio: secured and unsecured lending
Consumer Portfolio: unsecured lending secured and Secured Lending Unsecured Lending Composition of 1 Housing Portfolio Net Bad Debt Charge: decline due to improved $m 80 60 ” recoveries 40 B owner Occupied 20 Invest ° Bec June Oec- Jun- Dec- Bec. Jun? Dee™ Jar Dee? oi ez og os: o1 ez og 93a 0.16% Ne
Slide 54: Credit Exposure - Energy Sector
Credit Exposure - Energy Sector $m 5,000 5 4,500 4 060 + 4 4% 1% 3,500 4 3,000 - a AAA to A 2,500 4 BBE+ to BBE. i IO BB+ to BB. 2,000 4 In <e 1,500 4 1,000 4 §00 + o4 24 Austratia (79% investment grade} G New Zealand (100% investnent grade} © Asia (96% investment grade) Tuseersibied expocutes Europ
Slide 55: Credit Exposure - Telcos Sector
Credit Exposure - Telcos Sector $m 900 800 + 700 + 600 4 500 4 400 + 300 + 200 + 100 + a4 14% $788 GB Austratia (75% investment grade} H] Europe (100% investment grade) at ele we aie ‘equivalent butanee lor ersantaite expesuces ‘Conmeanmerealttiieri: 55
Slide 56: Credit Exposure - Technology Sector
Credit Exposure - Technology Sector AAA to A- BEH+ to BEB. In BH+ to BB. io <6 $1,108 nf neces exces spt as ghee ol reposines Srl cha Which Bank Austratia (76% investment grade} North America (100% investment grade) Other (19% investment grade) ‘Conmeanmerealttiieri: 56
Slide 57: Credit Exposure - Agriculture Sector
Credit Exposure - Agriculture Sector $m 12,080 5 10,000 4 8,000 4 I AAA to A 6,000 4 BBS+ to BER-| 7 iO BB+ to BB i <e 4,000 4 2,000 + o4 $9,596 casi nda ee igh tel ee eestatont El Australia (13% investnent grade} alan paves and cial eqpivakest bessace kx wemurenitee! expecures ao New Zealand (2% in
Slide 58: Credit Exposure - Aviation Sector
Credit Exposure - Aviation Sector $m 2,500 5 2,000 4 4,500 4 4,000 4 500 + o4 G Australia (89% investment grade} Europe (14% investment grade) dat nego ig fi of nt rn 1 New Zealand (100% investment grade) bataecis Vermin. and ened equivates! bate Kr urate expessure A Other (48% investment grade) Whi
Slide 59: Capital to protect policyholders' interests
Capital to protect policyholders’ interests 34 DECEMBER 2003 3,600 Total Excess Over 3,000 Capital Adequacy of $890m represented by: 2,600 Australia $570m € 2.000 {Life Insurance) 6 — 4,500 New Zealand $81m 1,000 Asia $115m 00 me r1 | TT Other $124m 0 r T T T Australia NZ Asia Other Total {Life insu
Slide 60: Off-market share buy-back
Off-market share buy-back Tender range The tender range is $26.00 to $31.25 & specified prices, set at 75c intervals Tenders can be lodged at any of the specified prices, or as a Final Price Tender Buy-Back Price The buy-back price will be the lowest price in the range that enables the Bank to purch
Slide 61: Off-market share buy-back
Off-market share buy-back Tender rules Only shares tendered at or below the buy-back price will be bought back Tenders at the buy-back price may be subject to scale back All successful tenderers will receive the same buy-back price Shares tendered above the buy-back price will not be bought back Sca
Slide 62: Off-market share buy-back
Off-market share buy-back The 45-day rule To qualify for franking credit benefits, shareholders must generally have held their shares at risk for at least 45 days From discussions with the ATO, the Bank understands that a shareholder who acquires shares on or after 12 February 2004 may fail the 45 d
Slide 63: Off-market share buy-back
Off-market share buy-back Tax implications for successful participants Shareholders’ cost base is relevant in determining any capital gain or loss Resident individuals and superfunds will generaily be deemed to have sold their shares for $11.00 subject to the ATO's view on “market value” Draft Taxat
Slide 64: Off-market share buy-back
Off-market share buy-back Tax consequences for resident individuals holding shares on capital account Example based on an iltustrafive Buy-Back Price of $28.26 and Tax Value of $29.16 Pere es a oe ee ee income tax consequences a : Assumed fully ranked dividend : $17.28 $17.25 Add: gy0ss up for frank
Slide 65: Off-market share buy-back
Off-market share buy-back Key dates « Tenders must be received by the Bank’s share registry no later than 7pm Sydney time on Friday, 26 March 2004 Which Bank Commenmeattinae i: 65
Slide 66: Total income segmentation
Total income segmentation at 31 December 2003 $M. Retait Banking 2,243 Institutional & Business 1,432 Asia Pacific 374 Total Banking Income 4,046 Funds Management ‘ 2) 596 Life insurance “) 449 Total income 5,094 %e 44% 28% ry 79% 12% S% 100% (1) Excludes policyholder tax (2} Excludes internal funds
Commonwealth Bank of Australia — H1 2004 Earnings Presentation on 6ix