Investor Half Day - CommBank · Conclusion –in a tough environment, we are very well positioned....

Investment and Insurance Services Division

19 October 2004

Investor Half Day

2

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 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.

Disclaimer

3

Stuart Grimshaw Key Achievements,Strategic Direction and Distribution Overview

John Pearce Asset Management and Platform

Overview

Peter Beck Insurance Overview

Michael Cant Financial Performance

Stuart Grimshaw Conclusion

Discussion Outline

Group Executive

Investment & Insurance Services

Group Executive


Chief Financial Officer


Chief Executive Officer

Colonial First State

Managing Director

CommInsure

4

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

Rising popularity of blend and model portfolios

Insurance:

Strong long-term growth

Rational approach to pricing

Underinsurance and the need for further education

Advice:

Independence of advice

Continuing consolidation of distribution

Soft dollar benefits

Quality of advice

5

Our business model involves competing

across all elements of the value chain

IIS products and services by value chain element

Aligned

External

IIS

CBA Group

Dealer group

services

•

Research•

Compliance

Technology

Adviser Support

• Sales

effectiveness

• Training and

development

Direct

External

• IFA‟s

• Brokers/Agents

• SME/Corporates

• Platforms

• Institutionals

Bank Channels

Fu

nd

Ma

na

ge

rs / B

DM

s

DistributionAdministration

Platforms

Master Trust

•FirstChoice

Wrap• Avanteos

Property

Advice/Support Services

Managed

Funds

Life

Insurance

General

Insurance

Product

Manufacturing

• Practice

management

•

6

Our strategy is to foster a leading

wealth management business

Efficiency

Platform

Innovation

Service

Distribution 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 efficiency of our technology

Strengthen our standing as a provider of innovative

products and services

Continued focus on a world-class customer service

culture

Performance Lead in all parts of the wealth management value

chain

7

Recent achievements and current focus

Efficiency

Platform

Innovation

Service

Distribution

Centre for Adviser Development

Launch of Enterprise121

Increased productivity and number of planners

IIS organisational restructure

Legacy rationalisation program on target

Cost to income ratio improvement

Market leading platform inflows through FirstChoice

Growth in Avanteos net flows since acquisition

FirstChoice enhancements

Launch of 5D

Boutique alliances

Launch of new CommInsure products

Award winning service

CommInsure service quality improvement

Performance

Strong FUM flows in First State International

CommInsure strong financial results

Fixed Interest and Credit and Global Resources fund performance

8

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

25-29 30-34 35-39 40-44 45-49 50-54 55-59

0%

2%

4%

6%

8%

10%

12%

14%

16%

Distribution challenges and opportunities

Challenges/ Opportunities:

Ageing population with

inadequate savings

Choice for investors and

advisers

Growth in DIY products

Regulatory environment:

Quality of advice

Greater fee

transparency

Independence

Source: IFSA Retirement Savings Gap, August 2003;

Retirement Savings Gap by Age

Years of Age

Millio

ns

Retirement Savings Gap for Males

Additional Contribution Required

August 2003

9

We are continually strengthening our

distribution footprint

Centre for Adviser Development

Over 200 trained

Feedback very positive

Launch of Enterprise121

Opportunity in the market to offer advice, platform and dealership services to HNW practices.

Increased productivity of network advisers

26% improvement

Recruitment of advisers

Network and aligned

10

17

13

9

5

1/01/1900 2/01/1900 3/01/1900 4/01/19002002 2003 2004 2005

Legacy system rationalisation is on track

Source: Internal Projections. Policy Administration Systems rationalisation by calendar year end

Legacy Funds Management Systems Rationalisation

(2002 – 2005)

11 as at Oct 04

11



Overview




Discussion Outline

Group Executive


Group Executive






Managing Director

CommInsure

12

Outline

The value chain

Asset management

Platforms

13

The only segment with universal downward

pressure in margins is platforms / administration.

Revenue

Margins

Margin

Trends

Drivers

Asset

Management

Platform /

Marketing /

Administration

Distribution

10 – 100bps 50-120bps 40-100bps

• “perceived”

commoditisation

• high alpha providers

will maintain pricing

power – capacity is

an issue

• increasing variation in

range of fees

• commoditisation

• intense competition

• consolidation

• least commoditised

• move to fee for

service

Customer

Pays

200bps

14

Our diversified asset management base

provides growth opportunities.

High

Growth

Potential

Low

Growth

Potential

Low

Margin

High

Margin

Australian

Property

Securities

Index

Funds

Australian

Equities

(core)

Credit

Funds

Infrastructure

Funds

Australian

Equities (GDP

Plus)

Private

Equity

Global

Equities

Hedge

Funds

Income funds

Fixed

interest

FirstChoice

(house product)

Source: CBA Internal Analysis and Market Forecasts

Global

Property

Securities

15

Australian Equities (GDP-Plus) is now only 17%

of FUA

International

equities

Listed &

Direct

Property

Fixed Interest &

Cash

Other

ASB

GDP Plus

Core

Index

Australian

equities

International

equities

Listed &

Direct

Property

Fixed Interest &

Cash

Other

ASB

GDP Plus

Core

Index

Australian

equities

FUA: $109.8bn as at June 2004

Externally

Managed

16

Australian equity GDP+ investment

performance in perspective.

Year by year out-performance

Growth bias market Value bias market

1997 12.04% 2001 7.71%

1998 4.41% 2002 -0.03%

1999 13.39% 2003 -0.07%

2000 7.48% 2004 -4.86%

4 Yr Avg. 9.10% 4 Yr Avg. 0.70%

Source: Wholesale Imputation Fund, excess performance before fees and taxes. Year to 30 June.

17

Investment performance has been generally

strong over the medium term.

Asset ClassPerformance Vs Benchmark

(1 yr)Performance Vs Benchmark (3 yr)

Fixed Interest

Global Credit

Australian Equities GDP+ Large Cap

Australian Equities GDP+ Small Cap

Australian Equities Core Large Cap

Australian Equities Core Small Cap

Global Equities

Global Resources

Australian Listed Property

Global Listed Property

Hedge Funds

Infrastructure

Private Equity

Mortgage Funds

18

Platform strategy

Avanteos: White-label custodial wrap solution for wholesale platform

market

- „feature-rich‟ for high net-worth market

FirstChoice: Non custodial masterfund for “Mass Market Retail”

Value proposition:

1. Best value for money

2. Great service

3. Enough choice

19

The Value Proposition - FirstChoice

vs mastertrusts

MLC Masterkey Custom

Summit

Navigator

BT Essentials / Skandia / Perpetual / Asgard Elements

FirstChoice

FirstChoice vs mastertrustsTypical Australian Equities MER 0.85%

Equalised advice fee 0.6%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

Account Balance

Eff

ec

tive

Fe

e

Comparison based on Australian Equities portfolio of 0.85% MER. Equalised advice fee

Assumptions: No entry fees, all competitor fees are as stated in their PDS as at April 2004. Manager rebates and

volume discounts are not accounted for.

AMP

MLC Masterkey Custom

Summit

Navigator

BT Essentials / Skandia / Perpetual / Asgard Elements

FirstChoice

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

Account Balance

Eff

ec

tive

Fe

e


Assumptions: No entry fees, all competitor fees are as stated in their PDS as at April 2004. Manager rebates and

volume discounts are not accounted for.

AMP

20

Asgard E-Wrap

BT Wrap

Macquarie Wrap

FirstChoice

FirstChoice vs wrapsTypical Australian Equities MER 0.85%

Equalised advice fee 0.6%

1.7%

1.8%

1.9%

2.0%

2.1%

2.2%

2.3%

2.4%

Account Balance

Eff

ecti

ve F

ee


Assumptions: No entry fees, all competitor fees are as stated in their PDS as at April 2004. Manager rebates and volume discounts are

not accounted for.

The Value Proposition - FirstChoice

vs wraps

21

How can we offer lower fees and still earn

healthy margins?

Simple model catering to mass market

Manufacturing margin capture

Ability to leverage scale and administration efficiency

Mandate structure

22

FirstChoice: well diversified support and

healthy CFS flows.

Source: internal data; channel split based on flows for 6 months ended 31 August 2004; Manager split based

on FUA at 31 August 2004

CFS

40%

External

60%

FirstChoice Split by Channel FirstChoice Split Internal vs External

External

39%

CBA Bank

Network

44%

CBA Aligned

Advisers

17%

Inflows: Managing the FUM:

23

Boutique alliance strategy has delivered strong

FUM growth.

Source: internal data, retail sourced FUM

Colonial First State 452 Capital

- Funds Under Management

0

100

200

300

400

500

600

700

Ja

n-0

3

Fe

b-0

3

Ma

r-0

3

Ap

r-0

3

Ma

y-0

3

Ju

n-0

3

Ju

l-0

3

Au

g-0

3

Se

p-0

3

Oct-

03

No

v-0

3

De

c-0

3

Ja

n-0

4

Fe

b-0

4

Ma

r-0

4

Ap

r-0

4

Ma

y-0

4

Ju

n-0

4

Ju

l-0

4

Au

g-0

4

$m

24

Conclusion – in a tough environment, we are

very well positioned.

Asset

Management

Strong, well diversified, asset management capability

with growth opportunities

70% of sector funds outperformed their 3 year

benchmark

Platforms

Combination of Avanteos and FirstChoice provides

comprehensive admin capability

Superior value proposition has underpinned

FirstChoice success

Boutique alliance strategy has been very successful

25



Overview




Discussion Outline

Group Executive


Group Executive






Managing Director

CommInsure

26

Agenda

Industry Trends and Issues

Achievements

Opportunities

27

Summary

Insurance underlying profit grew 107% last year. Further growth is a significant opportunity for the Group

In the 03/04 year the Insurance business:

Reduced Costs & Increased Profit

Improved Service

Insurance represents an opportunity to:

Materially expand the Bank‟s business and support growth

Deepen relationships / aid retention in the Bank‟s core banking portfolio

Leverage distribution infrastructure & scale

Significantly increase cross-sell

28

The insurance industry outlook has improved as

predicted last year

A maturing industry:

• Favourable long term

growth

• Commoditised products

• Lower investment

returns

• Competitive and

consolidating

• Increased regulatory

focus

• A time of „surprises‟:

Sept 11, Canberra, Bali,

HIH

• Low penetration

• Scale is critical

• Rising re-insurance

premiums

• Industry & legislative

shake up

• Return to rational pricing

• Requires cost focus as

well as revenue

• Importance of broad based

distribution

• Commoditisation - difficult

to differentiate

• Uncertainty - increasing

importance of good

corporate governance and

security

Winner will be larger players,

who maintain profitability by:

Leveraging scale

Driving out efficiencies

Building revenues

through:

Cross sell / bundling

Multi-channel

distribution

Brand and reputation

Whilst maintaining a service

culture built around:

Service focus

Innovation

Simplicity

Platforms

Industry Outlook Implications The “Winners”

29

Achievements

Improvement in Service levels and strong staff engagement:

Internal service level measures have improved by up to 20% over the last 18 months

Staff cultural surveys measuring staff engagement and satisfaction across a range of

areas have improved significantly over the last year

0%

10%

20%

30%

40%

50%

60%

70%

80%

00/01 01/02 02/03 03/04 04/05

Year

Pe

rc

en

t

Full Time FTE Head Count

0

100

200

300

400

500

600

700

800

Jul-0

3

Aug

-03

Sep

-03

Oct-0

3

Nov-03

Dec-03

Jan-04

Feb

-04

Mar-0

4

Apr-0

4

May

-04

Jun-04

Jul-0

4

Aug

-04

Sep

-04

30

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

across all portfolios

0

50

100

150

200

250

300

350

400

Personal Life Group Life General Insurance

$m

Jun-03 YTD Actual Jun-04 YTD Actual

31

Achievements - Annuity Sales - Leveraging a

return to rational pricing and market

opportunities.

Monthly Annuity Sales

0

20000

40000

60000

80000

100000

120000

Sep-

02

Nov-

02

Jan-

03

Mar-

03

May-

03

Jul-

03

Sep-

03

Nov-

03

Jan-

04

Mar-

04

May-

04

Jul-

04

Sep-

04

Mo

nth

ly S

ale

s (

$)

32

How is improvement being delivered

Restructure to provide

end to end service

Cultural Measurement

Reward & recognition

Leadership

Development

Training (e.g. Risk

Claims Competency

assessment)

Breakthrough Service

Performance

Simplified Life

Insurance

Underwriting

Quote and Fulfil in all

Branches

Cross Sell Embed in

Process

GI & Risk Claims

Reengineering

Tele Follow Up

End to End Process

Simplification

First Point Resolution

Fineos - Work Flow

Genesys - Call Centre

Dialogue - Document

Management

Process TechnologyPeople

33

Significant Revenue Opportunities - Product

Penetration

Opport

unity

Opport

unity

Opport

unity

Opport

unity

Opport

unity

Opport

unity

Opport

unity

0%

20%

40%

60%

80%

100%

Motor Contents Building Health Term Life Disability Trauma

= Product Penetration

Ma

rket

Pe

ne

tra

tio

n (

%)

34

Insurance Cross Sell Opportunity

• Home Loan Cross Sell - 36%

• Credit Card Cross Sell - 17%

• Managed Funds Cross Sell - 17%

• Savings & Transaction Cross Sell - 11%

35

Conclusion

• Significant progress was made in the 2003/ 2004 year

• Insurance represents a significant opportunity for the Group going

forward

36



Overview




Discussion Outline

Group Executive


Group Executive






Managing Director

CommInsure

37

0

50

100

150

200

250

300

We saw an 18% growth in underlying profit for

our Funds Management businesses

Underlying

Profit Jun-03

$m

Underlying

Profit Jun-04Cash Profit

Jun-04

233

Net

Operating

Income

44

Reduction in

other operating

expense

26

Tax(

21)

S‟holder

Invest

Returns

20

Incremental

Which new

Bank

(26)

274 268

Strong investment markets

underpinned revenue growth

Income to average FUA ratio

maintained

Focus on tight cost control

resulted in operating expenses

falling 2% year on year

Revenue growth negatively

impacted by FX movements and

sale of custody business18% growth

Volume

based

expense

(8)

38

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

*Excludes WnB Costs

40

60

80

2003 2004

Operating Expenses / Operating Income

Other Operating Expenses / Income Net of Commissions

39

1.111.14

0.980.95

0

0.2

0.4

0.6

0.8

1

1.2

Jun-03 Jun-04

60

70

80

90

100

110

Average FUA

Operating Income/Average FUA

Income Net of Volume based expenses/Average FUA

Margins declined slightly

% $bn

Earn

ings/A

vera

ge F

UA

(%

)

Avera

ge F

UA

($bn)

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

2002/2003 2003/2004

40

FirstChoice margins are attractive, albeit less

than our other retail products

Revenue - net of external manager costs

0

50

100

150

200

FirstChoice Other Retail Wholesale

bp

Manufacturing Margin Commissions

90bp

125bp

65bp

60bp

45bp

41

85,000

90,000

95,000

100,000

105,000

110,000

Jun-0

2 F

UA

Net F

low

s

Investm

ent

Retu

rns

Dis

posal

FX

Jun-0

3 F

UA

Net F

low

s

Investm

ent

Retu

rns

FX

Jun-0

4 F

UA

Strong turnaround in FUA with 11% growth

99

110

1(1)

$m10

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 to

platforms

106 (1)(2)

(3)

1

42

-4

-2

0

2

4

6

8

Jun-94 Jun-95 Jun-96 Jun-97 Jun-98 Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04

-20%

-10%

0%

10%

20%

30%

40%

Industry Net Flows Industry Investment Returns

Across the industry investment returns have

improved and flows have responded, but not to

previous levels.

Source: Investment returns: rolling annual returns based on a composite index made up of Australian Shares (50%),

International Shares (35%), Property Securities (15%)

Net flows: Plan for Life retail flows (ex-cash)

Ne

t fl

ow

s (

$b

)

1 y

ea

r Inve

stm

en

t Re

turn

43

-4,000

-3,000

-2,000

-1,000

0

1,000

2,000

3,000

4,000

5,000 Jun-03

Jun-04

Net Flows show turnaround in 2004

First

Choice/

Avanteos

Cash

Management Other RetailWholesale Property International

Net Flows ($m)

2003 v. 2004

Total

44

We are gaining market share in the platform market

Source: Plan for Life, Fund Source Research

6%

8%

10%

12%

14%

16%

18%

Jun-03 Sep-03 Dec-03 Mar-04 Jun-04

Mark

et S

hare

CBA Retail CBA Platforms

45

(400)

(200)

-

200

400

600

800

1,000

1,200

Sep-03 Dec-03 M ar-04 Jun-04 Sep-04 Dec-04 M ar-05 Jun-05 Sep-05

CB

A N

et F

low

s

CBA Retail Net Flows CBA Platforms Net Flows

We have experienced a very good June quarter

Source: Plan for Life, Fund Source Research

Sep-03

Qtr

Dec-03

Qtr

Mar-04

Qtr

Jun-04

Qtr

Sep-03

Qtr

Dec-03

Qtr

Mar-04

Qtr

Jun-04

Qtr

No. 4

No. 1

46

0

50

100

150

200

250

Underlying Profit

Jun-03

Underlying Profit

Jun-04

S'holder Invest

Returns

Which new Bank Cash Profit Jun-

04

Insurance - improved operating margins and

strong investment returns

43

46 89

101 179

$m

(11)

Australia

Market leader in life

insurance in Australia

8% growth in risk inforce

premiums

Improved General Insurance

claims ratio

Tight expense controls –

expenses flat

Strong improvement in

shareholder investment

returns

Improved margins on annuity

business

Portfolio re-pricing (in

particular Disability and

Wholesale Life)

107% increase

47

5 0 0 0

6 0 0 0

7 0 0 0

8 0 0 0

9 0 0 0

1 0 0 0 0

Business Valuation

Directors‟

Valuation

Jun-03

Directors‟

Valuation

Jun-04

Increase in

Value

201

Profit

519 Capital

Movements

(864)

8,546

$m

8,402

16.2 x earnings multiple

Uplift of $201m

higher FUA

improved lapses

lower costs

More conservative

future sales

assumption

Capital Reduction

change in asset

allocation

reduction in capital

adequacy margins

48

Summary

Strong profit result

Reduced capital

Growth in overall business valuation

49



Overview




Discussion Outline

Group Executive


Group Executive






Managing Director

CommInsure

50

Significant opportunities to achieve

strong growth

External/ market factors creating growth opportunities:

Improved market returns

Superannuation guarantee

Internal opportunities to drive growth:

Continuing product expansion and innovation

Distribution capacity and productivity improvements

Rationalisation and further efficiency gains

Capital efficiency improvements

Investment and Insurance Services Division

19 October 2004

Investor Half Day

Investor Half Day - CommBank · Conclusion –in a tough environment, we are very well positioned....

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Transcript of Investor Half Day - CommBank · Conclusion –in a tough environment, we are very well positioned....