Slide 1: FY17 Financial Results
FY17financial FY17 financialresults results XXXXXX Record results Rerc 15 August 2017 Strategic relationship and equity placement Positioned for future growth 15 August 2017
Slide 2: Overview
Overview Record results Strategic relationship and equity placement Positioned for future growth FY17 highlights FY17 strategic initiatives Positioned for future growth Brian Benari – Managing Director and Chief Executive Officer Financial results Andrew Tobin – Chief Financial Officer Outlook Brian
Slide 3: Highlights
Highlights Record results Strategic relationship and equity placement Positioned for future growth FY17 highlights Record results underpinned by strong AUM growth Leading outcomes across multiple performance measures FY17 strategic initiatives Significant progress against long-term plan Positioned f
Slide 4: FY17 highlights
FY17 highlights Record results underpinned by strong AUM growth 1 Group Assets Under Management ($bn) Normalised NPAT ($m) and EPS (cps) 40 0 68.5 70 39 0 70.0 64.6 Kapstream Up 17% to $70.0bn 38 0 385 65 Normalised NPBT up 8% to $505m 61.2 37 0 sale Benefiting from strong 36 0 Normalised NPAT up 6%
Slide 5: FY17 highlights
FY17 highlights Leading outcomes across multiple performance measures 12.1% $6.2bn Life book growth Funds Management net flows 1 Rated #1 by advisers 97% of Fidante FUM 2 ‒ BDM Team ‒ Overall Satisfaction outperforming benchmark ‒ Client Services ‒ Technical Services ‒ Image and reputation 88% emplo
Slide 6: Our vision and strategy
Our vision and strategy A clear plan for long-term growth To provide our customers with financial security for retirement Increase the Australian Be recognised as the Provide customers with Deliver superior retirement savings pool leader and partner of relevant investment outcomes to customers alloc
Slide 7: FY17 strategic initiatives
FY17 strategic initiatives Significant progress against long-term plan Grow allocation to secure and stable retirement incomes Superannuation reforms – engagement and advocacy Thought leadership helping build retirement models Adviser tools – Retirement Illustrator launched Be the market leade
Slide 8: FY17 strategic initiatives
FY17 strategic initiatives Significant progress against long-term plan Provide relevant and superior investments for customers Fidante outperforming benchmark – 97% of FUM over 5 years 1 Two new Fidante boutiques – Avenir Capital & Lennox Capital Partners Seven new strategies offered by existi
Slide 9: Track record of delivery
Track record of delivery 4,500 Disciplined implementation of strategy 4,000 STREAMLINE FOCUS STRATEGY DELIVER ON STRATEGY 3,500 3,000 $51bn Annuity sales1 • Annuities on key platforms Rolling annual annuity sales ($m) 2,500 Group AUM • Retirement income models • Accurium & SMSF opportunity 2,000 • A
Slide 10: Track record of delivery
Track record of delivery 4,500 Disciplined implementation of strategy $70bn 4,000 STREAMLINE FOCUS STRATEGY DELIVER ON STRATEGY 3,500 3,000 Expanded distribution footprint 1 $51bn Annuity sales Rolling annual annuity sales ($m) Leveraged technology via platforms 2,500 Group AUM Integrated into
Slide 11: Positioned for the future
Positioned for the future Life book growth accelerating 4,500 STREAMLINE FOCUS STRATEGY DELIVER ON STRATEGY $15.7bn 4,000 AMP/BT operational Colonial experience – sales +150% 3,500 Annuity sales1 Rolling annual annuity sales ($m) Retirement income models emerging Life investment assets 3,000 Com
Slide 12: Strategic relationship and equity placement
Strategic relationship and equity placement Broadening relationship and funding future growth Strategic relationship with MS&AD Group • Increases access to Japanese market through MS&AD ~A$24bn market cap 40,600 employees Total assets ~A$241bn 5 business domains • Opportunities for both Challenger a
Slide 13: Financial results
FY17 financial results XXXXXX 15 August 2017 Financial results Andrew Tobin Chief Financial Officer
Slide 14: Group result
Group result Strong asset growth and tight cost control Movement in Normalised and Statutory NPAT ($m) Normalised NPBT $505m – up 8% Normalised Normalised Statutory NPBT NPAT NPAT • Net income up $45m (6.2%) – underpinned by strong asset growth 39 6 – +12% average Group AUM to $64.7bn (6) (1) – +17%
Slide 15: Group result
Group result Highly scalable business with significant cost advantage Challenger significantly lower than industry average1 Normalised cost to income ratio (%) 45% 70% 65% 60% 40% 55% 38% Cost to income ratio Industry average 50% 50% 36% 35% 45% 34% 34% 40% 32% 35% 30% 30% 30% 25% 20% 25% FY10 FY11
Slide 16: Life result
Life result New distribution initiatives driving sales and book growth Total Life sales ($m) Life book growth ($bn) 4,952 1.3 Sales up 14% to $5.0bn Life book growth +$1.3bn up 23% 4,350 3,697 Annuity sales growth 1.1 Representing 12.1% growth (+20%) benefiting on opening period liabilities from new
Slide 17: Life sales
Life sales Strong sales growth and actively reweighted to long-term FY17 annuity sales $4.0bn – up 20% 2 Annuity sales mix shifting to long-term • Lifetime sales $1.0bn – up 70% 4,000 100% – benefiting from platform initiatives 3,500 90% – includes CarePlus ~$202m (up from $60m) 1 80% 3,000 • Term s
Slide 18: Life book growth
Life book growth Record full year increase Life book growth 1,400 14% $1,313m Life book growth +$1.3bn – up 23% 1,200 12% • represents 12.1% growth on 1 $1,068m opening period liability 1,000 10% $651m Annuity book growth +$900m – up 22% 800 8% • represents 9.4% growth on 600 6% opening period liabi
Slide 19: Life maturities
Life maturities Benefiting from increased long-term sales Annuity maturity profile – projection ($m)1 Annuity maturities – actual (% of opening liability)2 12,000 35% 33% 10,000 33% 28% 30% 29% 8,000 27% 30% 24% 27% 6,000 26% 4,000 25% 24% ~25% 2,000 20% FY13 FY14 FY15 FY16 FY17 FY13 FY14 FY15 FY16
Slide 20: Life margins
Life margins Product margin driven by lower yields & change in product mix Life COE margin – FY16 to FY17 Product margin -3 bps 4.49% 4.29% 0.06% 0.21% (0.13%) (0.04%) 1.02% Life COE margin FY16 to FY17 (0.30%) 0.89% 0.76% 0.72% • Return on shareholder capital -13 bps Product cash margin Normalised
Slide 21: Life Return On Equity
Life Return On Equity All product categories meeting 18% ROE target Product Domestic Japanese Institutional category annuities annuities Guaranteed Index Return (GIR) Product Amortising fixed term and Amortising Fixed term and description lifetime annuities fixed term annuities liquid index return p
Slide 22: Life investment portfolio
Life investment portfolio High quality portfolio providing reliable income Fixed income (66%) Property (22%) • $1.1bn increase in FY17 • 1 property acquired (~$60m) ‒ 1H17 +$0.2bn – Canberra office on 6.25% cap rate ‒ 2H17 +$0.9bn – including Challenger Capital Notes 2 ($0.5bn) • 4 properties dispos
Slide 23: Life investment experience
Life investment experience Positive asset partially offset by liability experience Asset +$92m + Liability -$71m = Total investment experience +$21m (pre-tax) 150 100 Actual capital growth 50 Normalised capital growth Investment experience - (50) (100) Fixed Property Infrastructure Equities Annuity
Slide 24: Funds Management result
Funds Management result Strong net flows driving FUM and earnings growth Net flows1 ($bn) Average FUM ($bn) 6.2 61.8 FY17 net flows $6.2bn 55.1 Average FUM up 12% or $6.7bn 55.1 Strong net flows for both Fidante Partners +12% Fidante Partners and CIP2 2.9 CIP2 +13% 2.4 Q417 +$2.0bn Strong equity and
Slide 25: Funds Management performance
Funds Management performance Long-term investment performance attracting net flows Strong investment performance track-record Fidante Partners’ boutiques • Fund performance measured net of fees 1 performance relative to benchmark • Over one year – 93% of FUM outperforming ‒ up from 54% at December 2
Slide 26: Regulatory capital
Regulatory capital Strongly capitalised to support growth CLC excess capital Movement in CLC’s excess regulatory capital ($m) • $1.3bn of excess regulatory Regulatory capital +$575m PCA -$360m capital and Group cash • Increase in regulatory capital (68) 11 from retained earnings and (60) (86) 460 Ca
Slide 27: Regulatory capital
Regulatory capital Capital initiatives undertaken to support growth Challenger Capital Notes 2 Pro forma CLC PCA ratio2 • Offer upsized from $350m to $460m 2.0 • 4.40% p.a. margin (bottom end of guidance range) 1.75x 1 1.57x • Effective source of funding with franking credits 1.5 reducing interest e
Slide 28: Dividends
Dividends Increasing shareholder returns Dividend (cps) Normalised dividend payout ratio (%) 40.0 60% 34.5 30.0 32.5 50% 30.0 50% 50% 50% 49% 20.0 45% 40% 10.0 30% FY15 FY16 FY17 FY15 FY16 FY17 FY18+ Franked dividend Normalised dividend payout ratio Unfranked dividend Normalised dividend payout guid
Slide 29: Outlook
FY17 financial results XXXXXX 15 August 2017 Outlook Brian Benari Managing Director and Chief Executive Officer
Slide 30: A clear plan for long-term growth
A clear plan for long-term growth FY18 strategic priorities Grow allocation to secure Be the market leader and stable retirement incomes and partner of choice ‒ Focus on MyRetirement reforms ‒ Leading adviser and consumer ratings ‒ Standard Life ARGBS rollout ‒ AMP and BT operational 1 ‒ Launch DLAs
Slide 31: Outlook
Outlook Positioned for future growth FY18 profit guidance Normalised net profit before tax of between $545m to $565m – growth of between 8% to 12% 1 Target 18% ROE over medium term FY18 – impacted by higher levels of capital until fully deployed Maintain normalised dividend payout ratio 2 45% to 50%
Slide 32: Highlights
Highlights Record results Strategic relationship and equity placement Positioned for future growth FY17 highlights Record results underpinned by strong AUM growth Leading outcomes across multiple performance measures FY17 strategic initiatives Significant progress against long-term plan Positioned f
Slide 33: Appendix
FY17 financial results XXXXXX 15 August 2017 Appendix additional background information
Slide 34: Our vision and strategy
Our vision and strategy A clear plan for long-term growth To provide our customers with financial security for retirement Increase the Australian Be recognised as the Provide customers with Deliver superior retirement savings pool leader and partner of relevant investment outcomes to customers alloc
Slide 35: Business overview
Business overview Two core businesses benefiting from super system growth Challenger Limited (ASX:CGF) Life Funds Management 1 2 #1 market share in annuities One of the fastest growing fund managers Life Fidante Partners Leading provider of annuities and guaranteed Co-owned, separately branded, acti
Slide 36: Australian superannuation system overview
Australian superannuation system overview FY17 – Full year 30 June 2017
Slide 37: Strategy targeting superannuation system
Strategy targeting superannuation system Attractive market with long-term structural drivers Superannuation system growth 3 Australian superannuation system forecast ($bn) 10,000 • 4th largest global pension market1 • Australian super system growing 8,000 twice the speed of global pension markets1 6
Slide 38: Strategy targeting superannuation system
Strategy targeting superannuation system Attractive market with long-term structural drivers Contribution rate 1 • Increasing from 9.5% to 12% (of wages) • 2 $104bn of super contributions in 2016 1 Superannuation Guarantee (SG) contribution rate 1992 1997 2002 2015 2025 3% 6% 9% 9.5% 12% Demographic
Slide 39: Australia's superannuation system
Australia’s superannuation system Attractive market with long-term structural growth drivers Two phases of superannuation 1 Projected superannuation assets 2017 – 2035 ($bn) Accumulation phase Retirement phase 8,000 Super ‘savings’ Super ‘spending’ Funds Management Life Annual transfer to retirement
Slide 40: Retirement phase market drivers
Retirement phase market drivers Market leader well positioned in high growth market Super funds partnering with Life companies Over 700 Australians turning 65 every day Industry moving ahead of regulation Older and 20-year cycle of retiring ‘Baby-Boomers’ Market healthier retirees Natural market gro
Slide 41: Australia's superannuation system
Australia’s superannuation system High allocation to equities … low allocation to fixed income 1 2, Australia has low fixed income and high equity allocations Australia’s usage of annuities is low Equities 80% Australia – 51% 75% 70% OCED – 23% Fixed 50% income 30% (inc. cash) Australia – 13% OCED –
Slide 42: Retirement income
Portfolio construction Retiree needs addressed through income layering Existing products New products Discretionary Fidante - equities Fidante global equities (Avenir) (wants) Fidante - alternatives Fidante small cap equities (Lennox) Fidante - infrastructure Seven new strategies for existing boutiq
Slide 43: Government enhancing retirement phase
Government enhancing retirement phase Reforms well underway … setting overall industry direction CIPR (MyRetirement) New retirement income rules • Reform to lift living z standards and choices for Objective of retirees superannuation • To help guide retirement • New framework to enable income decisi
Slide 44: Regulation
Regulation Reforms well underway … setting overall industry direction Regulatory Retirement Income Objective of CIPRs reform Streams Review Superannuation (MyRetirement) Remove regulatory barriers Enshrine objective of To help guide restricting income stream superannuation in retirement income produ
Slide 45: Government enhancing retirement phase
Government enhancing retirement phase CIPR (MyRetirement) overview1 Problems and objectives of proposed framework for CIPRs CIPRs to provide stream of broadly consistent real income for life FY17 – Full year 30 June 2017 1. Extract from the discussion paper issued by the Australian Government on 15
Slide 46: Life – Distribution, Product and Marketing (DPM)
Life – Distribution, Product and Marketing (DPM) FY17 – Full year 30 June 2017
Slide 47: Distribution
Distribution A competitive advantage driving long-term growth Influencing Improving retirement market Research Technology outcomes - including practice annuities on platform and retirement calculators Retirement specific Meeting the goals and Adviser Product education and managing the risks of pract
Slide 48: New relationships
New relationships Industry moving ahead of regulation – using annuities to build CIPRs 2016 financial year 2017 financial year 2018 ClearView Wealth Solutions platform offering Suncorp branded Australia’s largest retail Challenger annuities annuities backed by Challenger annuities via platform offer
Slide 49: New relationships strengthening leadership
New relationships strengthening leadership Platforms broadening access to Challenger annuities New platform relationships New platform relationships Provides access to ~1/3rd 1,2 Provides access to ~2/3rd’s 3,4 of super industry FUM of financial advisers Q2 FY18 10% Q3 FY18 2% 24% 29% 3% 33% 5% Aust
Slide 50: Platform relationships
Platform relationships Colonial First State (CFS) case study • Based on Ernst & Young stochastic model 1 • Annuities on platform - very positive adviser feedback – to determine product combinations delivering better – more likely to use annuities; simple to use client outcomes – easy origination pro
Slide 51: MS Primary relationship
MS Primary relationship Partnering with leading provider of AUD annuities in Japan • Large and established Japanese AUD annuities market – growth driven by ageing population and low domestic interest rates Product overview – AUD annuity market multiple times the size of Australia’s ► Single premium
Slide 52: Life Australian product overview
Life Australian product overview Providing guaranteed income and peace of mind % of Product category total Key features book Fixed term annuities Available on leading platforms Guaranteed Annuity Guaranteed rate for a fixed term Guaranteed Income Plan Payment frequency options 53% Guaranteed I
Slide 53: Brand strength
Brand strength Brand strengthening with consumers1, leading with advisers2 Brand strength 2011 100% ‘Real Stories’ 80% 60% 40% 2013 20% ‘On Paper’ 2010 2011 2013 2016 2016 Consumers Advisers ‘Lifestyle ‘Prompted ‘Leaders in Expectancy’ brand retirement awareness’ income’ FY17 – Full year 30 June 201
Slide 54: Highly rated by advisers
Highly rated by advisers Challenger No.1 in overall adviser satisfaction 1 Challenger annuities service analysis conducted by Wealth Insights Challenger annuities service analysis 8.5 conducted by Wealth Insights and compared to the 8.0 1 broader market 7.5 7.0 6.5 High profile industry survey 6.0 –
Slide 55: Life - financials
Life - financials FY17 – Full year 30 June 2017
Slide 56: Life
Life Sales and AUM benefiting from new relationships Total Life sales ($m) – 13% CAGR over 5 years Life AUM ($bn) – 10% CAGR over 5 years 4,952 15.7 Other Life sales 14.1 4,350 Annuity sales 12.8 3,697 11.1 3,380 10.8 3,131 9.8 2,658 FY12 FY13 FY14 FY15 FY16 FY17 FY12 FY13 FY14 FY15 FY16 FY17 Averag
Slide 57: Life
Life Investment portfolio overview Equity and other (9%) Infrastructure (3%) ‒ 73% offshore equities ‒ 60% unlisted investments 3% ‒ 27% domestic equities 9% ‒ 40% listed investments ‒ 62% beta equities ‒ 66% domestic assets ‒ 38% alternatives and other ‒ 34% offshore assets Total 22% investment ass
Slide 58: Normalised profit framework
Normalised profit framework Reflects underlying performance of Life business Investment experience – cumulative since FY10 ($m) 250 Investment experience overview Asset and liability valuation movements are reported as investment experience. These 150 movements are generally non-cash, and by separat
Slide 59: Funds Management
Funds Management FY17 – Full year 30 June 2017
Slide 60: Funds Management
Funds Management Strong FUM growth track record FUM ($bn) – 17% CAGR over 5 years 80 • Funds Management FUM $67bn, up from $31bn 70 5 years ago 60 ‒ annual growth 17% p.a. 1 ‒ market growth 10% p.a 50 • Fidante Partners 40 ‒ 15 boutique brands 30 ‒ geographic and asset class diversification ‒ replic
Slide 61: Funds Management
Funds Management Growth supported by available capacity and superior flows Manager capacity ($bn) Quarterly net flows vs peers1 ($bn) 2.5 45 40 Available capacity 2.0 35 FUM 1.5 30 1.0 25 20 0.5 15 0.0 10 -0.5 5 -1.0 Equity Fixed Alternatives managers income managers managers Challenger Funds Manage
Slide 62: FM - multiple brands and strategies
FM - multiple brands and strategies Scalable and diversified ~$67bn1 of FUM Equities A$22.4bn Multiple brands & strategies Challenger Investment Partners Alternatives A$11.7bn Fixed Income A$32.9bn FY17 – Full year 30 June 2017 1. Funds Under Management (FUM) as at 30 June 2017. 62
Slide 63: FM - Fidante Partners
FM - Fidante Partners Contemporary model with strong alignment of interests Administration services Distribution services • Investment operations • Asset consultant & researcher • Client operations relationships • Compliance Administration (Fidante Partners Distribution (Fidante Partners • Strategic
Slide 64: FM - Fidante Partners boutique managers
FM - Fidante Partners boutique managers Diversified managers and investment strategies Fidante Partners Fidante Partners Investment Investment Boutique Asset class Boutique Asset class date date Aug 2010 Australian equities May 2010 Australian equities (income focus) Nov 2008 Australian fixed income
Slide 65: FM - Challenger Investment Partners (CIP)
FM - Challenger Investment Partners (CIP) Proven long-term investment track record and capability 1 • $16 billion of FUM • Investment manager for Challenger Life and 3rd party institutions • Clients benefit from experience and market insights CIP gains through breadth and scale of mandates • Key rel
Slide 66: Important note
Important note The material in this presentation is general background information about Challenger Limited activities and is current at the date of this presentation. It is information given in summary form and does not purport to be complete. It is not intended to be relied upon as advice to inves