Slide 1: 1H13 Financial Results
For personal use only 1H 13 Financial Results Capital flexibility and tenor driving business value
Slide 2: Outline
Outline Half year 31 December 2012 Outline For personal use only Business performance Brian Benari Managing Director & Capital clarity and sales Chief Executive Officer Financial results Andrew Tobin Capital management Chief Financial Officer Strategy update Brian Benari Managing Director & Outlook
Slide 3: Key points
Key points Half year 31 December 2012 Key points Capital flexibility and tenor driving business value For personal use only 1 Strong operating performance Business and earnings growth with tight cost control 2 Capital management clarity Strong excess capital following LAGIC implementation 3 Life ret
Slide 4: Strong operating performance
Operating performance Half year 31 December 2012 Strong operating performance Business and earnings growth with tight cost control For personal use only • Performance − 1 Normalised NPAT up 17% to $149m − Underlying operating cashflow up to $151m − Statutory NPAT up to $222m − Normalised EPS up 11%
Slide 5: Capital management clarity
Capital management Half year 31 December 2012 Capital management clarity Strongly capitalised following LAGIC implementation For personal use only CLC excess regulatory capital and Group cash • LAGIC capital standards and transition finalised 1,200 1,000 • 1H13 excess capital based on 800 LAGIC stan
Slide 6: Capital management clarity: track record of funding growth
Capital management Half year 31 December 2012 Capital management clarity Track record of funding growth and active capital management For personal use only Dividends and normalised payout ratio • Interim dividend of 9.5 cps (unfranked), representing 10 35% − 17% increase in normalised 8 30% profit c
Slide 7: Life retail annuity sales
Life annuity sales Half year 31 December 2012 Life retail annuity sales Focused on tenor and creating long term business value For personal use only Life product retail annuity sales – tenor value (Tenor value represents policy tenor multiplied by policy face value) 5,000 6.5 6.0 4,000 5.5 3,000 5.0
Slide 8: Life retail annuity sales
Life annuity sales Half year 31 December 2012 Life retail annuity sales Focused on tenor and creating long term business value For personal use only Life product retail annuity sales – tenor value (Tenor value represents policy tenor multiplied by policy face value) 100% 80% 60% 40% 20% 0% 1H10 2H10
Slide 9: Retirees focused on risks in retirement
Life annuity sales Half year 31 December 2012 Life retail annuity sales Retirees focused on risks in retirement For personal use only Seniors priorities1 • National Seniors Association High priority Medium priority Low priority sentiment index shows, outside of 80% health, retirees focused on 60% −
Slide 10: Product features drive sales
Life annuity sales Half year 31 December 2012 Life retail annuity sales Product features drive sales For personal use only Retirees are risk adverse1 • Retirees are risk adverse and Guaranteed return equivalent to a variable return of -10% and +50% demanding more income and 80% capital certainty 60%
Slide 11: Financial Results - Andrew Tobin
For personal use only 1H 13 Financial Results Andrew Tobin Chief Financial Officer 28 February 2013
Slide 12: Group financial performance
Financial results Half year 31 December 2012 Group financial performance Growth in normalised NPAT and EPS For personal use only Financial Total Assets Under Management (AUM) 1H13 1H12 Change Trend performance 40 Assets Under $38.3bn $29.6bn 29% 30 Management $bn 20 Net income $274m $255m 7% 10 Expe
Slide 13: Life financial performance
Financial results Half year 31 December 2012 Life financial performance Significant AUM growth driving higher COE and EBIT For personal use only Average AUM and normalised COE Financial 1H13 1H12 Change Trend performance 11 250 200 10 AUM (average) $9.9bn $8.6bn 15% 150 $bn 9 $m 100 Normalised Cash
Slide 14: Life margins
Financial results Half year 31 December 2012 Life margins On track to achieve FY13 COE guidance of $440m to $450m For personal use only 1H13 change in Life COE margin • 1H13 Life COE of $225m 5.5% Cash earnings net 30 bps • Change in 1H13 Life cash earnings 0.3% (30 bps) due to 4.9% 5.0% − lower inf
Slide 15: Life net book growth
Financial results Half year 31 December 2012 Life net book growth Supported by continued investment in DPM For personal use only • Net book growth of Life retail net book growth 1 $213m (3%) achieved 2,500 1,000 in 1H13 2,000 583 800 1,500 600 • Reduced short term sales 468 213 500 1,000 400 partial
Slide 16: Life investment portfolio
Financial results Half year 31 December 2012 Life investment portfolio High quality generating sustainable cash flows For personal use only 31 December 2012 portfolio - $10.2bn • Portfolio weighted to fixed income, Equity and with allocation increasing over past Infrastructure 4% other 2% 5 years Pr
Slide 17: Life investment experience
Financial results Half year 31 December 2012 Life investment experience Stability in debt markets supported Investment Experience gains For personal use only Investment experience (pre tax) Australian iTraxx index 1H13 200 500 1H13 actual Normalised capital growth 150 400 100 300 $m 200 50 - 100 (50
Slide 18: Funds Management financial performance
Financial results Half year 31 December 2012 Funds Management financial performance Strong FUM growth translating into EBIT growth For personal use only FUM – average and spot Financial 1H13 1H12 Change Trend Performance 40 30 $bn FUM (average) $32.9bn $26.1bn 26% 20 10 Fidante Partners $19m $15m 27
Slide 19: Funds Management margins
Financial results Half year 31 December 2012 Funds Management margins Margins driven by FUM composition For personal use only Income margin • Fidante Partners income margin (bps) reflects 80 – improved economics from Boutiques 60 bps – higher portion of fixed income and 40 institutional business, re
Slide 20: Capital management
Capital management Half year 31 December 2012 Capital management Strongly capitalised and transitioned to LAGIC For personal use only $609m 31 Dec 2012 CLC excess CLC excess regulatory CLC regulatory capital LAGIC excess capital $1,943m before transition regulatory Group and Group transition balance
Slide 21: Capital management: strong capital position
Capital management Half year 31 December 2012 Capital management Strong capital position with financial flexibility For personal use only CLC subordinated debt amortisation profile • LAGIC transition confirmed by APRA − $108m pa increase in PCA for three 600 500 years commencing 1 January 2014 400 −
Slide 22: Strategy update and outlook
For personal use only Strategy update and outlook Brian Benari Chief Executive Officer 28 February 2013
Slide 23: Challenger Vision and Strategy
Strategy update Half year 31 December 2012 Challenger Vision and Strategy For personal use only Our Vision Provide Australians with financial security in retirement Our Strategy Our Strategy Our Strategy Increase the Australian Be recognised as the Be an active investment retirement savings pool lea
Slide 24: Leading the retirement incomes market
Strategy update Half year 31 December 2012 Leading the retirement incomes market Strategy executed by …. For personal use only Developing new innovative products Continuing to grow brand recognition 50 • Further rise in consumer brand and 40 product awareness 30 − 85%1 of advisers identify Challenge
Slide 25: Fund Manager with superior returns
Strategy update Half year 31 December 2012 Fund Manager with superior returns Strategy executed by …. For personal use only Achieving strong investment performance Attracting strong flows Investment performance - % of funds meeting or exceeding benchmark Source: Plan for Life 1 Year 15 72% 28% 10 3
Slide 26: Growth opportunities
Strategy update Half year 31 December 2012 Growth opportunities For personal use only Life Fidante Partners • Product innovation • Strong pipeline − Liquid Lifetime • Leveraged to rising equity markets − Care Annuity • Expand existing boutique offering − Deferred Lifetime Annuities • New boutiques f
Slide 27: Outlook
Outlook Half year 31 December 2012 Outlook Competitive advantage in attractive markets For personal use only Life • Continued focus on longer term product sales offering higher returns • Targeted FY13 retail net book growth of $500m (~8%) implying ~$2.1bn of sales • FY13 Life COE guidance of $440m t
Slide 28: Key points
Key points Half year 31 December 2012 Key points Capital flexibility and tenor driving business value For personal use only 1 Strong operating performance Business and earnings growth with tight cost control 2 Capital management clarity Strong excess capital following LAGIC implementation 3 Life ret
Slide 29: Appendix – additional background information
For personal use only Appendix – additional background information
Slide 30: Challenger business overview
Appendix Overview Challenger 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
Slide 31: Strong operating performance
Appendix Overview Strong operating performance Consistent earnings growth with tight cost control For personal use only Normalised NPAT, underlying operating cashflow and EPS Strong growth in profit and EPS 200 30 • Normalised net profit after tax is a proxy for 25 underlying cash generated by the b
Slide 32: Market opportunity
Appendix Overview Market opportunity Competitive advantage in attractive markets For personal use only Life Funds Management • Supportive • Growth underpinned by demographics mandated super system • Changing consumer • Contributions increasing Market opportunity risk preferences from 9% to 12% • Inc
Slide 33: Life – favourable operating environment
Appendix Life Life – favourable operating environment Leveraged by product innovation and distribution footprint For personal use only Projected superannuation assets 2010 to 20304 Favourable macro trends 7,000 • Australia has the largest pension market in Asia- 6,000 Pac and world’s 4th largest1 5,
Slide 34: Life – favourable operating environment
Appendix Life Life – favourable operating environment Leveraged by product innovation and distribution footprint For personal use only 1 Australia has a low allocation to fixed income equivalants Changes in risk preferences Australia • Australian allocation to bonds and fixed income United States lo
Slide 35: Life – favourable operating environment
Appendix Life Life – favourable operating environment Leveraging favourable operating environment to drive growth For personal use only Annual sales of guaranteed products Strong sales growth (represent sum of two previous half years) 2,500 • Since 1H09 retail annuity sales have grown by 2,000 33% C
Slide 36: Life products and distribution
Appendix Life Life products and distribution New innovative products and broad based distribution For personal use only Product Product categories Immediate Guaranteed Annuity Off platform and on • ~70% of annuity book is immediate annuities with annuities platform products with Guaranteed Income Pl
Slide 37: Annuity value proposition
Appendix Life Annuity value proposition Provides regular and dependable income in retirement For personal use only Annuities and portfolio construction – layering income Benefits of annuities • Provide security of knowing exactly how much regular income will be received in retirement Account based p
Slide 38: Life customer demographics
Appendix Life Life customer demographics Products aimed at investors seeking guaranteed cash flows For personal use only New business and reinvestment Annuitant key statistics • Average policy amount $178,000 Customer age – new business Customer age - reinvestment • Average new customer age 67 years
Slide 39: Life portfolio management
Appendix Life Life portfolio management Liabilities matched with high quality assets For personal use only Asset and liability matching Assets and liabilities matched • Assets and liabilities cashflow matched and Assets marked to market • Fixed income, property and infrastructure cashflows used to m
Slide 40: High quality fixed income portfolio
Appendix Life Life portfolio management High quality fixed income portfolio - $8.0bn For personal use only Fixed income portfolio by asset type Diversified fixed income portfolio Cash & Offshore equivalents • Portfolio diversified across a broad range asset backed 6% of industries, sectors, ratings
Slide 41: High quality fixed income portfolio
Appendix Life Life portfolio management High quality fixed income portfolio - $8.0bn For personal use only Fixed income portfolio – credit quality High quality fixed income portfolio 100% 85% • 30% cash and AAA rated 80% BBB • 85% investment grade 60% A • 82% externally rated, remainder rated using
Slide 42: Property portfolio
Appendix Life Life portfolio management Property – total portfolio $1.5bn For personal use only Property portfolio Conservative portfolio 60% Australian direct • Australian property portfolio at more conservative end of spectrum 40% − Properties directly held or jointly held with Challenger Diversif
Slide 43: Infrastructure portfolio
Appendix Life Life portfolio management Infrastructure – total portfolio $0.4bn For personal use only Infrastructure portfolio – 31 December 2012 Attractive asset class • Attractive asset class as generates reliable and Renewable Logistics 21% consistent cashflows which are inflation linked, 25% giv
Slide 44: Funds Management: attractive market
Appendix Funds Management Funds Management Attractive market with significant growth opportunities For personal use only OECD pension markets as % of GDP1 Attractive pension market Netherlands • Australia has the largest pension market in Iceland Asia-Pac and world’s 4th largest1 Switzerland Austral
Slide 45: Success of boutique model driving FUM growth
Appendix Funds Management Funds Management Success of boutique model driving superior FUM growth For personal use only Strong net cashflows Funds Management – net flows 3,000 • Fidante Partners history of delivering strong 2,000 positive flows 1,000 • Contemporary boutique model delivering superior
Slide 46: Fidante Partners model
Appendix Funds Management Fidante Partners model Contemporary with strong alignment of interests For personal use only Administration services Distribution services (Fidante • Asset consultant & researcher • Investment operations Partners relationships • Client operations provided) • Strategic posit
Slide 47: Fidante Partners co-owned boutiques
Appendix Funds Management Fidante Partners co-owned boutiques Diversification of manager and strategies For personal use only Boutique Investment date Asset class Aug 2010 Active investor in Australian equities, focused on undervalued companies with attractive growth potential Nov 2008 Long term, fu
Slide 48: Aligned Investments model
Appendix Funds Management Aligned Investments model Proven long term investment track record and capability For personal use only Institutional clients seeking absolute return strategies Focus Fixed Income Expertise in Asset Classes Real Estate • Relative value insights • Fixed income • Absolute ret
Slide 49: For personal use only
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 upon as advice t