Slide 1: FY14 Financial results – Moving up a gear
For personal use only FY14 Financial results Moving up a gear 20 August 2014 Year end 30 June 2014
Slide 2: Outline
Outline For personal use only Operating performance Brian Benari Performance scorecards Managing Director & CEO Financial results Andrew Tobin Capital management Chief Financial Officer Strategy update Brian Benari Outlook Managing Director & CEO Year end 30 June 2014 2
Slide 3: Highlights – Moving up a gear
Highlights Moving up a gear For personal use only 1. Operating performance Strong momentum with enhanced outlook 2. Growth opportunities Business evolution … moving up a gear to capture growth 3. Life Long term sales accelerating … evolving asset allocation 4. Funds Management Diversified, contempor
Slide 4: Operating performance
Operating performance Strong momentum with enhanced outlook For personal use only • Normalised EBIT up 6% to $388m • FY14 dividend up 30% to 26.0 cps Challenger • Normalised NPAT1 up 7% to $329m • Normalised RoE (pre tax) of 19% Group • Statutory NPAT1 of $341m • Growth outlook enhanced by policy se
Slide 5: Growth opportunities
Growth opportunities Business evolution … moving up a gear to capture growth For personal use only 3,000 2014 – 2018 Market opportunity $107bn 2,500 • Annuities on key platforms • Retirement income models • Bendzulla & SMSF opportunity 2,000 • Aged Care reforms – 1 July 2014 $m • Regulatory 1,500 20
Slide 6: Life scorecard
Life scorecard Long term sales accelerating ... evolving asset allocation For personal use only 1 Projected super assets 2013 to 2024 ($bn) • 4 fold increase in post retirement assets over next 10yrs1 4,000 Operating • Retiree demand driving sales growth 2,000 environment • Strong retirement income
Slide 7: Funds Management scorecard
Funds Management scorecard Diversified, contemporary and scalable business For personal use only 1 FUM - multiple managers and strategies • Mandated super system with contributions increasing Alternatives $5.7bn Aust. equities Operating 3 mangers $15.4bn • ~$50bn of FUM - multiple asset classes & ma
Slide 8: Customer scorecard
Customer scorecard Distribution, product and marketing … a core strength For personal use only 1 Challenger – leader in retirement incomes 89% • Bendzulla acquisition provides SMSF opportunity 64% 85% 85% Distribution • Wealth Insights Adviser Satisfaction #12 and BDMs #12 62% 58% 58% 58% • Leader i
Slide 9: Shareholder scorecard
Shareholder scorecard Sustainable growth increasing shareholder returns For personal use only EPS growth 1.8 • Normalised NPAT up 50% & EPS up 63% over 5 years 1.6 Performance 1.4 • Revenue up 60% & expenses up only 10% over 5 years 1.2 metrics 1.0 • Total AUM tripled over 5 years 0.8 FY09 FY10 FY11
Slide 10: FY14 Financial results – Andrew Tobin, CFO
For personal use only FY14 Financial results Andrew Tobin Chief Financial Officer 20 August 2014 Year end 30 June 2014
Slide 11: Group financial performance
Group financial performance Earnings benefiting from AUM growth and scalable platform For personal use only Financial performance - $m FY14 FY13 Change Movement in normalised NPAT ($m) 350 9 Life 404 382 6% 22 (8) (3) Funds Management 43 34 26% 300 Corporate (59) (51) 16% 309 329 Normalised EBIT 388
Slide 12: Life financial performance
Life financial performance AUM growth with stable margin driving higher COE For personal use only Financial performance - $m FY14 FY13 Change Movement in Life EBIT ($m) 500 Normalised COE 481 452 6% 29 400 (7) Expenses (77) (70) 10% 300 Life EBIT 404 382 6% 200 382 404 100 Investment experience 12 1
Slide 13: Life margins
Life margins COE margin stable year on year For personal use only Change in Life product cash margin FY14 Life COE margin 4.5% - unchanged 4.0% • Product cash margin (-30 bps) 0.2% 0.1% 3.0% 0.1% – lower return on assets (including NIM run-off), (0.7%) partially offset by lower annuity funding costs
Slide 14: Retail annuity sales
Life retail annuity sales Sales growing strongly and creating long term business value For personal use only Retail annuity sales ($m) Record retail annuity sales 3,000 • Continuing to grow strongly 22% – FY14 sales $2.8bn, up 28% 2,000 2% 12% • Sales mix continuing to shift to longer 78% tenor busi
Slide 15: Net book growth
Life net book growth Benefiting from sales and longer tenor For personal use only Life retail net flows ($m) Retail 3,000 598 887 1,000 583 • FY14 retail net flows of $887m 2,000 500 – record retail sales of $2.8bn 1,000 – excludes maturity of High Yield Fund - - annuity ($284m) (1,000) (500) • Net
Slide 16: Investment portfolio
Life investment portfolio High quality cash flow matched portfolio For personal use only Life investment portfolio - $11.1bn • Asset allocation impacted by 100% – longer tenor sales 16% 16% 80% 20% – relative value 60% • Diversified fixed income portfolio 40% – 80% investment grade 76% 76% 72% – mai
Slide 17: Investment experience
Life investment experience Fixed income gains offset by property acquisition costs For personal use only • Actual capital growth of $74m exceeds Investment Experience (pre tax) normalised capital growth of $56m, resulting in 80 positive investment experience of +$18m 40 • Fixed income (+$69m) benefi
Slide 18: Life Risk
Life Risk Opportunity to diversify earnings and enhance RoE For personal use only Strategic rationale & capability Transactions completed • Provides income and capital diversification • Reinsurance (no asset risk) • RoE accretive transactions ‒ UK/European longevity and mortality • Core Life insuran
Slide 19: Funds Management financial performance
Funds Management financial performance FUM growth and scale benefits driving earnings and RoE For personal use only Financial performance - $m FY14 FY13 Change Movement in Funds Management EBIT ($m) 60 Fidante Partners net income 65 48 35% 17 CIP1 net income 45 51 (12%) 40 (6) (2) Total net income 1
Slide 20: Funds Management
Funds Management Benefiting from strong FUM growth For personal use only Fidante Partners Fidante Partners – FUM movements ($bn) • FUM up 21% (+$6bn), average FUM up 36% 40 3.7 35.9 • Net fee income up 35% ($17m) 29.8 3.5 30 – performance fees up $7m to $19m (1.1) 54% 49% 20 – growth in FUM with cha
Slide 21: Capital management
Capital management Strong capital position with financial flexibility For personal use only Strongly capitalised CLC excess regulatory capital and Group cash • 30 June 2014 excess capital 1,200 – CLC excess capital and Group cash of $1,044m 1 800 (including LAGIC transition of $215m) $m – CLC PCA ra
Slide 22: Capital management
Capital management Strengthening capital to support higher growth opportunities For personal use only CLC excess regulatory capital 2 & Group cash (increases by $0.5bn) • $250m underwritten institutional placement 1 Equity • Placement not eligible for FY14 final dividend 1,600 placement • Continue t
Slide 23: Capital management – Increasing dividend and payout ratio
Capital management Increasing dividend and payout ratio For personal use only Dividends Dividend and normalised payout ratio • 2H14 dividend up 29% to 13.5 cps 30 55% – payout ratio up from 34% to 42% – 40% franked • FY14 dividend up 30% to 26.0 cps 20 45% cps – payout ratio up from 34% to 41% – 21%
Slide 24: Strategy update and outlook
For personal use only Strategy update and outlook Brian Benari Chief Executive Officer 20 August 2014 Year end 30 June 2014
Slide 25: Growth – Diversify and leverage retirement income opportunities
Life growth Diversify and leverage retirement income opportunities For personal use only Annuities on platform – retail and industry funds Distribution Embed retirement income models in key platforms Reposition Bendzulla as SMSF retirement specialist SMSF Cash Flow Manager product Product Care Annui
Slide 26: Policy settings
Policy settings Strong retirement income focus in multiple policy forums For personal use only Financial System Inquiry (Murray)1 – final report November 2014 Financial System Inquiry interim report - extract • ‘Australia only developed nation with mandated retirement system and no decumulation stru
Slide 27: Funds Management growth
Funds Management growth Capitalise domestically and increasing global offerings For personal use only Net fee income and expenses (growth since FY12) 1.4 Contemporary model with growth opportunities 1.2 Funds Over 2 years net income up 33% & expenses up 8% 1.0 Management Scale benefiting RoE and cos
Slide 28: Outlook
Outlook Attractive markets with positive regulatory settings For personal use only • FY15 retail book targeted to grow by between 12% - 14% Life • FY15 COE guidance range $535m - $545m1 • Leverage existing capacity Funds Management • Attracting new boutiques – including global offerings • FY15 cost
Slide 29: Highlights – Moving up a gear
Highlights Moving up a gear For personal use only 1. Operating performance Strong momentum with enhanced outlook 2. Growth opportunities Business evolution … moving up a gear to capture growth 3. Life Long term sales accelerating … evolving asset allocation 4. Funds Management Diversified, contempor
Slide 30: Appendix
For personal use only Appendix additional background information Year end 30 June 2014
Slide 31: Our vision and strategy
Our vision and strategy Providing financial security in retirement For personal use only Vision Provide Australians with financial security in retirement Strategies Increase the Australian Be recognised as the Be an active investment retirement savings pool leader in retirement manager providing all
Slide 32: Business overview
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 branded active fixed income a
Slide 33: Market opportunity
Market opportunity Competitive advantage with favourable policy settings For personal use only Life Funds Management Supportive demographics Mandated superannuation system Over 65’s to increase by 75% in next 20 years 1 Growth underpinned by mandatory contributions Market Consumer risk preferences C
Slide 34: Strong operating performance
Strong operating performance Track record of earnings growth with tight cost control For personal use only Normalised NPAT, underlying operating cash flow Strong profit and EPS growth and EPS • Normalised NPAT 350 70 300 60 – is a proxy for underlying cash generated 250 50 – is used to determine div
Slide 35: Favourable operating environment
Favourable operating environment Attractive markets leveraged by distribution footprint For personal use only Favourable macro trends Projected superannuation assets 2014 to 20243 • Australia has the largest pension market in 4,000 Asia-Pacific and world’s 5th largest1 3,000 • Pension assets of $1.8
Slide 36: Australian superannuation system
Favourable operating environment Australian superannuation system For personal use only Worlds 5th largest pension market1 Australian superannuation system - $1.8 trillion2 • Superannuation guarantee system Corporate 4% implemented in 1992 Industry 25% – initial contribution rate 3% of gross salary
Slide 37: Financial System Inquiry (FSI)
Favourable policy settings Financial System Inquiry (FSI) For personal use only FSI interim report – retirement income policy options1 FSI – interim report findings • FSI to lay out 'blueprint' for Australia’s financial system over next decade • Australia only developed nation with mandated retireme
Slide 38: Federal Treasury – Retirement incomes review
Favourable policy settings Federal Treasury – Retirement incomes review1 For personal use only Longevity risk underestimated2 Retirement incomes extract from FSI Interim Report • Federal Government is completing a review of retirement incomes • Government identified retirees are looking for better o
Slide 39: Favourable operating environment
Life – favourable operating environment Leveraged by product innovation and distribution footprint For personal use only Changes in risk preferences Australia has a low allocation to fixed income equivalants1 • Australian allocation to bonds and fixed income Australia United States lowest in OECD at
Slide 40: Distribution and products
Life - distribution and products Broad based distribution and innovative products For personal use only Distribution Product categories • Challenger products represented on Fixed term Guaranteed Annuity On/off platform products with approved product lists of all major hubs annuities Guaranteed Incom
Slide 41: Innovative products
Life – innovative products Liquid Lifetime and Care Annuity driving long term sales For personal use only Liquid Lifetime example1 Liquid Lifetime Annuity Male aged 65, $100,000 invested $120,000 $7,000 Provides a solution for retirees’ longevity, market and $100,000 inflation risks $80,000 $6,000 •
Slide 42: Annuity value proposition
Life - annuity value proposition Provides regular and dependable income in retirement For personal use only Annuities and portfolio construction – income layering Benefits of annuities • Provides guaranteed regular income and supports layering which improves retirement outcomes Account based pension
Slide 43: Retail annuity sales
Life - retail annuity sales Leveraging favourable operating environment For personal use only Sales growth Life – retail annuity sales and retail net flows ($m) • Since FY10 retail annuity sales have 3,200 1,000 grown by 32% CAGR 2,400 750 • Annuity sales growth underpinned by – favourable macro tre
Slide 44: Retirees focused on risks in retirement
Life - retail annuity sales Retirees focused on risks in retirement For personal use only 1 Seniors priorities1 Senior Sentiment Index High Medium Low • Shows, outside of health, retirees focused on Priority Priority Priority 80% – longevity risk 60% – peace of mind from regular and dependable % of
Slide 45: Lifetime annuities address retiree needs
Life - what retirees want Lifetime annuities address retiree needs For personal use only Top retiree preferences Lifetime annuity product features 1 Financial strength of provider Issued by regulated Life Company with capital reserves S&P “A” rated 2 Ability to access funds Liquidity feature r
Slide 46: Customer demographics
Life - customer demographics Products aimed at investors seeking guaranteed cash flows For personal use only Average annuitant policy size ($) FY14 annuitant key statistics 220,000 • Average policy amount $206,000 • Average new customer age 67 years 200,000 • Average tenor of new business 6.4 years
Slide 47: Strong risk management framework
Life - portfolio management Strong risk management framework For personal use only Assets and liabilities are cash flow matched Assets and liabilities are matched • Assets deliver contracted cash flows to Assets match liabilities • Locking in COE over term as business Liabilities is written Fixed in
Slide 48: Liabilities matched with high quality assets
Life - portfolio management Liabilities matched with high quality assets For personal use only 30 June 2014 investment portfolio Investment portfolio - $11.1bn Equities • Highly diversified portfolio managed within Infrastructure and other 3% comprehensive limit structure 5% – asset allocation evolv
Slide 49: High quality fixed income portfolio
Life - portfolio management High quality fixed income portfolio - $8.0bn For personal use only Fixed income portfolio - by asset type Diversified fixed income portfolio • Portfolio diversified across a broad range of Offshore asset backed securities, Cash & equivalents, 15% 16% sectors, geographies
Slide 50: Asset backed securities portfolio
Life - portfolio management Asset backed securities portfolio - $3.5bn For personal use only Asset Backed Securities - $3.5bn Asset Backed Securities (ABS) Senior secured NIM Notes, • 44% of fixed income portfolio loan securitisation, 5% 14% – 80% investment grade – 76% externally rated • Domestic a
Slide 51: Corporate credit portfolio
Life - portfolio management Corporate credit portfolio - $3.1bn For personal use only Corporate credit - $3.1bn Corporate credit • 40% of fixed income portfolio Commercial Real Estate Lending, – 75% investment grade 16% Infrastructure Debt, – 73% externally rated 34% • Domestic and offshore assets S
Slide 52: Conservative property portfolio
Life - portfolio management Conservative property portfolio - $2.2bn For personal use only Property portfolio • >75% of portfolio invested in Australian assets 40% • Conservative Australian property portfolio – 60% of tenants investment grade 30% – 83% of leases have fixed or CPI increases 20% – WAL
Slide 53: Diversified infrastructure portfolio
Life - portfolio management Diversified infrastructure portfolio - $0.6bn For personal use only Infrastructure portfolio – 30 June 2014 Attractive asset class • Generates reliable and consistent cash flows Renewable 20% Logistics 21% • Cash flows inflation linked Power • Giving rise to sustainable i
Slide 54: Bendzulla Actuarial acquisition
Life - Bendzulla Actuarial acquisition Opportunity to access high growth SMSF market For personal use only Business model • SMSFs require an actuarial certificate when one member is in retirement and one in accumulation 1 • Leading provider of SMSF actuarial certificates with ~60% market share − pro
Slide 55: Funds Management – multi boutique model
Funds Management (FM) Success of multi boutique model driving superior FUM growth For personal use only Funds Management – net flows ($m) Strong net flows 8,000 • History of providing strong positive flows 6,000 • Net flows driven by 4,000 – alignment with investor interests 2,000 – institutional op
Slide 56: Multiple brands and strategies
FM - multiple brands and strategies Scalable and diversified - 16 managers with ~$50bn1 of FUM For personal use only Australian Equities - A$15.4bn Global Equities A$1.1bn Multiple brands & strategies Challenger Investment Partners Alternatives A$8.7bn Fixed Income A$24.9bn Year end 30 June 2014 1.
Slide 57: Fidante Partners
FM - Fidante Partners Contemporary model with strong alignment of interests For personal use only Administration services Distribution services • Investment operations • Asset consultant & researcher • Client operations relationships • Compliance Administration Distribution • Strategic positioning (
Slide 58: Significant manager capacity
FM - significant manager capacity >$50bn of existing manager capacity underwrites future growth For personal use only 10 + • $36bn of capacity added in FY14 8 • Driven by 6 Remaining manager – adding new strategies $bn capacity – adding 5 new managers 4 FUM • Strong flows maintained 2 Australian Glo
Slide 59: Fidante Partners boutiques
FM - Fidante Partners boutiques Diversification of managers and strategies For personal use only Investment Investment Boutique Asset class Boutique Asset class date date Aug 2010 Australian equities (value and growth) May 2012 Asian and Greater China equities Nov 2008 Australian inflation linked bo
Slide 60: Challenger Investment Partners (CIP)
FM – Challenger Investment Partners (CIP) Proven long term investment track record and capability For personal use only Institutional clients seeking absolute return strategies Focus Expertise in asset classes • Investment professionals look • Real estate for relative value • Fixed income − risk adj
Slide 61: 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