Comments on Statement of Financial Performance
(Except where otherwise stated, all figures relate to the year ended 30 June 2004 and comparatives for the profit and loss are to the Commonwealth Bank Group year ended 30 June 2003.)
For the year ended 30 June 2004, the Commonwealth Bank Group recorded a net operating profit after income tax of $2,572 million, an increase of 28% over the prior year.
The net operating profit (‘underlying basis’) for the year ended 30 June 2004 after tax, and before goodwill amortisation, appraisal value uplift, investment returns on shareholders' funds in the funds management and insurance business and initiatives including Which new Bank was $3,078 million. This was an increase of $404 million or 15% over the year ended 30 June 2003.
The Group result comprised:| $M | ||
|---|---|---|
| Underlying segment profit after tax | ||
| Banking | 2,675 | up 13% |
| — Funds Management | 274 | up 18% |
| — Insurance | 129 | up 98% |
| 3,078 | ||
| Shareholder investment returns (after tax) | 152 | |
| Initiatives including Which new Bank (after tax) | (535) | |
| Net Profit after tax (cash basis) | 2,695 | |
| Appraisal value uplift | 201 | |
| Goodwill amortisation | (324) | |
| Net Profit after tax | 2,572 | |
Banking
The contribution to profit after tax from the Group's banking businesses increased to $2,675 million, 13% over the prior year, reflecting:- Net interest income growth of $384 million or 8%. This was achieved through a 14% increase in average interest earning assets, primarily due to housing loans, partially offset by a reduction in net interest margin of 14 basis points;
- Other banking operating income growth of $219 million or 8%, driven by a strong increase in CommSec commission income together with continued growth in lending fees;
- Expenses from comparable business have increased by 5%, mainly due to salary increases and volume related growth in the Premium Financial Services business; and
- Bad debt expense decreased by $29 million to $276 million. Low interest rates continued to contribute to a good credit environment.
Funds Management
The contribution to profit after tax from the Group's funds management business increased to $274 million, 18% over the prior year.
Funds under administration increased by 11% to $110 billion, due to strong investment markets.
Insurance
The contribution from insurance to profit after tax was up $64 million to $129 million, almost double the prior year. The improvement in performance reflects growth in premiums, strong investment returns and continued profit growth in the New Zealand and Asian businesses.
Group Expenses
Total operating expenses for the Group were 13% higher than in the prior year, increasing by $698 million to $6,249 million. Underlying costs were $5,500 million, up 3.5% on the prior year. In addition, costs of $749 million were incurred in relation to strategic initiatives including Which new Bank.
Income Tax
Income tax expense includes amounts on behalf of life insurance policy holders and corporate tax. During the year, total income tax expense increased by $304 million to $1,262 million. The corporate income tax expense increased by $43 million or 4% to $1,059 million for 2004. This resulted in an effective corporate tax rate of 28.1% in 2004, which was consistent with the prior year rate of 28.2%.
Appraisal Value(1)
For the year ended 30 June 2004, appraisal values of the life insurance and funds management businesses increased by $201 million. This increase in appraisal value reflects the strong business performance and the effect on industry flows of improved world equity markets.
(1) Australian Accounting Standard AASB 1038: Life Insurance Business requires that all investments owned by a life company be recorded at market value. The ‘appraisal value uplift’ is the periodic movement in the Balance Sheet asset ‘excess of market value over net assets’.