Slide 1: Financial results
financial results 13 August 2019 os challenger 22
Slide 2: Overview
Overview Resilient and positioned for growth FY19 outcomes Operating environment Richard Howes – Managing Director and Chief Executive Officer Financial results Andrew Tobin – Chief Financial Officer Outlook Richard Howes – Managing Director and Chief Executive Officer FY19 – 30 June 2019 2
Slide 3: Highlights
Highlights Resilient and positioned for growth FY19 outcomes Earnings growth impacted by lower investment earnings and performance fees Strong progress on strategy for growth Responding to the operating environment Initiatives to drive resilience and growth Robust business Outlook Responding to chal
Slide 4: FY19 outcomes
FY19 outcomes Earnings growth impacted by lower investment earnings & performance fees Group Assets Under Normalised NPBT Statutory CLC3 excess capital ($bn) Management ($bn) 1 Normalised NPAT ($m) 1 NPAT ($m) PCA ratio (times) 2H 1600 1.57x 1.6 81.1 81.8 1H 547 548 1.53x 1.53x 505 398 1.55 323 1400
Slide 5: FY19 outcomes
FY19 outcomes Strong progress on strategy for growth 95% of advisers1 rate 5 new Fidante & CIP products – Challenger a leader in new boutiques, investment retirement income strategies and ETFs Launched annuities on Highly engaged team – 84% three platforms supporting sustainable engagement score ind
Slide 6: Responding to operating environment
Responding to operating environment Initiatives to drive resilience and growth Advice market disruption Challenger domestic annuity sales ($bn) • Significant adviser churn FY19 annuity sales – Major hub sales -16%; IFA sales +26% • 9% reduction in adviser numbers since December 2018 (major hubs down
Slide 7: Robust business
Robust business Resilient business outcomes Life • Domestic sales marginally down (4%) despite Normalised ROE (pre-tax) advice market disruption 25.0% • Generating strong relative returns on both back book and new annuity business 20.0% 18.3% 16.5% 15.8% Funds Management 15.0% 15.0% • EBIT growth ex
Slide 8: Financial results
Financial results Andrew Tobin Chief Financial Officer FY19 – 30 June 2019
Slide 9: Group result
Group result Earnings growth impacted by lower investment earnings & performance fees Net income ($m) Expenses ($m) Group normalised NPBT 1 EBIT margin (%) 600 822 821 69.0 67.3 67.4 268 267 66.6 550 766 67.0 256 500 65.0 450 63.0 61.0 547 548 400 505 59.0 350 57.0 300 55.0 250 FY17 FY18 FY19 FY17 F
Slide 10: Group result
Group result Earnings growth impacted by lower investment earnings & performance fees Normalised NPBT $548m – up $1m Normalised NPBT Normalised NPAT Statutory NPAT stable -2% -5% • Life COE – book growth offset by lower equity distributions - 15 1 1 • FM income – higher Fidante (16) investment exper
Slide 11: Life result
Life result Earnings steady with book growth offset by lower margin Total Life sales ($bn) Life book growth ($bn) Annuity Life sales down 18% to $4.6bn Annuity Life book growth $0.5bn 5.6 Other 1.8 Annuity sales $3.5bn – down $0.5bn Other 3.4% growth in total liabilities 5.0 4.6 1.3 ‒ Domestic sales
Slide 12: Life sales
Life sales Lower institutional and MS Primary sales with resilient domestic sales Life sales $4.6bn (-18%) Life sales ($m) 6,000 Annuity sales $3.5bn (-11%) • Domestic sales $3.3bn (-4%) impacted by 5,000 adviser and industry disruption 4,000 • term annuities (-6%) • lifetime annuities (0%) – strong
Slide 13: Life net book growth
Life net book growth Lower institutional and MS Primary sales with resilient domestic sales Life net book growth $0.5bn Life book growth ($m) • 3.4% growth in total liabilities 1 2,000 1,796 Annuity net book growth $0.7bn 1,500 1,313 • 5.8% growth in annuity liabilities 2 1,068 1,000 • Lower due to
Slide 14: Life book
Life book Continuing shift to long-term annuities Book shifting to long-term annuities Life annuity and other liabilities ($m) $14.8bn • Term annuities decreased by 2% 15,000 $13.9bn 13% • Long-term annuities increased by 4% 1 $12.0bn 15% $10.9bn • doubled over last four years $9.6bn 14% 10,000 12%
Slide 15: Life margins
Life margins Higher asset yields and lower annuity pricing 2H19 Life COE margin +10 bps Life COE margin – 1H19 to 2H19 • Product cash margin +11 bps Product cash margin +11 bps • higher asset yields +4 bps – higher 2H19 equity distributions 3.57% 0.04% 0.07% 0.04% 0.00% 3.67% – lower fixed income yi
Slide 16: Life investment portfolio
Life investment portfolio Asset allocation reducing capital intensity Fixed income – increased by 1% Life investment portfolio • Investment grade ~74% 4% 4% 3% 4% 4% 7% 8% 9% • AAA, AA and A increased; liquids reduced 10% 12% 22% 22% 22% 21% 18% Property – decreased by 3% 13% • Sale process of lower
Slide 17: Life Investment Experience
Life Investment Experience Asset experience (-$76m ); Liability experience (-$27m ) 1 1 Fixed • Valuation gain +$41m; normalised growth +$42m; credit default experience -$32m (-27 bps) income • Credit spreads contracted by ~30 bps in FY19 +$51m • 5 year credit default experience -18 bps A Property •
Slide 18: CLC regulatory capital
CLC regulatory capital Strongly capitalised and toward top end of guidance range Movement in CLC’s excess regulatory capital ($m) Excess regulatory capital $1.4bn (up $0.1bn) Regulatory capital +$111m PCA -$76m Regulatory capital $4.0bn 397 • Higher retained earnings 92 (230) 56 (48) (8) PCA $2.6bn
Slide 19: Funds Management result
Funds Management result Strong underlying earnings offset by lower performance fees Net flows($bn) Average FUM ($bn) 73.4 77.5 Net flows -$2.4bn 61.8 Funds Management +6% 6.2 5.3 Fidante Partners -$3.6bn Fidante Partners +5% Includes a profit-for-member fund CIP +8% 1 internalising FUM 1 CIP +$1.2bn
Slide 20: Funds Management FUM
Funds Management FUM Net flows impacted by profit-for-member fund internalising FUM Diversified client base across retail and institutional clients Funds Management net flows ($bn) Top client exposures 8,000 8,000 6,000 6,000 Top 10 3rd party 5% 3% clients account 2% 4,000 4,000 2% for 23% of FUM Ot
Slide 21: Dividend
Dividend Stable dividend reflects confidence in future growth & strong capital position FY19 dividend 35.5 cps Dividend (cps) • Unchanged on FY18 40 35.5 35.5 34.5 • 100% franked 30.0 32.5 30 1 FY19 dividend payout ratio 54.2% • Above guidance range reflecting 2 20 • confidence in future growth 10 •
Slide 22: Outlook
Outlook Richard Howes Managing Director and Chief Executive Officer FY19 – 30 June 2019
Slide 23: Priorities to drive long-term growth
To provide our customers with financial security for retirement Priorities to drive long-term growth Increase the use of Lead the retirement Provide our customers Maintain leading Responding to challenges and capturing opportunities secure retirement incomes market and be with excellent funds operat
Slide 24: FY20 financial outlook
Outlook Resilient and positioned for growth \ FY20 financial outlook • Normalised NPBT range of between $500m and $550m, including: 1 • lower equities normalised growth assumption (-$23m impact) • DPM2 growth initiatives – investing up to $15m • low interest rates reducing return on shareholder capi
Slide 25: Highlights
Highlights Resilient and positioned for growth FY19 outcomes Earnings growth impacted by lower investment earnings and performance fees Strong progress on strategy for growth Responding to the operating environment Initiatives to drive resilience and growth Robust business Outlook Responding to chal
Slide 26: Appendix
Appendix Additional background information FY19 – 30 June 2019
Slide 27: Appendix
Appendix A clear plan for sustainable long-term growth Challenger business overview 28-29 Life sales and AUM 56 Our people 30 Life asset allocation & portfolio overview 57-61 Superannuation system 31-35 Life normalised profit framework 62-63 Retirement phase overview 36-40 Life asset and liability m
Slide 28: Vision and strategy
Challenger business overview Vision and strategy A clear plan for sustainable long-term growth To provide our customers with financial security for retirement Increase the use of Lead the retirement Provide our customers Maintain leading secure retirement incomes market and be with excellent funds o
Slide 29: Business overview
Challenger business overview Business overview Two core businesses benefiting from superannuation system growth Challenger Limited (ASX:CGF) Life Funds Management #1 market share in annuities1 One of Australia’s largest active fund managers2 Leading provider of annuities and guaranteed Fidante Partn
Slide 30: Our people
Our people Our people Highly engaged team with strong risk and compliance culture Employee engagement 1 Global Australian Global High Financial Category Total favourable score National Performance Services norm norm norm 84% Sustainable engagement 84% Sustainable engagement Diversity and flexibility
Slide 31: Australian superannuation system
Superannuation system Australian superannuation system Attractive market with long-term structural drivers Market growth supported by Australian superannuation growth3 ($bn) • Mandatory and increasing contributions 8,000 • Earnings compounding 6,000 • Population growth and ageing demographics 4,000
Slide 32: Australian superannuation system
Superannuation system Australian superannuation system Attractive market with long-term structural drivers Projected superannuation assets2 ($bn) Pre-retirement (super savings) phase 7,500 • Funds Management target market • Supported by mandated and increasing contributions 5,000 Post-retirement (su
Slide 33: Australian superannuation system
Superannuation system Australian superannuation system Attractive market with long-term structural drivers Mandatory and increasing contributions • Increasing from 9.5% to 12.0% 1 Superannuation Guarantee contribution rate1 1992 1997 2002 2015 2021 2022 2023 2024 2025 3.0% 6.0% 9.0% 9.5% 10.0% 10.5%
Slide 34: Australian superannuation system
Superannuation system Australian superannuation system High allocation to equities and low allocation to fixed income Australia has low fixed income and high equity allocations1 Fixed income allocation • Australia 5% 26% 6% 32% 13% • OECD average 44% 30% 39% 58% 26% 10% 13% 33% Equities allocation 4
Slide 35: Australian superannuation system
Superannuation system Australian superannuation system World class accumulation system with significant retirement savings Not delivering retirees financial comfort World class Significant Not delivering retirees accumulation system retirement savings financial comfort 7 National Seniors Australia s
Slide 36: Retirement phase of superannuation
Retirement phase overview Retirement phase of superannuation Combining products provides better outcomes for retirees Discretionary (wants) Funds Management Account Equities, fixed income Based and alternative asset Pension products (ABP) Life Essential Guaranteed Annuity and income stream guarantee
Slide 37: Retirement phase of superannuation
Retirement phase overview Retirement phase of superannuation Australians now have meaningful balances in retirement • Superannuation guarantee system 10 largest super funds – average retiree member balance2 not fully mature – established 27 years ago Unisuper 509k Qsuper 420k • Operating for only ha
Slide 38: Retirement phase of superannuation
Retirement phase overview Retirement phase of superannuation Superannuation starting to reduce reliance on age pension • Average household wealth at retirement $680k 1 Portion of retirees reliant on age pension2 (excluding family home) 30% • Age pension subject to assets and income tests 44% 42% • 2
Slide 39: Overview of age pension system
Retirement phase overview Overview of age pension system Social safety net for those unable to support themselves • Qualification age 66 Maximum age Per fortnight Per annum (increasing to 67) Single $926.2 $24,081 pension rates1 Couple $1,396.2 $36,301 • Age pension based on lower outcome under Asse
Slide 40: Post-retirement phase of superannuation
Retirement phase overview Post-retirement phase of superannuation Growth market with structural drivers Super funds partnering with Life companies 700 Australians turning 65 every day Industry moving ahead of regulation Older and healthier 20-year cycle of retiring ʻBaby-Boomersʼ Market Natural mark
Slide 41: Government enhancing post-retirement phase
Retirement income regulatory reforms Government enhancing post-retirement phase Retirement Income Framework The retirement phase of the superannuation system is currently under-developed. There is limited availability and take-up of products that manage the risks people face in retirement, in partic
Slide 42: Government enhancing post-retirement phase
Retirement income regulatory reforms Government enhancing post-retirement phase New retirement product rules introduced 1 July 2017 • Enables new lifetime products, including Benefits of pooling Deferred Lifetime Annuities (DLAs) (illustrative DLA example with 15 year deferral period) 100% • DLAs ar
Slide 43: Government enhancing post-retirement phase
Retirement income regulatory reforms Government enhancing post-retirement phase New means test rules for lifetime income products commenced 1 July 2019 Assets pension test Income pension test Example - $100,000 lifetime income stream purchase price at age 65 Example - $100,000 lifetime income stream
Slide 44: Government enhancing post-retirement phase
Retirement income strategies Government enhancing post-retirement phase CIPR-style strategies already being implemented • CIPR -style strategies already being 2,3 1 Comparing products – Actual ÷ Desired Income implemented by dealer groups and super funds Partial Annuitisation • Retirement income mod
Slide 45: Retirement income strategies – combined products
Retirement income strategies Retirement income strategies – combined products Enhances income and provides longevity and inflation protection Case study Jenny and John • Homeowning couple • $500,000 of super (in addition to family home) • 66 years old • Approaching retirement • Target income $59,000
Slide 46: Retirement income strategies – combined products
Retirement income strategies Retirement income strategies – combined products Enhances income and provides longevity and inflation protection Case study – Jenny and John 100% Account Based Pension (ABP) Combined product (70% Account Based Pension; 30% Lifetime Annuity) Age Pension Lifetime annuity A
Slide 47: Retirement income strategies – combined products
Retirement income strategies Retirement income strategies – combined products Enhances income and provides longevity and inflation protection Combined product (70% Account Based Pension; 30% Lifetime Annuity) Income from combined product enhanced through 1. mortality credits 2. interaction with age
Slide 48: Distribution
Challenger distribution Distribution Competitive advantage driving long-term growth Influencing Annuities on platform and market Research Technology retirement calculators improving practice retirement outcomes Retirement Adviser Product Meeting goals education and practice support innovation and ma
Slide 49: Distribution – New relationships
Challenger distribution Distribution – New relationships Industry moving ahead of regulation and combining products FY16 FY17 FY18 / FY19 ClearView Wealth Solutions Australiaʼs largest retail Challenger annuities available platform offering platform offering on AMP platforms Challenger annuities Cha
Slide 50: Distribution – New relationships
Challenger distribution Distribution – New relationships Platforms broadening access to Challenger annuities Platform relationships Platform relationships Provides access to ~1/3rd of super industry FUM1 Provides access to ~70% of financial advisers2 6% 2% 6% 26% 33% 30% Australian 7% Australian sup
Slide 51: MS&AD strategic relationship
MS&AD MS Primary MS&AD strategic relationship Diversifying and increasing access to Japanese market Strategic relationship with MS&AD Group • Increases access to Japanese market through MS&AD ~A$26bn market cap Total assets ~A$305bn 41,467 employees 5 business domains • Opportunities for both Challe
Slide 52: MS Primary annuity relationship
MS&AD MS Primary MS Primary annuity relationship Diversifying and increasing access to Japanese market MS Primary • MS&AD subsidiary Product overview • leading provider of foreign currency life products 20 year term annuities – A$ and US$ • extensive distribution footprint via bancassurance channel
Slide 53: Life product overview
Life product overview Life product overview Providing customers with guaranteed income Fixed term Long term Other (including lifetime) 46% of total book 41% of total book 13% of total book Provides regular guaranteed Provides guaranteed regular Institutional product providing payments for a fixed ra
Slide 54: Brand strength
Challenger brand and adviser ratings Brand strength Strong customer and adviser brand 2011 ‘Real Stories’ Brand Strength1,2,3 100% 95% 93% 95% 89% 80% 85% 2013 ‘On Paper’ 60% 66% 62% 55% 53% 40% 2016 ‘Lifestyle 20% Expectancy’ 13% 2011 2013 2015 2017 2018 2019 ‘Look forward Customers Advisers with ʻ
Slide 55: Clear leader in retirement incomes
Challenger brand and adviser ratings Clear leader in retirement incomes Challenger rated #1 in overall adviser satisfaction Challenger adviser satisfaction1 Wealth Insights net promoter score2 Challenger +54% 10.0 8.0 6.0 +ve net promotor score Peers include 4.0 Australiaʼs top 20 - ve net promotor
Slide 56: Life sales and AUM
Life sales and AUM Life Sales & AUM benefiting from diversity of products and expanded distribution Total Life sales ($m) Life AUM ($m) 5% CAGR 10% CAGR Annuity sales ($m) 19,010 18,085 7% CAGR 5,556 4,952 1,555 15,677 4,550 4,350 941 14,112 1,007 12,795 3,697 999 4,011 4,001 944 3,543 3,351 2,753 F
Slide 57: Asset allocation framework
Life asset allocation and portfolio overview Asset allocation framework Consistently applied with strong risk management • Fundamental principle – assets Risk management and liabilities cash flow matched Asset and • Strong governance framework liability • Managed by dedicated team • Risk management
Slide 58: Life investment portfolio
Life asset allocation and portfolio overview Life investment portfolio High quality portfolio providing reliable income Life investment portfolio1 Life investment portfolio – asset allocation Listed 100% Alternatives infrastructure Absolute return funds Unlisted 80% infrastructure Low beta Investmen
Slide 59: Life investment portfolio
Life asset allocation and portfolio overview Life investment portfolio Fixed income – 66% of portfolio Fixed income portfolio1 Fixed income portfolio by industry1 Liquids Non IG 3% Corporate Credit Government 100% 17% Residential Property 92% IG Asset Backed 26% Securities Non-IG Asset Banks, Financ
Slide 60: Life investment portfolio
Life asset allocation and portfolio overview Life investment portfolio Property – 18% of portfolio Property portfolio1 Life’s property portfolio Japanese retail 10% • 51% of tenants investment grade Australian other • Australian Government is a major tenant 4% • representing ~30% of rental income 2
Slide 61: Life investment portfolio
Life asset allocation and portfolio overview Life investment portfolio Equities and other & infrastructure – 16% of portfolio Equity portfolio1 Infrastructure portfolio1 Offshore alternatives Domestic beta Unlisted other 12% 3% 11% Offshore beta 3% 12% 6% Domestic low 27% beta 5% Unlisted renewable
Slide 62: Normalised profit framework
Life normalised profit framework Normalised profit framework Reflects underlying performance of Life business Investment Experience Cumulative Investment Experience (pre-tax) ($m) Asset and policyholder liability valuation 200 movements plus net new business strain - Asset and policy liability exper
Slide 63: Normalised profit framework
Life normalised profit framework Normalised profit framework Fixed income credit default loss history • Normalised growth assumptions Credit default loss history (bps) includes -35 bps for fixed income 10 • Represents an allowance for credit - default losses • FY19 credit default losses recognised (
Slide 64: Asset and liability matching
Life asset and liability matching Asset and liability matching Unwanted risks mitigated with assets and liabilities cash flow matched Asset and liability cash flow matching ($m) – June 2019 • Assets deliver contracted cash flows to match contracted liabilities 7,000 6,000 • Risk appetite seeks to mi
Slide 65: Funds Management
Funds Management sales and FUM Funds Management Strong FUM growth track record • Fidante Partners 1 Funds Under Management (FUM) ($bn) 11% CAGR • multiple boutique brands 78.0 79.0 • located in Australia, UK and US 18.4 20.1 66.9 • asset class diversification 15.9 56.7 • replicating model in Europe
Slide 66: Fidante Partners capability
Funds Management sales and FUM Fidante Partners capability Adding new managers and expanding distribution footprint Fidante Partners FUM growth ($bn) 1 60 boutique sale Boutiques formed pre-Dec 2010 50 40 30 20 10 0 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16
Slide 67: FM – multiple brands and strategies
Funds Management mangers FM – multiple brands and strategies Scalable and diversified ~$79bn of FUM Equities $25.9bn1 Multiple brands & strategies Alternatives $12.5bn1 Fixed Income $40.6bn1 FY19 – 30 June 2019 1. Funds Under Management (FUM) as at 30 June 2019. 67
Slide 68: Fidante Partners boutique managers
Funds Management mangers Fidante Partners boutique managers Diversified managers and investment strategies Partnership Partnership Boutique Asset class Boutique Asset class commenced commenced Aug 2010 Australian and global equities Mar 2018 Event-driven credit specialist Nov 2008 Australian fixed i
Slide 69: Fidante Partners
Fidante Partners model & performance Fidante Partners Contemporary model with strong alignment of interests Administration services Distribution services • Investment operations • Asset consultant & research • Client operations Investment • Strategic positioning • Risk and compliance Management • Pr
Slide 70: Fidante Partners performance advantage
Fidante Partners model & performance Fidante Partners performance advantage Model supports superior performance • Boutiques: Outperformance of Australian boutique managers 1 • enjoy investment autonomy 2% • are high conviction investors • take more active exposures 1% • have generated consistent alp
Slide 71: Funds Management investment performance
Fidante Partners model & performance Funds Management investment performance Strong performance underpinning superior net flows 1 Fidante Partners percentage of funds 1st or 2nd quartile 2 Funds Management performance relative to benchmark 5% 17% 29% 20% 5 years 93% 11% 21% 3 years 85% 71% 67% 56% 5
Slide 72: Funds Management
Fidante Partners manger capacity Funds Management Growth supported by available capacity and superior flows Manager capacity ($bn) Quarterly net flows vs peers1 ($bn) 8 30 Fidante Partners 6 Peer average 4 20 2 - 10 (2) (4) - Equity Fixed Income Alternatives (6) Managers Managers Managers FUM Availa
Slide 73: Challenger Investment Partners (CIP)
Challenger Investment Partners model Challenger Investment Partners (CIP) Proven long-term investment track record and capability 1 • $20 billion of FUM • Investment manager for Challenger Life and 3rd party institutions • Clients benefit from experience and market insights through breadth and scale
Slide 74: Important note
Important note The material in this presentation is general background information about Challenger Limited activities and is current This document may contain certain ʻforward-looking statementsʼ. The words ʻforecastʼ, ʻexpectʼ, ʻguidanceʼ, ʻintendʼ, at the date of this presentation. It is informat