Commonwealth Bank Of Australia · ASX:CBA
Commonwealth Bank Of Australia — H1 2003 Earnings Presentation
53 slides from Commonwealth Bank Of Australia's earnings presentation, Feb 12, 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
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
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.” Commamaeaithie: i» 3 a _Half Year Results 12 February 2003
Slide 4: Overview
Overview
Slide 5: Cash profit in line with AGM statement
Cash profit in line with AGM statement Dec 2001 % Change Statutory Net Profit After Tax $14,204m (48%) Net Profit After Tax (cash basis)* $1,192m 1% * je excluding appraisal vaiue uplift/reduction and goodwill amortisation. Unless otherwise stated the numbers in this presentation refer to the net pr
Slide 6: Dividend payout ratio remains high relative to peers
Dividend payout ratio remains high relative to peers Dec 2001 Change Dividends per Share 68cps te Dividend Payout Ratio 72.6% - «and EPS has improved Earnings per Share 84cps 1c Return on Equity 12.43% (4bps) Banking Cost to income Ratio* 54.2% B%) Tier 1 Capital Ratio 6.75% 31bps *Underlying Half Y
Slide 7: Sound growth in Banking
Sound growth in Banking Cash Profit 31 Dec 02 Vs 31 Dec 01 31 Dec 02. 30 Jun02 31 Dec 01 % Banking $1,079m $1,092m $975m 11% Funds Management $135m $186m $182m (26%) Life Insurance ($6m) $31m $35m (117%) $1,208m Half Year Results 12 February 2003 Raaweinoatarmatitesei: 7 In terms of segment results:
Slide 8: Banking performance offset by weaker wealth management
Banking performance offset by weaker wealth management... $m 1500 4 Underlying Growth +9.7% ¢ ; A Y 1400 4 Banking First Time 162 Expenses” 1,308 (58) 1300 4 2 re Insurance 1,208 1,192 1200 4 (4) E=i Investment Funds Returns 1100 4 Management (42) (45) 1000 4 900 Cash Profit Underlying Cash Profit D
Slide 9: Contribution to EPS Growth
Contribution to EPS Growth Underlying Growth up 8 cents 7 cent decrease from first-time costs and investment returns AN A 1107 o ™~ c ™~ 102 = 100] 94 ng 95 ° Life == 8 Insurance First-time B® 97 Banking (1) costs & 8 (4) % 64 € 8 Funds Investment 2 Management oO returns 704 (4) (3) Cash Profit Dec-
Slide 10: Dividend continues to grow
Dividend continues to grow *Interim Dividend of 69 cps to be paid 28 March 2003, up 1% on pep. *Payout ratio of 72.7% remains highest among major banks 150 125 1993 4995 1997 1999 2001 2003 DF rst Half GSecond Half Commanaeaithiiz ©» 10 Half Year Results 12 February 2003 The Bank's interim dividend,
Slide 11: Segment Results: Banking
Segment Results: Banking Now let’s turn to each segment in more detail. 11
Slide 12: Banking result reflects the strong home loan market
Banking result reflects the strong home loan market $m 4,300 4 16.6% increase from underlying business: ~ | 4,187 (100) 1 Hi 1.079 439 Faxation One off BOD 1,200 4 interest Income 105 1,100 4 4 expense Outside {58} Equity Interest 1,000 4 960 4 sco Cash Profit Underlying Cash Profit Dee-04 Dec-02 De
Slide 13: Banking income driven by retail operations
Banking income driven by retail operations $m 3,900 Net 3,800 folerest Income ZH ‘Other 3,700 (364) 3.627 Commission & 3.600 Other Fees 96 3,500 Dac-0t Deo02 AG “Malf Yoar Results 4 2 February 2003 inate Ze 13 Turning to the components of operating income for the Banking Business: Net Interest Incom
Slide 14: Underlying Banking Cost to Income improving
Underlying Banking Cost to Income improving is 7 .-resulting from strategic initiatives 52 7 52.6 50 T T T T T T T T Dec-00 Jun-01 Dec-01 Jun-02 Dec-02 _Half Year Results 12 February 2003 Gonmewmeatibiici: ify 14 Underlying cost growth in the banking operations, that is excluding first time costs, w
Slide 15: 9% growth in lending assets
9% growth in lending assets 2009 169 455 161 15074 $ billion 1004 504 Dec 2001 Jun 2002 Dec 2002 Lending Assets**; in| Housing K]rersonat []eusiness & Corporate =] Bank Acceptances Excludes securitised housing loan balances $5.9b (Dec 02}, $7.0b (Jun 02}, $5.7b (Dec 04}. Half Year Results 12 Februar
Slide 16: Continuing sound asset quality
Continuing sound asset quality Dec 2001 Jun2002 Dec 2002 Cee te eu | $2g0m} $159] $151m DebistoRWAennvatsea)| 042%] 0.23%] 0.21% Gross avec asotsret| secon] san] __S666n Specific Provisions $309m $270m $264m General Provision $1,334m $1,356m $1,327m General Provision to RWA 0.96% 0.96% 0.92% Halt Ye
Slide 17: The Bank remains well provisioned
The Bank remains well provisioned 2,100 300 1,800 250 1,500 200 2 1,200 2 150 y z 900 ; 600 00 300 50 0 T T T r + mY + a a i) Dec Dec Dec Dec Dec Dec Dec Dec Dec 94 95 96 97 98 oS oo* Oo 62 @™ General Provision C2 Specific Provision — Total Provisions/Gross Impaired Assets {axis on right} * Includes
Slide 18: 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 $m Housing Loans 218 168 176 136 Other Loans 80 79 73 75 Total 308 247 249 211 Housing loans arrears rate 30/06/01 31/12/01 30/06/02 31/12/02 Housing Loans accruing but past
Slide 19: The Bank has a high quality commercial portfolio
The Bank has a high quality commercial portfolio 100% 7 80% 7 60% 4 40% 7 60% investment grade 20% 7 ° 29 27 29 0% T T 1 Dec 01 Jun 02 Dec 02 [_ DAAA/AA* BA 0888 Dother | *CBA Equivalent Ratings Half Year Results 12 February 2003 Senmemwealiiniis: <p 19 The Bank maintains a high quality and widely d
Slide 20: Large exposures are mostly investment grade
grade Top 20 Exposures to Corporates (Committed) 5 & g * 5S Ae gia = SO pM g * 5 w o | MMA oS tae A B58 Ae Ae 885 6 200 400 600 Committed Exposure ($m} 31 December 2002 _Half Year Results 12 February 2003 Large exposures are mostly investment Top 20 exposures as a % of Total Committed Exposure 4.0%
Slide 21: Segment Results: Funds Management
Segment Results: Funds Management 21
Slide 22: Fund flows impacted by a weak equity market
Fund flows impacted by a weak equity market Equity Markets Totat Net Retail Fund Flows {for quarter ended} Index (Basa 100} $m 105 7000 36 85 5 fl Loe Aug 09 Sop-0 Oct-02— Nov-03 Doct ee eee facie GSepor Gos Source: Morgan Sianley Source: Pian for Life (ex Cash) : PRRIOFLIG estinate grersmmmesitn ic
Slide 23: A number of one offs impacted funds under management
A number of one offs impacted funds under management Underlying reduction of $8bn 1087 406 ;_ 4064 (2) One off reduction | (8) of net $3bn 1044 1024 4004 (1) 98 br Son Eg 967 98 oad 924 90 Dec-O1 NetFiows Investment Other Underlying Gandel Winterthur CFS UK Dec-02 FUM returns Private FUM Business _H
Slide 24: Lower Funds Management profit
Lower Funds Management profit $m 280 5 24% decrease from underlying business 182 (14yn 170 4 Em ¢ e138 (3) 435 190 4 50 Cash Profit Qperating Operating OEF Underlying Stholder Cash Profit Dec2001 Incorne = Expense ProfitDec invest = Dee 2002 2002 Returns 4 Excluding policyholder tax and Shareholder
Slide 25: FirstChoice has been further enhanced...
FirstChoice has been further enhanced... and other initiatives are underway EirstChoice Other Initiatives $m 1809 integration of CIM and CFS 1603 identifying systems and process improvements associated with legacy | sysiems 1209 900 800 oC SPS PH LS Teisicncice - Fund Baance ] | Half Year Results 12
Slide 26: Segment Results: Life Insurance
Segment Results: Life Insurance 26
Slide 27: Steady operating margins offset by poor investment returns
Steady operating margins offset by poor investment returns $m 304 3% decrease from underlying business 70 4 6 (31) 504 35 34 (40) 304 (6) 10-7 104 Cash Profit Asia NZ Australia Underlying S‘holder_~—s Cash Profit Deo-04 Dec 02 invest Dec -02 Retums * Net Profit after tax and outside equity interest
Slide 28: Recent improvements in Asian operating margins
Recent improvements in Asian operating margins Underlying Asia Life Performance $m -10 Dec-01 Jun-02 Dec-02 O Life operating margins ® China / Vietnam / PRT start up O One-offs/lnvestment Returns/Other Profit after tax _ Half Year Results 12 February 2003 Sorimemmmie se: Lp 28 In relation to the Asi
Slide 29: Weaker investment earnings
Weaker investment earnings 31 Dec02 31Dec01 Change Funds Management 4 6 (2) Life Insurance - Australia (7) 7 {14) - New Zealand 41 3 (2) - Asia (6)* 18 (24) (12) 28 (40) Net Profit After Tax {8) 34 (42) * ingludes loss on sale of Philippines life company’ $10 millon after tax. : “Halt Year Results.1
Slide 30: Appraisal Value
Appraisal Value 30
Slide 31: Value added to wealth management businesses since June 2000
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 added to these businesses since the acquisition of Colonial. In each of the six months, these movements repr
Slide 32: Appraisal Value - Movement Analysis
Appraisal Value - Movement Analysis Net appraisal value reduction of $222m $m 9000 4 8.580 ka : EEE] rail 8,358 Profit Reducti 8000 4 eduction 129 in Value (426) 7e00 4 Other Capital Movements 6000 4 75 5000 T T T T i] Directors’ Directors’ Valuation Valuation June 2002 December 2002 a c _ Half Year
Slide 33: The carrying value is $780m less than the independent valuation
The carrying value is $780m less than the independent valuation 9500 7 9,328 independent valuation Reduction of $222m 8500 4 Directors’ carrying value 7506 7 Jun 2002 Dec 2002 Hall Year Results 12 February 2003 Gommmaneaatin ince: Sip 33 In determining the value of the funds management and life insu
Slide 34: Cost Management
Cost Management 34
Slide 35: 1% increase in operating costs excluding first time expenses
1% increase in operating costs excluding first time expenses 2800 7 Increase of $33m or 1% $83m of first time costs “~ 2,710 2700 7 2,627 a es | 2,594 = ESAP 2600 7 Underlyi Strategic 27 naderlying Initiatives 2500 4 Costs 56 33 $m 2400 4 2300 7 2200 7 2100 4 2000 T T T T T 1 Underlying Underlying 3
Slide 36: 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 _Haif Year Results 12 February 2003 CaicrA ct: yp 36 As outlined in the results announcement for the full year end
Slide 37: Funding and Capital
Funding and Capital 37
Slide 38: Continued strength in retail deposits
Continued strength in retail deposits % 70 7 65% 62% 60 4 50 4 40 Jun 2002 Dec 2002 CBA Retail Deposit Ratio* * Calculated as: Total Deposits - CD’s / Total Liabilities - Foreign Currency Assets _Half Year Results 12 February 2003 Gonmeumeatib ici: i> 38 There has been continued strength in retail d
Slide 39: Capital ratios are strong
Capital ratios are strong 11.00% 10.00% 9.31% 9.80% 9.81% 9.00% 8.00% 7.00% 6.00% 6.75%! 6.78% 7.06% 5.00% 4.00% 4 T T Dec 2001 Jun 2002 Dec 2002 OTier 1 Capitat BiTier 2 Capital Half Year Results 12 February 2003 Sontnemmnntinsee Sy 39 The Bank's capital position has strengthened during the half. T
Slide 40: Tier 1 increased from 6.78% to 7.06%
Tier 1 increased from 6.78% to 7.06% 7.80% 4 7.60% 4 7.40% 4 7.20% 7.00% 4 6.80% 4 6.60% 4 6.40% 4 6.20% 0.84 (0.61) 0.05 (0.04) & 43) 6.00% 0.13 = + mS Ea 6.78 Tier t Cash Dividend Currency ASE Other Life&FM Increase Trerd earnings Prefs Half Year Results 12 February 2003 in RWA Commeanaeaithiiz: 4
Slide 41: Capital Management Initiatives
Capital Management Initiatives Hybrid Capital Issue & Share Buyback: x Regulatory approvals in place « Uncertain market conditions « Deferral of hybrid issue & associated share buyback _Half Year Results 12 February 2003 Commonweaiiiioh: <p 41 + In August 2002, the Bank announced its intention to is
Slide 42: Summary
Summary 42
Slide 43: 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 44: Presentation of Half Year Results
Presentation of Half Year Results David Murray Stuart Grimshaw 12 February 2003 www.commbank.com.au 44
Slide 45: Supplementary Slides
Supplementary Slides 45
Slide 46: Credit ratios are in line with peers
Credit ratios are in line with peers Bad Debt Expense to RWA 0.008 0.002 0 LEAL E ES LEL LE 0.12 ott 9.008 9.007 General Provision to RWA * SILEL IEP ELSE Scapa Manz Half Year Results 12 February 2003 NAB @wac p46 46
Slide 47: Consumer Portfolio: secured and unsecured lending
Consumer Portfolio: secured and unsecured lending Secured Lending Unsecured Lending 1900 80 80 Composition of 60 Bad Debt $bn 60 Housing Portfolio $m Charge 4 40 20 20 O owner ccupied @ tavestmont ry Dec 01 Jun 02 Dec 02 Dec 61 JunO2 Dec 02 0.16% 3.00% 0.08% Bad Debt Charge Bad Debt Charge as Annual
Slide 48: Credit Exposure - Energy Sector
Credit Exposure - Energy Sector $m 4000 5 10% 3500 4 3000 + 2500 + DAAA ta A 2000 4 MBSB+ to BEB- BB+ to BB- 1500 4 Oss 1000 + 500 + @ Australia (73% investment grade} o4 D1 Asia (84% investrnent grade) M@ North America (58% investment grade) $3,441 OH Other (97% investenent grade} _Half Year Result
Slide 49: Credit Exposure - Telcos Sector
Credit Exposure - Telcos Sector $m 1600 5 17% 1400 + 1200 + 1000 + DAAA ta A 800 4 MBSB+ to BEB- BB+ to BB- 600 4 <6 400 + 200 + @ Australia (72% investment grade} oJ D Asia (100% investment grade} M@ North America (100% investment grade) O Other (64% investrnent grade} _Haif Year Results 12 Februar
Slide 50: Credit Exposure - Technology Sector
Credit Exposure - Technology Sector $m 1200 5 4% 4000 4 2% 800 + DAAA ta &- 600 4 798 MBSB+ to BEB- BB+ to BB- 400 “= 86% 200 + 0 Australia (68% investment grade} 1 @ North America (100% investment grade) $1,1174m, O Other (99% investrnent grade} _Half Year Results 12 February 2003 Gommanmeatibiai.
Slide 51: Credit Exposure - Agriculture Sector
Credit Exposure - Agriculture Sector DAAA to A MBBB+ to BEB- HIBB+ to BB- o<B £] Australia (10% investment grade} $7,673m New Zealand (3% investment grade) _Half Year Results 12 February 2003 Gonmeemeatiiiai: i> 51 51
Slide 52: Funds Under Management
Funds Under Management 1007 6 80 4 w S 604 = $95bn we 407 0 T T 1 Dee 2001 dun 2002 Dec 2002 CAustratian Retail Funds [Australian Wholesale Funds {2 International Funds [Cash Management Trusts — Average FUM Senummmadteer: 6 ‘Half Year Results 12 February 2003 52
Slide 53: Movement of Funds by Product Category
Movement of Funds by Product Category Opening | Inflows] Outfiows | investment Other Closing Balance income Movements | Balance 34/12/01 & Transfers | 34/42/02 $m $m $m $m $m $m Retail” 52,358] 14,551] (13,824) {3,217) 2,547 §2,415 Wholesale 47,611] 15,659] (21,958) {2,435) {4,270) 37,607 CMTs* 6,33
Commonwealth Bank of Australia — H1 2003 Earnings Presentation on 6ix