Challenger Limited · ASX:CGF
Challenger — H1 2011 Earnings Presentation
35 slides from Challenger's earnings presentation, Feb 21, 2011
Slide 1: 1H11 Financial Results
For personal use only 1H11 Financial Results Retirement Income Strategy – growth faster than system Dominic Stevens Chief Executive Officer 21 February 2011
Slide 2: Strong financial metrics
Challenger Group Half Year 31 December 2010 Strong financial metrics For personal use only • Performance – Normalised NPAT of $120m up 4% – Statutory NPAT of $118m – Normalised EPS of 25.2 cps up strongly, increase of 16% – Normalised cost to income ratio fell for a 3rd half, down to 37% – Interim d
Slide 3: Sustained and stable profit growth
Challenger Group Half Year 31 December 2010 Sustained and stable profit growth For personal use only Earnings / Normalised EPS Normalised NPAT 1H Normalised NPAT 2H • 5 year profit CAGR of 16% pa 300 Basic EPS (RHS) 50 • No dilutive equity issued 250 40 200 during the GFC cps 30 150 $m 20 • Prudent
Slide 4: Sustained capital generation
Challenger Group Half Year 31 December 2010 Sustained capital generation For personal use only Capital excess to regulatory requirements • Capital strength 1000 – Strong excess to 750 regulatory minimum maintained through the 500 $m cycle 250 • COE spread 0 2006 2007 2008 2009 2010 1H11 – Continued
Slide 5: Track record of sustained growth
Challenger Group Half Year 31 December 2010 Track record of sustained growth For personal use only Annual Sales of Guaranteed Products (bars represent sum of the four previous quarters) • Financial performance 1,400 underpinned by growth across 1,200 Institutional Sales (GIR) Retail Sales (GIP/GIF)
Slide 6: Five year scorecard
Challenger Group Half Year 31 December 2010 Five year scorecard For personal use only • Streamlined and focused business model • Differentiated and leading business strategy – leveraged to structural market changes • Double digit system growth, Challenger growing above system • Five years of: – Cons
Slide 7: Strategy for growth - phase one
For personal use only Strategy for growth - phase one 7
Slide 8: Drivers of structural growth
Challenger Group Half Year 31 December 2010 Drivers of structural growth For personal use only 8
Slide 9: Structural shift in asset allocations
Challenger Group Half Year 31 December 2010 Structural shift in asset allocations For personal use only Fixed interest allocation as a portion of Superannuation FUM • Australia is one of the most 4 Forecast total super assets equitised retirement markets 13% Assumed Fixed Income allocation 31% Assum
Slide 10: Developing a retirement income growth platform over past 18 months
Challenger Group Half Year 31 December 2010 Developing a retirement income For personal use only growth platform over past 18 months • 16 additional annuities specialists • Project 10,000 Distribution • Project Welcome Back • Process created to improve capture of maturing policies • Unitised / platf
Slide 11: Results are evident
Challenger Group Half Year 31 December 2010 Results are evident For personal use only • 1,000+ contacts per month – a threefold increase over 12 months • Active advisers increased 62% in 12 months Distribution • Project Welcome Back – 260 returning advisers • Retention tracking ~ 80% for > RCV 50 as
Slide 12: Accelerating retail sales
Challenger Group Half Year 31 December 2010 Accelerating retail sales For personal use only Line represents 400 ~30% CAGR 350 300 250 200 $m 150 100 50 0 Dec 04 Sep 05 Jun 06 Mar 07 Dec 07 Sep 08 Jun 09 Mar 10 Dec 10 12
Slide 13: Strategy for growth - phase two
For personal use only Strategy for growth - phase two 13
Slide 14: Further growth and expansion
Challenger Group Half Year 31 December 2010 Further growth and expansion For personal use only • New management structure to align functions • Review of alternative distribution channels for non-advised customers Distribution (e.g. SMSF) • Indepth market and portfolio origination analysis • White la
Slide 15: Marketing and building our brand
Challenger Group Half Year 31 December 2010 Marketing and building our brand For personal use only 15
Slide 16: Further progress on institutional solutions
Challenger Group Half Year 31 December 2010 Further progress on institutional solutions For personal use only • Institutional intermediary relationships have continued to grow in the last six months – First white label annuity product - creation of a tailored solution for an industry fund – Solution
Slide 17: Defining our market
Challenger Group Half Year 31 December 2010 Defining our market For personal use only Target market – retirement income • Primary target: – flow moving from accumulation to retirement each year – Rice Warner estimate this to be $47.7bn in 2010/11 – market expectations1 for growth in retirement flows
Slide 18: Importance of re-investment
Challenger Group Half Year 31 December 2010 Importance of re-investment For personal use only FY10 & 1H11 new business and re-investment • Analysis of our current Customer age - initial Customer book/flows: purchase age - reinvestment – Peak in new business is for the 62-66 year old demographic – Bu
Slide 19: Growth potential for our business
Challenger Group Half Year 31 December 2010 Growth potential for our business For personal use only Scenario 1 • New annuity sales 12.5% (underlying system growth) • No maturing policies are reinvested post 31 Dec 10 – customers only ever purchase a policy once (n.b current reinvestment is ~80%) 10
Slide 20: Growth potential for our business
Challenger Group Half Year 31 December 2010 Growth potential for our business For personal use only Scenario 2 • New annuity sales 12.5% (underlying system growth) • 75% of maturing policies are reinvested 10 year CAGR = 11% 20
Slide 21: Growth potential for our business
Challenger Group Half Year 31 December 2010 Growth potential for our business For personal use only Scenario 3 • New annuity sales 30% (current CAGR – reverting to 12.5% system over 10 years) • 75% of maturing policies are reinvested 10 year CAGR = 18% 21
Slide 22: Contemporary Funds Management business
Challenger Group Half Year 31 December 2010 Contemporary Funds Management For personal use only business Funds Business Management Structure Aligned Investment Boutique Partnerships Challenger owned and managed – may co-invest with third party Co-owned, separately branded institutional investors and
Slide 23: Aligned investment teams
Challenger Group Half Year 31 December 2010 Aligned investment teams For personal use only • Strong start in 1H11 – $700m of mandates awarded by significant industry and sovereign wealth funds. Assets continue to be identified and invested into these mandates – Ongoing product development around our
Slide 24: Ten boutique partnerships
Challenger Group Half Year 31 December 2010 Ten boutique partnerships For personal use only • All internally managed funds transitioned to Selected Fund Performance over 1 year boutique structure and completion of acquisition of CSAM business – Bentham 30% • Investors supporting boutiques with ‘inst
Slide 25: 1H11 Financial Results
For personal use only 1H11 Financial Results Brian Benari Group Chief Operating Officer & Chief Financial Officer 21 February 2011
Slide 26: Group financial performance
Challenger Group Half Year 31 December 2010 Group financial performance For personal use only Financial Performance % Mvt 300 50% Financial 1H11 1H10 1H10 to Trend 250 45% Performance 1H11 200 40% Assets Under $25.8bn $22.9bn 13% $m Management1 150 35% 100 30% Normalised Net Income $240m $207m 16%
Slide 27: Cost control across the Group
Challenger Group Half Year 31 December 2010 Cost control across the Group For personal use only • Cost to income ratio down Normalised cost to income ratio over time 3 percentage points to 60% 37%, despite continued business investment 55% Target • Reflects successful 50% Range of strategy of re-dep
Slide 28: Life financial performance
Life Funds Mgmt Half Year Ended 31 Dec 2010 Life financial performance For personal use only Financial Performance % Mvt 250 50% Financial 1H11 1H10 1H10 to Trend Performance 1H11 200 40% Average AUM – Life $7.6bn $6.0bn 27% 150 30% $m 100 20% Normalised Cash Operating Earnings $192m $154m 25% 5
Slide 29: Growth the primary driver to earnings
Life Funds Mgmt Half Year Ended 31 Dec 2010 Growth the primary driver to earnings For personal use only Illustrative - 5 year CAGR impacts to Life cash operating earnings COE Spread Growth Scenario 1 Growth Scenario 2 Growth Scenario 3 (cash operating Impact on COE Impact on COE Impact on COE earnin
Slide 30: Funds Management financial performance
Life Funds Mgmt Half Year Ended 31 Dec 2010 Funds Management financial performance For personal use only Financial Performance % Mvt 60 100% Financial 1H11 1H10 1H10 to Trend Performance 50 80% 1H11 40 60% $m Average Funds 30 Under Management $21.1bn $17.6bn 20% 20 40% 10 20% Net Income $45m $49m
Slide 31: Funds Management - earnings drivers
Life Funds Mgmt Half Year Ended 31 Dec 2010 Funds Management - earnings drivers For personal use only Performance & Transaction fees • Earnings significantly impacted 16 14 by reduced performance/ 12 transaction fees during the 10 period $m 8 6 • Boutiques have seen stellar 4 FUM growth during the p
Slide 32: Capital Management
Challenger Group Half Year 31 December 2010 Capital Management For personal use only Dividends – cents per share (cps) 10 50% • Interim dividend declared 8 40% • 7.0 cents per share, 6 30% unfranked 4 20% • Sustainable payout ratio and 2 10% dividend path maintained 0 0% • New share buyback of up to
Slide 33: Outlook
For personal use only Outlook Dominic Stevens Chief Executive Officer 23 August 2010
Slide 34: Outlook
Challenger Group Half Year 31 December 2010 Outlook For personal use only • Investment markets expected to offer attractive asset returns following a fundamental shift in debt margins • Underlying structural changes drive long term sales growth • Potential for deferred annuity product subject to rem
Slide 35: Disclaimer
For personal use only Disclaimer: The material in this presentation is general background information about Challenger Limited activities and is current at the date of the presentation. It is information given in summary form and does not purport to be complete. It is not intended to be relied upon