Investor Roadshow Presentation: David Murray
Transcript of Investor Roadshow Presentation: David Murray
November 2002 Investor Roadshow
David Murray
Chief Executive Officer
Stuart Grimshaw
Chief Financial Officer
www.commbank.com.au
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The material that follows is a presentation of general background information about the Bank’s activities current at the date of the presentation, 4 November 2002. 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 investors or potential investors and does not take into account the investment objectives, financial situation or needs of any particular investor. These should be considered, with or without professional advice when deciding if an investment is appropriate.
A full colour version of this presentation is available on the News & Information page of the Commonwealth Bank’s Shareholder Centre website http://shareholders.commbank.com.au/display
Disclaimer
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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.”
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Agenda
The Australian Economy and recent Equity Market Performance
Commonwealth Bank: Track Record, Differentiators and
Growth Drivers
How is Commonwealth Bank Positioned Against theCurrent Outlook?
The Australian Economy and recent Equity Market Performance
6
Australia’s Economy has been Resilient
%%
%
Source: Commonwealth Research
V A L U E O F R E T A I LT R A D E
0
5
1 0
1 5
J u l -9 5 J u l -9 7 J u l -9 9 J u l -0 1
0
5
1 0
1 5
% p a% p a
R E L A T IV E G D P G R O W T H(a n n u a l % c h a n g e )
-3
0
3
6
9
S e p - 8 7 S e p - 9 0 S e p - 9 3 S e p - 9 6 S e p - 9 9 S e p - 0 2
%
U S
A u s t ra l ia
G D P(a n n u a l % ch a n g e )
-2
0
2
4
6
S e p -8 8 S e p -9 1 S e p -9 4 S e p -9 7 S e p -0 0
%
L o n g -ru na ve ra g e
P R O F I T S( % o f G D P )
8
1 2
1 6
2 0
S e p -9 0 S e p -9 3 S e p -9 6 S e p -9 9 S e p -0 2
C o rp o ra tep ro fi ts *
(p r i v n o n - fa rm )
S m a l l b u s in e s sin c o m e * * % G D P ( fc )
%
7
Interest Rates & Credit Growth
Source: Commonwealth Research
CREDIT(3 month-ended annual rates)
-10
0
10
20
30
Jul-97Jul-98Jul-99Jul-00Jul-01Jul-02
Business HousingOther personal
%THE CASH RATE
4
5
6
7
Jul-98 Jul-99 Jul-00 Jul-01 Jul-02
CBA (f)
Market (f)(Jun ‘02)
Market (f)(Oct ‘02)
8
0
2
4
6
Jul-86 Jul-89 Jul-92 Jul-95 Jul-98 Jul-01
0
15
30
45$bn '000
Owner-occupied(ex refinance)(rhs)
Investor(lhs)
50
100
150
200
250
Sep-86 Sep-90 Sep-94 Sep-98 Sep-02
4
6
8
10
12
14
16
18
Mortgage rate (rhs)
All Ords (lhs)
House Prices* (lhs)
Housing Market
Source: Commonwealth Research
%Index
*CBA Est. House Price Index
EQUITIES AND HOUSE PRICES (RELATIVE PERFORMANCE)
HOUSING LOAN APPROVALS
Compound Annual Growth Rate: 1986-2002 2000-2002All Ordinaries Index: 6.2% -3.5% House Prices: 10.1% 20.5%
9
Housing Market
Brisbane
Sydney
Melbourne
Darwin
Perth
Adelaide
Hobart
Canberra
House Price as Multiple of Gross Yearly AWE*
Source: CBA Research
AWE: average weekly earnings
Sep-02 Sep-99 ChangeSydney 10.6 8.5 25%Melbourne 6.7 5.3 26%Brisbane 6.0 4.8 25%Perth 5.0 4.6 9%Adelaide 5.0 3.8 32%Hobart 3.7 3.5 6%Canberra 5.6 4.5 24%Darwin 5.6 5.1 10%Total Australia 7.6 6.2 23%
10
Housing Market
Source: Commonwealth Research, unless otherwise marked
$’00
0 %pa
%pa
Source: Residex
*assumes principal repayment ratio fixed at 1997/98 level
5
10
15
20
<30 31-50 51-70 71-100 >1005
10
15
20
% %
Income ($'000pa)
DEBT REPAYMENT LEVELS(% of h/hold income, Mar'02)
Source: Melbourne Institute
HOUSE PRICES
0
100
200
300
400
Mar-60 Mar-68 Mar-76 Mar-84 Mar-92 Mar-00
-20
0
20
40
60
Realgrow th (rhs)
Level(lhs)
SYDNEY HOUSE PRICES(deflated by the CPI)
-40
-20
0
20
40
60
190019121924193619481960197219841996
QI-QIII 2002 at annual rate
90th percentile
PRINCIPAL REPAYMENTS
0
10
20
30
Sep-97 Sep-99 Sep-01
0
4
8
12
Cumulative overpayment of principal*
(rhs)
Principal(% of motgage
payment) (lhs)
11
Australian Equity Market Performance
Source: Deutsche Bank
As at close of business 15 October, 2002As at close of business 15 October, 2002
World Equity Market Performance(US$ Currency adjusted YTD%)
-6%-11% -14% -15% -17% -18%
-26%
-34% -34%
-62%-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
Indices
YT
D P
erfo
rman
ce
12
Australian Banks - Credit Quality
BELGIUM
GERMANY
AUSTRALIA
NORWAY
FRANCEEURO RETAIL
DENMARK
EURO WHOLESALE
EURO INTL
ITALY
SPAIN
PORTUGAL
US FIDUCIARY/TRUST
UK
US MONEY CENTERS
US MID CAP REG
US LARGE CAP REG
SWEDEN
CANADA
SWISS
SINGAPORE
HK40
60
80
100
120
140
160
180
200
0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5
2002E Median Nonperforming Loans/Loans (%)
20
02
E M
ed
ian
Lo
an
Lo
ss
Re
se
rve
s/N
on
Pe
rfo
rmin
g L
oa
ns
(%
)
Developed Markets Median LLR/NPLs 100%
Developed Markets Median NPL/Loans 1.7%
Source: Merrill Lynch Global Banks Team
Global Asset Quality Map - Selected Regions/Segments (2002E)
13
Australian Banks - Shareholder Value Performance
1
312
25
CBA ANZWBC NAB
Ind
ex
Source: Oliver Wyman & Co Shareholder Performance Index, 2002. Period covered by index 1 Jan 1997 - 31 Dec 2001
Global Five Year Shareholder Performance Index
0
50
100
150
200
250
300
Commonwealth Bank:
Our Track Record
Our Differentiators and Growth Drivers
15
Recent Result Highlights Solid Earnings Growth
Reported Profit up 10.7% to $2,655m
Cash Profit up 10.6% to $2,501m
Cash EPS up 10.1% to $1.97
Costs steady year on year
Improved productivity and cost to income ratio
High dividend payout ratio relative to peers
Capital position remains strong
Credit Quality and Provisioning remains strong
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Net Profit*
* Net Profit after tax and outside equity interest - cash basis. Excludes appraisal value uplift and goodwill amortisation.
1,109 1,153
$mill
ion
1,1921,309
Full Year = 2,262 Full Year = 2,501
875 918 9751092
156164
12197
7871 96
120
0
200
400
600
800
1,000
1,200
1,400
Dec 2000 Jun 2001 Dec 2001 Jun-02
Banking Life & Super Funds Management
17
ROE and EPS
Dec 00 Jun 01 Dec 01 Jun 02
9488
91
103
12.46%13.10% 13.14%
14.61%
0
10
20
30
40
50
60
70
80
90
100
110
EPS
0%
5%
10%
15%
20%
25%
ROE
Earnings per share - cash basis ROE - cash basis
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Dividend Growth
20 20 24
36 3845 46 49
58 6168
20 22
36
4652
57 58
66
75
82
72
0
25
50
75
100
125
150
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Ce
nts
0
10
20
30
40
50
60
70
80
90
100
%
First Half Second Half Payout Ratio
19
Asset Quality Overview
First Half Second Half
Charge for Bad & Doubtful Debts (6 months) $290m $159m
Charge for Bad & Doubtful Debts to RWA(annualised)
0.42% 0.23%
Impaired Assets (net of interest reserved) $983m $884m
Specific Provisions $309m $270m
General Provision $1,334m $1,356m
General Provision to RWA 0.96% 0.96%
20
Current Operating Outlook 2002-2003
Core business remains sound
Equity market volatility has continued in the first quarter of 2003
Additional costs of governance to be included in first half result:
expensing of employee option plans
restructuring provisions taken above the line
Commonwealth Bank: Differentiators
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Segmentation: Aligned Domestic Structure with Customer Needs
Retail BankingServices
PremiumFinancialServices
Investment &InsuranceServices
Institutional &BusinessServices
CustomerGroup
Personalbankingcustomers,Small businessbankingcustomers
Premium clientsincludingprofessionalsand business
Agents, Brokers,Financial Advisers
Institutional,Corporate,Commercialbusinesscustomers
Channels Branch, Ezy-Banking, ATM,EFTPOS,Phone, On-line,Mortgagebrokers
Relationshipmanagers,Premiuminvestmentcentres, phone,on-line.
Agents, Branches,Brokers, FinancialAdvisers, Premiuminvestment centres,DirectDealerships,Institutional Clients
Relationshipmanagers,Business centres
Support Finance, Risk Management, Human Resources, Strategy, Technology, Legal, Secretariat
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Jun 2001 Dec 2001 Jun 2002
Home Loans^ 20.4% 20.1% 20.1% (Residentially Secured)
Credit Cards 21.4% 21.4% 21.6%
Retail Deposits^ 24.0% 24.1% 24.2%
Retail FUM (Plan for Life) 16.1% 16.1% 15.7%
Superannuation/Annuities 16.3% 16.4% 16.4%
Retail Broking 9.0% 8.5% 9.2%
Inforce Premiums 14.4% 14.5% 14.4%
^ Due to delays in implementing new APRA reporting methodology, no market share data has been available since March 2002.
Australian Market Share
Scale : Strong Market Share Positioning
Rank
1
1
1
1
1
2
2
*
*
* March 2002 data
*
*
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Australia’s Most Accessible Bank Over 146m DirectBanking calls
Almost 2m registered NetBank users
Around 126,000 EFTPOS terminals
Over 10,000 third party advisers, brokers and agents
Around 4,000 ATMs
Nearly 4,000 postal and private agencies
Over 1,000 branches
Over 700 EzyBanking store locations
Around 700 personal lenders
Over 700 financial planners
Around 200 mobile bankers
Over 70 business banking centres
13 premium banking centres
Customer Choice
Bra
nch
es
ATM
s
EFTPOS
Agencies
3rd
Par
ty
Premium
Banking
EzyBanking
NetB
ank
Business Banking
Direct
Banki
ng
Mobile
Banking
Financial Planners
Per
son
al
Len
der
s
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Brand: We Have More Relationships Than Any Other Financial Institution
Source: Research International, April 2002
Popularity of Australian Financial Institutions….
* Customers under 25 years of age^ Excludes Youth customers
39 40
21
14
27
22
42
53
0
10
20
30
40
50
60
Overall Youth* Premium Retail^
%
NAB Group ANZ Group CBA Group Westpac Group St George Group
26
Brand: We Achieve Consistently High Ratings from Retail Customers
Source: Research International Brand Monitor
Average across all brand attributes for CBA Vs average of ANZ, NAB and Westpac%
• In touch with its customers
• Is leading the way
• Is doing new and different things
• Has knowledgable and competent staff
• Has friendly and reliable staff
0
5
1 0
1 5
2 0
2 5
3 0
3 5
4 0
J a n'0 1
M a r M a y J u l S e p N o v J a n' 0 2
M a r M a y J u l
C B A O t h e r M a jo r B a n k s
27
Strong Corporate Governance Policies
CEO is the only Executive Director
Roles of CEO and Chairman separate
Limits on Board members’ terms of office
Nominations Committee establish criteria for Board appointment
Board induction, continuing education and succession planning
Annual assessment of performance
Audit Committee independence
Limits placed on share trading
Options eliminated from executive remuneration
Closure of Directors’ retirement scheme
Policy that covers non-audit work conducted by External Auditor
Rotation of External Audit Partner
Commonwealth Bank: Growth Drivers
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Established in All Components of the Wealth Management Value Chain
Investment Products
Sales Teams / BDMs
CommInsure
Sales Teams / BDMs
Retail Banking Services (Branch Network)
Third PartyPremiumFinancial Services
Institutional&
Business Services
OnlineDirect(Mail &
Telemarketing)
Customers
Commonwealth Bank Retail Distribution Channels (Sales & Advice)
Product Manufacturer
Banking Products
Sales Teams
Third Party
Non Commonwealth Bank Channels
30
Brand - Colonial First State
0%
5%
10%
15%
20%
25%
7.30
7.45
7.60
7.75
7.90
8.05
8.20
8.35
0%
20%
40%
60%
80%
100%
34%
36%
38%
40%
42%
44%
AMP
AMP
AMP
BTColonial
or Colonial
First State
Colonial First State
AXA
Colonial First State
ING
Consumer Brand Awareness - Unaided
3
Consumer Brand Awareness - Total
Consumer Purchase Intention
2
2
Adviser Brand Awareness - Overall Opinion of Organisation
Colonial First State
Platinum
1
Perpetual
Source: Consumer Charts - Newspoll June 2002; Source: Adviser Chart - ASSIRT Service Level Survey 2002
31
29 28
2731 33 33
1723
24 26 25
2722
181921
0
20
40
60
80
100
120
Dec 2000 Jun 2001 Dec 2001 Jun 2002
$bill
ions
Australian Retail Funds Australian Wholesale Funds
International Funds Internal Life Assets
Average FUM
Funds Under Management
$103bn
32
Innovation through FirstChoice Masterfund Product
You and your Financial Adviser
Colonial First State FirstChoice
Your financial future
Structure
Value
Simplicity
Service
Investments PensionEmployerSuper
PersonalSuper
33
Premium and Business Opportunity
Business (Middle Market)
Premium Customers
Source : Commonwealth Bank illustration
Current market share
Natural market share
Current number of premium customers
Potential number of premium customers
34
Premium: A Differentiated Business Model
BankingPlatform
BrokingPlatform
Borrowing Services
Lending Services
Transactional Banking
Advisory Services
Direct Investment
Indirect Investment
Debt Products
Equity Products
Personal Banker
Commercial Banker
Investment/Equities Expert
Event BasedAdviser
InsuranceExpert
Client
Primary Relationship ManagerSecondary Relationship Manager & specialised advice
35
Business: Increasing Cross-sell
Corporate Segment Example Bundled Products Example
26%
Working Capital
Services
26% of corporate clients use products from all three areas
Financial Markets
Corporate Finance
Business Banking
Financial Markets
Working Capital
Services
Interest rate risk managementFX productsInvestments
Bill financingCash funded loansOverdraftsTransaction services
36
Productivity: Focus on Efficiency
Remove all remaining back-office functions from branches
Streamline home loan processes
Streamline Business Banking processes
Rationalise investment products & systems
Organisational design
...to achieve:
• A better service experience for customers, through greatly improved turnaround times
• Elimination of duplication and inefficiencies
• Annual benefits from FY 2004, following an incremental net cost of ~$120m in FY2003
Five productivity initiatives...
How is Commonwealth Bank Positioned Against the Current Outlook?
Credit Quality
Capital Position
Investment Market Volatility
Productivity Focus
38
Commonwealth Bank Group: Low Credit Risk Profile Housing Loans
53% of total loan book* Loan loss rate of < 3bps in 17 of last 20 years 55% average loan to valuation ratio Extensive stress testing of loan portfolio undertaken
Asset Quality Impaired assets to risk weighted assets of less than 1%
in line with domestic peers Relatively low bad debt expense Well provisioned
* Excluding securitisation (or 57% including securitisation)
39
Total Individually Rated* Exposures
Credit Risk
0%
20%
40%
60%
80%
100%
Dec 2000 Jun 2001 Dec 2001 Jun 2002
Other BBB A AAA/AA
61%InvestmentGrade
* Corporate and business lending
40
Investment Grade Exposures by Size
$0-$50m
$50m-$100m
$100m-$250m
$250m-$500m
$500m-$750m
$750m-$1bn
>$1bn
8 customers
9 customers
13 customers
66 customers
99 customers
101 customers
>15,000 customers
41
Offshore* Loans & Advances by Industry
Other Commercial
Government Agriculture
Finance
Construction
Personal
Leasing
* Excludes New Zealand (ASB )
42
Aggregate Provisions
* Includes Colonial
$mill
ion
s
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Jun94
Jun95
Jun96
Jun97
Jun98
Jun99
Jun00*
Jun01*
Jun02
0
50
100
150
200
250
300
%
General Provision
Specific Prov ision
Total Provisions/Gross Impaired Assets (axis on right)
43
0
500
1000
1500
2000
2500
Jun1994
Jun1995
Jun1996
Jun1997
Jun1998
Jun1999
Jun2000
Jun2001
Jun2002
0
6
12
18
24
30
36
%
Commowealth Bank Group (Other Countries)*
Commonwealth Bank Group (Australia)*
Net Impaired assets as % of Total Shareholder Equity* (axis on right)
Net Impaired Assets
* Excluding Colonial prior to 30 June 2000
$mill
ion
s
Asian Crisis
Acquisition of Colonial
Two Accounts
%
44
Non-Accrual Loans by Size
$5m<$10m $50m<$100m
$20m<$50m$10m<$20m
>=$100m<$5m1
Customer
2Customers
4Customers4
Customers
12Customers
As at 30 June 2002
45
Non Accruals by Industry
Mining
Manufacturing
Agriculture
Property & Business Services
Finance
Transport
Government
Other
As at 30 June 2002
Accommodation, Cafes & Restaurants
46
Industry Exposures
Insurance
-
1.0
2.0
3.0
4.0
5.0
Jun-00 Jun-01 Jun-02
0%
3%
6%
9%
12%
15%
Services to Agriculture, Forestry, Fishing & Mining
-1.02.03.04.05.0
Jun-00 Jun-01 Jun-02
0%3%6%9%12%15%
Agriculture
-1.0
2.03.0
4.05.0
Jun-00 Jun-01 Jun-02
0%3%
6%9%
12%15%
Transport and Storage
-
1.0
2.0
3.0
4.0
5.0
Jun-00 Jun-01 Jun-02
0%
3%
6%
9%
12%
15%
Metal Mining & Manufacturing
-
1.0
2.0
3.0
4.0
5.0
Jun-00 Jun-01 Jun-02
0%
3%
6%
9%
12%
15%
Exposure to selected industries
Accommodation, Cafes and Restaurants
-
1.0
2.0
3.0
4.0
5.0
Jun-00 Jun-01 Jun-02
0%
3%
6%
9%
12%
15%$b $b $b
$b $b$b
Balances $m % Portfolio % Troublesome % ImpairedLeft Axis: Right Axis:
47
0.00%
4.00%
8.00%
12.00%
Tier 1 Capital Total Capital
Strong Capital Position
2H01 1H02 2H02 2H01 1H02 2H02
TotalTier 1
CBA Target Range
Strong credit ratings
Shareholders equity up $637m
Strong regulatory capital ratios
Payments to shareholders of $1,622m
48
Economic Equity
Regulatory capital ratios can be misleading:
Risk weights are not risk aligned
Capital required for residential mortgages is overstated
No operational risk charge
No value placed on earnings and risk diversification
Internal models show the Group is strongly capitalised
49
Risk* GroupUnit Linked
Shareholder Funds in Life Insurance Companies
Income
$0.5 billion$2.1 billion
53%47%
Growth
$2.6 billion
67% 33% 50% 50%
*Risk includes traditional, investment account, annuities, personal risk and group risk.
50
Greater Cost Control & Targeted Investment in Priority Areas
53
54
55
56
57
58
59
60
Group Cost to Income Ratio (Normalised)
Upgrading infrastructure to improve service
Developing and managing relationships with all customers
Product simplification & rationalisation; packaging products for premium customers, and manufacture innovative new products
%
Focus on achieving further productivity improvements...
...by reducing costs and spending to improve service quality and drive revenue growth
51
Strategic Outcomes
Business Driver Profile 5-Year Plan
Growth in market share Major product groups At or above market
Margins Comparable for Continuing decline business mix
Sources of income Comparable financial Continued shift institutions toward non-interest
Costs Reduction in cost- 3%-6% p.a.income - best practice productivity change
Capital Management Optimise regulatory Rating AA- capital & maintain rating
Total Shareholder Return Relative to peers Top Quartile
52
Summary
The Australian Economy and the Australian Equities Market Have been relatively resilient Economic outlook remains positive in global context
Commonwealth Bank’s strengths include: Our track record Our differentiators Our growth drivers
How is Commonwealth Bank Positioned Against the Current Outlook?
Low credit risk profile Strong capital position Productivity focus
November 2002 Investor Roadshow
David Murray
Chief Executive Officer
Stuart Grimshaw
Chief Financial Officer
www.commbank.com.au