Challenger Limited · ASX:CGF
Challenger — Investor Presentation (February 2024)
26 slides from Challenger's investor presentation, Feb 13, 2024
Slide 1: Financial Results 1H24
Financial Results 1H24 13 February 2024
Slide 2: Acknowledgement of Country
ACKNOWLEDGEMENT OF COUNTRY Challenger acknowledges the Traditional Owners of Country throughout Australia and we pay our respects to Elders past and present. We recognise the continuing connection that Aboriginal and Torres Strait Islander peoples have to this land and acknowledge their unique and r
Slide 3: Overview
1 Business and strategy update Nick Hamilton – Managing Director and Chief Executive Officer Overview 2 Financial results and outlook Alex Bell – Chief Financial Officer 3 Key priorities Nick Hamilton – Managing Director and Chief Executive Officer
Slide 4: Business and strategy update
1 Business and strategy update Nick Hamilton
Slide 5: Key points
Key points Significant progress executing our strategy Benefits of longer duration sales emerging Financial performance • Record new business annuity sales1 and Lifetime sales • Longer duration sales improving Life book quality and returns • COE margin and ROE expansion • Cost to income ratio outper
Slide 6: Financial performance
Financial performance Strong performance with benefits of longer duration sales emerging Expect FY24 earnings in top half of guidance range Group AUM Group ROE (pre-tax)1,2 Dividend $ 117bn 15.0% 13.0cps Normalised NPBT1 ▲18% ▲270 bps ▲8% ▲ Life AUM +4% ▲ Life +330bps Payout ratio 44% $290m ▲ FM FUM
Slide 7: Executing our strategy
Executing our strategy Providing customers with financial security for a better retirement Customer channel Customer solutions Capability Deepen and broaden our reach with a Grow through innovative offerings Investment excellence, financial solutions approach leveraging our core capability resilienc
Slide 8: Operating highlights
Operating highlights Broadening customer access and offerings Leveraging strategic partnerships Customer channel Customer solutions Capability Deepen and broaden our reach with a Grow through innovative offerings Investment excellence, financial solutions approach leveraging our core capability resi
Slide 9: Transformation partnership
Transformation partnership Improving customer experience Unlocks additional growth opportunities • Accenture will become Challenger’s long-term technology partner – initial 7-year agreement • Accenture will run Challenger’s technology platform and modernise Life’s customer technology • Modernisation
Slide 10: Financial results and outlook
2 Financial results and outlook Alex Bell
Slide 11: Group snapshot
Group snapshot Strong profit growth from Life margin expansion and disciplined expense focus 1H241 Change Normalised NPBT1 Normalised ROE1 Net income $447m 9% $290m +16% 15.0% +270bps Expenses ($155m) (2%) Life $302m +15% ROE tailwind from Life EBIT $293m 16% FM $29m -7% ROE headwind from FM Interes
Slide 12: Earnings drivers
Earnings drivers 1 Life margin driving income growth Remaining disciplined on costs Income benefitting from Life margin Disciplined cost management Outperforming cost to income target $447m +9% $155m -2% (+4% ex Bank) 34.6% -390bps $447m 38.5% $432m $158m $159m 36.9% $155m $9m $9m Cost to income tar
Slide 13: Delivering higher sustainable ROE
Delivering higher sustainable ROE Clear progress with Group ROE benefitting from Life margin expansion Narrowing gap to ROE target in 1H24 Group ROE HIGHER ROE DRIVERS Up +270bp • Continued Life momentum 16.2% 15.6% -120bps • Higher Funds Management earnings contribution 15.0% 14.3% -250bps • Artega
Slide 14: Life performance
Life performance Earnings benefitting from AUM and margin growth Strong growth in ROE 1H24 Change Average AUM +3% Life EBIT +15% COE1 $360m 13% COE margin +28bps ROE +330bps Expenses ($58m) 8% Average investment assets ($bn) EBIT ($m) Cash Operating Earnings margin (%) Normalised ROE (pre-tax) (%) E
Slide 15: Life investment portfolio
Life investment portfolio Continuing to diversify balance sheet Investment experience reflective of market conditions Life AUM ($bn) Investment experience (pre-tax) Narrowing credit spread in 1H243 (positive impact) Fixed income $143m Credit defaults4 -$26m (-15bps) including 1 default and 1 $23.5bn
Slide 16: Life COE margin
Life COE margin Longer duration sales supporting margin COE1 margin (%) 1H24 COE1 margin (%) up 16bps 3.04% Product cash margin +7bps 2.88% 0.43% 0.01% 0.09% 2.76% (0.37%) 3.04% 2.88% 2.65% 2.63% 2.55% 2.56% 1H21 2H21 1H22 2H22 1H23 2H23 1H24 2H23 Higher Higher Higher Higher 1H24 investment yield -
Slide 17: Life sales
Life sales Improving Life book quality and returns through longer duration sales Life sales ($m) ANNUITY NEW BUSINESS1 ANNUITY REINVESTMENTS • Record new annuity business sales1 (+$1.9bn, +19%) benefitting from • Lower reinvestment rates predominately in shorter strong Lifetime2 annuity sales (+190%
Slide 18: Life book growth
Life book growth Net flows by channel ($m) and New Business Tenor (years)1 Delivering higher quality book growth through 8.9 longer duration sales 2,000 6.5 • Annuity net flows of $0.5bn 1,500 5.1 5.4 4.8 or +3.6% book growth 1,000 • Annuity net flows excluding institutional term annuities 500 $0.9b
Slide 19: Funds Management performance
Funds Management performance Resilient franchise with strong growth potential Earnings reflect business mix and higher administrative costs 1H24 Change Average FUM FM EBIT FUM-based income $79m (4%) $100.0bn +7% $29m -7% Performance & transaction fees $8m 49% Fidante $83bn +15% Includes impact from
Slide 20: Funds Management
Funds Management FUM benefitting from strong institutional flows and market movements Very strong second quarter with $5.2bn of net flows Funds Under Management ($bn) Net flows – Quarterly ($bn) 5.2 FM net flows $5.6bn 2.6 4.1 107.6 6.4 2.3 98.5 (3.3) (0.1) (0.6) Institutional net inflows $6.5bn Ret
Slide 21: Capital management
Capital management Remain well capitalised Dividend benefitting from strong earnings growth Challenger Life PCA ratio1 Continued to be rated highly Dividend Operating within the target range Dividend payout ratio3 44% 2 1.30x to 1.70x within payout ratio target range4 S&P credit rating 49.0% Challen
Slide 22: FY24 guidance and targets
FY24 guidance and targets Earnings expected to be in top half of guidance range Considerations FY24 NNPBT expected to be in • ~$10m investment across a range of initiatives, including Artega’s top half of range operating platform1, branding, risk and cybersecurity Excludes Normalised net $555m $605m
Slide 23: Key priorities
3 Key priorities Nick Hamilton
Slide 24: Retirement phase
Retirement phase Challenger positioned to meet the retirement challenge Structural drivers Significant retirement savings $3.5tn Australian super assets expected to increase to $9.0tn+ in next 20 years1 ~ 30 Track record providing lifetime income Evolving retirement market years Government focus Tru
Slide 25: Key priorities
Key priorities Maintain momentum in core businesses Deliver shareholder value • Continue to advocate for better retirement outcomes • New retirement income partnerships • Continue strong momentum in FM sales • Deliver transformation program and capture efficiencies • Finalise Bank sale • Continue pr
Slide 26: Important Note
IMPORTANT NOTE The material in this presentation is general background information about Challenger Limited group’s This document may contain certain ‘forward-looking statements’. The words ‘forecast’, ‘expect’, ‘guidance’, activities and is current at the date of this presentation. It is informatio