Commonwealth Bank of Australia ACN 123 123 124 Annual Report 2001 COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES Table of Contents Results Overview.............................................................................................................................................................................4 Group Performance Summary ........................................................................................................................................................6 Strategy............................................................................................................................................................................................9 Outlook Statement...........................................................................................................................................................................9 Main Financial Indicators...............................................................................................................................................................10 Banking Performance Summary...................................................................................................................................................13 Banking – Business Analysis ........................................................................................................................................................15 Banking Analysis of Performance Net Interest Income..............................................................................................................................................................18 Group Interest Margins and Spreads ..................................................................................................................................19 Other Banking Operating Income........................................................................................................................................20 Charge for Bad and Doubtful Debts ....................................................................................................................................21 Provisions for Impairment ....................................................................................................................................................21 Funds Management - Business Analysis .....................................................................................................................................22 Life Insurance - Business Analysis ...............................................................................................................................................25 Summary of Life Insurance and Funds Management Valuations................................................................................................27 Group Operating Expenses...........................................................................................................................................................28 Other Group Items.........................................................................................................................................................................29 Integrated Risk Management Risk Management ................................................................................................................................................................31 Credit Risk ............................................................................................................................................................................31 Market Risk...........................................................................................................................................................................31 Operational Risk...................................................................................................................................................................32 Insurance Risk......................................................................................................................................................................33 Derivatives............................................................................................................................................................................33 Business Continuity Management.......................................................................................................................................33 Government Guarantee.................................................................................................................................................................33 Credit Rating ..................................................................................................................................................................................33 Capital Adequacy...........................................................................................................................................................................34 Description of Business Environment...........................................................................................................................................35 Corporate Governance..................................................................................................................................................................38 Directors’ Report............................................................................................................................................................................41 Five Year Financial Summary.......................................................................................................................................................47 Financial Statements Statements of Financial Performance .................................................................................................................................50 Statements of Financial Position .........................................................................................................................................51 Statements of Changes in Shareholders’ Equity ................................................................................................................52 Statements of Cash Flows...................................................................................................................................................53 Notes to the Financial Statements ......................................................................................................................................54 Directors’ Declaration ..................................................................................................................................................................151 Independent Audit Report ...........................................................................................................................................................152 Shareholding Information ............................................................................................................................................................153 2 Introduction The Management Discussion and Analysis of the Group’s results for the year ended 30 June 2001 that follows compares the current year income and expenses to proforma 30 June 2000 information. The proforma data combines Colonial normalised results with Commonwealth actual results. It is considered that analysis on this basis is more meaningful. The statutory financial statements, that follow the Management Discussion and Analysis (on pages 4 to 30), are all actual results for the Commonwealth Bank Group for each of the years presented. 3 COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES Results Overview (Except where otherwise stated, all figures relate to Life Insurance the year ended 30 June 2001 and comparatives for the The contribution from life insurance to profit after profit and loss are to the proforma combination of the tax was down $43 million to $320 million, 12% less than Commonwealth Bank Group and Colonial Limited for the the prior year. This result reflects lower investment year ended 30 June 2000.) earnings on shareholders funds which have reduced the For the year ended 30 June 2001, the after tax profit from life insurance by $17 million, together Commonwealth Bank Group recorded a net operating with the effect of poor persistency and claims experience profit after income tax of $2,398 million. in Asia and New Zealand. The net operating profit (‘cash basis’) for the year Group Expenses ended 30 June 2001 after tax, and before goodwill amortisation and appraisal value uplift is $2,262 million. Operating expenses across the Group increased This is an increase of $194 million or 9% over the year 7% or $348 million to $5,170 million. The increase ended 30 June 2000. includes the effect of GST of $111 million and expenses A fully franked dividend of 75 cents per ordinary from acquired and developing businesses of $90 million. share will be paid on 8 October 2001 to owners of The merger of the Colonial and Commonwealth Group ordinary shares at the close of business on 27 August businesses realised approximately $120 million of 2001. expense savings in the current year. Excluding these On a cash basis, the dividend payout ratio for the items, expenses increased by 5.5%, reflecting a 4% wage year is 75.5% down from 85.3% for the prior year. The increase as a result of a domestic enterprise