Commonwealth Bank Of Australia · ASX:CBA
Commonwealth Bank Of Australia — H1 FY2003 Earnings Presentation
63 slides from Commonwealth Bank Of Australia's earnings presentation, Feb 14, 2003
Slide 1: Presentation of Half Year Results
Presentation of Half Year Results David Murray Stuart Grimshaw 12 February 2003 www.commbank.com.au Welcome, and thank you for attending today’s briefing. Today, we are broadcasting via live webcast to the public in listen-only mode. We also have a number of analysts joining us by teleconference. Th
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, 12 February 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 investor
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."
Slide 4: Overview
Overview
Slide 5: Dividend payout ratio remains high relative to peers
Dividend payout ratio remains high relative to peers Dividends per Share Dividend Payout Ratio Dec 2002 69cps 72.7% 95cps 12.39% 52.6% 7.06% Dec 2001 68cps 72.6% 94cps 12.43% 54.2% 6.75% Change 1c - - 1c (4bps) (3%) 31bps *Underlying Earnings per Share Return on Equity Banking Cost to Income Ratio*
Slide 6: Sound growth in Banking Cash Profit
Banking Funds Management Life Insurance 31 Dec 02 $1,079m $135m ($6m) $1,208m 31 Dec 01 $975m $182m $35m 31 Dec 02 Vs 31 Dec 01 % 11% (26%) (117%) Sound growth in Banking Cash Profit 30 Jun 02 $1,092m $186m $31m In terms of segment results: • The net profit after tax from the Banking business for th
Slide 7: Banking performance offset by weaker wealth management
Banking performance offset by weaker wealth management... 900 1000 1100 1200 1300 1400 1500 Dec-01 Banking Managed Products Life Insurance Underlying Dec 02 First time Invest Earn Dec-02 Cash Profit Dec-0 2 1,192 Banking 162 Funds Management ( 45 ) Life Insurance ( 1 ) Investment Returns (42) 1,208
Slide 8: Contribution to EPS Growth
Contribution to EPS Growth Underlying Growth up 8 cents 7 cent decrease from first-time costs and investment returns 94 Banking 13 Life Insurance (1) 102 95 First-time costs (4) Investment returns (3) Funds Management (4) Cash Profit Dec -01 Dec-02 Underlying EPS Dec-02 EPS cash basis Cents per Shar
Slide 9: Dividend continues to grow
Dividend continues to grow Interim Dividend of 69 cps to be paid 28 March 2003, up 1% on pcp. Payout ratio of 72.7% remains highest among major banks The Bank’s interim dividend, to be paid in March 2003, is 69c per share fully franked, and represents an increase of 1 cent per share. The Bank has co
Slide 10: Segment Results: Banking
Segment Results: Banking Now let’s turn to each segment in more detail.
Slide 11: Banking result reflects the strong home loan market
Banking result reflects the strong home loan market The Group’s banking operations performed well for the half year ended 31 December 2002, achieving growth in operating profit after tax of $104m or 11% to $1,079m. The contribution from net interest income reflected the strong growth in lending bala
Slide 12: Banking income driven by retail operations
Banking income driven by retail operations Turning to the components of operating income for the Banking Business: Net Interest Income • Net interest income increased by $105m or 4% to $2,454m. This growth was driven by an increase of $15bn or 9% in average interest earning assets partly offset by a
Slide 13: Underlying Banking Cost to Income improving
Underlying Banking Cost to Income improving ....resulting from strategic initiatives % Underlying cost growth in the banking operations, that is excluding first time costs, was 1% or $11m to $1,976m. Cost growth from comparable businesses was primarily the result of increased volumes across housing,
Slide 14: 9% growth in lending assets
9% growth in lending assets Lending Assets**: ** Excludes securitised housing loan balances $5.9b (Dec 02), $7.0b (Jun 02), $5.7b (Dec 01). Housing Personal Business & Corporate $ billion Bank Acceptances 155 161 169 The Bank’s total lending assets excluding securitisation increased by 9% or $14bn t
Slide 15: Continuing sound asset quality
Continuing sound asset quality Continuing sound asset quality The Group’s bad debt charge reduced by 48% to $151m, which is consistent with the prior six month period. The prior comparative period included a small number of large corporate defaults, ie. Enron and Pasminco. On an annualised basis the
Slide 16: The Bank remains well provisioned
* Includes Colonial $millions The Bank remains well provisioned The Bank remains well provisioned. Total Provisions for Impairment as at 31 December 2002 were $1,591m. The decrease in specific provisions reflects the strong performance of the portfolio and reductions achieved in gross impaired asset
Slide 17: Arrears in consumer book remain at low levels
Arrears in consumer book remain at low levels Loans Accruing past 90 days or more 30/06/01 31/12/01 30/06/02 31/12/02 $m $m $m $m Housing Loans 218 168 176 136 Other Loans 90 79 73 75 Total 308 247 249 211 Housing loans arrears rate 30/06/01 31/12/01 30/06/02 31/12/02 Housing Loans accruing but past
Slide 18: The Bank has a high quality commercial portfolio
The Bank has a high quality commercial portfolio Dec 01 Dec 02 Jun 02 60% investment grade *CBA Equivalent Ratings The Bank maintains a high quality and widely diversified commercial credit portfolio, with 60% of the individually risk rated portfolio at a rating of investment grade or equivalent. Th
Slide 19: Large exposures are mostly investment grade
Large exposures are mostly investment grade Dec 2000 Dec 2001 Dec 2002 Top 20 exposures as a % of Total Committed Exposure Committed Exposure ($m) 31 December 2002 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% Top 20 Exposures to Corporates (Committed) 0 200 400 600 S&P Rating or Equivalent BBB A+ A
Slide 20: Segment Results: Funds Management
Segment Results: Funds Management
Slide 21: Fund flows impacted by a weak equity market
Fund flows impacted by a weak equity market $m Total Net Retail Fund Flows (for quarter ended) Source: Plan for Life (ex Cash) - -80% * Plan for Life estimate Equity Markets Source: Morgan Stanley The funds management operating environment remained challenging over the half year to 31 December 2002,
Slide 22: A number of one offs impacted funds under management
A number of one offs impacted funds under management $bn 106 95 98 (1) (5) (2) 2 (4) (1) Underlying reduction of $8bn One off reduction of net $3bn The Bank’s total assets under management have fallen by $11bn or 10% to approximately $95bn as at 31 December 2002. A number of one-off factors influenc
Slide 23: FirstChoice has been further enhanced
FirstChoice has been further enhanced... and other initiatives are underway $m Integration of CIM and CFS Identifying systems and process improvements associated with legacy systems FirstChoice Other Initiatives Despite the weakness currently being experienced throughout the funds management industr
Slide 24: Segment Results: Life Insurance
Segment Results: Life Insurance
Slide 25: Steady operating margins offset by poor investment returns
Steady operating margins offset by poor investment returns * Net Profit after tax and outside equity interest - cash basis. Excludes appraisal value uplift and goodwill amortisation. 35 (31) 24 6 34 (40) (6) 3% decrease from underlying business $m The life insurance operating loss of $6m after tax r
Slide 26: Recent improvements in Asian operating margins
Recent improvements in Asian operating margins Underlying Asia Life Performance $m In relation to the Asian Life result for the half year, a number of events are reflected in the underlying performance of these businesses, some of which are one off. These one off events can be summarised as: • Sale
Slide 27: Weaker investment earnings
Weaker investment earnings * includes loss on sale of Philippines life company $10 million after tax. Investment returns on shareholders’ funds decreased by $42m over the half year, primarily reflecting the adverse movements in equity markets both domestically and offshore. This result also includes
Slide 28: Appraisal Value
Appraisal Value
Slide 29: Appraisal Value
Appraisal Value 8,358 $m Increase in appraisal value since acquisition of 24% (222) (48) 625 818 449 6,736 The Bank has added significant value to its wealth management businesses since June 2000. Notwithstanding a net $222m write down in the current half year period, over $1.8bn in value has been a
Slide 30: Appraisal Value - Movement Analysis
Directors' Valuation June 2002 Directors' Valuation December 2002 Reduction in Value (426) Profit 129 Other Capital Movements 75 8,580 8,358 $m Appraisal Value - Movement Analysis Net appraisal value reduction of $222m The $222m reduction in carrying value over the half year mainly consisted of: • A
Slide 31: The carrying value is $780m less than the independent valuation
The carrying value is $780m less than the independent valuation 9,328 9,138 Directors' carrying value Independent valuation 8,580 8,358 748 780 Reduction of $222m $m In determining the value of the funds management and life insurance businesses, the Directors have taken into account the increased vo
Slide 32: Cost Management
Cost Management
Slide 33: 1% increase in operating costs excluding first time expenses
1% increase in operating costs excluding first time expenses Underlying 31 Dec 2001 31 Dec 2002 2,594 2,710 $m Strategic Initiatives 56 ESAP 27 2,627 Underlying Costs 33 Underlying 31 Dec 2002 Increase of $33m or 1% $83m of first time costs Underlying costs increased by $33m or 1% over the half year
Slide 34: Strategic Initiatives being implemented
Strategic Initiatives being implemented Costs Benefits Net Cost Annualised Future Benefits $m $m $m $m Half Year to 31 December 2002 56 26 30 52 Full Year to 30 June 2003 227 84 143 159 As outlined in the results announcement for the full year ended 30 June 2002, a number of significant strategic in
Slide 35: Continued strength in retail deposits
Continued strength in retail deposits % * Calculated as: Total Deposits - CD's / Total Liabilities - Foreign Currency Assets 62% 65% There has been continued strength in retail deposit growth. This has been boosted by the shift by retail investors into defensive cash based products as mentioned earl
Slide 36: Capital ratios are strong
Capital ratios are strong 9.31% 9.80% 9.81% 6.75% 6.78% 7.06% The Bank’s capital position has strengthened during the half. The tier 1 capital ratio is above our target range of 6.5%-7% and our total capital is within our target range of 9%-11%. Both Moody’s and S&P have reaffirmed their ratings of
Slide 37: Tier 1 increased from 6.78% to 7.06%
Tier 1 increased from 6.78% to 7.06% 6.78 0.84 (0.61) 0.04 0.13 0.05 (0.04) (0.13) 7.06 The increase in the Tier 1 ratio from 30 June 2002 can be attributed to: • Retained earnings net of dividend of $325 million • Issue of ASB preference shares of $181 million, which was an attractive market opport
Slide 38: Capital Management Initiatives
Capital Management Initiatives Hybrid Capital Issue & Share Buyback: Regulatory approvals in place Uncertain market conditions Deferral of hybrid issue & associated share buyback • In August 2002, the Bank announced its intention to issue innovative hybrid capital securities enabling it to undertake
Slide 39: Summary
Summary
Slide 40: Summary
Summary Retail banking business strong, business and corporate subdued Difficult global investment markets, impacting wealth management businesses Expect the extensive work being undertaken this year (rationalisation, integration and development) to provide the platform for focussed growth in subseq
Slide 41: Presentation of Half Year Results
Presentation of Half Year Results David Murray Stuart Grimshaw 12 February 2003 www.commbank.com.au
Slide 42: Supplementary Slides
Supplementary Slides
Slide 43: Credit ratios are in line with peers
CBA ANZ NAB WBC Credit ratios are in line with peers
Slide 44: Consumer Portfolio: secured and unsecured lending
Consumer Portfolio: secured and unsecured lending Bad Debt Charge as Annualised % of Secured Lending Balances Owner Occupied Investment $bn Dec 01 Jun 02 Dec 02 Composition of Housing Portfolio Secured Lending $m Dec 01 Jun 02 Dec 02 Bad Debt Charge Unsecured Lending Bad Debt Charge as Annualised %
Slide 45: Credit Exposure - Energy Sector
Credit Exposure - Energy Sector 80% 7% 3% 10% Australia (73% investment grade) Asia (94% investment grade) North America (58% investment grade) Other (97% investment grade) $3,411m 278 509 1,981 643 $m
Slide 46: Credit Exposure - Telcos Sector
Credit Exposure - Telcos Sector 72% 13% 4% 11% Australia (72% investment grade) Asia (100% investment grade) North America (100% investment grade) Other (64% investment grade) $1,509m 175 186 738 410 $m
Slide 47: Credit Exposure - Technology Sector
Credit Exposure - Technology Sector 86% 9% 4% $1,114m 275 35 798 6 $m Australia (68% investment grade) North America (100% investment grade) Other (99% investment grade)
Slide 48: Credit Exposure - Agriculture Sector
Credit Exposure - Agriculture Sector 74% 26% $7,673m 1,540 5,569 $m Australia (10% investment grade) New Zealand (3% investment grade) 254 310
Slide 49: Funds Under Management $95bn
Funds Under Management $95bn
Slide 50: Movement of Funds by Product Category
*Includes FirstChoice ^Cash Management Trusts Movement of Funds by Product Category
Slide 51: Half Year Results Presentation to Media
Half Year Results Presentation to Media David Murray 12 February 2003 www.commbank.com.au
Slide 52: Economic environment
Economic environment Challenging operational environment Global: Political and economic uncertainty Continued declines in equity markets Domestic: Drought consequences affect economy Housing cool-down likely to halt wealth effect Subdued business credit demand continues
Slide 53: The Bank's key objectives in this environment
The Bank's key objectives in this environment Respond to customer and shareholder demands and preserve combination of quality, security and stability Customers: Access: reliability Service: improving quality standards Shareholders: Security: prudent capital and credit quality management Income: cash
Slide 54: Providing shareholder income
Providing shareholder income: Slight increase in cash profit... Statutory Net Profit After Tax Net Profit After Tax (cash basis)* Earnings per Share Dec 2002 $622m $1,208m 95cps Dec 2001 $1,204m $1,192m 94cps % Change (48%) 1% 1% * ie excluding appraisal value uplift/reduction and goodwill amortisat
Slide 55: Highest dividend payout ratio among major banks
Resulting in the highest dividend payout ratio among major banks Dividends per Share Dividend Payout Ratio Dec 2002 69cps 72.7% Dec 2001 68cps 72.6% Change 1% - - 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 First Half 20 20 24 36 38 45 46 49 58 61 68 69 Second Half 20 22 36 46 52 57
Slide 56: Divisional breakdown
Banking Funds Management Life Insurance 31 Dec 02 $1,079m $135m ($6m) 31 Dec 01 $975m $182m $35m Change YoY% 11% (26%) (117%) Divisional breakdown: Sound growth in Banking offset by weaker Wealth Management Net Profit After Tax 30 Jun 02 $1,092m $186m $31m Retail banking strong, business and corpora
Slide 57: Providing shareholder security: Capital Adequacy
Providing shareholder security: Capital Adequacy Regulatory Target Capital: Tier 1: 6.5% - 7% Total Capital: 9% - 11% Actual Capital: Tier 1 Tier 2 Less Deductions Total Capital Capital position remains strong Hybrid note issue and share buyback on hold 31/12/02 30/6/02 31/12/01 7.06% 6.78% 6.75% 4.
Slide 58: Colonial merger - a situation update
Colonial merger - a situation update Growth in asset value: Maintained value of life insurance Added value to funds management Banking: Integration synergies achieved ahead of schedule Higher risk / lower quality assets divested: United Kingdom - life insurance and private client business Thailand,
Slide 59: Conservative approach, based on external market conditions
Conservative approach, based on external market conditions: Market volatility and uncertainty Lower industry funds flows Result: Reduction in underlying appraisal value of $426 million Lower by $780 million than independent valuation Consistent with valuation in June 2002 But: No impact on capital a
Slide 60: Results flow from Bank strengths
Results flow from Bank strengths Higher profits despite continued weakness of environment made possible by: Disciplined adherence to service improvement Experience in managing difficult conditions Active implementation of sound strategy
Slide 61: Outlook - General
Outlook - General Global situation remains uncertain: Political tension Economic weakness Fragile equity markets Domestic situation less supportive: Economy holding up well, but likely to slow Competitive industry pressures
Slide 62: Outlook - Bank
Outlook - Bank Continued focus on service, income and security Commitment to sustainable business growth, strong credit quality standards and high dividend pay-out ratio through growth in cash earnings Strategic positioning to benefit from any improvement in external conditions Continued efficiency
Slide 63: Profit Announcement
Profit Announcement For the half year ended 31 December 2002 Results have been subject to an independent review by the external auditors Released 12 February 2003 This Profit Announcement is available on the Internet at: www.commbank.com.au Table of Contents Financial Highlights Performance Summary
Commonwealth Bank of Australia — H1 FY2003 Earnings Presentation on 6ix