Slide 1: FY15 Financial results
For personal use only FY15 Financial results Strong operating results – investing for growth 18 August 2015 Full year 30 June 2015
Slide 2: Outline
Outline For personal use only Operating performance Brian Benari Managing Director & CEO Financial results Andrew Tobin Capital management Chief Financial Officer Strategy update Brian Benari Outlook Managing Director & CEO Full year 30 June 2015 2
Slide 3: Highlights
Highlights Strong operating results – investing for growth For personal use only Operating performance Strong AUM growth and scale benefits driving earnings Shareholders Track record of increasing dividends – now 100% franked Life Strong earnings growth from higher AUM with stable margin Funds Manag
Slide 4: Group operating performance
Group operating performance Strong AUM growth and scale benefits driving earnings For personal use only AUM ► Life – AUM up 15% from book growth and capital initiatives $59.8bn +18% ► Funds Management – AUM up 23% and driven by net inflows Normalised ► Driven by AUM growth with stable Life margin an
Slide 5: Group operating performance: dividends
Group operating performance Track record of increasing dividends – now 100% franked For personal use only Shareholder dividends Dividend and payout ratio 30 50% • 2H15 dividend (15.5 cps) 100% franked 20 40% • FY15 dividend 30.0 cps cps – up 15% on FY14 10 30% – 86% franked – 49% dividend payout rat
Slide 6: Life operating performance
Life operating performance Strong earnings growth from higher AUM with stable margin For personal use only Average AUM ► Increase in average AUM driven by net book growth $12.2bn +13% ► Average AUM also benefiting from 1H15 capital initiatives1 Life COE ► Driven by average AUM growth (+13%) with sta
Slide 7: Strongly positioned to capture market growth
Life operating performance Strongly positioned to capture market growth For personal use only Product Distribution New aged care product - CarePlus #1 BDM and #2 Technical Services 1 VicSuper Guaranteed Pension for Life Income layering/partial annuitisation Funds partnering to build CIPRs
Slide 8: Unlocking new distribution opportunities
Life operating performance Unlocking new distribution opportunities For personal use only Retail CFS platforms Access to one third of super industry – FirstChoice and FirstWrap platforms live 10 August 2015 from new platform opportunities3 – CFS adopting income layering - comprehensive CFS retiremen
Slide 9: Funds Management operating performance
Funds Management operating performance Strong underlying earnings whilst investing for growth For personal use only Average FUM ► Fidante Partners +$9.3bn - strong inflows across boutiques & Whitehelm formation $55.1bn +24% ► CIP1 +$1.4bn - driven by fixed income net inflows Net income ► Fidante Par
Slide 10: Extending a successful and proven model into Europe
Funds Management operating performance Extending a successful and proven model into Europe For personal use only S Extend global distribution and product footprint STRATEGIC PRIORITY ‒ Demand from clients for offshore product increasing ‒ Fidante Partners model highly regarded by asset consultants a
Slide 11: Acquisition of Dexion Capital
Funds Management operating performance Extending a successful and proven model into Europe For personal use only Acquisition of Dexion Capital Dexion Capital overview • European alternatives investment group 1 UK-listed funds – London head office with 40 employees – Boutique FUM ~$600m ‒ Matching in
Slide 12: Highlights
Highlights Strong operating results – investing for growth For personal use only Operating performance Strong AUM growth and scale benefits driving earnings Shareholders Track record of increasing dividends – now 100% franked Life Strong earnings growth from higher AUM with stable margin Funds Manag
Slide 13: FY15 Financial results – Andrew Tobin, CFO
For personal use only FY15 Financial results Andrew Tobin Chief Financial Officer 18 August 2015 Full year 30 June 2015
Slide 14: Group financial performance
Group financial performance Strong AUM growth driving EBIT and scale benefits For personal use only Financial performance ($m) FY15 FY14 Change Movement in normalised NPAT ($m) Life 457 404 13% 400 53 1 Funds Management 44 43 2% (4) 300 (15) (30) Corporate (63) (59) (7%) 329 299 334 Normalised EBIT
Slide 15: Life financial performance
Life financial performance Higher COE driven by AUM growth with stable margin For personal use only Financial performance ($m) FY15 FY14 Change Movement in Life EBIT ($m) 500 Normalised COE 544 481 13% 63 (10) Expenses (87) (77) (13%) 400 Life EBIT 457 404 13% up 13% 404 457 300 Investment experienc
Slide 16: Life margins
Life margins FY15 COE margin unchanged … 2H15 COE margin up For personal use only FY15 Life COE margin - unchanged Life COE margin – FY14 to FY15 5.0% 4.5% 0.2% 4.5% 4.5% 4.4% – Product cash margin (-10 bps) 4.0% 1.0% (0.1%) (0.1%) 0.9% 0.9% 1.0% – lower return on assets partially offset by lower 0.
Slide 17: Retail annuity sales
Life retail annuity sales Consistent year-on-year sales delivered 9.4% net book growth For personal use only Retail annuity sales ($m) Retail annuity sales 3,000 7.0 • FY15 retail annuity sales $2.8bn 2,500 6.5 1 – excluding Care Annuity , retail sales up 5% (~$130m) 2,000 6.0 – proactive decision n
Slide 18: Investment portfolio: fixed income
Life investment portfolio Investment portfolio continues to meet 18% RoE target For personal use only Fixed Credit quality Fixed income portfolio ($m) 100% 9,000 income • 76% investment grade 80% 8,500 ‒ investment grade expected to remain 66% around similar levels 60% 8,000 of portfolio • Direct or
Slide 19: Investment portfolio: property
Life investment portfolio Investment portfolio continues to meet 18% RoE target For personal use only Property portfolio overview Property • Property portfolio remix ongoing and driven by 100% 25% ‒ annuity maturity and lease profile 23% ‒ relative value 75% 20% of portfolio ‒ focus on multi-tenant
Slide 20: Investment experience
Life investment experience Strong property gains offset by fixed income mark-to-market For personal use only • Asset investment experience (-$40m) – Property (+$33m) exceeded normalised growth assumption Investment experience (pre-tax) -$50m – strong direct property valuation gains – valuation gains
Slide 21: Funds Management financial performance
Funds Management financial performance High RoE business delivering strong flows and FUM growth For personal use only Financial performance ($m) FY15 FY14 Change Movement in Funds Management EBIT ($m) 10 50 Fidante Partners net income 62 65 (5%) (3) 40 (3) (3) CIP1 net income 55 45 22% 30 43 up 9% 4
Slide 22: Funds Management – Fidante Partners
Funds Management – Fidante Partners Strong organic net inflows and FUM growth For personal use only Fidante Partners FUM • FUM up 24% to $44.7bn in FY15 Fidante Partners – FUM movement ($bn) • FUM increase driven by net inflows and 50 54% positive investment markets 2.7 44.7 2.6 3.9 9% 40 35.9 (0.4)
Slide 23: Funds Management - CIP
Funds Management - CIP Strong organic net inflows with higher margin For personal use only Challenger Investment Partners FUM • FUM up 18% to $13.2bn in FY15 Challenger Investment Partners – FUM movement ($bn) • FUM increase driven by net inflows and 54% 14 13.2 positive investment markets 1.1 0.4 1
Slide 24: Capital management
Capital management Capital position supports future growth For personal use only • CLC excess capital and PCA ratio CLC PCA ratio 2.0 – $1,009m excess capital inc. LAGIC transition ($108m) – PCA ratio1 1.6 times or 1.5 times (exc. transition) • Capital changes since LAGIC introduction 1.5 – Regulato
Slide 25: Capital management: dividend growth and full franking
Capital management Strong dividend growth and return to full franking For personal use only Dividends • 2H15 dividend 15.5 cps – 100% franked Dividend and normalised payout ratio – up 15% on 2H14 40 55% – 48% dividend payout ratio1 • FY15 dividend 30.0 cps – 86% franked 30 45% – up 15% on FY14 – 49%
Slide 26: Strategy and outlook
For personal use only Strategy and outlook Brian Benari Chief Executive Officer 18 August 2015 Full year 30 June 2015
Slide 27: Strongly positioned to capture market growth
Life growth Strongly positioned to capture market growth For personal use only Retirement Significant Regulation System annuities market incomes changing evolving growth focus • Move from public to FINANCIAL SYSTEM INQUIRY • Product innovation private pensions • Recommendations accelerating • Focus
Slide 28: Strongly positioned to capture market growth
Life operating performance Strongly positioned to capture market growth For personal use only Product Distribution ‘Annuity Provider of the Year’ Independent provider Proven innovator & differentiated offer On all major hubs/APLs Market Annuity market share 1 Broad and diversified footpr
Slide 29: Extending Fidante Partners' success offshore
Fidante Partners Extending Fidante Partners’ success offshore For personal use only Fidante Partners European platform ALTERNATIVE MANAGERS ‒ FUM $6bn ‒ 5 boutique managers ‒ Focused on alternatives 5 ‒ Distribution capability in 20 1 UK, US and Europe ‒ London based operating platform Fidante Partn
Slide 30: Outlook
Outlook Market leader positioned to capture growth opportunities For personal use only ► Annuities on platform live – VicSuper and CFS ► Pursuing further platform opportunities – AAS and others Life ► Replacement aged care product (CarePlus) launched ► FY16 COE guidance range $585m to $595m ► includ
Slide 31: Highlights
Highlights Strong operating results – investing for growth For personal use only Operating performance Strong AUM growth and scale benefits driving earnings Shareholders Track record of increasing dividends – now 100% franked Life Strong earnings growth from higher AUM with stable margin Funds Manag
Slide 32: Appendix
For personal use only Appendix additional background information Full year 30 June 2015
Slide 33: Our vision and strategy
Our vision and strategy Providing Australians with financial security for retirement For personal use only Vision Provide Australians with financial security for retirement Strategies Increase the Australian Be recognised as the Provide clients with retirement savings pool leader in retirement relev
Slide 34: Business overview
Business overview Two core businesses supported by centralised functions For personal use only Challenger Limited (ASX:CGF) Life Funds Management Leading provider of annuities and guaranteed Fidante Partners – co-owned separately retirement income solutions in Australia branded active fixed income,
Slide 35: Market opportunity
Market opportunity Competitive advantage with favourable policy settings For personal use only Life Funds Management Supportive demographics Mandated superannuation system Over 65s to increase by 75% in next 20 years 1 Growth underpinned by mandatory contributions Market Consumer risk preferences Co
Slide 36: Strong operating performance
Strong operating performance Track record of earnings growth with tight cost control For personal use only Strong profit and EPS growth Normalised NPAT and EPS 400 80 • Normalised NPAT – used to determine dividends 300 60 • Since FY11 $m 200 40 – normalised NPAT up 35% to $334m 100 20 – normalised E
Slide 37: Favourable operating environment
Favourable operating environment High growth markets leveraged by distribution footprint For personal use only Favourable macro trends Projected superannuation assets 2015 to 20253 5,000 • Australia has the largest pension market in Asia-Pacific and world’s 4th largest1 4,000 • Pension assets of $2
Slide 38: Australian superannuation system overview
Favourable operating environment Australian superannuation system overview For personal use only Worlds 4th largest pension market1 • Superannuation guarantee system Australian superannuation system - $2 trillion3 implemented in 1992 – initial contribution rate 3% of gross salary Industry 28% – curr
Slide 39: Financial System Inquiry (FSI)
Financial System Inquiry (FSI) Comprehensive Income Product for Retirement (CIPR) For personal use only David Murray - Chairman of Financial System Inquiry ‘super assets are not being efficiently converted into retirement incomes’ Recommendation 11 i. Trustees pre-select for members a CIPR (Comprehe
Slide 40: Favourable operating environment
Life – favourable operating environment Leveraged by product innovation and distribution footprint For personal use only Changes in risk preferences Australia has a low allocation to fixed income equivalants1 • Australian allocation to bonds and fixed income Australia United States UK – lowest in OE
Slide 41: Distribution and products
Life - distribution and products Broad based distribution and innovative products For personal use only Distribution Product categories Fixed term Guaranteed Annuity On/off platform products with • Challenger products on approved product lists annuities Guaranteed Income Plan guaranteed rate and fle
Slide 42: Annuity value proposition
Life - annuity value proposition Provides regular and dependable income in retirement For personal use only Annuities and portfolio construction – income layering Benefits of annuities • Provide guaranteed regular income and supports income layering to improve retirement outcomes Account based pensi
Slide 43: Retail annuity sales
Life - retail annuity sales Leveraging favourable operating environment For personal use only Sales growth Life – retail annuity sales and retail net flows ($m) • Since FY11 retail annuity sales 3,200 1,000 – increased by 44% – achieved 10% CAGR 2,400 750 • Annuity sales growth underpinned by 1,600
Slide 44: Retirees risk focused and securing essential income
Life - retail annuity sales Retirees risk focused and securing essential income For personal use only Seniors priorities1 Senior Sentiment Index1 High Medium Low Priority Priority • Shows, outside of health, retirees Priority 80% focused on 60% – longevity risk % of survey 40% – peace of mind from r
Slide 45: Lifetime annuities address retiree needs
Life - what retirees want Lifetime annuities address retiree needs For personal use only Top retiree preferences Lifetime annuity product features 1 Entitlement to age pension/health card Compatible with social security regulations 2 Easy to understand Product is simple and does what it says C
Slide 46: Customer demographics
Life - customer demographics Products aimed at investors seeking guaranteed cash flows For personal use only FY15 annuitant key statistics • Average policy amount $198,000 Retail annuity sales by customer age • Average new customer age 68 years • Average tenor of new business 6.4 years • Approximate
Slide 47: Assets and liabilities cash flow matched
Life - portfolio management Assets and liabilities cash flow matched and risks managed For personal use only Assets and liabilities are cash flow matched ($m) Assets and liabilities are matched 4,000 • Assets deliver contracted cash flows to match liabilities 3,000 • Locking in COE over term as busi
Slide 48: Liabilities matched with high quality assets
Life - portfolio management Liabilities matched with high quality assets For personal use only 30 June 2015 investment portfolio Investment portfolio - $12.8bn • Highly diversified portfolio managed within Equites and Infrastructure 4% other 7% comprehensive limit structure – asset allocation evolve
Slide 49: High quality fixed income portfolio
Life - portfolio management High quality fixed income portfolio - $8.5bn For personal use only Fixed income portfolio - by asset type Diversified fixed income portfolio Cash & • Portfolio diversified across a broad range of Offshore asset equivalents, backed securities, 9% sectors, geographies and r
Slide 50: Asset Backed Securities portfolio
Life - portfolio management Asset Backed Securities portfolio - $4.5bn For personal use only Asset Backed Securities (ABS) Asset Backed Securities • 52% of fixed income portfolio NIM Notes, – 72% investment grade Senior secured loan 3% securitisation, 22% – 66% externally rated • Domestic and offsho
Slide 51: Corporate credit portfolio
Life - portfolio management Corporate credit portfolio - $3.2bn For personal use only Corporate credit Corporate credit • 38% of fixed income portfolio Non-Financial – 79% investment grade Corporate Lending, 6% – 72% externally rated Commercial Real Estate • Domestic and offshore assets Lending, 16%
Slide 52: Direct fixed income origination
Life – portfolio management Direct fixed income origination supporting overall margins For personal use only • Direct origination capability in place for over 10 years 4 types of fixed income origination • Stringent investment processes with separate internal credit team 1. Senior secured bilateral
Slide 53: Conservative property portfolio
Life - portfolio management Conservative property portfolio - $2.9bn For personal use only Property portfolio Property portfolio – sector diversification • ~90% of portfolio invested in Australian assets 50% 40% • Conservative Australian property portfolio 30% – 55% of tenants investment grade 20% –
Slide 54: Diversified infrastructure portfolio
Life - portfolio management Diversified infrastructure portfolio - $0.5bn For personal use only Infrastructure portfolio Attractive asset class • Generates reliable and consistent cash flows Renewable Logistics 22% 24% • Cash flows inflation linked • Giving rise to sustainable income growth Power •
Slide 55: Accurium: SMSF retirement specialist
Accurium SMSF retirement specialist For personal use only Repositioning for licensing reforms1 • Integrated and rebranded2 • Reposition as SMSF Retirement Specialist – SMSF Retirement Insights: 1. Retirement adequacy 2. How long will SMSF trustees live? – SMSF Retirement Healthcheck: – launched Feb
Slide 56: Superior net flows and FUM growth continues
Funds Management (FM) Superior net flows and FUM growth continues For personal use only Funds Management – net flows ($m) Strong net flows 10,000 • History of providing strong net flows 8,000 • Net flows driven by 6,000 – alignment with investor interests 4,000 – institutional operating platform 2,0
Slide 57: Fidante Partners: contemporary model
FM - Fidante Partners Contemporary model with strong alignment of interests For personal use only Administration services Distribution services • Investment operations • Asset consultant & researcher • Client operations relationships • Compliance Administration Distribution • Strategic positioning (
Slide 58: Multiple brands and strategies
FM - multiple brands and strategies Scalable and diversified - ~$59bn1 of FUM For personal use only Equities A$17.3bn Multiple brands & strategies Challenger Investment Partners Alternatives A$8.9bn Fixed Income A$32.3bn Full year 30 June 2015 1. Represents 30 June 2015 FUM of $57.9bn plus Dexion Ca
Slide 59: Significant manager capacity
FM - significant manager capacity $87bn1 of existing manager capacity underwrites future growth For personal use only 16+ 14 12 10 $bn 8 Remaining manager capacity 6 FUM 4 2 Equity Fixed Alternative Total Managers income managers2 Managers2 Maximum capacity $57bn $65bn $22bn $144bn Remaining manager
Slide 60: Fidante Partners boutiques
FM - Fidante Partners boutiques Diversification of managers and strategies For personal use only Investment Investment Boutique Asset class Boutique Asset class date date July 2015 Agricultural investments May 2010 Australian equities (income focus) Aug 2010 Australian equities (value and growth) Ma
Slide 61: Challenger Investment Partners (CIP)
FM – Challenger Investment Partners (CIP) Proven long term investment track record and capability For personal use only Institutional clients seeking absolute return strategies Focus Expertise in asset classes • Investment professionals • Real estate looking for relative value • Fixed income − risk
Slide 62: Important note
Important note For personal use only 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 u