Commonwealth Bank Of Australia · ASX:CBA
Commonwealth Bank Of Australia — Non-Deal Roadshow (March 2004)
40 slides from Commonwealth Bank Of Australia's roadshow presentation, Mar 17, 2004
Slide 1: Roadshow Presentation March 2004
Roadshow Presentation 12-18 March 2004 Michael Cameron CFO 23-25 March 2004 David Murray CEO Michael Cameron CFO
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 March 2004. 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 o
Slide 3: Agenda
Good morning. This morning my presentation will consist of four parts: • Firstly, I will provide you with an overview of the environment the Bank is operating in. • Then we will briefly take a look at the Bank’s half year result announced in February. • This will be followed by an update on the prog
Slide 4: Environment
Starting off with the Bank’s environment. Environment
Slide 5: Australia: how we compare (the last 10 years)
The Australian economy remains resilient in a global context. As you can see from the chart on the left, when we compare Australia to the US, Australia has outperformed on a number of measures over the last decade. However, downside risks remain as we are not immune from the impact of the global eco
Slide 6: Credit growth expected to moderate
If we look at credit demand. Economic growth and low interest rates have underpinned strong credit growth, particularly in housing. Household credit increased at an annual rate of 23 percent over the six months to December 2003. We expect moderation, although the timing remains uncertain. Credit gro
Slide 7: Ageing population driving productivity challenge
The Government’s Intergenerational Report released almost two years ago, brought home to us that growth in living standards will slow unless we become more productive. Of the three P’s of economic growth: • Population growth will slow given fertility rates and immigration levels; • Participation in
Slide 8: We will grow through service transformation
Given the environment I’ve just described, our strategy is to use the inherent strength of our: • Business mix; • Extensive distribution; • Large customer base; and • Leading brand. And build a superior competitive position through service transformation. Lets now take a look at our half year result
Slide 9: Performance: Half Year Results Overview
Performance 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.
Slide 10: A good result: 17% growth in underlying cash profit
The Bank recorded a Statutory NPAT for the half year of $1.24bn. The statutory result included two non-cash items: • goodwill amortisation of $162m • appraisal value uplift of $165m On a cash basis*, the result was also $1.24bn, a 3% increase on last December. Excluding the impact of Which new Bank
Slide 11: Banking and Insurance strong, Funds Management rebound
Let’s look at components of underlying performance: The Banking result reflects the strong performance of the Australian and the NZ retail operations, which has been driven by continued growth in the housing market and an improvement in trading and business activity. The Insurance result reflects im
Slide 12: Shareholder Ratios
Even after taking into account the cost of Which new Bank, EPS grew by 1% and ROE remained steady. On an underlying basis, EPS grew by 15% and ROE grew by 13%. Dividends per share and the payout ratio have both increased by 14%. Key shareholder ratios 31/12/03 96 cents 12.3% 79 cents 82.9% 31/12/02
Slide 13: Another Record Dividend
We committed to looking through the costs of transformation when determining the dividend for the year to June 2004. As a result of this approach the payout ratio for this interim dividend is 82.9%, and at 79 cents is another record, 10 cents higher than last year. Moving to how each segment perform
Slide 14: Banking performance driven by home lending and sound asset quality
The banking segment delivered another strong result. In summary, we achieved: • 14% underlying profit growth • 9% growth in banking income • 4.6% annualised productivity improvement since June 2003 • 9% growth in lending assets since June 2003 Banking Performance driven by growth in home lending and
Slide 15: Continued improvement in portfolio quality
The quality of the Bank’s lending portfolio further improved during the half. Over half of the Bank’s total lending assets are represented by housing loans which have traditionally experienced low loss rates. Arrears levels remain at historically low levels at 13bps. The Bank’s commercial portfolio
Slide 16: Underlying Banking cost to income ratio has improved
The underlying banking cost to income ratio was 50.7%, an improvement of 120 bps since June. This represents an annualised productivity gain of 4.6% over the last six months. Improvement during the six months was underpinned by revenue growth of 3%, while underlying costs increased by less than 1%.
Slide 17: Funds Management
The funds management business has seen a rebound in profit up 17% since June 2003, returning to December 2002 levels. In summary: • Income to average FUM remained steady at 119bps; • We achieved 9% annualised productivity improvement since June 2003; and • FirstChoice continued to grow rapidly. Note
Slide 18: Funds Management cash NPAT
The Funds Management business recorded a cash NPAT of $117m. This includes expenditure on Which new Bank of $19m and shareholder investment returns of $10m after tax. Underlying NPAT was $126m, a 1% increase. The chart on the right hand side shows the large increase in profit since June 2003. Compar
Slide 19: FUM growth and productivity improvement since June
Since June, FUM has grown by 7% and productivity has improved by 9% on an annualised basis. In the last six months, we have seen a return to more favourable market conditions, with the ASX 200 up 9% and the MSCI World Index up 19%. Moving to Insurance now. Since June, FUM has grown by 7% and product
Slide 20: Insurance
The main points about the insurance result are: • A 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 annual premiums • Positive experience profit for tw
Slide 21: Insurance cash profit by region
For the insurance business, the cash profit after tax of $153m compared with only $1m last year. Excluding the impact of investment returns and expenditure on Which new Bank, underlying operating profit was $67m, an increase of more than 400%. Total operating income for the insurance business was $3
Slide 22: Since June, productivity has improved by 9.2% annualised
Over the last six months, annual premiums increased by 2% whilst expenses reduced slightly. These trends have resulted in an annualised productivity improvement of 9.2% since June 2003. % $m Operating Expenses/ Average Inforce Premiums (%) Average Inforce Premiums ($m) Under FY06 Target Since June,
Slide 23: Capital Management strategy
Let me make some brief comments on capital. • The Bank manages its capital to the level that meets the requirements of regulators, rating agents and our internal Target Equity framework. • Capital required to support business growth, initiatives (eg. Which new Bank), dividend payments and structured
Slide 24: Which new Bank progress
You are no doubt interested in how Which new Bank is progressing.
Slide 25: Service transformation structure
I will start by reminding you what we said we were going to do, then what we’ve done and what to expect going forward. As you know, it’s early days. We are in the first few months of a three year program. The structure of the service transformation we presented in September touches all aspects of ou
Slide 26: Expected financial impact and outcomes of the program
You may remember this slide from last year, showing the expected outcomes on the right. We are well positioned to exceed 10% compound annual growth rate in cash EPS over the three years ending 30 June 2006. In the December results all businesses achieved annualised productivity improvements greater
Slide 27: Which new Bank expenditure to date
This table sets out the Which new Bank expenditure to the end of December. Total investment spend for the period was $179m, of which $45m was capitalised. We were also required under the accounting standards to provide $200m for future expenditure. In line with our new accounting policy, during the
Slide 28: Investment spend is in line with expectations
At December 2003, 20 branches had been refurbished. As at today that number now exceeds 40 and we are on track for 125 by June this year. In the first three months we spent almost a third of the other $560m target for June 2004, that we highlighted in our September 2003 presentation. This is a great
Slide 29: Benefits are emerging
Early benefits are emerging as set out on this slide. From the work we have underway we expect to achieve the committed benefits of Which new Bank, both in 2004 and over the three years of the programme. Benefits are emerging
Slide 30: Service and Sales management
The Service and Sales processes have already demonstrated success. The Executive team hold a service and sales meeting each week and this process has been cascaded throughout the organisation. By June 2004, 13,000 staff will be trained in service and sales management. We have implemented it in more
Slide 31: Service and Sales - early results
120 branches in Southern Metro NSW are already applying the service and sales system. After 8 weeks, compared to the national benchmark, performance is: • Up by 19% in product sales per FTE • Up 14% in referrals to specialists per FTE • Up 62% in cross-selling*. * Cross-sell measure is based on addi
Slide 32: CommSee single customer view system
CommSee is our in-house developed system that provides a single view of customer data and their interactions with the Bank. It is currently being trialled in Tasmania across 43 branches. CommSee allows us to see the customer experience from the customer perspective. Improved customer service will co
Slide 33: Home loans on-the-spot conditional approvals
The increasing ability to provide on the spot conditional approval gives customers certainty. There has been a significant improvement in on the spot conditional approval in the retail bank over the last 18 months: • June 02 — average 40% • June 03 — average 50% This slide shows the improvement over
Slide 34: Performance culture
In the last four months we have completed all the diagnostic work necessary to implement our performance culture program. This will enable us to improve our: • performance management • people development • leadership The leadership team have radically changed their day-to-day activity by: • spending
Slide 35: Which new Bank summary
As I said it is still early days, but progress to date indicates we are on the right track. Evidence is emerging of: • Cultural change; • Improved customer service; • Earnings impact. Progress is encouraging. Management commitment is there and its great to see how well staff are responding and embra
Slide 36: Outlook
Outlook Which Bank 36
Slide 37: Outlook - Economy
In relation to the Global Economy medium term structural issues continue to exist. I’m referring to: • the US current account deficit; and • Realignment of exchange rates. Factors influencing the Australian economy are likely to remain positive for the whole of the first half of 2004. The potential
Slide 38: Outlook - Bank Earnings
We believe that the economic momentum will be sufficient to support solid underlying earnings growth for the full year. In the longer term we are on track to deliver EPS CAGR in excess of 10% for the three year period ending June 06. We also expect 4-6% CAGR of productivity improvement for the same
Slide 39: Summary
In summary: • Good result for the Bank and our shareholders • Another record dividend • Productivity improvements in all businesses • Continued strengthening of Tier 1 capital • Buy-back, share purchase plan in place • Which new Bank meeting expectations in the first 3 months of a 3 year program • F
Slide 40: Roadshow Presentation March 2004
Roadshow Presentation 12-18 March 2004 Michael Cameron CFO 23-25 March 2004 David Murray CEO Michael Cameron CFO
Commonwealth Bank of Australia — Non-Deal Roadshow (March 2004) on 6ix