Slide 1: 1H10 Half Year Financial Results
For personal use only 1H10 Half Year Financial Results Strategy aligned to structural trends Dominic Stevens Chief Executive Officer 22 F February b 2010
Slide 2: Strong financial performance
Challenger Group Half Year Ended 31 Dec 09 Strong financial performance For personal use only • Financial performance – Normalised NPAT of $116m up 9% and normalised EBIT of $158m, flat – Normalised EPS of 22 cps up 17% – Cost to income ratio down 230bps to 41.8% 41 8% – Operating cash flow of $114m
Slide 3: Accreting capital and EPS
Challenger Group Half Year Ended 31 Dec 09 Accreting capital and EPS For personal use only Earnings / Normalised EPS • 4 year EPS CAGR of 18% 200 Normalised NPAT Normalised EBIT 24 Basic EPS (RHS) 175 22 • Normalised NPAT increased 20 9% on pcp - cash proceeds 150 18 cps s f from Mortgage M t Mgmt M
Slide 4: Strategy aligned to structural trends
For personal use only Strategy gy aligned g to structural trends 4
Slide 5: Core group competencies
Challenger Group Half Year Ended 31 Dec 09 Core group competencies For personal use only • Origination of guaranteed income products and fiduciary FUM Origination • Simple, secure products that deliver value for money • Managing M i assets t tto maximise i i returns, t Investment benefiting policy h
Slide 6: Targeted focus on growing pool of FUM
Challenger Group Half Year Ended 31 Dec 09 T Targeted t d focus f on growing i pooll off FUM For personal use only Deloitte: Superannuation FUM pool ($bn) ( ) Retail Personal $275 SMSF $367 Industry $209 $40 Other $71 Corporate $182 $99 Public Sector Retail Employer 6 Source: Deloitte March 2009 Dyn
Slide 7: Strategy aligned to structural trends
Challenger Group Half Year Ended 31 Dec 09 Strategy aligned to structural trends For personal use only Potential p positive tailwinds from regulatory reviews Changing consumer risk appetite creating demand for guaranteed capital and income streams Product and distribution initiatives expanding acces
Slide 8: Ageing population driving FUM growth
Challenger Group Half Year Ended 31 Dec 09 Ageing population driving FUM For personal use only growth A Australian li population l i growth h 2008 - 2028 8
Slide 9: Ageing population driving defensive asset growth
Challenger Group Half Year Ended 31 Dec 09 Ageing population driving defensive For personal use only asset growth A Australian li population l i growth h 2008 - 2028 9 Inferred allocation to fixed income using a ‘Life-Cycle’ approach
Slide 10: Existing product and distribution
Challenger Group Half Year Ended 31 Dec 09 Existing product and distribution For personal use only Investor Channel Base B Opportunity Guaranteed Income Plan (GIP) Retail IFAs Personal • Established E t bli h d annuity it product d t– / SMSFs fixed rate and term certain Guaranteed Income Fund Changi
Slide 11: Superannuation pool – GIP coverage
Challenger Group Half Year Ended 31 Dec 09 Superannuation pool – GIP coverage For personal use only Deloitte: Superannuation FUM pool ($bn) GIP accessible Retail Personal to ~20% of $275 Retail Personal SMSF and SMSF $367 Industry $209 $40 Other $71 Corporate $182 $99 Public Sector Retail Employer 1
Slide 12: GIP – underlying sales growth
Challenger Group Half Year Ended 31 Dec 09 GIP – underlying sales growth For personal use only 300 Impact of GFC/deposit ~30% Impact of social guarantee 250 growth y security changes 200 $m 150 100 50 0 Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec 04 05 05 05 0
Slide 13: Expanded product and distribution
Challenger Group Half Year Ended 31 Dec 09 Expanded product and distribution For personal use only Investor Channel Base B Opportunity Guaranteed Income Plan (GIP) Retail IFAs Personal • Established E t bli h d annuity it product d t– / SMSFs fixed rate and term certain Guaranteed Income Fund Changi
Slide 14: Superannuation pool – GIP/GIF coverage
Challenger Group Half Year Ended 31 Dec 09 Superannuation pool – GIP/GIF coverage For personal use only Deloitte: Superannuation FUM pool ($bn) GIF provides full access to t Retail R t il Personal and Retail Personal SMSFs via $275 investment platforms SMSF $367 Industry $209 $40 Other $71 Corporate
Slide 15: GIF – distribution progress
Challenger Group Half Year Ended 31 Dec 09 GIF – distribution progress For personal use only Three phase organic annuity growth • Develop unitised annuity product for platforms – GIF Phase 2 • Expand distribution team • Engage with asset • Engage E with ith Fi Financial i l consultants Planners / pr
Slide 16: Expanded product and distribution
Challenger Group Half Year Ended 31 Dec 09 Expanded product and distribution For personal use only Investor Long Term Channel B Base Growth G th Guaranteed Income Plan (GIP) Retail IFAs Personal • Established E t bli h d annuity it product d t– / SMSFs fixed rate and term certain Guaranteed Income F
Slide 17: Superannuation pool – GIP/GIF/GIR coverage
Challenger Group Half Year Ended 31 Dec 09 Superannuation pool – GIP/GIF/GIR For personal use only coverage Deloitte: Superannuation FUM pool ($bn) Retail Personal $275 SMSF $367 Industry GIR offers $209 solutions for Retail Employers and Other Corporate $40 $71 Corporate $182 $99 Public Sector Reta
Slide 18: GIR – new guaranteed income products
Challenger Group Half Year Ended 31 Dec 09 GIR – new guaranteed income products For personal use only 600 • Issued via trusts with guaranteed returns over 500 indices, provided by the Lif C Life Company • Targeted at asset 400 consultants looking to b tt manage their better th i defensive asset $m 3
Slide 19: Potential regulatory tailwinds
Challenger Group Half Year Ended 31 Dec 09 Potential regulatory tailwinds For personal use only “This will be the first comprehensive review into Australia’s compulsory $ $1.1 trillion superannuation system, focussed on removing unnecessary costs, fees, commissions and complexity and boosting return
Slide 20: Strong fiduciary performance and flows
Challenger Group Half Year Ended 31 Dec 09 Strong fiduciary performance and flows For personal use only Internal Investment Mgmt - 6 months performance • Fund pperformance 50.0% Alpha returning over the period 40.0% Benchmark with greater than 80% of 30.0% funds outperforming 20 0% 20.0% • Market di
Slide 21: Specialised funds
Challenger Group Half Year Ended 31 Dec 09 Specialised funds For personal use only • Remain a committed participant in the Specialised Funds sector (real estate and infrastructure) • Focus has been on successfully managing assets through GFC • CDI – Recapitalised mid year at minimal discount – Reduc
Slide 22: Putting capital to work
Challenger Group Half Year Ended 31 Dec 09 Putting capital to work For personal use only Capital deployment in the last six months Liability growth Increased FTE to leverage • Organic platform footprint; capital to • Platforms support new flow • Capture upside from any regulatory changes • M&A Life
Slide 23: 1H10 Interim Financial Results
For personal use only 1H10 Interim Financial Results Brian Benari Group Chief Operating Officer & Chief Financial Officer 22 F February b 2010
Slide 24: Group financial performance
Challenger Group Half Year Ended 31 Dec 09 Group financial performance For personal use only % Mvt Financial Fi i l 350 60% 1H10 1H09 1H09- Trend Performance 1H10 300 50% 250 Assets Under $22.9bn $20.5bn 12% Ï $ m illion 200 Management1 40% 150 Normalised Net Income $272m $284m (4%) Ð 100 30% 50 Exp
Slide 25: Cost control across the Group
Challenger Group Half Year Ended 31 Dec 09 Cost control across the Group For personal use only 160 50% 140 120 45% 100 $m 80 40% 60 40 35% 20 0 30% 1H08 2H08 1H09 2H09 1H10 Underlying Amortisation of LT remuneration (non-cash) Mortgage Mgmt One-off restructure costs Cost to income ratio 25
Slide 26: Life financial performance
Life Funds Mgmt Half Year Ended 31 Dec 2009 Life financial performance For personal use only 175 40% % Mvt Financial 150 1H10 1H09 1H09- Trend Performance 125 30% 1H10 $ million 100 20% AUM – Life $6.7bn $6.1bn 10% Ï 75 50 10% Normalised Cash 25 Operating Earnings $154m $122m 28% Ï 0 0% 1H09 2H09 1H
Slide 27: Investment Experience
Life Funds Mgmt Half Year Ended 31 Dec 2009 Investment Experience For personal use only 300 Aggregate hedging impact – Contraction currency/interest rates 250 in debt spreads 200 Increase in listed Gain on CIF infrastructure hedge (pre-sale 150 of Southern Policy Holder values holding) Liabilities m
Slide 28: Funds Management financial performance
Life Funds Mgmt Half Year Ended 31 Dec 2009 Funds Management financial performance For personal use only 80 100% % Mvt Financial Fi i l 60 80% 1H10 1H09 1H09- Trend $ million Performance 1H10 60% 40 40% Funds Under 20 20% Management $19 2bn $19.2bn $16 8bn $16.8bn 15% Ï 0 0% 1H09 2H09 1H10 Net Incom
Slide 29: Cash movements
Challenger Group Half Year Ended 31 Dec 09 Cash movements For personal use only 500 400 300 $m 200 100 0 Pro-forma MM CLC Buybacks Final Dividend Group Costs Available MTN Net Cash 31 cash 30 June outstanding Distribution Cash 31 Dec outstanding^ Dec 2009 2009 proceeds* 2009 * - Includes HOM share p
Slide 30: Capital Management
Challenger Group Half Year Ended 31 Dec 09 Capital Management For personal use only Dividends – cents per share (cps) • Interim dividend declared 7.0 40% • 6.0 cents per share, unfranked 6.0 35% • Sustainable payout ratio and 5.0 30% di id d path dividend th maintained i t i d 4.0 25% • Active capit
Slide 31: Outlook
For personal use only Outlook
Slide 32: Outlook
Challenger Group Half Year Ended 31 Dec 09 Outlook For personal use only • Expect 2010 financial markets to be variable as markets repair • Challenger strategy aligned to major structural trends occurring in the retirement income sector, supported by: – a simplified business – broader distribution b
Slide 33: Disclaimer
For personal use only Disclaimer: The material in this presentation is general background information about Challenger Financial Services Group activities and is current at the date of the presentation. It is information given in summary form and does not purport to be complete. It is not intended t