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
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 ape Which Bank Conmonwealth8ark
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
Slide 5: 15% growth in underlying cash profit
Overview - 15% growth in underlying cash profit Goodwill amortisation Appraisal value movement Which new Bank Shareholder investment returns * Prior to preference dividend distribution 30/06/04 $m 324 (201) 535 (152) 30/06/03 $m 322 245 168 (73) Change aa
Slide 6: Strong contributions from each business
Overview - Strong contributions from each business $m Underlying Growth of +15% A investment 3500 5 fl \ Returns Insurance ; Funds Mot. 3200 Banking Te C64 3,078 2990 2900 4 2600 4 WnB 2300 4 Incremental 2000 4 Which new Bank 1700 4 (535) 1400 4 1100 4 800 4 Underlying Underlying Cash Profit Profit
Slide 7: Another record dividend
Overview - Another record dividend Dividend (cents per share) Final dividend of 104 cps, total dividend 183 cps (+19% on 2003) = Payout ratio of 89.1% reflecting commitment to add back the WnB costs in determining the 5 2004 dividend 10 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 [ 6
Slide 8: Key shareholder ratios
Overview - Key shareholder ratios 2003 Change Shareholder Ratios™ » Earnings Per Share 203 cents +2% « Return on Equity 13.3% -0.1% » Dividends Per Share 154 cents +19% = Payout Ratio 75.9% Underlying® EPS was 237 cents (+13% v. 2003) Underlying®@) ROE was 15.1% (+1.3% v. 2003) “ Based on Cash NPAT
Slide 9: Which new Bank financial update
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 $600m » 4-6% CAGR productivity
Slide 10: Investment spend and benefits
Which new Bank financial update Year 1 investment spend and benefits Investment spend ($m) FY04 Themes Estimate* Benefits 2004 Actual ($m) Revenues Customers 270 Processes 280 People 10 Gross benefits 152 Additional (60) operating exp. Branch refurbishment Total Investment spend of $634m, below esti
Slide 11: 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 investment programme remain unchanged __ | SP°" Original Expected split of revenue and Revised expense benefits to be EvISE approximately 5
Slide 12: Expenditure - FY2004
Which new Bank financial update Expenditure —- FY2004 Investment Spend for the period (gross) 634 660 + Provision for Future Costs 208 240 - Investment Capitalised (112) (180) = Gross Which new Bank expense 730 690 - Normal project spend (200) (200) + Expensing of previously capitalised software 219
Slide 13: Underlying expenses reflect business growth
Overview - underlying expenses reflect business growth 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 Volume related increases 103 = One off c
Slide 14: Banking Highlights
Banking Highlights Total underlying banking profit $m Other 3.200 Bank = Continued strong demand for owner ~ imverest "Ome EP occupied and investment loans 3.000 Income = i 2,800 | 384 : my 2675 sgt . XPEnsEes : = Maintained position as leading 2.600 4 2a76 (209) Taxation | home loan provider and ma
Slide 15: Banking income
Banking income Banking Income: $8,256m (82% of Group Income) By income type By line of business $M % Retail Banking 4,298 52% Premium Business Services* 3,140 38% ASB + Other Asia Pacific 818 10% Total Banking Income 8,256 100% * Includes Premium Financial Services and Institutional and Business Ser
Slide 16: Banking: Productivity improving
Banking Productivity improving % 60.0 4 58.0 4 56.0 | 2.3% productivity improvement 54.0} Om 54.1 ey 52.0 | OS a 50.0 | 82.0 oe June 2006 50.8 oe Target: 48.0 | “eeu. Under 47 ® 46.0 | 44.0 : : Jun-02 Jun-03 Jun-04 ype Which Bank ConmonwealthBark 16
Slide 17: Non pricing factors make up most of NIM change
Banking - non pricing factors make up most of the NIM change Net interest margin (bps) 2.70% 7 267bps -6bps _-twps 2.60% 4 -3bps ' ia eS thy 9283p 2.50% 4 Growth in I i 1 240% 4 nontend ing Funding Asset mix Competition 230% 4 effect 2.20% 4 2.10% 4 2.00% * Interest Earning Assets ype Which Bank Con
Slide 18: Growth in lending assets
Banking +18% growth in lending assets* Lending assets in $ bn 205.9 191.3 +14% v. 2003 (49% f Dec 2003) Bank Acceptances 4+13% v. 2003 (+6% | Dec 2003) Business & Corporate +7% v. 2003 (#5% / Dec 2003) Personal +22% v. 2003 (49% } Dec 2003) Housing Jun 03 Dec 03 Jun 04 *Lending assets excludes secur
Slide 19: Home lending growth profile
Banking Home lending growth profile Origination of home loans funded 2003/2004) Growth represented by: ($bn) Loans funded Reductions Net Growth Proprietary (7 Third Party ) Data relates fo the Bank’s Australian home lending business 2003 36.9 24.9 12.0 2004 43.2 25.2 18.0 aa Which Bank Conmonweailth
Slide 20: Prudent risk provisioning
Banking Prudent risk provisioning Bad and doubtful debts expense (in $m) Continued low charge for bad debts: 0.28% 0.32% = Sound credit management 0.21% 5 Bad and 9.16% Goubtful » Good management of 0.15% Sohne + ents to outstandings 449 RWA = High % of home loans in overall 385* portfolio : 305 Ove
Slide 21: Sustained portfolio quality
Banking Sustained portfolio quality 2004 2003 Charge for Bad & Doubtful Debts $276m $305m Carga forbadg Gow Debis | ose% | 02s Gros aed Ase s24om | _s620m Specific Provisions $143m $205m General Provision $1,393m $1,325m General Provision to RWA 0.82% 0.90% *Risk Weighted Assets aa ConmonwealthGark
Slide 22: Funds Management: 18% growth in underlying profit
Funds Management 18% growth in underlying profit Volume Incremental $m Net based Which new . ‘ expense # Strong investment markets Operating (8) ‘co. underpinned revenue growth 300 + mi bani 268 » Income to average FUA ratio 250 4233 Tax | 4 maintained (21) | ; 200 4 Reduction in | |[Sholder » Focus
Slide 23: Funds Management: Growth in FUA
Funds Management +11% Growth in FUA +11% growth $m oUt » Strong turnaround in net flow 110,000 9 - position from 2003 underpinned by FirstChoice and International flows. 105,000 | Outflows driven by: « Legacy products 100,000 | ~ Fund closures Performance of flagship funds « Industry shift to platfo
Slide 24: FirstChoice v. Other retail
Funds Management FirstChoice v. Other retail Net Flows ($m) 5,000; 2003 v. 2004 = 2003 2004 ~3,000° FirstChoice / Cash First State Retail Legacy Avanteos Management Bank ConmonwealthGark 24
Slide 25: FirstChoice continues to grow rapidly
Funds Management FirstChoice continues to grow rapidly « Strong market growth Movement from single to multi- 8000 — manager 7000 + » FirstChoice Success - $7on FUA— 30 June 2004 = 8000 7 - Leading industry flows # son | « Most used platform Advisers s m 4000+ 2 Enhancements include: 3 am « Innovativ
Slide 26: Underlying Expenses/Average FUM
Underlying Expenses/Average FUM (%) Funds Management 8% productivity improvement v. June 03 % 8% productivity improvement $bn 1.00 5 r 110 0.80 4 + 100 > 3 0.60 | 90 & a Cc > 0.40 + | 80 @ 3 0.20 + 70 0.00 : : 60 Jun-02 Jun-03 Jun-04 [2 Average FUA -« Underlying Expenses/Average FUA ype Which Bank C
Slide 27: Insurance - improved operating margins
Insurance - improved operating margins and strong investment returns Australia $m = Market leader in life insurance in Australia — 14.8% = = 8% growth in risk inforce 20 premiums Improved General Insurance 1 claims ratio 46 8 129 z Tight expense controls — 10 expenses flat 12 65 Ba = Strong improvem
Slide 28: Insurance Operating Expenses/Average Inforce Premiums
Operating Expenses/ Insurance 9% productivity improvement v. June 03 Average Inforce Premiums (%) % sg $m 9% productivity improvement 70 - r 1200 60 + z + 1100 § 50 + o 3 40 - F 1000 8 -) oC 30 | L900 3. 5 20 - eB + 800 § 10 - ~ 0 : 700 Jun-02 Jun-03 Jun-04 Average Inforce Premiums = Operating Expen
Slide 29: Australian Insurance business
Insurance Australian Insurance business Distribution by Channel* Third Party Network & Direct* * Network - Internal Bank Channels Direct - Telemarketing & Phone * Excludes Group Risk and Masterfunds Product Sales Individual General Group Risk aa ConmonwealthGark 29
Slide 30: Value of Insurance and Fund Management Business
Value of Insurance and Fund Management Business increased $201m $m 10000 5 9000 4 8,546 8000 4 Profit ; 519 . Increase in M Capital Value ovements 7000 5 (864) 201 6000 4 5000 T T T T — Directors’ Directors’ Valuation Valuation Jun-03 Jun-04 ype Which Bank Conmonwealth Bark 30
Slide 31: Active Capital Management
Active Capital Management « Creating capital flexibility - executed initiatives Tier 1 Hybrid US$550m (A$832m) PERLS Il $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- Moodys Aa3 F
Slide 32: Capital ratios remain strong
Capital ratios remain strong 11% 4 10% 5 9% { 8% | T% | 6% | 5% | 4% | 3% 4 2% 4 1% 4 0% Jun 2002 © Tier 1 Capital Dec 2002 “" Tier 2 Capital Jun 2003 Dec 2003 dun 2004 = Adjusted Common Equity ™ Target Range aa ConmonwealthGark 32
Slide 33: Generation and use of Tier capital
Generation and use of Tier 1 capital 9.0% 4 (1.42) —o Effect of add-back of 8.5% + transformation costs 8.0% | 027 (0.31) 0.93 ] : (0.03) 75% 4 7.43 (0.93) | / 7.0% | 6.96 | 0.37 6.5% | a | 6.0% | 5.5% Tier 4 Cash Ord. and Growthin DRP Hybrid SPP Buyback Currency Tier 1 Jun 2003 Earnings Pref. RWA $
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 ConmonwealthGark 34
Slide 35: Supplementary material
Supplementary material ype Which Bank ConmonwealthGark 35
Slide 36: Strong banking market share positions
Market Shares Strong banking market share positions Banking Market Shares June Dec Jun 2004 «©2003 2003+ Retail and Business Deposits? [77 Credit Cards 7 Transaction Services (commercial) Home Loans EEE Business Lending New Zealand Lending || New Zealand Deposits’ Asset Finance’ [Se ee US rua 0% 10%
Slide 37: Funds Management Market Shares
Market shares Funds Management Funds Management Market Shares June Dec June 2004 20033 2003 Managed Investments’ New Zealand Managed Investments Notes: 0% 10% 20% (1) Retail Only (2} May 2004 Data “ ae reported a jhe Des-2008 profit announcement Source: Plan for Life, Fund Source Research yee Which
Slide 38: Life Insurance Market Shares
Market shares Life Insurance Life Insurance Market Shares June Dec Jun 2004 2003° 20035 New Zealand’ Australia Hong Kong 0% 10% Notes: (1} In-force Business (2} September Data (3) From December 2003 Profit Announcement document 20% 30% 40% Source: 1S! Statistics, Plan for Life, HK Insurance Associat
Slide 39: Total income and NPAT
Overview of results Total income and NPAT Group total Income: $10,092m Group Underlying Cash NPAT: $3,078m Banking [2] Insurance Funds management Income exiudes investment returns on shareholders funds and any vaiuation appraisal uplift or decrease poe Which Bank ConmonweailthBank 39
Slide 40: $113bn in Australian Home lending
Banking $113bn in Australian Home lending* Product Balances Outstanding Balances by Loan Type I Owner occupied Variable Investment Home . FB oan 7] Fixed Rate ine of credit Honeymoon * Data relates fo the Bank’s Australian home lending business gross of securitisation aa Which Bank ConmonweailthBank
Slide 41: The Bank remains well provisioned
The Bank remains well provisioned 2,100 ) * Includes Colonial r 500 1,800 4 J too 1,500 4 + 350 a 1,200 4 p 300 5° p 250 % 3 900 4 L 200 a 600 4 P 150 r 100 9009 yi FETT TET ET ED EDEL PL ET ELT i) fa ay pep se HLL LETT ETT EET Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun 95 96 97 98 99 00* o1* 02 03 04
Slide 42: Top exposures to Corporates and quality of exposure
S&P Rating or Equivalent Banking - Top 20 exposures to Corporates and quality of total exposure Quality of total exposure: Top 20 Exposures to Corporates ($m) There is security over 79% of the non- 100%, 80% | 60% 40% 4 0 100 200 300 400 500 600 700 800 900 10001100 (Top 20 exposures — excludes fina
Slide 43: 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: 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 New Technology Zealand Telcos 13% Energy Leasing Construction Automobile 3% International 13% Other . Commercial Finance 10% 8
Slide 45: A well diversified portfolio by industry
Banking A well diversified portfolio by industry Total Outstandings* $138.6 bn Telecommunication Air Transport 0.5% 9.8% Construction 2.0% Agriculture 5.7% Technology 2! 0.2% Energy 24% Other C&l 32.9% Motor Vahicle and Part Manufacturing 0.3% 43.6% Leasing 6.3% Government 5.1% * Represents balances
Slide 46: Credit Exposure - Agriculture Sector
Banking Credit Exposure - Agriculture Sector Total exposure: $8,963m 10,000 37 AAA toA- 0 BBB+ to BEB,| m 88+ to BE <8. Credit Exposure is measured aa the higher of fmt or credit equivalent Australia (11% investment grade) balance for committed exposures and credit equivalent balance for encormitted
Slide 47: Credit Exposure - Aviation Sector
Banking Credit Exposure - Aviation Sector Total exposure: $1,676m $m 255 DAAA to A- O BBB+ to BBB- m BB+ to BB- @ <BB- 800 4,163 200 | | oJ [Australia (89% investment grade) EF] New Zealand (99% investment grade) [Europe (27% investment grade) Crest Exposure is measured as the higher of Hit or credi
Slide 48: Credit Exposure - Energy Sector
Banking Credit Exposure - Energy Sector Total exposure: $4,453m 0.1% 1,286 DAA A 0 BBS+ to BBB. 2500 | | BBHoBB- 2,000 2418 o<- Australia (77% investment grade) New Zealand (100% investment grade) Asia (93% investment grade) Europe (100% investment grade) Americas (100% investment grade) Credit Expo
Slide 49: Credit Exposure - Telcos Sector
Banking Credit Exposure - Telcos Sector 233 451 Total exposure: $786m OAAA to A OBEB+ to BBB- @ BB+ to BB- @ <BB- Crest Exposure is measured as the higher of Hit or credit equivalent balance for committed exposures and credit equivalent balance for uncommitted exposures 1% Australia (75% investment
Slide 50: Asset class breakdown
Funds Management Asset class breakdown FUA: $109.8bn Externally Other as at June 2004 Managed ASB sy, % 4% AG Australian equities 22% Fixed income based 52% Equities based 39% ConmonwealthGark
Slide 51: 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. OJun-03 YTD Actual MiJun-04 YTD Actual 80.0% 4 70.0% + 60.0% + 50.0% | 40.0% | 30.0% 20.0% + 10.0% + 0.0% 69.9% 58.8% 50.9% 52.1% General Insurance Life Insurance * Claims ratio = claims expense as a % o
Slide 53: International Accounting Standards
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