Commonwealth Bank Of Australia · ASX:CBA
Commonwealth Bank Of Australia — Morgan Stanley Asia Pacific Summit 2003
63 slides from Commonwealth Bank Of Australia's conference presentation, Nov 5, 2003
Slide 1: Morgan Stanley Asia Pacific Summit
wow Which’/bank Morgan Stanley Asia Pacific Summit Hugh Harley Group Executive, Retail Banking Services Commonwealth Bank of Australia November 2003 Good afternoon Thankyou for attending today’s presentation
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, 5 November 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 t
Slide 3: Speaker's Notes
Speaker’s Notes « Speaker's notes for this presentation are attached below each slide. x To access them, you may need to save the slides in PowerPoint and view/print in “notes view.” dy 3
Slide 4: Agenda
wow Which’/bank Agenda « Operating Environment « Performance « Transformation Agenda: “Review operating environment in Australia “Review Bank’s performance *Details of new transformation program. «Given role in the Bank, discussion will draw more heavily on retail banking segment of our business. Ha
Slide 5: The Operating Environment
wow Which/bank The Operating Environment
Slide 6: Australia's economy has been resilient
Australia’s economy has been resilient AUSTRALIA: HOW WE % COMPARE United States 0 Australia Average Average Reduction Increasein Reduction Average growth rate Inflation in current in budget productivity rate unemploy- account deficit growth ment rate deficit * Source: RBA, OECD. Data is for calenda
Slide 7: Credit growth has been strong, but banking margins have been squeezed
Credit growth has been strong, but banking margins have been squeezed ° Credit (3 month ended Average Operating Margins* fo annual rates) 4 Major Banks (1997 - 2002) Cihier personal Ho 2.9 Jul Jub Jul Jul Juk Jub Jul 1997 1998 1999 2000 2001 2002 "Margin calculated as Total Income/Totat Controllable
Slide 8: Demographic changes place emphasis on self funded retirement
Demographic changes place emphasis on self funded retirement Projected Size of Various Product Segments 306 74 Funds Management Life Insurance IVatue at Jone 2002 we 54 H:Vatue at Jano 2002 IB Projected Vaiue to Jue 2012 iy} Yes '@ Projactad Valua to June 2042 $ Billion Annuities Alc = Wsale Corp. U
Slide 9: Performance
wow Which/bank Performance
Slide 10: FY03 result: 3% improvement in cash profit and 9% in underlying profit
> . . FYO3 result: 3% improvement in cash profit and 9% improvement in underlying profit June 2003 June 2002 Change Net Profit After Tax (cash basis)* $2,579m $2,501m 3% Net Profit After Tax (underlying)** $2,687m $2,468m 9% * ie excluding appraisal value upliftreduction (2003: -$245m,; 2662: $477m)
Slide 11: Underlying profit growth of 9%
yivvesal Gi vw /o ll © rv $m Underlying Growth of 9% A 2900 7 f i) 4 ...,” * q First Time 2500 i Expenses 2700 4 2.687 (184) Investment ~ 7 Returns Funds 73 2,579 2600 7 Management 32 = 2500 74 Banking ; 2400 4 334 Life Insurance 17 2300 7 2200 4 r : : lt ! Underlying Underlying Cash Profit Profit J
Slide 12: Banking lending assets
ZF /o QYROVEN TF ICnaing assets 175 260 7 160 4 $ billion 4100 4 50 4 o4 Jun 2062 Jun 2003 Lending Assets** | Housing a) Personal | Business & Corporate [}4 Bank Acceptances ™ Excludes securitised housing oan balances $6.5b (Jun 03), $7.0b (Jun 02). : : : Ciaieenanveeamsise's lp 12 * To touch on som
Slide 13: Key shareholder ratios improved
Key shareholder ratios improved June 2003 June 2002 Change Earnings per Share 203 cents 197 cents 3% Dividend per Share 154 cents 150 cents 3% Dividend Payout Ratio 76% 76% - Return on Equity 13.27% 13.12% 2% Tier 1 Capital Ratio 6.96%* 6.78% 3% For more information, visit: www.commbank.com.au/share
Slide 14: Another record dividend
Another record dividend 160 450 154 +Final dividend of 85 cps, 140 up 4% on pep we Payout ratio of 75.9% § remains highest among ° major banks Which bank + The Bank's final dividend: 85 cents fully franked. * Total full year dividend to 154 cents. * Dividend payout ratio of 76% remains high relative
Slide 15: Strategic initiative targets achieved and banking cost to income ratio improved
Strategic initiative targets were achieved and the Banking cost to income ratio improved Strategic Initiatives FY03: Costs Benefits Net Cost Annual Benefit $m $m $m $m Target 227 84 143 159 Revenue: $40m Outcome 244 69 145 465 Costs: $125m Banking cost to income ratio: 6 58 10% improvement over two
Slide 16: September 2003 Quarter: Performance
September 2003 Quarter: Performance Continued high levels of credit growth Deposit growth above expectations « Strong investment returns Increased FUM Growth in insurance premium income In relation to performance for the 1st quarter of 2004, we have experienced: Continued high levels of credit growt
Slide 17: Transformation
wow Which’/bank Transformation Let’s now turn to the Bank’s transformation program, which was launched in September 2003.
Slide 18: We have a successful track record on execution
We have a successful track record on execution. Transformation of service is the next phase Whichbank |. Commonmestnist: ip 18 * Since privatisation in the 1990's, the Bank has undertaken a number of programs aimed at positioning itself to meet the changing environment and to create value. * Colonia
Slide 19: Why service transformation is necessary
Why service transformation is necessary Environment | Customer need _ Imperatives for the Bank » Demographic » High value creation « Service change transformation » Through advice and investment = Competitive superiority » Monetary df Even better value cycle : Which bank ‘Cormeen op Why is transform
Slide 20: Which new Bank transformation
EGWit C&FG 9st GSI tit £1 We OLE iV transformation Supported by Customers are saying: “Know me, give me what | want and do it reliably” Which bank Program called ‘Which new bank’ Three themes: customers, people and processes: + We want customers to experience service that is responsive, convenient a
Slide 21: Over 100 initiatives grouped into 20 key workstreams
ihere are over 1UU initiatives ... grouped Into 2U key workstreams "To excel in customer service’ Through Servica/Sates fi. Sagmant and Advice Performance f{2.Parformanca cufture Support Fi3. Support function Effectiveness | Afignment Culture diagnostic, managomant { redesign 2. Advice tmplamentatio
Slide 22: Customers: Initiatives predominantly drive revenue benefits
Customers: Initiatives predominantly or Examples Examples ’ Branch sales IBS redesign effectiveness. Enhanced branch service - IBS service and sales Branch redesign modet PFS service model - Adviser academy - Cross sell to CommSec |}: Examples RBS product review and rationalisation - PFS structured
Slide 23: Customers: Transformation Outcomes
Customers: Transformation Outcomes 630d Improved customer experience, including: « More modern branches better suited to community needs Average queue time reduction of 35% Increased branch manager visibility Innovative financial solutions better suited to customer needs More informed view of the cu
Slide 24: Customers: Initiatives predominantly drive revenue benefits
Customers: Initiatives predominantly 6350 drive revenue benefits | _ Initiative name initiative description Status [Size of prize Branch sales Reinvigoration of a world standard service and sales Pilot © effectiveness culture, Customer Service {CSO} roles redefined to increase customer contact time
Slide 25: Customers: Initiatives predominantly drive revenue benefits
Customers: Initiatives predominantly driveg SH efits revenue beng Initiative name Initiative description Status Size of prize Enhanced Branch Service, Sranch Redesign IBS redesign RBS product review and rationalisation : PFS structured campaign management iS WRAP and Adviser workbench Maximise effic
Slide 26: Retail branch sales effectiveness is being trialled in 12 branches
Retail branch sales effectiveness is being 6350 trialled in 12 branches C1 Focus on Customer Service Officers (CSOs); - redefine role to focus on identifying and satisfying custormer needs - KPls, targets & incentives clearly aligned to custorner outcomes - emphasis on sales skills, role plays & coa
Slide 27: Initial results of the pilot are positive
Initial results of the pilot are positive 65d Week1 Week2 Week 3 Cross-¢ell ratio 0 Basetina: Week 1 Week2 Week3 Week4 Week5 Week 6 et Breaker ay sites a“ 3 é Which bank Week7 Week 8 Eg Control sites {equivaiant FTE) ~ Ceorimnisorrweinadtt Si. ge 27 * Early results in 12 pilot branches have been enc
Slide 28: Strength of Relationships
Strength of Relationships Score % 10 7 r 28 81 b 20 64 15 44 b 10 274 rs Of T T T ro Jun Sep Dec Mar Jun 2002 2002 2002 2003 2003 Which bank MB Strength of Relationship {LHS} li Advocates (RHS Gommonweatin isn 2 > 28 One of our key customer satisfaction measures in the retail bank looks at “Strength
Slide 29: People: Engagement improves the customer experience
People: Engagement improves the 66D customer experience Commonwealth Bank percentile ranking 400-7 in Gallup database 2061 2002 2603 Source: Gallup Organization. Note: Gatiup Workplace Survoy was rot commissioned by the Bank it 2000. Which bank Cairne , 29 * Our people initiatives are aimed at maxim
Slide 30: People: Transformation Outcomes
People: Transformation Outcomes 660 » A better experience for our people, derived from: « Taking direction from people that serve our customers Enabling frontline people to solve customer problems Investing in the development and training Measuring performance on customer outcomes Recognising and re
Slide 31: Level of engagement has a tangible impact on customer service and performance
Level of engagement has a tangible impact on customer service and business performance Average Business Performance : 1 i Staff Engagement Score Average Service Scare? Against Plan Top 18% > 4.23 90.3% 107% 8a% 48.6% incroasa incroasa Bottom 15% | < 3.72 83% 72% In addition the top performing areas
Slide 32: Unlocking our potential
ee ee ee EE EEE CEE Nw CREE ES SN the context of our service aims Unlocking our potential » With our customers = ~With our people =» =_ With our operations Which bank Cultural change in the retail bank is being pursued within an integrated framework Key elements; ‘simplicity of systems & processes (
Slide 33: Processes: Initiatives predominantly drive cost benefits
Processes: Initiatives predominantly drive obe cost benefits $440m Estimated benefits (pre tax} realised in 2006 Examples - E2E home loans {RBS} - World class manufacturing in retail operations {RBS} Examples - Support function redesign Examples Examples ’ Purchasing -1T demand management efficiency
Slide 34: Process Improvement: Transformation Outcomes
Process Improvement: Transformation or Outcomes » Simpler, more effective processes resulting from: « reduced number of IT systems » reduced re-keying and paper handling streamlined approval processes « Providing: « improved responsiveness and faster cycle times « increased accuracy and reduced info
Slide 35: Process Simplification: Initiatives predominantly drive cost benefits
Process Simplification: Initiatives predominantly drive cost benefits 058 initiative name initiative description Status Size of prize Suppor function ’ Redesign the support functions across the Desi redesign Group by reducing duplication, complexity and esigh @ low value added worked. We are aiming
Slide 36: End to End Home Loan supported by service initiatives
End to End Home Loan supported by service initiatives ra are already underway and will be extended to other product lines aiNew Origination Platform (CMP) + Single, modern safes platform Workflow Technologies S#"Straight-through” processing Eliminate data re-keying (vanilla foans - application to do
Slide 37: World Class Manufacturing pilots in retail will be expanded across the Bank
World Class Manufacturing pilots in CSB retail will be expanded across the Bank e Improved work flows e Standardised processes e Removal of obstacles and redundant activity Operations Processing (OPC) Example & Baseline establishment o& Establish the optimal ‘flow rate’ to balance processing of Defi
Slide 38: Financial impact and outcomes
Financial impact and outcomes Subject to current rnarket conditions continuing Over tt ; Over tt his will Itin: » Cash EPS growth exceeding 10% CAGR Redirect the normal project spend of $600m » 4-6% CAGR productivity Improvements « Spend an additional $620m P $ : Profitable market share growth acros
Slide 39: Investments & Benefits
Investments & Benefits Branch refresh so 85 85) 260) Total investment Spend (pre tax} 660 510 370 1,480 [Estimated Benefits (pre tax) “ | 2008 620] ET | (1) Estimated benefits are recurring and continue to grow beyond 2006. They are comprised of 50% cost savings and 50% revenue improvement. Which ba
Slide 40: Investment spend
Investment spend Themes Sales and service effectivenes: Distribution efficiency Product offering Customers cE $0-49m TT enablers $50-99n CO $100m+ Product and process simplification Purchasing/property TT efficiency Processes Performance culture Total ($m} 570 i 425 225 So$1.22000 [ Branch refurbish
Slide 41: Benefit analysis
Benefit analysis Customers Sales and service effectiveness: Distribution efficiency Product offering iT enabiers Processes Product and process simplification Support redesign: Purchasing/property IT efficiency People Performance culture Which bank Total {$m} 200 B20 $00. even, Cost aaviny ES $0-49m
Slide 42: Productivity improvements of 4-6% pa CAGR over the next three years
Productivity improvements of 4-6% pa CAGR over the next three years Eunds. Average Banking Management Inforce Incorme* 2003 2006 2003 2006 2003 2006 Actual Estimate Actuat Estimate Actual Estimate * includes commissions Which bank Sp 42 * This slide sets out our target ratios by major businesses. *
Slide 43: Customer service culture, the next transformation
Customer service culture, the next transformation Customer Service through Engaged People supported by Simple Processes Which bank Just to reiterate: Our transformation program is about: -Customer Service through “Engaged People supported by *Simple Processes. Conmemaaaiift iii. a 43
Slide 44: Summary
Summary « Operating Environment: # Economy resilient : Home loan growth continues : Favourable outlook for Funds Management and Life Insurance : Performance: * 9% underlying profit growth « Strong credit quality and capital position « Good September 2003 quarter « Which new Bank: « Launched Septembe
Slide 45: Morgan Stanley Asia Pacific Summit
wow Which/bank Morgan Stanley Asia Pacific Summit Hugh Harley Group Executive, Retail Banking Services Commonwealth Bank of Australia November 2003
Slide 46: Supplementary Slides: Transformation
Supplementary Slides: Transformation
Slide 47: We are serious about changing to be more customer focused
We are serious about changing to be more customer focused : Our plans are comprehensive, well thought through and already underway » We have achieved encouraging results to date » We are confident that we will meet our financial expectations Which bank |. Commeneeatiniss. yp 47
Slide 48: Plans are in place to complete our largest transformation
Plans are in place to complete our largest transformation « Around $900 million of improvement initiatives (~50% customer, 50% simplicity ~50% cost, 50% revenue} # 400+ initiatives within divisions and cross-divisional » Significant recurring value to be created through behavioural change « Around o
Slide 49: Our vision
Our vision ‘To excel in customer service’ Whick bank a neem
Slide 50: Focus of customer work streams
when they need it’... Focus of customer work streams. Provide the best service and evel of advice to each customer segment, including training more than 200 additional financial planners Proactively provide financial solutions based on the needs of customers, especially around important life events
Slide 51: Key value drivers for customer service initiatives
Key value drivers for customer service initiatives have been identified Sale Retention and run off » Cross sell / penetration » Credit approvals IT demand management IT systern rationalisation Network optimisation Call centre efficiency Channel mix improvernents Product rationalisation Pricing and b
Slide 52: ASB service and sales model - a proven success story
ASB service and sales model - a proven success story Success has been widely recognised... 5th consecutive year rated NZ's No.1 Major Bank in terms of customer satisfaction’ 3rd consecutive year rated No.1 Business Bank? Best Bank in NZ° Best Service Provider for any NZ company* ‘Best in Class Statu
Slide 53: Application of ASB service and sales system in Commonwealth Bank
Application of ASB service and sales system in Commonwealth Bank Application in Commonwealth Bank Examples of Actions Service & Sales - Refresh existing relevant processes via training and continuous Process coaching and roll out across the Group - Establish and roll-out common non-negotiable minimu
Slide 54: Our customer service will be delivered through engaged people
Our customer service will be delivered oD through engaged people Supported Through by Focus of people work stream Implement a cultural change program - networked, performance driven » Take direction from the people who serve our customers eg CEO emailbox and frontline representation on workstream re
Slide 55: Processes that are 'simply better'
that are ‘simply better’ Supported Through 4 by Focus of simplification work streams Provide faster service through improved cycle fimes eg airn to fund approved personal loans in less than 24 hours More frontline time spent serving customers through the rernoval and automation of procedures increas
Slide 56: Key value drivers for process simplification
Key value drivers for process simplification have been identified Which bank Activity Value Analysis Purchasing effectiveness & demand reduction Marketing spend effectiveness Collections effectiveness Property usage effectiveness Process improvement & consolidation with divisions Standardisation & r
Slide 57: Lessons learnt and best practice principles to execute the transformation
We are drawing on lessons learnt from previous experience and are applying best practice principles to execute the transformation 1. Full-time teamns with a tight scope and clear deliverables 2. Relentiess focus by the entire top tearm ExCo KRAs aligned to program delivery ExCo play a sponsorship ro
Slide 58: Governance structure established to minimise execution risk
A governance structure has been established to minimise execution risk For each Group division -- Strategic Delivery Ad sist” program Co-ordinated office workstreams: Divisional initiatives S Groupwide works Conmemaaaiift iii. a 58
Slide 59: Investment and Accounting Treatment
Investment and Accounting Treatment * $200m of software expenditure over the three years will be capitalised ($90m in 2004) and $260m over three years will be capitalised for branch refurbishment ($90m in 2004) * In addition, $215m of the $248m capitalised software from previous years will be expens
Slide 60: Estimated Financial Impact of Transformation Costs
Estimated Financial Impact of Transformation Costs Adjusted Cash EPS + The following transformation costs will be added back to the 2004 cash earnings when considering the dividend payment: $m Total investment spend for 2004 660 Provision for future years {at June 2004) 210 Capitalised software and
Slide 61: Impact on Annual Profit
Impact on Annual Profit (excluding all benefits and amortisation) 200 | ———* _ Software capitalised 280 | > _ Branch refurbishment 1.620 210 Provision 4,486 810 Expensed Total spend Provision for future years Capitalised amounts Normal spend Exp. previcustly capitalised software Before tax After tax
Slide 62: Dividends & Capital
Dividends & Capital + Subject to current trading conditions being maintained, we would expect the 2004 dividend per share growth to be in line with earnings per share growth, after adding back the transformation costs + We will continue to issue shares to satisfy the DRP which, subject to approvals,
Slide 63: We have a workplan for implementation over the next three years
We have a workplan for implementation over the next three years 7 12 months “7 Ju 06 - : 12 months © 7 sun 05 Today 4months Jan 04 & months don b4 Sevinasales 4 offectiveness | po cancun 7 [2 | ariciceas Presta ? L ? EE Periormance a = BB] outtre is LE] syncs F | Proozesi produei Ht | siepiticaticn
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