Slide 1: 1H16 financial results
1H16 financial results Driving profit and dividend growth 16 February 2016
Slide 2: Outline
Outline Operating performance Brian Benari Managing Director & Chief Executive Officer Financial results Andrew Tobin Chief Financial Officer Strategy update Brian Benari Managing Director & Outlook Chief Executive Officer 1H16 – six months ended 31 December 2015 2
Slide 3: Highlights
Highlights Driving profit and dividend growth Operating performance Strong profit growth of 18% with disciplined cost management Shareholders Strongly capitalised and interim dividend up 10% Life Strong earnings growth from higher AUM and margin expansion Funds Management Diversifying income streams
Slide 4: Group operating performance
Group operating performance Strong profit growth of 18% with disciplined cost management AUM ► Group AUM up 10% excluding Kapstream sale - $5.4bn of FUM derecognised 1 $57.6bn +1% ► Life AUM up 6% and Funds Management FUM up 8% (exc. Kapstream & Dexion) Normalised ► Driven by EBIT growth (+16%) with
Slide 5: Group operating performance
Group operating performance Strongly capitalised and interim dividend up 10% CLC PCA ratio Regulatory capital 2.0 • Strongly capitalised – top end of guidance range (1.4x to 1.6x) 1 1.5 at 31 January 2016 • Life asset portfolio 1.0 – quality strengthened in 1H16 FY13 FY14 FY15 1H16 CLC target surplu
Slide 6: Life operating performance
Life operating performance Strong earnings growth from higher AUM and margin expansion Average AUM ► Higher average AUM driven by net book growth $13.0bn +12% ► High quality investment portfolio meeting 18% RoE (pre-tax) target Life COE ► Driven by average AUM growth (+12%) and Life COE margin expan
Slide 7: Annuities on platform expanding Life's distribution footprint
Life operating performance Annuities on platform expanding Life’s distribution footprint Annuities on platform New platform opportunities provide access to 1/3 of super industry1 • Increases Challenger’s access to Australian Launched superannuation market August 2015 • 5% of 1H16 annuity sales via n
Slide 8: Colonial expanding Life's distribution footprint
Life operating performance Colonial expanding Life’s distribution footprint Colonial First State (CFS) • Capability launched August 2015 • Award winning digital innovation – Investment Trends 2015 best new functionality award • Significant increase in volumes Colonial - Challenger annuity volumes –
Slide 9: New market segments expanding Life's distribution footprint
Life operating performance New market segments expanding Life’s distribution footprint Industry fund segment VicSuper – launched June 2015 2015 ASFA/PwC CEO superannuation survey #1 issue is post retirement • Australia’s first CIPR – backed by Challenger annuities 75% • Embedding income layering in
Slide 10: Funds Management operating performance
Funds Management operating performance Diversifying income streams through business expansion Average FUM ► Average FUM up 15% excluding impact of Kapstream sale in July 2015 $54.8bn +4% ► Equities as percentage of Fidante Partners’ FUM – up from 39% to 45% in 1H16 Net income ► Fidante Partners – in
Slide 11: Strategic execution of strategy
Funds Management operating performance Scalable and diversified platform with growth opportunities STRATEGIC • Optimise existing boutiques and add new ones INTENT Fidante Partners • Add global product and distribution • Enhance alternative assets capability • Broaden product capability Challenger In
Slide 12: Highlights
Highlights Driving profit and dividend growth Operating performance Strong profit growth of 18% with disciplined cost management Shareholders Strongly capitalised and interim dividend up 10% Life Strong earnings growth from higher AUM and margin expansion Funds Management Diversifying income streams
Slide 13: 1H16 Financial results
1H16 Financial results Andrew Tobin Chief Financial Officer 16 February 2016 1H16 – six months ended 31 December 2015
Slide 14: Group financial performance
Group financial performance Strong operating results from AUM growth and scale benefits Financial performance ($m) 1H16 1H15 Change Movement in normalised NPAT ($m) 250 Life 249 216 15% 33 1 200 Funds Management 22 21 5% (2) (5) 150 Corporate (32) (30) (7%) 100 Normalised EBIT 239 207 16% 155 182 50
Slide 15: Life financial performance
Life financial performance Higher COE driven by AUM growth and margin expansion Movement in Life EBIT ($m) 300 Financial performance ($m) 1H16 1H15 Change 35 (2) Normalised COE 293 258 14% 200 Expenses (44) (42) (5%) 216 249 100 Life EBIT 249 216 15% Investment experience (post-tax) 30 (25) n/a 1H15
Slide 16: Life margins
Life margins Cash Operating Earnings (COE) margin expansion 1H16 Life COE margin +10 bps Life COE margin – 1H15 to 1H16 5.0% 4.5% • Product cash margin (-10 bps) 4.4% 0.2% - 4.0% 1.0% 1.0% (0.1%) – lower fixed income yields, partially offset by higher 0.8% 3.0% 0.6% property and equity yields (-50 b
Slide 17: Life sales
Life sales Strong sales momentum across annuity and GIR products Annuity sales Annuity sales ($m) 1,800 • 1H16 annuity sales up 4% to $1.64bn – Annuity sales up 10% excluding care products1 1,200 • Term annuity sales up 12% 600 • Lifetime sales down due to Care Annuity 1H14 1H15 1H16 discontinuance
Slide 18: Life net book growth
Life net book growth Total book growth of 3.6% in 1H16 Annuity net book growth ($m) Annuity net book growth 2,000 600 1,500 400 • 1H16 annuity net book growth $270m or +3.1% 1,000 200 500 • Net book growth impacted by Care Annuity - - (200) (500) – 1H15 Care Annuity net book growth 1.3% (1,000) (400
Slide 19: Life investment portfolio
Life investment portfolio Fixed income 65% High quality fixed income portfolio meeting 18% RoE target Fixed • 79% investment grade income Fixed income investment grade (%) ‒ up from 75% in 1H15 80% 65% ‒ ‘B’ and lower down $0.2bn in 1H16 79% of portfolio • Expansion of fixed income credit 75% 76% 75
Slide 20: Life investment portfolio
Life investment portfolio Property 23% Property portfolio continues to meet 18% RoE target Property • Property remix ongoing with focus on multi-tenant properties 1H16 key Australian property disposals 23% ‒ ~$350m of disposals in 1H16 Property Sector Price 3 Premium of portfolio $m to book ‒ 13% pr
Slide 21: Life investment experience
Life investment experience Liability mark-to-market partially offset by asset experience Investment experience (pre-tax) +$43m Asset investment experience (-$81m) Asset investment experience -$81m • Fixed income (-$65m) impacted by expansion 150 in credit spreads 100 – for example A-rated 3 year cre
Slide 22: Regulatory capital
Regulatory capital Strongly capitalised to support future growth CLC PCA ratio 3 year LAGIC transition now complete 2.0 • Final LAGIC transition balance ($108m) amortised on 1 January 2016 1.5 CLC excess capital and PCA ratio1 • 31 December 2015 – $1.1bn of excess regulatory capital 1.0 FY13 FY14 FY
Slide 23: Funds Management financial performance
Funds Management financial performance Diversifying earnings streams through business expansion Movement in Funds Management EBIT ($m) Financial performance ($m) 1H16 1H15 Change 40 Fidante Partners net income 41 32 28% 9 2 30 CIP1 net income 26 24 8% 20 (10) Total net income 67 56 20% 21 22 10 Expe
Slide 24: Funds Management – Fidante Partners
Funds Management – Fidante Partners Strong organic flows across range of managers Fidante Partners FUM • Down 7% including Kapstream sale Fidante Partners – FUM movement ($bn) Organic flows Acquisitions/disposals • Up 4% excluding +$1.0bn -$4.9bn – Kapstream sale (-$5.4bn) 50 1.3 0.6 44.7 0.8 41.6 –
Slide 25: Funds Management - CIP
Funds Management - CIP Net income margin benefiting from new 3rd party mandates Challenger Investment Partners FUM Challenger Investment Partners – FUM movement ($bn) • Down 1% in 1H16 54% – lower Life fixed income mandate 15 13.2 0.3 13.1 – partially offset by new 3rd party 0.1 0.4 50% property man
Slide 26: Dividends
Dividends Interim dividend up 10% and fully franked Dividends • 2016 interim dividend 16.0 cps – 100% franked Dividend and normalised payout ratio – up 10% on 2015 interim dividend 17.5 1 – 49% dividend payout ratio 15.0 50% – payable on 28 March 2016 12.5 10.0 40% • Dividend Reinvestment Plan (DRP)
Slide 27: Strategy and outlook
Strategy and outlook Brian Benari Chief Executive Officer 16 February 2016 1H16 – six months ended 31 December 2015
Slide 28: Life growth
Life growth Industry moving ahead of regulation to meet retiree demand Customers (retirees) Converting savings to income Adverse to market volatility Industry Seeking financial security Want easy to understand products Industry Adopting income layering Adviser education increasing Reti
Slide 29: Funds Management growth
Funds Management growth Capitalising domestically and increasing global offering Established 5 managers and FUM $19bn Growth • Highly profitable 6 managers and FUM $33bn • Significant operating Incubation • Mid levels of profitability leverage 5 managers and FUM $2bn • Boutique brand • Maintain inve
Slide 30: Outlook
Outlook Challenger operating in high growth markets Life Funds Management Targets super spending (retirement) phase Targets super saving (accumulation) phase Market propelled by demographic changes Diversifying revenue through business expansion Regulatory tailwinds Enabling global product a
Slide 31: Highlights
Highlights Driving profit and dividend growth Operating performance Strong profit growth of 18% with disciplined cost management Shareholders Strongly capitalised and interim dividend up 10% Life Strong earnings growth from higher AUM and margin expansion Funds Management Diversifying income streams
Slide 32: Appendix
Appendix additional background information 1H16 – six months ended 31 December 2015
Slide 33: Vision and strategy
Vision and strategy Providing Australians with financial security for retirement 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 relevant strategies allocation
Slide 34: Business overview
Business overview Two core businesses benefiting from super system growth Challenger Limited (ASX:CGF) Life Funds Management #1 market share in annuities1 Australia’s 8th largest fund manager3 Life – Leading provider of annuities and guaranteed Fidante Partners – co-owned separately branded retireme
Slide 35: Market opportunity
Market opportunity Competitive advantage in high growth markets Life Funds Management #1 market share in annuities1 Australia’s 8th largest fund manager4 Leader in retirement incomes Contemporary funds management model 2 Recognised market leader by 95% of advisers Model has strong investor alignment
Slide 36: Australia's superannuation system
Australia’s superannuation system Attractive market with long term structural growth drivers System growth 3 Australian super system – forecast 2015 to 2035 10,000 • Transitioning from public to private pensions 1 8,000 • 4th largest global pension market • Australian super system growing twice 6,00
Slide 37: Australia's superannuation system
Australia’s superannuation system Attractive market with long term structural growth drivers 1 Projected superannuation assets 2016 – 2035 ($bn) Two distinctive super phases 10,000 • Accumulation (pre-retirement) phase 8,000 – super ‘savings’ phase 6,000 – Funds Management target market 4,000 • Reti
Slide 38: Australia's superannuation system
Australia’s superannuation system Regulatory reforms underway to enhance retirement phase 1 Pension system allocation to fixed income equivalants Australia has low fixed income allocation United States UK Switzerland • Australia fixed income and bonds allocation ~9% Spain OECD average Netherlands •
Slide 39: Australia's superannuation system
Australia’s superannuation system Regulatory reforms underway to enhance retirement phase Tightening access to Government funded aged pension Comprehensive Income Products for Retirement 1 (extract from Financial System Inquiry final report) Age Pension eligibility age increasing Age Pension ass
Slide 40: Australia's superannuation system
Australia’s superannuation system Regulatory reforms underway to enhance retirement phase Oct Government supports FSI retirement income Government supports FSI superannuation and retirement income recommendations that will improve the efficiency and operation of the 2015 recommendations superannuati
Slide 41: Life - products
Life - products Products provide guaranteed income and peace of mind Product % of total Product Key features category annuity book Available on leading platforms Guaranteed Annuity Guaranteed rate and term 1 to 30 years Fixed term Guaranteed Income Plan Payment frequency options 67% annuities
Slide 42: Life - customer needs
Life - customer needs Products provide guaranteed income and peace of mind Annuities and portfolio construction – income layering Retirees face challenges including: ‒ maintaining required annual retirement income Account-based pension to support peak spending years ‒ managing market and inflation i
Slide 43: Life - customer demographics
Life - customer demographics Products provide guaranteed income and peace of mind 1H16 annuitant key statistics Anuity sales by customer age • Average policy amount $180,000 • Average new customer age 68 years • Average tenor of new business 5.6 years • 99% of sales via financial advisers demographi
Slide 44: Life - distribution
Life - distribution Distribution enhanced through new platform opportunities Distribution Products on Approved Product Lists of major hubs • Challenger products on Approved Product Lists AMP of all major hubs (major Banks and AMP) ANZ – major hubs account for ~50% of Australian financial BT/We
Slide 45: Accurium
Accurium SMSF retirement specialist Repositioning ahead of accountant licensing reforms1 • Repositioned as SMSF Retirement Specialist 1. SMSF Retirement Insights: – ‘Retirement adequacy’ – ‘SMSF Trustees – healthier, wealthier and living longer’ – ‘Bridging the prosperity gap’ 2. SMSF Retirement Hea
Slide 46: Normalised profit framework
Normalised profit framework Reflects underlying performance of Life business Investment experience • All assets and liabilities fair valued Investment experience – cumulative since FY10 - $m 300 • Gains/losses largely unrealised and non-cash 200 • Reported separately as ‘Investment Experience’ 100 N
Slide 47: 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 Administration Distribution • Strategic positioning • Compliance (Fidante Partners (Fida
Slide 48: FM - significant manager capacity
FM - significant manager capacity Significant manager capacity >$83bn 1 20 15 $bn 10 FUM Remaining manager capacity 5 - Equity Fixed Alternative Total Managers income managers2 Managers2 Maximum capacity $46bn $65bn $26bn $137bn Remaining manager capacity >$27bn >$40bn >$16bn >$83bn 1H16 – six month
Slide 49: FM - multiple brands and strategies
FM - multiple brands and strategies 1 Scalable and diversified - ~$54bn of FUM Equities A$18.2bn Multiple brands & strategies Challenger Investment Partners Alternatives A$10.1bn Fixed Income A$25.8bn 1H16 – six months ended 31 December 2015 1. Funds Under Management (FUM) as at 31 December 2015 and
Slide 50: FM - Fidante Partners boutique managers
FM - Fidante Partners boutique managers Diversification of managers and investment strategies Investment Investment Boutique Asset class Boutique Asset class date date July 2015 Agricultural land investment & management May 2010 Australian equities (income focus) Aug 2010 Australian equities Aug 201
Slide 51: FM - Challenger Investment Partners (CIP)
FM - Challenger Investment Partners (CIP) Proven long-term investment track record and capability 1 • $13 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 52: 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