Commonwealth Bank - Report to Shareholders 2003 - Comments on the Statement of Financial Performance for the year ended 30 June 2003
 

Comments on the Statement of Financial Performance for the year ended 30 June 2003

Chart of Operating Profit ($M) cash basis Chart of Dividends per share

(Except where otherwise stated, all figures relate to the year ended 30 June 2003 and comparatives for the profit and loss are to the Commonwealth Bank Group year ended 30 June 2002.)

For the year ended 30 June 2003, the Commonwealth Bank Group recorded a net operating profit after income tax of $2,012 million.

The net operating profit (‘cash basis’) for the year ended 30 June 2003 after tax, and before goodwill amortisation and appraisal value uplift is $2,579 million. This is an increase of $78 million or 3% over the year ended 30 June 2002 and was after expensing $214 million in respect of restructuring initiatives and after expensing $45 million in respect of the allocation of shares to employees under the ESAP scheme for both 2002 and 2003 against the 2003 profit. Excluding these, for a like-for-like comparison, the ‘cash basis’ profit grew by 9% over the previous year.

 

The Group result comprised:

  $M  

Underlying segment profit after tax    
– Banking 2,401 up 16%
– Funds Management 228 down 37%
– Life Insurance 58 up 41%
Shareholder investment returns (after tax) 73  
Operating expenses – included for first time (after tax) (181)  

Net Profit after tax (cash basis) 2,579  
Appraisal value reduction (245)  
Goodwill amortisation (322)  

Net Profit after tax 2,012  

Banking

The contribution to profit after tax from the Group’s banking businesses increased to $2,401 million, 16% over the prior year, reflecting:

Funds Management

The contribution to profit after tax from the Group’s funds management business decreased to $228 million, 37% below the prior year.

Funds under management decreased by 9% to $94 billion, with most of the decrease occurring in the first half of the year. Approximately half the decrease can be attributed to sale of businesses in the UK.

Life Insurance

The contribution from life insurance to profit after tax was up $17 million to $58 million, 41% more than the prior year. The improvement in performance reflects a turnaround in the Asian business and a strong profit growth in New Zealand, partly offset by a write-down of an asset in the Australian business.

Group Expenses

Total operating expenses for the Group were 7% higher than in the prior year, increasing by $350 million to $5,551 million. $259 million of the increase is attributable to first-time costs with $214 million related to strategic initiatives and another $45 million is due to the cost of two years of shares issued to employees under the employee share programme. Underlying costs were $5,292 million.

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 $42 million to $958 million, which included a policy holder tax credit of $58 million (2002: $36 million tax credit).

The corporate income tax expense increased by $64 million or 7% to $1,016 million for 2003. This resulted in an effective corporate tax rate of 28.2% in 2003, which was slightly higher than the prior year rate of 27.6%. This increase was due mainly to the higher recognition of capital losses in the prior year.

Appraisal Value (1)

For the year ended 30 June 2003, appraisal values of the life insurance and funds management businesses decreased by $34 million. The decrease comprised:

The reduction of $245 million in appraisal value reflects the uncertainty and low returns in world equity markets and their effect on industry flows.

(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 (reduction)/uplift’ is the periodic movement in the Balance Sheet asset ‘excess of market value over net assets’.