Commonwealth Bank Of Australia · ASX:CBA
Commonwealth Bank Of Australia — Investor Day (October 2004)
51 slides from Commonwealth Bank Of Australia's investor day presentation, Oct 19, 2004
Slide 1: Investor Half Day
Investor Half Day Investment and Insurance Services Division 19 October 2004 Which Bank ConmonwealthBank
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, 19 October 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 t
Slide 3: Discussion Outline
Discussion Outline « John Pearce Asset Management and Platform Chief Executive Officer Overview Colonial First State » Peter Beck Insurance Overview Managing Director Comminsure # Michael Cant Financial Performance Chief Financial Officer Investment & Insurance Services » Stuart Grimshaw Conclusion
Slide 4: Market trends shaping the wealth management industry
Market trends shaping the wealth management industry Funds Management: Decline of retail and the rise of platform Margin squeeze = Slowing, but healthy projected growth in funds management w Rising popularity of blend and model portfolios Insurance: » Strong long-term growth » Rational approach to p
Slide 5: Our business model involves competing across all elements of the value chain
Our business model involves competing across all elements of the value chain IIS products and services by value chain element General : |[Dealer group — Direct Insurance || ss |fservices : ee ee Research SOS SS - dl Master. Trust Compliance : Lite _|[rFirstchoice |] = Technology jig Insurance || | a
Slide 6: Our strategy is to foster a leading wealth management business
Our strategy is to foster a leading wealth management business Distributio Continue to strengthen and improve our multi-channel distribution capabilities Focus on cost effective ways to deliver investment and insurance services Build market leading platform capabilities and leverage the scale and ef
Slide 7: Recent achievements and current focus
Recent achievements and current focus Centre for Adviser Development Launch of Enterprise?" Increased productivity and number of planners lS organisational restructure Legacy rationalisation program on target Cost to income ratio improvement Market leading platform inflows through FirstChoice Growth
Slide 8: Distribution challenges and opportunities
Millions Distribution challenges and opportunities Retirement Savings Gap by Age August 2003 wo ai Qo ° o j] 1 16% 14% 12% 10% 8% 6% 4% 2% 0% Challenges/ Opportunities: # Ageing population with inadequate savings Choice for investors and advisers Growth in DIY products # Regulatory environment: = Qu
Slide 9: We are continually strengthening our distribution footprint
We are continually strengthening our distribution footprint Centre for Adviser Development Over 200 trained Feedback very positive « Launch of Enterprise!?? Opportunity in the market to offer advice, platform and dealership services to HNW practices. » Increased productivity of network advisers 26%
Slide 10: Legacy system rationalisation is on track
Legacy system rationalisation is on track Legacy Funds Management Systems Rationalisation (2002 — 2005) 2002 2003 2004 2005 11 as at Oct 04 Source: Interna! Projections. Policy Administration Systems rationalisation by calendar year end Which Bank ConmonwealthBank 10
Slide 11: Discussion Outline
Discussion Outline » Stuart Grimshaw Key Achievements, Group Executive Strategic Direction and Investment & Insurance Services Distribution Overview » Peter Beck Insurance Overview Managing Director Comminsure # Michael Cant Financial Performance Chief Financial Officer Investment & Insurance Servic
Slide 12: Outline
Outline = The value chain = Asset management Platforms ConmonwealthBank 12
Slide 13: The only segment with universal downward pressure in margins is platforms
The only segment with universal downward pressure in margins is platforms / administration. Customer Pays Revenue 49 _ 100bps 50-120bps 40-100bps 200bps Margins Margin Trends Drivers ConmonwealthBank 13
Slide 14: Our diversified asset management base provides growth opportunities
Our diversified asset management base provides growth opportunities. High Growth Potential Mic Low _ a e hy Growth t Potential Low High Margin Margin Source: CBA Intemal Analysis and Market Forecasts ConmonwealthBank 44
Slide 15: Australian Equities (GDP-Plus) is now only 17% of FUA
Australian Equities (GDP-Plus) is now only 17% of FUA FUA: $109.8bn Externally as at June 2004 Nanaged Other ASB GOP Plus Australian equities .. Core Inciex Which Bank ConmonwealthBark 15
Slide 16: Australian equity GDP+ investment performance in perspective
Australian equity GDP+ investment performance in perspective. Year by year out-performance Source: Wholesale imputation Fund, excess performance before fees and taxes. Year to 30 June. Which Bank ConmonwealthBark 16
Slide 17: Investment performance has been generally strong over the medium term
Investment performance has been generally strong over the medium term. : ae ‘Performance Vs Benchmark Performance Vs Asset Class a a yr) Benchmark (3 yr) Fixed Interest Global Credit . Australian Equities GDP+ Large Cap Australian Equities GDP+ Small Cap Australian Equities Core Large Cap... Austrat
Slide 18: Platform strategy
Platform strategy White-label custodial wrap solution for wholesale platform market - ‘feature-rich’ for high net-worth market | Non custodial masterfund for “Mass Market Retail” __| Value proposition: |. Best value for money Great service Enough choice Which Bank ConmonwealthBark 18
Slide 19: The Value Proposition - FirstChoice vs mastertrusts
The Value Proposition - FirstChoice vs mastertrusts FirstChoice vs mastertrusts 4.0% 7 MLC Masterkey Custom Typical Australian Equities MER 0.85% 3.5% - Equalised advice fee 0.6% 3 on 3.0% 7 2 3 iy £ 2.5% 7 Summit ...... Ww Navi jator, 2.0% - BT Essentials / Skandia / Perpetual / Asgard Elements Fir
Slide 20: The Value Proposition - FirstChoice vs wraps
The Value Proposition - FirstChoice vs wraps FirstChoice vs wraps Typical Australian Equities MER 0.85% 2.4% 7 Asgard E-Wrap | Equalised advice fee 0.6% 2.3% + BT Wrap tem gy 22% + 2 Macquarie Wrap o 2.1% 7 ; 2 a 3 2.0% 4 = WwW 1.9% 4 FirstChoice 1.8% 74 t?% T T T T T T T T T m1 Fs Fs FSF Fr F FT FT
Slide 21: How can we offer lower fees and still earn healthy margins?
How can we offer lower fees and still earn healthy margins? a Simple model catering to mass market » Manufacturing margin capture « Ability to leverage scale and administration efficiency « Mandate structure Which Bank ConmonwealthBak 4 21
Slide 22: FirstChoice: well diversified support and healthy CFS flows
FirstChoice: well diversified support and healthy CFS flows. Inflows: Managing the FUM: FirstChoice Split by Channel CBA Aligned Advisers External 17% 30% Network 44% FirstChoice Split internal vs External External 60% Source: intemal data; channel split based on flows for 6 months ended 31 August 2
Slide 23: Boutique alliance strategy has delivered strong FUM growth
Boutique alliance strategy has delivered strong FUM growth. Colonial First State 452 Capital - Funds Under Management oO Red 2 2 2 oO ese} 2 ed oO 2 2 t oa t st s + st s 2 4 2 2 Z 2 2 ge 2? 2 gz 2 2 4 9 id g 2 2 e & Q 3 5 S & s D> 2. S 3 o fot Q 3 5 eS & s > o § #@ =¢ € 5S 835 7 2 86 9 2 §& S$ #& &
Slide 24: Conclusion - in a tough environment, we are very well positioned
Conclusion - in a tough environment, we are very well positioned. « Strong, well diversified, asset management capability with growth opportunities « 70% of sector funds outperformed their 3 year benchmark | = Combination of Avanteos and FirstChoice provides comprehensive admin capability « Superior
Slide 25: Discussion Outline
Discussion Outline « Stuart Grimshaw Key Achievements, Group Executive Strategic Direction and Investment & Insurance Services Distribution Overview « John Pearce Asset Management and Platform Chief Executive Officer Overview Colonial First State Michael Cant Financial Performance Chief Financial Of
Slide 26: Agenda
Agenda # Industry Trends and Issues » Achievements = Opportunities Which Bank ConmonwealthBank 4 26
Slide 27: In the 03/04 year the Insurance business
In the 03/04 year the Insurance business: # Reduced Costs & Increased Profit « Improved Service Insurance represents an opportunity to: a Materially expand the Bank’s business and support growth « Deepen relationships / aid retention in the Bank’s core banking portfolio « Leverage distribution infra
Slide 28: The insurance industry outlook has improved as predicted last year
The insurance industry outlook has improved as predicted last year Industry Outlook Implications The “Winners” A maturing industry: + Favourable long term growth + Commoditised products + Lower investment returns + Competitive and consolidating + Increased regulatory focus + Atime of ‘surprises’: Se
Slide 29: Achievements
Achievements Claims Cost (H&C) Staff Numbers 80% , Full Time FTE Head Count 70% 80% = 50% ro 8 40% s a 30% 20% 10% 0% + 00/01 0102 0203 03/04 04/05 DS? od gk oak Qk * PSH? > DE SH GH Se sh Year Sr ol Fs gh LS Qe ws y wes So Res Improvement in Service levels and strong staff engagement: Internal serv
Slide 30: Insurance Inforce Premiums (Australia) continue to grow
Insurance Inforce Premiums (Australia) continue to grow Continued growth in network channel Strong GI premium growth with further upside Price increases on income protection impacted individual life sales Good growth in mastertrust segment Multiple product holders demonstrate increase retention acro
Slide 31: Achievements - Annuity Sales
Achievements - Annuity Sales - Leveraging a return to rational pricing and market opportunities. Monthly Annuity Sales investor AWARDS FOR EXCELLENCE i FINANCIAL SERVICES : 00: 420000 f 400000 | 80000 | 60000 Monthly Sales ($) 40000 20000 Sep- Nov- Jan- Mar- May- Jule Sep. Nov- Jan- Mar- May- 02 02
Slide 32: How is improvement being delivered
How is improvement being delivered Q Restructure to provide Q_ Simplified Life Q Fineos - Work Flow end to end service Insurance a Genesys - Call Centre Q Cultural Measurement Underwriting ; @ Dialogue - Document a Reward & recognition Q Quote and Fulfil in all Management @ Leadership Branches Devel
Slide 33: Significant Revenue Opportunities - Product Penetration
Significant Revenue Opportunities - Product Penetration pee 100% 80% = 8 60% g a 40% 3 A = 20% Motor ] Contents I Building Health Term Life Disability Trauma ConmonwealthBank 33
Slide 34: Insurance Cross Sell Opportunity
Insurance Cross Sell Opportunity * Home Loan Cross Sell - 36% * Credit Card Cross Sell - 17% * Managed Funds Cross Sell - 17% * Savings & Transaction Cross Sell - 11% Which Bank ConmonwealthBark 34
Slide 35: Conclusion
Conclusion * Significant progress was made in the 2003/ 2004 year * Insurance represents a significant opportunity for the Group going forward ConmonwealthBank 35
Slide 36: Discussion Outline
Discussion Outline » Stuart Grimshaw Group Executive Investment & Insurance Services » John Pearce Chief Executive Officer Colonial First State » Peter Beck Managing Director Comminsure Key Achievements, Strategic Direction and Distribution Overview Asset Management and Platform Overview Insurance O
Slide 37: 18% growth in underlying profit for our Funds Management businesses
We saw an 18% growth in underlying profit for our Funds Management businesses Volume Incremental aS et A Strong investment markets $m Operating expense Which now underpinned revenue growth Incom 6) (26) 300 4 mn Ez Income to average FUA ratio 268 maintained 250 7233 | Tax | 4 (24) | | Focus on tight
Slide 38: Significant improvement in Cost to Income Ratio
Significant improvement in Cost to Income Ratio Leverage to growing FUA Back-office efficiencies Support function rationalisation Rationalisation of UK product range Product rationalisation and system migration 80 5 60 5 40 2003 2004 «-- Operating Expenses / Operating Income + Other Operating Expens
Slide 39: Margins declined slightly
Margins declined slightly Run off of higher margin legacy business Shift in mix of retail business toward platforms Increased payments to distributors Increase in margins in UK business Eamings/Average FUA (%) ° D n 2 ns L ° nN n o 1.11 r 110 + 100 + 90 + 80 + 70 Average FUA ~#- Operating Income/Ave
Slide 40: FirstChoice margins are attractive, albeit less than our other retail products
FirstChoice margins are attractive, albeit less than our other retail products Revenue - net of external manager costs FirstChoice Other Retail Wholesale Manufacturing Margin & Commissions Which Bank ConmonwealthBark
Slide 41: Strong turnaround in FUA with 11% growth
Strong turnaround in FUA with 11% growth 2 Strong turnaround in net flow position from 2003 underpinned by FirstChoice and International flows. = Outflows driven by: Industry shift away from traditional balanced funds Legacy products « Fund closures - Performance of flagship funds « Industry shift t
Slide 42: Across the industry investment returns have improved and flows have responded
Across the industry investment returns have improved and flows have responded, but not to previous levels. Net flows ($b) 44 r 40% r 30% + 20% + 10% r -10% © -20% Jun-94 Jun-95 Jun-96 Jun-97 Jun-98 Jun-99 Jun-00 Jun-O01 Jun-02 Jun-03 Jun-04 Gila industry Net Flows —— Industry investment Returns UINj
Slide 43: Net Flows show turnaround in 2004
Net Flows show turnaround in 2004 Net Flows ($m) 5,000 4 2003 v. 2004 Jun-03 @ Jun-04 a -4,000 | First Choicef Cash Wholesale Property International —Total Avanteos Management Other Retail Which Bank ConmonwealthBark
Slide 44: We are gaining market share in the platform market
We are gaining market share in the platform market Market Share 18% 16% 14% 12% 10% 8% 6% Jur-03 CBA Retail Sep-03 Mar-04 Jun-04 —l— CBA Platforms Source: Plan for Life, Fund Source Research CommnonwealthBank 44
Slide 45: We have experienced a very good June quarter
We have experienced a very good June quarter CBA Net Flows Sep-03 Dec-03 Mar-04 Jun-04 Sap-03 Dec-03 Mar-04 Jun-04 Qtr Qtr Qtr Qtr Qtr Qtr Qtr Qtr FaCBA Retail Net Flows BICBA Platforms Net Flows Source: Plan for Life, Fund Source Research ConmonwealthBank 45
Slide 46: Insurance - improved operating margins and strong investment returns
Insurance - improved operating margins and strong investment returns Australia Market leader in life $m insurance in Australia = 8% growth in risk inforce 2504 premiums Improved General Insurance 2004 101 (11) claimsratio = | FF] 6a ] w Tight expense controls — 150-4 expenses flat 2 Strong improveme
Slide 47: Business Valuation
Business Valuation $m 16.2 x earnings multiple Uplift of $201m higher FUA 9009 | 10000 8,546 Increase in Vaiue improved lapses 8000 lower costs 7000 4 More conservative future sales assumption 6000 5 Profit 519 201 8,402 Capital Movements (864) Capital Reduction 5000 change in asset Directors’ g Val
Slide 48: Summary
Summary « Strong profit result Reduced capital « Growth in overall business valuation Which Bank ConmonwealthBank 48
Slide 49: Discussion Outline
Discussion Outline » Stuart Grimshaw Group Executive Investment & Insurance Services » John Pearce Chief Executive Officer Colonial First State » Peter Beck Managing Director Comminsure « Michael Cant Chief Financial Officer Investment & Insurance Services Key Achievements, Strategic Direction and D
Slide 50: Significant opportunities to achieve strong growth
Significant opportunities to achieve strong growth _ Improved market returns Superannuation guarantee Continuing product expansion and innovation Distribution capacity and productivity improvements Rationalisation and further efficiency gains Capital efficiency improvements ConmonwealthBank 50
Slide 51: Investor Half Day
Investor Half Day Investment and Insurance Services Division 19 October 2004 Which Bank ConmonwealthBank
Commonwealth Bank of Australia — Investor Day (October 2004) on 6ix