Challenger Limited · ASX:CGF
Challenger — Investor Day (June 2021)
53 slides from Challenger's investor day presentation, Jun 17, 2021
Slide 1: Challenger Investor Day
Challenger Limited 17 June 2021 CHALLENGER INVESTOR DAY Challenger (ASX: CGF) today reaffirmed its FY21 profit guidance and provided an update on its strategy and outlook for the financial year ahead. Challenger CEO and Managing Director, Richard Howes, stated the business has emerged from a period
Slide 2: For more information contact
Challenger Limited 17 June 2021 Expanding on the update from Mr Howes, the executives responsible for Life, Funds Management, Bank Transition, and Operations and Technology each provided updates. Highlights of these presentations included insights into the very strong growth being achieved by the Fu
Slide 3: Challenger Limited Investor Day
Challenger Limited Investor Day Providing our customers with financial security for a better retirement 17 June 2021
Slide 4: Overview
Overview Providing customers with financial security for a better retirement Corporate strategy and business update 9:00 – 9:20 3 Richard Howes – Managing Director and Chief Executive Officer Life 9:20 – 10:00 12 Angela Murphy – Chief Executive, Life Funds Management 10:00 – 10:20 27 Nick Hamilton –
Slide 5: Corporate strategy and business update
Corporate strategy and business update Richard Howes Managing Director and Chief Executive Officer
Slide 6: Key points
Key points Challenger well positioned for growth Corporate strategy Our purpose is to provide customers with financial security for a better retirement Maintain strong capital position Enhanced settings aligned with purpose of providing financial security Group ROE target ROE target adjusted to refl
Slide 7: Corporate strategy
Corporate strategy Our purpose is to provide customers with financial security for a better retirement Our vision statements Strategic priorities Expand range of Broaden customer Customers Community financial products and access across By 2030 we will provide 1 in 5 Australian Champion financial sec
Slide 8: Provide customers with financial security for a better retirement
Provide customers with financial security for a better retirement Complementary businesses extending customer and product reach FUNDS High alpha across all capabilities MANAGEMENT Equities, alternatives, real assets, fixed income Term deposits and future product innovation opportunities BANK Platfor
Slide 9: Challenger well positioned for growth
Challenger well positioned for growth Industry and market dynamics High growth market • Attractive superannuation system with long-term structural drivers world class savings system • Market leading positions in retirement income and active management Supportive regulatory environment • RIR supporti
Slide 10: Maintain strong capital position
Maintain strong capital position Enhanced settings aligned with purpose of providing financial security Maintaining prudent capital settings PCA range PCA range 1.30x to 1.60x 1.30x to 1.70x • Increased flexibility for investment market volatility • Reduced risk of locking in negative investment 1.7
Slide 11: Group ROE target
Group ROE target Focus on risk adjusted returns From FY22 ROE target adjusted to RBA cash rate +12% Change in ROE target RBA cash rate RBA cash rate ROE target reflects enhanced risk settings +12% +14% ROE tailwinds Enhanced • PCA ratio now set at 1.60x up from 1.45x 1 Rising interest rates risk set
Slide 12: Executive team
Executive team Stable and experienced team focused on delivering strategy Richard Howes Angela Murphy Nick Hamilton Michael Vardanega Managing Director and Chief Executive Officer Chief Executive, Life Chief Executive, Funds Management Head of Bank Transition Years of financial services experience:
Slide 13: Maintaining high employee engagement and progressing ESG
Maintaining high employee engagement and progressing ESG Ongoing focus on flexibility, wellbeing and sustainability initiatives Supporting flexible working & employee wellbeing 85% • Outstanding employee engagement 1 Sustainable engagement • Supporting flexible working Equal to global high performin
Slide 14: Life
Life Angela Murphy Chief Executive, Life
Slide 15: Key points
Key points Australia’s leading retirement income business Building a more resilient business Platform for growth and business resilience Responding to adviser disruption with sales diversification strategy Retail sales now growing with excellent customer experience Institutional an important growth
Slide 16: Platform for growth and business resilience
Platform for growth and business resilience Responding to adviser disruption with sales diversification strategy Retail sales now growing with excellent customer experience Retail term and lifetime sales Sales diversification strategy delivering Both term and lifetime sales growing Growth across all
Slide 17: Institutional growth
Institutional growth Growing and diversifying client base Product reinvestments extending average tenor Life institutional AUM by product ($bn) Life institutional AUM by customer ($bn) $5.2bn $5.2bn $3.1bn $3.1bn $2.3bn $2.3bn $2.1bn $2.1bn $1.7bn $1.7bn Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 Mar-17 Mar
Slide 18: Institutional
Institutional Investment and retirement solutions-based approach We enable our clients to execute their commercial and investment goals Investment Retirement Beta Income Retirement Defined Benefit solutions solutions solutions solutions • Tailored index solutions • Return enhancement • Longevity hed
Slide 19: Solutions
Institutional Evolving solutions providing clients flexibility Investment Retirement Beta Income Retirement Defined Benefit solutions solutions solutions solutions Retirement solution Index Plus Term Annuities Buy-in integration Solutions Non-account Term Deposits Buy-out based pension Fixed term Lo
Slide 20: Index Plus offering
Index Plus offering Flexible solution delivering above benchmark returns Key features How Index Plus works Contractual alpha Guaranteed return above an agreed benchmark Flexibility Step 1 Step 2 Step 3 Step 4 Investment term and index selection Client invests Challenger Challenger The Fund into the
Slide 21: Index Plus offering
Index Plus offering Flexible solution delivering above benchmark returns Client Flexibility to choose from a range of indices % of Index Distributions Indices used by clients Initial Plus AUM and investment redemptions Equity indices 35% Inflation and CPI 31% Index Plus Fund (Trust) Government and T
Slide 22: Index Plus returns
Index Plus returns Life ROE inline with Group target Index Plus Fund Eligible assets determines Life COE margin (Trust) How eligible assets are invested determines capital intensity and COE1 margin but does not impact ROE Illustrative Index Plus returns Total Product Fixed Daily Fixed Term Eligible
Slide 23: Institutional opportunity
Institutional opportunity Investing in new partnerships to help achieve 2030 customer vision Clients developing comprehensive retirement solutions Case study: Major profit-for-member super fund institutional client Investment Retirement solutions Beta Income Retirement Defined solutions solutions so
Slide 24: Investment portfolio – Asset risk premium update
Investment portfolio – Asset risk premium update Significant contraction in fixed income investment grade risk premiums 1 Asset risk premiums Asset premiums 12% • Relative to prevailing interest rates and 10% excludes illiquidity premiums 8% 2 6% • Fixed income IG – significant 4% contraction over l
Slide 25: Relative value and investment portfolio
Relative value and investment portfolio No significant change to asset allocation expected in FY22 Life AUM allocation Property 16% Current portfolio 4 • Office (~51% of income) - Defensive portfolio Fixed income 77% 4 with 61% leased to Government 4 • Retail (~42% of income) - Remained resilient Cu
Slide 26: Life front book economics
Life front book economics Reflects current market conditions Illustrative example of current book economics (return on equity and asset return spread to liability funding) Economics of new business based on current market conditions • Represents Total Asset Normalised Normalised Asset Return Funding
Slide 27: Fixed income returns
Fixed income returns Superior capability Track record of generating fixed income returns above benchmark Challenger capability return enhancement Credit risk Illiquidity Private Securitisation Liquid premium premium markets premium strategies • Leveraging breadth, scale and experience Independent Gr
Slide 28: Key points
Key points Australia’s leading retirement income business Building a more resilient business Platform for growth and business resilience Responding to adviser disruption with sales diversification strategy Retail sales now growing with excellent customer experience Institutional an important growth
Slide 29: Funds Management
Funds Management Nick Hamilton Chief Executive, Funds Management
Slide 30: Key points
Key points Fast growing high ROE business with strong business momentum Proven funds management platform with foundations to provide ongoing growth Expanding capability through partnerships with best-in-class managers CIP Asset Management expanding distribution and product reach Diversified client b
Slide 31: Proven platform positioned for ongoing growth
Funds Management Proven platform positioned for ongoing growth We deliver high-quality specialist investment capability, partnering with our clients to provide an outstanding experience and building our reputation as a trusted industry leader Investment capability Distribution Supporting future grow
Slide 32: Laying foundations to support future growth
Funds Management $100bn FUM Laying foundations to support future growth $12bn Alternatives $34bn Equities Markets contribution FUM CAGR growth rates Fixed Income: +20% Equities +20% Alternatives +6% $54bn Fixed Net flows contribution Income Pre FY09 FY09 FY9 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 F
Slide 33: Fidante Partners
Fidante Partners Expanding capability through partnerships with best-in-class managers • Partnering for strategies that are difficult to build Income strategies Ares Investment Management – Global alternatives manager • Partners attracted to distribution capability • Specialist manager with over 20
Slide 34: CIPAM fixed income capability
CIPAM fixed income capability Expanding distribution and product reach Fixed income $16bn – 14% CAGR 1 • Three new products in 4 years – focused on cash +3% to cash +8% • Market leader in domestic private lending – driving FUM growth • CIPAM rebranded – targeting higher margin third party business E
Slide 35: Diversified client base and product offering
Funds Management Diversified client base and product offering • ~90% of top 50 Australian super funds are clients FUM by client type Institutional • ~35% of institutional clients have 2 or more products 79% • >50% of clients have been with Fidante Partners for 8+ years • ~93% outperformance of manda
Slide 36: Key points
Key points Fast growing high ROE business with strong business momentum Proven funds management platform with foundations to provide ongoing growth Expanding capability through partnerships with best-in-class managers CIP Asset Management expanding distribution and product reach Diversified client b
Slide 37: Bank acquisition
Bank acquisition Michael Vardanega Head of Bank Transition
Slide 38: Key points
Key points Extending product and customer reach to provide better retirement outcomes Highly strategic acquisition Scalable digital banking platform providing access to very significant term deposit market Distribution strategy focused on building early momentum with D2C capability Broadening len
Slide 39: Highly strategic acquisition
Highly strategic acquisition Extending product and customer reach to provide better retirement outcomes Strengthen resilience and Broaden customer access across sustainability of Challenger multiple channels • Diversify product offering • New distribution channels • Reduce reliance on retail advice
Slide 40: MyLife MyFinance
MyLife MyFinance Contemporary and highly scalable digital banking platform MyLife MyFinace overview • Digital savings and loans bank 1 • $135m savings and term deposits 1 • $110m mortgage book – low LVR exposed to east coast residential • Average customer age 60 years • Contemporary technology with
Slide 41: Distribution strategy
Distribution strategy Build early momentum with D2C capability Intermediated Direct Institutional FY22 Build early momentum & scale • Initially use MLMF brand • Grow term deposit sales Retail broker Comparison sites Wholesale broker • Leveraging existing direct capability • Building efficient broker
Slide 42: Asset and lending strategy
Asset and lending strategy Strong risk management principles Broadening lending capability to support returns Core lending principles ensures Bank operates Diversified loan book with broad origination capability within risk appetite and manages liquidity Liquidity Asset Backed Corporate Commercial S
Slide 43: Key points
Key points Extending product and customer reach to provide better retirement outcomes Highly strategic acquisition Scalable digital banking platform providing access to very significant term deposit market Distribution strategy focused on building early momentum with D2C capability Broadening len
Slide 44: Operations and Technology
Operations and Technology Chris Plater Chief Executive, Operations and Technology
Slide 45: Key points
Key points Supporting execution and delivery of corporate strategy Strong strategic partnership with businesses to support growth Track record of delivery and positioned to capture scale and support operating leverage Leading banking technology platform – legacy free and highly scalable 2021 Investo
Slide 46: Operations and Technology
Operations and Technology Strong strategic partnership with businesses to support growth Foundations for excellent customer experience Life Funds Management Bank Centralised functions Finance, Risk & Compliance, HR, Treasury, Legal and Strategy Operations and Technology ~300 FTE Operations Technolog
Slide 47: Proven track record of delivery
Proven track record of delivery Well-positioned to capture scale and support operating leverage • Legacy free – single customer registry and administration systems • Supporting significant growth – AUM, transactions, jurisdictions and complexity High reliability • High service levels to Fidante Part
Slide 48: Positioned well for bank integration
Positioned well for bank integration Leading banking technology platform – legacy free and highly scalable Leading technology platform Leverages our capabilities Geared for delivery • Legacy-free, scalable, cloud- • Utilise Challenger’s existing • Well prepared for integration based technology platf
Slide 49: Key points
Key points Supporting execution and delivery of corporate strategy Strong strategic partnership with businesses to support growth Track record of delivery and positioned to capture scale and support operating leverage Leading banking technology platform – legacy free and highly scalable 2021 Investo
Slide 50: Outlook and wrap up
Outlook and wrap up Richard Howes Managing Director and Chief Executive Officer
Slide 51: FY21 & FY22 guidance
FY21 & FY22 guidance Normalised NPBT guidance range between $430m and $480m for FY22 FY21 FY22 GUIDANCE $390m $440m $430m $480m Normalised Net Profit Before Tax Expected to be Mid-point of range +17% on FY21 guidance toward bottom end represents best estimate +’ve deployment of liquids Life COE marg
Slide 52: Corporate strategy
Corporate strategy Our purpose is to provide customers with financial security for a better retirement Our vision statements Strategic priorities Expand range of Broaden customer Customers Community financial products and access across By 2030 we will provide 1 in 5 Australian Champion financial sec
Slide 53: Important note
Important note This presentation was prepared for the purpose of a briefing to equity analysts and certain wholesale investors on 17 June 2021. The material in this presentation is general background information about Challenger Limited’s activities and is current at the date of this presentation. I