Commonwealth Bank of Australia · ASX:CBA
Commonwealth Bank of Australia — FY2004 Earnings Presentation
53 slides from Commonwealth Bank of Australia's earnings presentation, Aug 11, 2004
Slide 1: Presentation of Full Year Results for period ended 30 June 2004
Presentation of Full Year Results for period ended 30 June 2004 David Murray Chief Executive Officer Michael Cameron Chief Financial Officer 11 August 2004 www.commbank.com.au
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 August 2004. It is information given in summary form and does not purport to be complete. It is not financial product advice and is not int
Slide 3: Agenda
Agenda Full Year Results - Michael Cameron (30 mins) Overview Banking Funds Management Insurance Capital Management Which new Bank update – David Murray (15 mins) Questions 3
Slide 4: Overview - Highlights
Overview - Highlights Underlying profit growth of 15% Solid profit contributions from each business Improved productivity Which new Bank achieved year 1 targets 19% dividend per share increase in 2004 4
Slide 5: Overview - 15% growth in underlying cash profit
Overview - 15% growth in underlying cash profit 30/06/04 30/06/03 Change $m $m Statutory NPAT 2,572 2,012 +27.8% Goodwill amortisation 324 322 Appraisal value movement (201) 245 Cash NPAT* 2,695 2,579 +4.5% Which new Bank 535 168 Shareholder investment returns (152) (73) Underlying Cash NPAT 3,078 2
Slide 6: Overview - Strong contributions from each business
Overview - Strong contributions from each business $m Underlying Growth of +15% Investment Returns 3500 Insurance 152 3200 Banking Funds Mgt. 64 3,078 299 41 2900 2,674 2,695 2600 WnB 2300 Incremental 2000 Which new Bank 1700 (535) 1400 1100 800 Underlying Underlying Cash Profit Profit Jun -03 Profi
Slide 7: Overview - Another record dividend
Overview - Another record dividend Dividend (cents per share) Final dividend of 104 183 cps, total dividend 183 190 154 150 cps (+19% on 2003) 170 104 136 150 130 85 Payout ratio of 89.1% 115 82 130 104 75 reflecting commitment 102 72 110 90 66 to add back the WnB 82 58 Cents 90 57 costs in dete
Slide 8: Overview - Key shareholder ratios
Overview - Key shareholder ratios 2004 2003 Change Shareholder Ratios(1) Earnings Per Share (2) Return on Equity Dividends Per Share Payout Ratio 207 cents 203 cents +2% 13.2% 13.3% -0.1% 183 cents 154 cents +19% 89.1% 75.9% Underlying(3) EPS was 237 cents (+13% v. 2003) Underlying(3) ROE wa
Slide 9: Which new Bank financial update: Reminder - what are our goals
Which new Bank financial update Reminder – what are our goals Subject to current market conditions continuing Over the three year period we will: Over the three year period this will result in: Cash EPS growth exceeding 10% CAGR Redirect the normal project spend of $600m 4-6% CAGR productivity
Slide 10: Which new Bank financial update: Year 1 investment spend and benefits
Which new Bank financial update Year 1 investment spend and benefits Investment spend ($m) Benefits 2004 Actual ($m) 2004 FY04 Themes Actual Estimate* Revenues Costs Total Customers 268 270 Gross benefits 152 145 297 Processes 266 280 Additional (60) - (60) People 12 10 operating exp. 546 560 Net be
Slide 11: Which new Bank financial update: Total estimates unchanged
Which new Bank financial update Total estimates unchanged Which New Bank estimates updated for 2004 actuals Our estimate of investment and benefits of the total programme remain Investment 2004 2005 2006 Total unchanged spend Act. Est. Est. Expected split of revenue and expense Original 660 510
Slide 12: Which new Bank financial update: Expenditure - FY2004
Which new Bank financial update Expenditure – FY2004 Actual Full Year Estimated 30/06/04 Financial Impact * $m $m Incremental Which new Bank expense: Investment Spend for the period (gross) 634 660 + Provision for Future Costs 208 210 - Investment Capitalised (112) (180) = Gross Which new Bank expen
Slide 13: Overview - underlying expenses reflect business growth
Overview - underlying expenses reflect business growth Underlying expenses 2003 ($m) 5,312 Initiatives including WnB - Full year benefits of 2003 strategic initiatives ($125m - $69m) (56) - Year 1 benefits of WnB (145) (141) - WnB revenue based operating expenses 60 CPI and Salary increases 185 V
Slide 14: Banking Highlights
Banking Highlights Total underlying banking profit $m Other Bank 3,200 Income BDD Continued strong demand for owner Interest 219 29 3,000 occupied and investment loans Income 384 2,800 2,675 Expenses Maintained position as leading 2,600 (209) Taxation 2,376 home loan provider and maintained 2,40
Slide 15: Banking income
Banking income Banking Income: $8,256m (82% of Group Income) By income type Insurance $678m By line of business Funds $M % Management Banking $1,158m Retail Banking 4,298 52% net interest income Premium Business Services* 3,140 38% Banking other $5,410m operating ASB + Other Asia Pacific 818 10% (+8
Slide 16: Banking Productivity improving
Banking Productivity improving % 60.0 58.0 56.0 2.3% productivity improvement 54.0 54.1 52.0 52.0 50.0 June 2006 50.8 Target: 48.0 Under 47 46.0 44.0 Jun-02 Jun-03 Jun-04 16
Slide 17: Banking - non pricing factors make up most of the NIM change
Banking - non pricing factors make up most of the NIM change Net interest margin (bps) 2 .7 0 % 267bps -6bps -4bps 2 .6 0 % -3bps NIM -1bp 253bps 2 .5 0 % 2003 Growth in non-lending Funding NIM 2 .4 0 % Asset IEA* mix 2004 mix Competition 2 .3 0 % effect 2 .2 0 % 2 .1 0 % 2 .0 0 % * Interest Earning
Slide 18: Banking +18% growth in lending assets
Banking +18% growth in lending assets* Lending assets in $ bn 205.9 191.3 +14% v. 2003 175.1 15.0 (+9% / Dec 2003) 13.7 Bank Acceptances 13.2 55.8 +13% v. 2003 52.6 (+6% / Dec 2003) Business & Corporate 49.3 12.6 13.2 +7% v. 2003 (+5% / Dec 2003) Personal 12.4 121.9 +22% v. 2003 (+9% / Dec 2003) 112
Slide 19: Banking Home lending growth profile
Banking Home lending growth profile(1) Origination of home loans funded 2003/2004(2) Growth represented by: ($bn) 2003 2004 26% (24% in Dec 03) Loans funded 36.9 43.2 74% (76% in Reductions 24.9 25.2 Dec 03) Net Growth 12.0 18.0 Proprietary Third Party (1) Data relates to the Bank’s Australian home
Slide 20: Banking Prudent risk provisioning
Banking Prudent risk provisioning Bad and doubtful debts expense (in $m) Continued low charge for bad debts: 0.32% 0.28% Sound credit management 0.21% Bad and Good management of 0.15% 0.16% doubtful outstandings debts to 449 RWA High % of home loans in overall 385* portfolio 305 Over the c
Slide 21: Banking Sustained portfolio quality
Banking Sustained portfolio quality 2004 2003 Charge for Bad & Doubtful Debts $276m $305m Charge for Bad & Doubtful Debts 0.16% 0.21% to RWA* (annualised) Gross Impaired Assets $340m $639m (net of interest reserved) Specific Provisions $143m $205m General Provision $1,393m $1,325m General Provision
Slide 22: Funds Management 18% growth in underlying profit
Funds Management 18% growth in underlying profit Volume Incremental Net based Which new $m Operating expense Bank Strong investment markets (8) Income (26) underpinned revenue growth 300 44 274 268 Income to average FUA ratio 250 233 Tax maintained (21) 200 Reduction in S’holder Focus on tight
Slide 23: Funds Management +11% Growth in FUA
Funds Management +11% Growth in FUA +11% growth $m 110 10 1 Strong turnaround in net flow 110,000 position from 2003 underpinned by FirstChoice and International flows. 105,000 Outflows driven by: Legacy products 100,000 99 1 Fund closures Performance of flagship funds Industry shift to
Slide 24: Funds Management FirstChoice v. Other retail
Funds Management FirstChoice v. Other retail Net Flows ($m) 2003 v. 2004 5,000 2003 4,000 2004 3,000 2,000 1,000 - -1,000 -2,000 -3,000 FirstChoice / Cash First State Retail Legacy Avanteos Management 24
Slide 25: FirstChoice continues to grow rapidly
Funds Management FirstChoice continues to grow rapidly Strong market growth Growth in FUA vs. Market* Movement from single to multi- 8,000 250,000 manager FirstChoice total masterfund/platform market 7,000 FirstChoice Success 200,000 $7bn FUA – 30 June 2004 6,000 Total Platform Market FUA ($
Slide 26: Funds Management 8% productivity improvement
Funds Management 8% productivity improvement v. June 03 % 8% productivity improvement $bn 1.00 110 Underlying Expenses/Average FUM (%) 0.83 FY06 0.76 Target 0.80 0.73 Under 100 0.74 Average FUA ($bn) 0.60 90 0.40 80 0.20 70 0.00 60 Jun-02 Jun-03 Jun-04 Average FUA Underlying Expenses/Average FUA 26
Slide 27: Insurance - improved operating margins and strong investment returns
Insurance - improved operating margins and strong investment returns Australia $m Market leader in life insurance 133 (11) in Australia – 14.8% 251 250 8% growth in risk inforce premiums 200 Improved General Insurance claims ratio 150 6 129 Tight expense controls – 46 expenses flat 100 Str
Slide 28: Insurance 9% productivity improvement
Insurance 9% productivity improvement v. June 03 % $m 9% productivity improvement 70 1200 58.5 Average Inforce Premiums (%) Average Inforce Premiums ($m) 60 50.4 1100 50 Operating Expenses/ 40 42 1000 46.1 FY06 30 Target 900 20 800 10 0 700 Jun-02 Jun-03 Jun-04 Average Inforce Premiums Operating Exp
Slide 29: Insurance Australian Insurance business
Insurance Australian Insurance business Distribution by Channel^ Product Sales 26% 45% 41% (28 in (45% 59% (59% in 2003) in (41% in 2003) 2003) 2003) 29% (27% in 2003) Third Party Individual Network & Direct* General * Network - Internal Bank Channels Group Risk Direct - Telemarketing & Phone ^ Excl
Slide 30: Value of Insurance and Fund Management Business increased $201m
Value of Insurance and Fund Management Business increased $201m $m 10000 9000 8,546 8,402 8000 Profit 519 Increase in Capital Value Movements 201 7000 (864) 6000 5000 Directors’ Directors’ Valuation Valuation Jun-03 Jun-04 30
Slide 31: Active Capital Management
Active Capital Management Creating capital flexibility - executed initiatives Tier 1 Hybrid US$550m (A$832m) PERLS II $750m Off-market share buy-back $532m Share Purchase Plan $467m DRP 2H03 $201m DRP 1H04 $188m Life & FM Special Dividend $194m Existing ratings are stable: S&P AA-
Slide 32: Capital ratios remain strong
Capital ratios remain strong 11% 10.25% 10% 9.80% 9.81% 9.73% 9.46% 9% 8% 7% 6% 6.78% 7.06% 6.96% 7.26% 7.43% 5% 4% 4.61% 4.75% 3% 2% 1% 0% Jun 2002 Dec 2002 Jun 2003 Dec 2003 Jun 2004 Tier 1 Capital Tier 2 Capital Adjusted Common Target Range Equity 32
Slide 33: Generation and use of Tier 1 capital
Generation and use of Tier 1 capital 9.0% 1.59 (1.42) Effect of add-back of 8.5% transformation costs 8.0% (0.31) 0.27 0.93 (0.03) 7.5% 7.43 (0.93) 7.0% 6.96 0.37 6.5% 6.0% 5.5% Tier 1 Cash Ord. and Growth in DRP Hybrid SPP Buyback Currency Tier 1 Jun 2003 Earnings Pref. RWA $639m Issues $467m $(532
Slide 34: Highlights
Highlights Underlying profit growth of 15% Solid profit contributions from each business Improved productivity Which new Bank achieved year 1 targets 19% dividend per share increase in 2004 34
Slide 35: Supplementary material
Supplementary material new! Which Bank Conmonwealthark (y 3,
Slide 36: Market Shares Strong banking market share positions
Market Shares Strong banking market share positions Banking Market Shares June Dec Jun 2004 2003 1 2003 1 Retail and Business Deposits2 23.6%3 24.1% 24.2% Credit Cards 22.7% 22.7%4 22.8% 2 Transaction Services (commercial) 24.4% 23.1%5 22.7% Home Loans 19.3% 19.3%6 19.5% Business Lending 14.2% 14.2%
Slide 37: Market shares Funds Management
Market shares Funds Management Funds Management Market Shares June Dec June 2004 20033 20033 Managed Investments 1 14.0%2 14.7% 14.9% New Zealand Managed 14.4%4 14.7% 14.5% Investments Notes: 0% 10% 20% (1) Retail Only (2) May 2004 Data (3) As reported in the Dec-2003 profit announcement Source: Pla
Slide 38: Market shares Life Insurance
Market shares Life Insurance Life Insurance Market Shares June Dec Jun 2004 2003 3 2003 3 New Zealand 1 28.2% 28.1% 28.3% 2 Australia 14.8% 15.1% 15.3% 2 Hong Kong 2.5% 2.2% 2 2.8% 0% 10% 20% 30% 40% Notes: (1) In-force Business (2) September Data (3) From December 2003 Profit Announcement document
Slide 39: Overview of results Total income and NPAT
Overview of results Total income and NPAT Group total Income: $10,092m Group Underlying Cash NPAT: $3,078m $678m $129m $274m (4%) (7%) $1,158m (9%) (11%) Net Interest Other Income operating $5,410m income (54%) $2,675m $2,846m (87%) (28%) Banking Insurance Funds management Income exludes investment
Slide 40: Banking $113bn in Australian Home lending
Banking $113bn in Australian Home lending* Product Balances Outstanding Balances by Loan Type 8% (8% in 21% 2003) (20% in 35% 57% 2003) (31% in (61% in 2003) 2003) 17% 62% (21% in (59% in 2003) 2003) Owner occupied Variable Investment Home Loan Fixed Rate Line of credit Honeymoon * Data relates to t
Slide 41: The Bank remains well provisioned
The Bank remains well provisioned 2,100 * Includes Colonial 500 450 1,800 400 1,500 350 1,200 300 $millions 250 % 900 200 600 150 100 300 50 0 0 Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun 95 96 97 98 99 00* 01* 02 03 04 General Provision Specific Provision Total Provisions/Gross Impaired Assets (axis o
Slide 42: Banking - Top exposures to Corporates and quality of total exposure
Banking - Top 20 exposures to Corporates and quality of total exposure Quality of total exposure: Top 20 Exposures to Corporates ($m) There is security over 79% of the non- investment grade exposure •A+ 100% •A- •AA+ •BBB+ 80% 40 37 36 33 S&P Rating or Equivalent •A- •A+ •A •BBB 60% •A- 17 15 •AA- •
Slide 43: Banking Arrears in consumer book remain low
Banking Arrears in consumer book remain low 30/06/2004 31/12/2003 30/06/2003 31/12/2002 $m $m $m $m Housing Loans 168 147 157 136 Other Loans 78 66 91 75 Total 246 213 248 211 Housing loans arrears rate 30/06/2004 31/12/2003 30/06/2003 31/12/2002 Housing Loans accruing 90 days or more $m 168 147 157
Slide 44: Banking - Total and Offshore credit risk concentration
Banking - Total and Offshore credit risk concentration Total Commercial exposure* Offshore Commercial by location exposure by Industry** $351bn Total Exposure $45bn Aviation Technology New Telcos Zealand Energy 13% Leasing Construction 3% International Automobile 13% Australia Other 74% Finance Comm
Slide 45: Banking A well diversified portfolio by industry
Banking A well diversified portfolio by industry Total Outstandings* $138.6 bn Telecommunication Air Transport 0.5% 0.8% Agriculture Construction 5.7% 2.0% Technology 0.2% Energy 2.4% Other C&I 32.9% Motor Vehicle and Part Finance Manufacturing 43.6% 0.3% Leasing 6.3% Government 5.1% * Represents ba
Slide 46: Banking Credit Exposure - Agriculture Sector
Banking Credit Exposure - Agriculture Sector Total exposure: $8,963m $'m 10,000 9,000 372 8,000 1,402 7,000 AAA to A- 6,000 2,823 BBB+ to BBB- 35% 5,000 BB+ to BB- 4,000 <BB- 65% 3,000 2,000 4,367 1,000 0 Credit Exposure is measured as the higher of limit or credit equivalent Australia (11% investme
Slide 47: Banking Credit Exposure - Aviation Sector
Banking Credit Exposure - Aviation Sector Total exposure: $1,676m $'m 1,800 1,600 255 1,400 AAA to A- 1,200 10% BBB+ to BBB- 1,000 BB+ to BB- 12% 800 1,163 <BB- 600 78% 400 200 227 0 31 Australia (89% investment grade) New Zealand (99% investment grade) Credit Exposure is measured as the higher of l
Slide 48: Banking Credit Exposure - Energy Sector
Banking Credit Exposure - Energy Sector Total exposure: $4,453m $m 5,000 0.1% 4,500 4,000 5.4% 1,286 7.6% 3,500 AAAto A- 3,000 17% BBB+ to BBB- 2,500 BB+ to BB- 2,000 2,418 <BB- 1,500 1,000 70% 500 438 311 0 Australia (77% investment grade) New Zealand (100% investment grade) Asia (93% investment gr
Slide 49: Banking Credit Exposure - Telcos Sector
Banking Credit Exposure - Telcos Sector Total exposure: $786m $m 900 800 700 233 600 AAA to A- 19% 500 BBB+ to BBB- 1% 400 BB+ to BB- 451 <BB- 11% 300 200 69% 100 8 94 0 Australia (75% investment grade) Europe (100% investment grade) Credit Exposure is measured as the higher of limit or credit equiv
Slide 50: Funds Management Asset class breakdown
Funds Management Asset class breakdown FUA: $109.8bn Externally Other as at June 2004 Managed ASB 5% 1% 4% Equities based 39% Australian equities 22% Fixed Interest & International Cash equities 37% 17% Listed & Fixed income Direct based Property 52% 15% 50
Slide 51: Funds Management & Insurance Investment Mandate Structure
Funds Management & Insurance Investment Mandate Structure The Bank has $2.7bn of shareholders funds across its insurance and funds management business, which is invested in: Australia New Zealand Asia Total Local Equities 10% 1% 4% 7% International Equities 4% 6% 6% 5% Property 22% 4% 0% 14% Other G
Slide 52: Claims ratios are consistent with prior years
Claims ratios* are consistent with prior years. GI was impacted in 03 by the Canberra bushfires. Jun-03 YTD Actual Jun-04 YTD Actual 80.0% 69.9% 70.0% 58.8% 60.0% 50.9% 52.1% 50.0% 40.0% % 30.0% 20.0% 10.0% 0.0% General Insurance Life Insurance * Claims ratio = claims expense as a % of net earned pr
Slide 53: International Accounting Standards Outlining our approach
International Accounting Standards Outlining our approach Qualitative comments in the profit announcement document Timeline: 1 July 2004 – start accounting internally according to IAS Feb 2005 (half year ’05 profit announcement) – further qualitative and some quantitative statements 1 July
Commonwealth Bank of Australia — FY2004 Earnings Presentation on 6ix