Commonwealth Bank Of Australia · ASX:CBA
Commonwealth Bank Of Australia — FY2003 Earnings Presentation
66 slides from Commonwealth Bank Of Australia's earnings presentation, Aug 20, 2003
Slide 1: 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 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, 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
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.” ___Full Year Results 20 August 2003 Commanweatthiii: ip 3
Slide 4: Overview of the Bank's key areas
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 5: 3% increase in cash profit is in line with expectations
3% increase in cash profit is in line with expectations at the last AGM June 2003 June 2002 Change Statutory Net Profit After Tax $2,012m $2,655m (24%) Net Profit After Tax (cash $2,579m $2,501m 3% basis)* * je excluding appraisal vaiue uplift/reduction and goodwill amortisation. Unless otherwise st
Slide 6: Banking performance drives a 9% underlying growth
Banking performance drives a 9% underlying growth $m Underlying Growth of 89% 2900 7 f 1 2800 4 il First Time xpenses 2,687 (181) 2700 4 Investment ’ Returns Funds | 73 2,579 2600 7 Management {132} Banking . 334 Life Insurance 17 Underlying " , Underlying " ‘Cash Profit Profit Jun-02 Profit Jun-03
Slide 7: Key shareholder ratios improving
Key shareholder ratios improving June 2003 June 2002 Change Net Profit After Tax $2,579m $2,501m 3% Earnings per Share 203 cents 197 cents 3% Dividend per Share 154 cents 150 cents 3% Dividend Payout Ratio 75.9% 76.2% - Return on Equity 13.27% 13.12% 2% | Full Year Results 20 August 2003 Cavionoiena
Slide 8: Another record dividend
Another record dividend +Final dividend of 85 cps, up 4% on pep +Payout ratio of 75.9% remains highest among major banks _ Full Year Results 20 August 2003 * 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 pa
Slide 9: Strategic initiative targets achieved
Strategic initiative targets achieved Full Year to 30 June 2003 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 Results 20 August 2003 ei | + I'm pleased to report that we have successfully implemented four strategi
Slide 10: Segment Results: Banking
Segment Results: Banking Now let’s analyse each segment in more detail. 10
Slide 11: Banking
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 _ Full Year Results 20 August 2003 Cavionoinnaitteses <p 14 * The banking segment delivered a strong result driven by so
Slide 12: Banking result reflects the strong home loan market
Banking result reflects the strong home loan market $m 16% increase from underlying business 2,600 4 a i ~~ 2,600 4 interest B | income M8 a 2401 2.4004 Expenses y (85) Taxation Other Bank (186) income 148 2,300 4 Oneott | 2,206 4 BOD 144 expense 182 2.100 4 2.067 (182) 2,006 4 | : iE if 4.900 4 : U
Slide 13: Banking income has grown strongly
Banking income has grown strongly 8.000 Net Interest Income — | 316 || Trading . i income Other 7.500 Lending 13 (83) 7,262 Fees ot 34 Commission & Other Foes 18t 7,723 7,000 6,500 Jun-02 un-03 *Sale of strategic asset in 2002 Bull Year Results 20 August 2003 iceemnsemmcaith ic Sy 13 Let’s turn to t
Slide 14: Underlying Banking Cost to Income is improving
Underlying Banking Cost to Income is improving... % .-With total improvement over 2 years of 10% achieved 60-7 $2.0 Jun-01 dun-02 Jdun-03 ___Full Year Results 20 August 2003 Commanweatthiti, iy 14 + Underlying cost growth was 2% reflecting: + Increased volumes across housing and credit cards. *Non-v
Slide 15: 9% growth in lending assets
9% growth in lending assets 200 7 475 16 —— 43 e 1507] 12 49 Z 3 4 ao 12 5074 41 i 1 ae i-i o Jun 2002 Jun 2003 Lending Assets“ i Housing [J Personal E Business & Corporate a Bank Acceptances * Excludes securitised housing loan balances $6.5b (Jun 03), $7.0b (Jun 02). _ Full Year Results 20 August 2
Slide 16: Strong banking product market shares
Strong banking product market shares Banking Market Shares Merchant Acquiring’ Deposits* Credit Cards Transaction Services‘ Home Loans Business Lending New Zealand Lending New Zealand Deposits Asset Finance‘ 0% 10% 20% 30% 40% Source: RBA, APRA, East and Partnors, AELA, Reserve Bank of NZ Full Year
Slide 17: Home lending growth profile
Home lending growth profile* Loan Balances a Owner occupied Source: Balance Growth | investment Home Loan Growth represented by: FA Virigian’ ($bn) 2003 «=. 2002 Access Advantage Loans Funded 36.9 34.2 Product Balances Reductions 24.9 23.4 Net Ej Standard Variable El Proprietary Growth 12.0 10.8 | [
Slide 18: Further improvement in the portfolio
Further improvement in the portfolio Top 20 Exposures to Corporates {Committed} Well Diversified Portfofio by Industry (Top 20 exposures are 3.3% of total committed Energy Toicos technology exposures of $229 bilfion) Leasing I z Construction Finance Commerciat Agriculture Government AdHigh Quality P
Slide 19: Continuing sound asset quality
Continuing sound asset quality 30 June 2003 30 June 2002 Charge for Bad & Doubtful Debts $305m $449m Charge for Bad & Doubtful Debts to RWA* 0.21% 0.32% Gross Impaired Assets (net of interest $639m $884m reserved} Specific Provisions $205m $270m General Provision $4,325m $1,356m General Provision to
Slide 20: The Bank remains well provisioned
The Bank remains well provisioned Jun Jun Jun Jun Jun Jun Jun Jun Jun 95 96 87 98 9g 00* 01* 02 03 Gil General Provision 3 Specific Provision —Total Provisions/Gross Impaired Assets (axis on right) * Includes Colonial _ Full Year Results 20 August 2003 Conmmamevalthii: <p 20 * The Bank remains well
Slide 21: Segment Results: Funds Management
Segment Results: Funds Management Let’s look at the Funds Management Business 21
Slide 22: Funds Management
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 _ Full Year Results 20 August 2003 Cavisnoinwaltss <p 22 * The lower result is consistent with tough market conditions. «Income as a
Slide 23: Lower Funds Management profit
Lower Funds Management profit $ra 37% decrease from underlying business ~~ 400 360 (109) 3604 fe Oe P B 300 Full. Year Resuits 20 August 2003 * The underlying net profit after tax for the Funds Management* Segment decreased by $132m. Including first time expenses and shareholders’ investment returns
Slide 24: Underlying expenses increased by $46m
Underlying expenses increased by $46m % $bn 14 110 z 5 084 100 w g z pa a & 064 go 3 g a a g é a 0.44 go = 2 2 S& 024 70 3 § ~ 8 66 dun-01 Jun-02 Jun-03 weit Average FUM -« Underlying Expenses/Average FUM _ Full Year Results 20 August 2003 Gonmeumeati tick: i> 24 * The higher expenses in the Austral
Slide 25: Movement in funds under management
Movement in funds under management Underlying movement of $6bn 1059 f ‘ One off net reduction of $3bn 103 104 99 a7 $bn 95 93 of 89 87 857 Jun02 Net Flows Investment Other = Underlying Gandel Winterthur CFSUK = Jun03 FUM returns Private FUM Business _ Full Year Results 20 August 2003 Gonnecumealibsi
Slide 26: Net flows by product category
Net flows by product category 77 Net Funds Flow Retail-On Retail- FirstChoice Wholesale -Wholesale- CMTs* Sale Legacy Australia & UK Non-UK* *Cash Management Trusts * Non-UK includes New Zealand and Asia _ Full Year Results 20 August 2003 Gonmeumeatib iia: i> 26 * Despite 2002/03 being a challenging
Slide 27: Strong market share position
Strong market share position Funds Management Market Shares June 2003 2002 4B 15.5% Managed Invesiments* New Zealand Managed Ms’ 13.0% Investments 2 c | Property Managed Funds’ 5.2% * The funds management market share position remains strong despite the impact on the business of a challenging extern
Slide 28: FirstChoice has made a strong contribution
FirstChoice has made a strong contribution [ Funds under Administration of $3.2bn at 30 June 2003 | Source Destination 4% FYO3 Growth Represented By: Inflows $3.2bn Ouifiows — $0.6bn Net $2.6bn GF iFAs BB Branch Network Bicrs El Other WB third Party | Full Year Results 20 August 2003 ‘Gommmenenaltis
Slide 29: Segment Results: Life Insurance
Segment Results: Life Insurance Moving on to Life Insurance 29
Slide 30: 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 _ Full Year Results 20 August 2003 Caviononinealtis <p 30 * Net profit after tax has grown by 85%. * Shareholder investment returns have improv
Slide 31: Steady operating margins and improving investment returns
Steady operating margins and improving investment returns 7 $i 64 122 1204 41% increase from underlying business i cr 1004 Undertying Asia NZ Austratia Underlying S'hotder._-— Cash Profit Profit Jun-O2 Profit Jun-03 Invest Jun-03 Returns ___ Full Year Results 20 August 2003 Conmareweattnissk <p 31 *
Slide 32: Operating expense to average inforce premiums is improving
Operating expense to average inforce premiums is improving % $m 804 r 900 ‘a > o & § 800 3 as z ea g 5 L 8 700 ae g Eo 3 oe § é 3 p 600 * “ 3 + 500 Jun-02 Jun-03 inet Average Inforce Premiums -t Operating Expense/Average Inforce Premiums _ Full Year Results 20 August 2003 Gonmeumeati ici: if 32 * Op
Slide 33: 9% growth in annual premiums
9% growth in annual premiums $m 187 1006 panvewceeeeee aa: (108) Q} 810 800 700 T T T T Opening Balance = Sales/New Lapses Other Closing Balance Jun-02 Business Movements Jun-03 _ Full Year Results 20 August 2003 Commarweatinfisk <i¢ 33 * The growth of 9% or $70m in annual inforce premiums has resul
Slide 34: Market shares growing
Market shares growing Life Insurance Market Shares June 2003 2002 New Zealand’ Australia Hong Kong | t r r 1 1 0% 10% 20% 30% 40% {%} fn-force Business (2) March Data (3) Single promium now business (San - Mar 2003) {4} Single promium now business (Jan - fut 2002) Source: /SI Statistics, Plan tor Li
Slide 35: Australian Life Insurance business
Australian Life Insurance business Distribution by Channel* E21 Third Party WB Network & Direct” * Network - Internal Bank Channeis Direct - Telemarketing & Phone * Exeludes Group Risk and Masterfunds Product Sales FY03 Growth Represented by: Sales/New Business Lapses Net $128m $80m _ Full Year Resu
Slide 36: Investment Earnings
Investment Earnings I'll now talk about Investment earnings 36
Slide 37: Investment earnings
Investment earnings 30 Jun 03 30 Jun 02 Change $m $m $m Funds Management 9 8 1 Life Insurance - Australia 35 18 17 - New Zealand 15 3 12 - Asia 14 4 10 Net Profit After Tax 73 33 40 _-Full Year Results 20 August 2003 Seememeondnites. Ge 37 + Earnings on shareholders’ funds invested in the life insur
Slide 38: Investment Mandate Structure
Investment Mandate Structure The Bank has $3bn of shareholders funds across its insurance and funds management business, which is invested in: Australia New Zealand Asia Total Loca’ Equities 27% 1% 17% 22% International Equities 7% 42% 0% 6% Property 45% 3% 0% 10% Other O% 40%) 29% 7% Sub Total 49%
Slide 39: Wealth Management Valuations
Wealth Management Valuations 39
Slide 40: Wealth management valuations
Wealth management valuations $m Increase in appraisal value since acquisition of 27% 4 A 9,000 r + 625 (48) (222) 488 8,546 8,500 + 818 8,000 4 7,500 4 449 7,000 | 6,736 || 6,500 6,000 T T T T T Jun-00 Dec-00 Jun-01 Dec-01 Jun-02 Dec-02 Jun-03 Jun-03 |. Full Year Results 20 August 2003 Commonvenatts
Slide 41: Wealth management valuations - movement analysis
Wealth management valuations - movement analysis Net appraisal value reduction of | Net appraisal value Increase of $222m $188m $m 9000 a ‘ cr a ~ i 8,546 Total Reduction |} Increase 8000 in Value WV in Value [E {426) 181 Profit 330 7000 Capital (119) Other Other Capitat Movements Monte ts Value (24
Slide 42: 42
42
Slide 43: Capital ratios remain strong
Capital ratios remain strong Credit Ratings unchanged or improved since 1996... Short Ferm Long Term Fitch Fi+ AA (Stable} Moody's Pt Aad (Stable} S&P Ate AA- (Stable} Dec 2001 sun 22 Dec ane alun2003 w Tice 1 Capita 39 Tier2 Capital « Target Range Full Year Results 20 august 2003 Serrinonmnntivisct
Slide 44: Generation and use of capital
Generation and use of capital _ Full Year Results 20 August 2003 Tier 4 Currency & Issue Other 15bps of Capital Generated {Oct-02) Movements 9.0% 1.76 (1.34) 8.5% 4 8.0% 4 7.5% J ° (0.27) 0.13 (0.10) 7.0% 7 g 7g i Cash Dividend Growth in ASB Prefs Currency & earnings RWA Other Movements 6.96 Commana
Slide 45: That wraps up the key areas of the business
That wraps up the key areas of the business. Let me finish by summing up the highlights of the 2003 full year result 45
Slide 46: 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 _ Full Year Results 20 August 2003 Caviononieealts <p 45
Slide 47: Presentation of Full Year Results
Presentation of Full Year Results Michael Cameron Chief Financial Officer 20 August 2003 www.commbank.com.au 47
Slide 48: Supplementary Slides
Supplementary Slides 48
Slide 49: Underlying EPS growth of cents per share
Underlying EPS growth of 16 cents per share Cents per Share Underlying Growth up 16 cents 8 cent net decrease from first-time costs and investment returns _— ~, 207 Banking 26 20] 211 investment 4 returns 210] zy Funds il 6 (8 J Management sl m0} 18 | Morse = 4004 Life First-time Insurance costs (14
Slide 50: Strong market share position
Strong market share position Global Markets Shares institutional Corporate Bonds “eee Global Loans FX Overall Interest Rate Derivatives Corporate Commercial Bills (Investment) Term Loans (Debt) Interest Rate Swaps FX Options Le es 0% 19% 20% W% Source: insto Public Domestic Non Govt. Bond League Tab
Slide 51: Arrears in consumer book remain at low levels
Arrears in consumer book remain at low levels Loans Accruing past 90 days or more 30/06/03 31/12/02 30/06/02 31/12/01 $m $m $m $m Housing Loans 157 136 176 168 Other Loans 91 75 73 79 Total 248 211 249 247 Housing loans arrears rate 30/06/03 31/12/02 30/06/02 31/12/01 Housing Loans accruing 90 days
Slide 52: Credit ratios are in line with peers
Credit ratios are in line with peers 1.00% 0.80% 0.00% Bad Debt Expense to RWA PE PE SS SF 420% General Provision to RWA OcBA Manz - Full Year Results 20 August 2003 NAB @wac 52
Slide 53: Offshore credit risk concentration
Offshore credit risk concentration International breakdown by Industry* Finance. nes ‘Australia Agriculture Government "New Zealand Ointernational © Austratia] “Excludes Mortgage and Personal _ Full Year Results 20 August 2003 Aviation Technology Telcos Energy Leasing Construction Commanaeaithiiiz i
Slide 54: Bad debt charge as annualised % of secured lending balances
Bad debt charge as annualised % of secured lending balances 0.10% 5 0.08% 4 0.06% 4 0.04% - 0.02% 4 0.00% T T T Dec-0O1 Jun-G2 Dec-02 Jun-03 Full Year Results 20 August 2003 Sonmenseatintizi ip 54 54
Slide 55: Credit Exposure - Energy Sector
Credit Exposure - Energy Sector Hea AAA to A- BEEB+ to BBB- HS6+ to BB- <8 Australia (74% investment grade} Asia { 87 % investment grade} North America (64% investment grade} Other (100% investment grade} a a a a | Full Year Results 20 August 2003 Sommomealiniian <p 55 55
Slide 56: Credit Exposure - Telcos Sector
Credit Exposure - Telcos Sector $m 1200 5 2% 11% 1000 4 800 4 AAA to A. eco 4 MSGB+ to BEB- Rise+ to BE- bed 400 4 200 4 © Australia (74% investment grade} o4 B Asia (100% investment grade) Europe (18% investment grade} $1, 042m @ Other (100% investment grade) | Full Year Results 20 August 2003 Gomm
Slide 57: Credit Exposure - Technology Sector
Credit Exposure - Technology Sector 5% 9% AAA to A- OK MES6+ to BES-| BBB+ to BB- oe OE Australia (66% investment grade} North America (100% investment grade} Europe(72% investment grade) Other (57 % investment grade} $895 _ Full Year Results 20 August 2003 Commemenalit iri. (p87 57
Slide 58: Credit Exposure - Agriculture Sector
Credit Exposure - Agriculture Sector $m sooo 4 sooo 4 274 7000 | 29 6000 4 5000 4 2 AAA to A- @ BES+ to BBS- 4000 4 8 BS+ to BB Oo <B 3000 | 2000 4 1000 | Oo; GB Australia (8.5% investment grade} $8,042m New Zealand (0.3% investment grade) Full Year Results 20 August 2003 Sonmenweatibtizk ip 58 58
Slide 59: Credit Exposure - Aviation Sector
Credit Exposure - Aviation Sector $m 2500 2000 4500 4000 AAA to A- MBEG> to BEB-| BBB+ to BB- <8 _ Full Year Results 20 August 2003 6% & Australia 89% investment grade} Europe( 19 % investment grade) Other{ 100 % investment grade) Commanmanti ii 59
Slide 60: Funds under management
Funds under management a S 2 as $94bn B 1 Jun 2001 Jun 2002 Jun 2003 Australian Retail Funds I Australian Wholesale Funds ME infemnational Funds E23 Cash Management Trusts —— Average FUM -) oFull Year Results 20 August:2003. 60
Slide 61: Movement of funds by product category
Movement of funds by product category Opening Inflows | Outflows | Investment | Acquisitions Other Closing Balance Income & Movements | Balance 30/06/2002 Disposals | & Transfers [30/06/2003 $m $m $m $m $m $m $m Retail 51,089 14,052) = (12,636) {562} 2,158} (638) 50,469 FirstChoice 561 3,206} (578)
Slide 62: 9% growth in annual premiums
9% growth in annual premiums Opening Sales/New Lapses Other Closing Balance Business Movements Balance 30/06/62 30/06/03 $m $m $m $m $m Personal 581 128 (78) {6)] 625 Group 229 59 (30) {3) 255 Total 810 187 {108) {9}! 880 Australia 527 128 (80) + 575 New Zealand 187 43 (16) 7 221 Asia 96 16 (12) (16
Slide 63: Capital to protect policyholders' interests
Capital to protect policyholders’ interests 3.500 30 June 2003 Austaiia (Life Insurance) © Capital Required *€ Actuat Capital _ Full Year Results 20 August 2003 Total Excess Over Capital Adequacy of $766m represented by: Australia {Life Insurance} New Zealand Asia Other $438m. $61m $87m $180m Comman
Slide 64: Generation and use of capital (2nd half 2003)
Generation and use of capital (2nd half 2003) 85% 7 8.0% 7 75% 7 7.0% 4 65% 7 6.0% 71 Tier 1 Dec-02 Currency & Other Tops of Capital Generated Movements 0.95 (0.74) (0.14) 0.17) wom |) Cash earnings —_ Dividend Growth in Currency & RWA Other Movements _ Full Year Results 20 August 2003 Commeanaeaith
Slide 65: Generation and use of capital (1st half 2003)
Generation and use of capital (1st half 2003) Tier 1 Currency & Issue Other 8bps of Capital Generated {Oct ‘02) Movements 8.0% 4 0.82 {0.61} 7.5% 4 0.07 (0.13} 0.43 me one | oe 6.5% 6.0% T T T T T T Tier 4 Cash Dividend Growth in. ASB Prefs Currency & Tier 1 Jun-02 earnings RWA Other Dec-02 Movement
Slide 66: Total income segmentation
Total income segmentation at 30 June 2003 $M % Life insurance Retail Banking 4,234 45% Funds Institutionat & Business 2,793 29% Managomont Asia Pacific 99. PY Asia Pacific Retait Totat Banking Income 7,723 81% 1% Banking 45% Funds Management ) 2 4,404 12% Life Insurance ‘> 630 7% Totat Income 9,457
Commonwealth Bank of Australia — FY2003 Earnings Presentation on 6ix