Challenger Limited · ASX:CGF
Challenger — Investor Presentation (September 2004)
48 slides from Challenger's investor presentation, Sep 6, 2004
Slide 1: Challenger Wealth Management: An overview
Challenger Wealth Management An overview Chris Cuffe, Chief Executive, Funds Management Rob Adams, Chief Executive, Financial Planning David Plumb, Chief Financial Officer, Wealth Management 6 September 2004
Slide 2: Agenda
Agenda Funds Management 4 Financial Planning 22 Financials 40 Summary 47 2
Slide 3: Wealth Management structure
Wealth Management structure Challenger Wealth Management Funds Management Financial Planning Chris Cuffe Rob Adams Chief Executive Chief Executive 3
Slide 4: Funds Management
Challenger Wealth Management Funds Management Chris Cuffe, Chief Executive, Funds Management
Slide 5: Key messages
Key messages Î Positioning the business to participate in the industry’s long- term growth outlook Î Fundamental belief that the winners will be those who have lowest cost structures – Challenger is focused on best of breed technology and processes Î We can expect the business to enjoy attractive ma
Slide 6: Market overview
Market overview Institutional and retail projected FUM growth 1098 1100 980 875 900 781 698 626 700 623 559 501 449 A$b 500 401 358 300 422 472 332 375 265 297 100 -100 2003 2004E 2005E 2006E 2007E 2008E Institutional Retail Source: Projections using ASSIRT & Rainmaker data (as at 30 December) The w
Slide 7: Market overview: Key trends
Market overview Key trends • Death of ‘pure’ retail – managing assets, administering products and distributing products unbundling rapidly • Margin squeeze is real • Number of boutiques expanding rapidly – ‘alpha’ highly valued • Large players have generally shifted into platform administration to p
Slide 8: Our starting point
Our starting point • Collection of past unintegrated small businesses • Multiple and disparate systems (eg. eight different registry systems) • Lack of logical organisation structure • Disparate locations • Absence of systematic processes, compliance, basic business discipline and reliable/timely ma
Slide 9: Our strategy
Our strategy • Rapidly deal with legacy systems/products and business issues…we aim to get on the front foot as quickly as possible • Derive revenue from multiple sources…don’t want long term reliance on single product or single ‘star’ • Build scaleable best-of-breed technology and processes…we reco
Slide 10: Our strategy
Our strategy Rapidly deal with legacy systems/products and business issues • Multiple registry systems fast consolidating into a single best-of- breed system…substantially complete by end of this year • Newly developed asset management and administration system in production • Effective administrati
Slide 11: Our strategy
Our strategy Derive revenue from multiple sources • Managing investment products where our people manage the assets — Specialists in domestic equities and domestic fixed interest — Currently high cost base relative to FUM; built for growth — Potential to leverage direct property skills in Challenger
Slide 12: Our strategy
Our strategy Derive revenue from multiple sources, cont. • Managing products where we blend together a group of managers (i.e. manage-the-manager or MTM funds) — Utilises our strong internal manager research capability — Lower margin but likely high volume — Very successful launch of the Challenger
Slide 13: Our strategy
Our strategy Derive revenue from multiple sources • Margin lending – Increasing competition over the last couple of years; margins declining and product features expanding – Challenger’s loan book is currently small at $155m – Continue to assess our future options • Considering opportunities for par
Slide 14: Our strategy
Our strategy Leverage off and provide leverage to other parts of Challenger • Challenger Wholesale Finance manages the mortgage portfolio of the Howard Mortgage Trust • Challenger Life manages our property syndicates • Potential to attract wholesale direct property FUM managed by Challenger Life • P
Slide 15: FUM/FUA progress
FUM/FUA progress as at 30 June 2004 30 Jun 03 30 Jun 04 $m $m Funds under management for external 4,027 6,144 Ç53% investors Funds under administration (Synergy Capital 1,467 1,668 Ç14% Management) Total FUM/FUA 5,494 7,812 Ç42% In addition, the Funds Management business manages the fixed interest a
Slide 16: Funds under management
Funds under management For external investors 30 Jun 03 30 Jun 04 $m $m Australian equities funds/mandates 535 1,480 Ç177% International equities 14 14 Property securities funds/mandates - 1 Direct property (via syndicates) 109 175 Ç61% Mortgage funds 2,627 3,177 Ç21% Fixed interest funds 129 431 Ç2
Slide 17: Key metrics
Key metrics Expanding distribution framework 30 Jun 03 30 Jun 04 Retail researchers (buy ratings) 21 36 Dealer groups 535 780 Platforms 137 196 Asset consultants 3 10 Total approvals 696 1,022 17
Slide 18: Key metrics: researcher ratings
Key metrics Researcher ratings as at 1 September 2004 Researcher Fund Rating van Eyk Challenger Australian Share Fund A Challenger Smaller Companies Fund AA Challenger Orion Australian Share Fund A InvestorWeb Challenger Australian Share Fund Strong Buy Challenger Smaller Companies Fund Buy Challeng
Slide 19: Key metrics: industry recognition
Key metrics Industry recognition • InvestorWeb Australian Equities Fund Manager of the Year 2004 • S&P Smaller Companies Fund of the Year 2004 • Significantly improved ranking in market inflow tables over the past 12 months 19
Slide 20: Where to from here
Where to from here • Still a relatively immature operation • Strategy is to have sustainable multiple sources of revenue and long-term cost advantages • Excellent growth in FUM achieved over the past year, spread across a number of funds and asset sectors • Successfully expanding our product range 2
Slide 21: Where to from here cont.
Where to from here cont. • Rapidly improving financial metrics, with missing ingredient now scale, i.e. existing cost base capable of handling significant extra FUM • Significant synergies with Challenger Life and Challenger Wholesale Finance • We expect to move from losses to profit within 18 month
Slide 22: Financial Planning
Challenger Wealth Management Financial Planning Rob Adams, Chief Executive, Financial Planning
Slide 23: Key messages
Key messages Î Compulsory super and choice underwrites growth Î Complexity of tax and regulatory landscape Î Consumer demand for financial planning will grow Î Financial planning is a scale game Î With the AP acquisition, we have scale and quality Î Move from a ‘cottage industry’ to a corporatised p
Slide 24: Product and platform providers
Product and platform providers Product and platform providers • Share of commissions • Product rebates • Platform rebates Dealer • holds license • training • compliance • audits • research • product/platform relationships • platforms • model portfolios • infrastructure • Share of fees & other income
Slide 25: Evolution of the industry
Evolution of the industry Manufacturer era Distributor era The future… 1980s 1990s Consumer era? • Growing consumer knowledge of what they require • Consumer focused advice and products • Open architecture at all times • Easy access and portability • Packaged solutions • Consumer knowledge, demand a
Slide 26: The role of financial planning
The role of financial planning ASSETS 1200 (ex-primary 1100 residence) 1000 900 Retirement income 800 700 600 500 400 Savings & super $000s Savings 300 200 100 0 20 -100 HECS 30 40 50 60 70 80 90 LIABILITIES -200 Equity release (incl- -300 Reverse principal -400 mortgage mortgage) -500 Mortgage 26
Slide 27: Consumer attitudes
Consumer attitudes • Are time-poor • Deeply aware of the savings gap • Suspicious and/or ignorant of planners • Unsure of how to locate quality planners • Want one advice relationship • While fees are important, price not questioned if value isn’t Source: Challenger independent research 2004 and IFS
Slide 28: A 'trusted advice' brand?
A ‘trusted advice’ brand? • An ‘advice’ brand should exist, but doesn’t • Assist retention and new business generation • Build value in the brand for planners and clients • Need to deliver a consistent customer experience • Demonstrate independence of advice – open architecture • Holistic advice thr
Slide 29: An integrated solution
An integrated solution L • Reduces I Audit & Compliance Planner CRM burden of C E regulations & N compliance S E Brokerage Reconciliation Management Reporting E • Technology to enable a new advice model A Investment Planning Practice Management Portfolio Management D • Improves V I Risk Planning Doc
Slide 30: Wealth management value chain
Wealth management value chain Research, Product Value Investment responsible manufacture Dealership Advice chain Mgmt entity & service Revenue: 40 -70pts 5-10pts 30-50pts 10-20pts 40-100pts Value pressure: Critical Performance; Compliance; Brand; IT; strong advice Quality mgt; people research skill;
Slide 31: Wealth management value chain: Dealership
Wealth management value chain Dealership Dealership Our opportunities Our risks • AP provides scale, proven business/ • Integration risks advice model and experienced • Retention of planners and key staff management • Time to roll-out unified business • Leverage marketing capability to build systems
Slide 32: Wealth management value chain: Advice
Wealth management value chain Advice Advice Our opportunities Our risks • Participating in advice ‘clip’ on a • Dealer does not deliver services scale basis that justify margin • Some Challenger ownership in • Advisers don’t accept underlying advice practices corporatisation • Mix of fee, commission
Slide 33: Why Associated Planners?
Why Associated Planners? Our key drivers • Leading management team • Proven business and advice model • Have invested heavily in development of AP • High quality advisers • Philosophical alignment: — Business model development — Role of technology — Opportunity to develop a trusted advice brand • Be
Slide 34: Why Associated Planners?
Why Associated Planners? Drivers of value • Quality – management, model and planners • Scarcity – a unique business • Strategic – technology, debt, commodity products • Synergies – cost and revenue benefits • Scale – leverage from scalable platform • ‘downstream’ revenue creation 34
Slide 35: Integration update
Integration update • Acquisition completed on 13 August • Final transaction value of $91.3m • Have assumed management control • Integration plans underway • 105 staff in combined business (134 previously) • Integration to be completed February ’05 • Acquisition expected to be EPS positive (pre-goodw
Slide 36: Garrisons + AP =
Garrisons + AP = Garrisons AP Combined Funds under advice >$3.0b >$4.5b >$7.5b Clients * 42,000 100,000 142,000 Planners 170 280 450 - position in industry * 28 19 5 Revenue per planner $150k $225k $195k Dealer staff * 62 72 105 Revenue (30 Jun 04) $26m $55m $81m - position in industry (est.) * 26 1
Slide 37: Key focus
Key focus • Integration of Garrisons & AP: — Single dealership — Best of breed decisions — Deliver cost and revenue synergies — One business by 1 March 2005 • Deliver Integrated Business System: — Asset, liability and risk management — Leverage from Challenger — Access to Challenger ‘commodity style
Slide 38: Our strategy
Our strategy • ‘Corporatise’ financial planning — Single advice model — Open architecture approach — Drive benefits of scale — Deliver productivity benefits — Grow and diversify revenue lines — ‘profit per planner’ focus — Leverage from Challenger infrastructure — Develop a trusted advice brand — Qu
Slide 39: Summary
Summary Î Financial planning is central to financial services Î Consumer demand will grow Î AP provides scale, synergies and quality Î ‘Corporatising’ financial planning is a key strategy Î The trusted advice brand space is vacant Î Profit per planner focus Î Our results for 30 June 04 39
Slide 40: Financials
Challenger Wealth Management Financials David Plumb, Chief Financial Officer, Wealth Management
Slide 41: Profit/(loss) before tax
Challenger Wealth Management Profit/(loss) before tax 6 mths to 6 mths to 12 mths to Dec 03 Jun 04 Jun 04 $m $m $m Funds Management (3) (1) (4) Financial Planning (3) (2) (5) Total (6) (3) (9) Funds Management includes Synergy (Platform Administration) and Margin Lending. 41
Slide 42: Wealth Management Balance Sheet
Wealth Management Balance Sheet Market values $m Howard Mortgage Trust 68 (approx. 1/3, other 2/3 with Wholesale Finance) Synergy/Garrisons 39 Other 9 Total at 30 June 116 Associated Planners 91 (acquired 13 August) Total 207 42
Slide 43: Breakdown of result: Funds Management
Breakdown of result Funds Management 6 mths to 6 mths to 12 mths to Dec 03 Jun 04 Jun 04 $m $m $m Net revenue 27 31 58 Çin 2H Expenses (30) (32) (62) Pre-tax contribution (3) (1) (4) 43
Slide 44: Breakdown of result: Funds Management
Breakdown of result Funds Management • Net revenues are net of external costs directly attributable to the derivation of revenue such as commissions, fees paid to external asset managers (including Wholesale Finance Division) rebates, custody fees and interest paid on securitised margin lending debt
Slide 45: Breakdown of result: Financial Planning (Garrisons)
Breakdown of result Financial Planning (Garrisons) 6 mths to 6 mths to 12 mths to Dec 03 Jun 04 Jun 04 $m $m $m Principally Gross revenue 13 14 27 brokerage Principally brokerage retained Net revenue 3 3 6 by Garrisons after paying planners Expenses (6) (5) (11) Pre-tax (3) (2) (5) contribution 45
Slide 46: Breakdown of result: Financial Planning
Breakdown of result Financial Planning • 2H improvement in cost control and net revenue • Result highlights: — Need for scale which APG acquisition brings — Need for diversified revenue streams other than just brokerage APG provides and Garrisons beginning to capture, these including: – Proprietary
Slide 47: Summary
Summary Î Long term approach to take advantage of favourable industry dynamics; developing business model Î Key is to grow revenue and achieve scale Î Diversity of revenue streams Î Acute understanding that winners will have low cost structures Î Corporatise financial planning through scale, technol
Slide 48: Discussion/Questions
€2 challenger Financial Services Group Discussion/Questions